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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-3252
LEXINGTON PRECISION CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 22-1830121
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
767 THIRD AVENUE, NEW YORK, NY 10017
(ADDRESS OF PRINCIPAL EXECUTIVE 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, $.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 February 29, 1996 was approximately $3,719,000.
The number of shares outstanding of the registrant's common stock as of
February 29, 1996 was 4,228,036.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement to be issued in connection with
its 1996 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . 7
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . 22
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . 45
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . 45
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . 45
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . . . 46
3
PART I
ITEM 1. BUSINESS
Lexington Precision Corporation ("LPC") is a Delaware corporation which
was incorporated in 1966. Unless the context otherwise requires, all references
herein to the "Company" are to LPC and its wholly-owned subsidiary, Lexington
Components, Inc. ("LCI"). Through its two business segments, the Rubber Group
and the Metals Group, the Company manufactures, to customer specifications,
rubber and metal component parts used primarily by manufacturers of
automobiles, automotive replacement parts, industrial equipment, computers,
office equipment, medical devices and home appliances. The Company's business
is conducted primarily in the continental United States.
RUBBER GROUP
The Company's Rubber Group manufactures silicone and organic rubber
components. The Rubber Group currently conducts its business through three
divisions of LCI, the Precision Seals Division, the Electrical Insulator
Division and Lexington Medical, and through a division of LPC, Lexington
Manufacturing.
PRECISION SEALS DIVISION. The Precision Seals Division manufactures
molded rubber seals used in primary wire-harnesses for automobiles and trucks.
Primary wire-harnesses distribute electrical power to interior and exterior
lighting fixtures, electrically powered accessories and other electrical
equipment. The seals are designed to assure the integrity of the many
connections which are required throughout the harnesses. The seals are generic
in nature. A particular seal may be used in a number of connectors within a
harness and in a variety of car models produced by several different car
manufacturers. The Precision Seals Division's largest customer is Delphi
Packard Electric Systems, a division of General Motors Corporation ("Delphi
Packard Electric").
ELECTRICAL INSULATOR DIVISION. The Electrical Insulator Division
manufactures molded rubber insulators used in ignition-wire-harnesses for
automobiles and trucks. Insulators are used to shield the electrical
connections made by the ignition-wire at the distributor and at the spark plug.
Approximately 33% of the insulators manufactured by the Electrical Insulator
Division are used in harnesses for new vehicles, primarily those manufactured
by Ford Motor Company and Chrysler Corporation, and approximately 67% are used
in replacement harnesses.
LEXINGTON MEDICAL. Lexington Medical manufactures molded rubber
components which are used in a variety of medical devices, such as intravenous
feeding systems, syringes, laparoscopic instruments and catheters.
LEXINGTON MANUFACTURING. Lexington Manufacturing manufactures rubber
molds which are sold to customers of the other divisions of the Rubber Group
and are used by the other divisions to produce components. Lexington
Manufacturing also provides engineering support to the other divisions of the
Rubber Group.
During 1995, the Company sold the Rubber Group's Extruded and Lathe-Cut
Products Division. The former Division manufactured extruded rubber components
used primarily by manufacturers of industrial equipment, lighting products and
home appliances.
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METALS GROUP
The Company's Metals Group manufactures metal components. The Metals
Group conducts its business through Falconer Die Casting Company ("Falconer")
and Ness Precision Products ("Ness"), both of which are divisions of LPC.
FALCONER DIE CASTING COMPANY. Falconer manufactures aluminum,
magnesium and zinc die castings used primarily by manufacturers of computers,
office equipment, recreational equipment, communications equipment, industrial
equipment and automobiles. Many of the die castings produced by Falconer are
also machined by Falconer using computer-controlled machining centers and other
secondary machining equipment.
NESS PRECISION PRODUCTS. Ness produces machined aluminum, brass and
steel components used primarily by manufacturers of automobiles, home
appliances, office equipment, communications equipment and industrial
equipment. In 1995, approximately 38% of the revenues of Ness were generated
by sales of components for automotive air bag inflators.
PRINCIPAL END USES FOR THE COMPANY'S PRODUCTS
The following table summarizes net sales of the Company during 1995,
1994 and 1993 by the type of product in which the Company's components were
utilized (dollar amounts in thousands):
1995 1994 1993
------------------ ---------------- -----------------
Automobiles and light trucks $ 68,083 65.3% $53,005 59.9% $45,223 60.3%
Industrial equipment 10,916 10.5 9,639 10.9 6,724 9.0
Computers and office equipment 8,670 8.3 6,835 7.7 5,406 7.2
Medical devices 6,973 6.7 5,959 6.7 4,576 6.1
Recreational equipment and
home appliances 6,154 5.9 8,710 9.8 7,626 10.2
Other 3,502 3.3 4,384 5.0 5,421 7.2
-------- ----- ------- ----- ------- -----
$104,298 100.0% $88,532 100.0% $74,976 100.0%
======== ===== ======= ===== ======= =====
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The following table summarizes net sales of the Rubber Group and the
Metals Group during 1995, 1994 and 1993 by the type of product in which the
Company's components were utilized (dollar amounts in thousands):
1995 1994 1993
---------------- ---------------- ----------------
Rubber Group:
Automobiles and light trucks $53,734 86.2% $37,584 80.2% $32,761 81.1%
Medical devices 6,577 10.6 5,536 11.8 3,946 9.8
Other 1,991 3.2 3,748 8.0 3,681 9.1
------- ----- ------- ----- ------- -----
$62,302 100.0% $46,868 100.0% $40,388 100.0%
======= ===== ======= ===== ======= =====
Metals Group:
Automobiles and light trucks $14,349 34.2% $15,421 37.0% $12,452 36.0%
Industrial equipment 10,581 25.2 9,083 21.8 6,207 17.9
Computers and office equipment 8,655 20.6 6,800 16.3 5,351 15.5
Recreational equipment and
home appliances 5,733 13.6 7,871 18.9 6,712 19.4
Other 2,678 6.4 2,489 6.0 3,866 11.2
------- ----- ------- ----- ------- -----
$41,996 100.0% $41,664 100.0% $34,588 100.0%
======= ===== ======= ===== ======= =====
(For additional information concerning the Rubber Group and the Metals
Group, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in Part II, Item 7, and Note 11 to the consolidated
financial statements in Part II, Item 8.)
MARKETING AND SALES
The marketing and sales effort within the Rubber Group is carried out by
management personnel and internal sales personnel. The marketing and sales
effort within the Metals Group is carried out by management personnel, internal
sales personnel and independent sales representatives.
RAW MATERIALS
Each of the principal raw materials used by the Company is available at
competitive prices from several major manufacturers. All raw materials have
been readily available and the Company does not foresee any significant
shortages.
SEASONAL VARIATIONS
The Company's business generally is not subject to significant seasonal
variations.
MAJOR CUSTOMERS
During 1995, 1994 and 1993, net sales to the largest customer of the
Rubber Group, Delphi Packard Electric, accounted for 22.5%, 20.6% and 22.3%,
respectively, of the Company's total net sales. Net sales to the second largest
customer of the Rubber Group accounted for 6.8%, 6.1% and 5.1%, respectively, of
the
-3-
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Company's total net sales. Net sales to the largest customer of the Metals
Group, TRW Vehicle Safety Systems, Inc. ("TRW VSSI"), accounted for 8.1%, 13.0%
and 11.8%, respectively, of the Company's total net sales. Loss of a
significant amount of business from the Company's three largest customers, as a
group, would have a material adverse effect on the business of the Company if
such business were not replaced by additional business from existing or new
customers. (See also "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources -
Dependence on Large Customers" in Part II, Item 7.)
BACKLOG
The Company's backlog of customer orders includes orders which have
scheduled shipping dates and orders which do not have scheduled shipping dates
but which, based upon historical experience, the Company anticipates will be
produced and shipped within one year. Orders included in such backlog may be
subject to cancellation or postponement by customers; however, based upon past
experience, the Company expects to ship during 1996 substantially all of the
orders which were included in the backlog at December 31, 1995. The Company
believes that its order backlog is not necessarily indicative of future net
sales levels. The following table sets forth the backlog of orders for the
Rubber Group and the Metals Group at December 31, 1995 and 1994 (dollar amounts
in thousands):
DECEMBER 31,
-------------------
1995 1994
---- ----
Rubber Group $13,566 $ 7,976
Metals Group 15,370 19,057
------- -------
$28,936 $27,033
======= =======
COMPETITION
The Company competes for business primarily on the basis of quality,
service, technical and engineering capabilities 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 those of the Company. Additionally, some of the
Company's customers have captive manufacturing operations which compete with
the Company.
PRODUCT LIABILITY RISKS
The Company is subject to potential product liability risks which are
inherent in the manufacture and sale of component parts. Although there have
been no claims made to date against the Company which the Company believes will
have a material adverse effect upon its financial position, there can be no
assurance that any existing claims or any claims made in the future will not
have a material adverse effect upon the financial position of the Company.
Although the Company maintains insurance coverage for product liability, there
can be no assurance that, in the event of a claim, such insurance coverage
would automatically apply or that, in the event of an award arising out of a
claim, the amount of such insurance coverage would be sufficient to satisfy the
award.
ENVIRONMENTAL COMPLIANCE
The Company's operations are subject to numerous federal, state and
local laws and regulations controlling the discharge of materials into the
environment or otherwise relating to the protection of the
-4-
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environment. Although the Company continues to make expenditures for the
protection of the environment, compliance with federal, state and local
environmental regulations has not had a significant impact on the capital
spending requirements, earnings or competitive position of the Company. There
can be no assurance that changes in environmental laws and regulations, or the
interpretation or enforcement thereof, will not require material expenditures by
the Company in the future. (See also "Legal Proceedings" in Part I, Item 3.)
EMPLOYEES
The following table shows the number of employees at the Rubber Group,
the Metals Group and the Corporate Office at December 31, 1995:
DECEMBER 31,
1995
------------
Rubber Group 568
Metals Group 558
Corporate Office 5
-----
1,131
=====
At December 31, 1995, thirty-four hourly workers at one plant location
within the Rubber Group were subject to a collective bargaining agreement. The
Company believes that its employee relations are generally good.
-5-
8
ITEM 2. PROPERTIES
At December 31, 1995, the Company conducted its operations at eight
manufacturing plants. In 1995, the Company acquired real estate in North
Canton, Ohio, and commenced construction of an additional manufacturing
facility. Production is expected to commence at the new facility during the
second quarter of 1996. In addition, in 1995, the Company sold a manufacturing
facility in Blue Ridge, Georgia. The following table shows the location and
square footage of each of the properties of the Rubber Group, the Metals Group
and the Corporate Office at December 31, 1995:
SQUARE
LOCATION FEET
------------------- --------
Rubber Group:
Precision Seals Division Vienna, OH 60,000(1)
Precision Seals Division LaGrange, GA 77,000(1)
Electrical Insulator Division Jasper, GA 91,000(2)
Lexington Medical Rock Hill, SC 60,000(1)
Lexington Manufacturing North Canton, OH 41,000(1)(3)
--------
329,000
--------
Metals Group:
Falconer Lakewood, NY 91,000(1)(4)
Falconer Manchester, NY 21,000
Ness Rochester, NY 60,000(1)(5)
Ness Casa Grande, AZ 26,000(1)
--------
198,000
--------
Corporate Office:
Executive Offices New York, NY 3,000(6)
Administrative Offices Cleveland, OH 3,000(7)
--------
6,000
--------
533,000
========
[FN]
(1) Encumbered by mortgage.
(2) Includes a 26,000 square foot addition, which was under
construction at December 31, 1995. The addition was completed in
the first quarter of 1996.
(3) Under construction at December 31, 1995. The Company expects
this facility to be completed during the second quarter of 1996.
(4) Includes a 30,000 square foot addition, which was under
construction at December 31, 1995. The Company expects the
addition to be completed during the second quarter of 1996. This
facility is leased from an industrial development authority
pursuant to a lease which expires in 2006 and provides the
Company with an option to purchase the facility for nominal
consideration.
(5) Leased from an industrial development authority pursuant to a
lease which expires in 2000 and provides the Company with an
option to purchase the facility for nominal consideration.
(6) Provided to the Company by an affiliate pursuant to arrangements
under which the Company reimburses the affiliate for a portion of
the cost relating to the space.
(7) Leased.
-6-
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All of the plants are well maintained, general manufacturing facilities
which are suitable for the Company's operations. The Company believes that,
except for Ness, which generally is operating near capacity, all of the
operating companies have facilities which are adequate to meet significant
increases in the demand for their products.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to certain legal actions arising in the ordinary
course of its business, including actions naming the Company as a potentially
responsible party or as a third-party defendant in cost recovery actions
initiated pursuant to environmental laws. Based upon the information presently
available to the Company, the Company believes that the ultimate outcome of
these actions will not have a material adverse effect upon its financial
position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of 1995.
-7-
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock, held by approximately 1,100 holders of
record as of February 29, 1996, is traded in the over-the-counter market.
Trading of shares of the Company's common stock is limited. No reliable
trading data for the Company's common stock was publicly available for the
period January 1, 1993 through April 7, 1994. Since April 8, 1994, trading
information has been available from the OTC Bulletin Board provided by the
National Association of Securities Dealers (NASD). The following table sets
forth selling prices of the Company's common stock as reported by the OTC
Bulletin Board:
SELLING PRICES
--------------------------
PERIOD HIGH LOW
-------------------- ----------- ----------
4/8/94 - 6/30/94 $3.00 $1.50
7/1/94 - 9/30/94 $2.50 $1.50
10/1/94 - 12/31/94 $2.50 $1.50
1/1/95 - 3/31/95 $2.375 $1.25
4/1/95 - 6/30/95 $3.25 $1.50
7/1/95 - 9/30/95 $3.125 $2.00
10/1/95 - 12/31/95 $3.75 $2.50
The Company is not able to determine whether or not retail mark-ups,
mark-downs or commissions were included in the above prices. The Company
believes that five brokerage firms currently make a market in the Company's
common stock, although both bid and asked quotations may at times be limited.
No dividends have been paid on the Company's common stock since 1979.
The future payment of dividends is dependent upon, among other things, the
earnings and capital requirements of the Company. The agreements pursuant to
which certain of the Company's indebtedness is outstanding, and the terms of
the Company's preferred stock, contain provisions limiting the Company's
ability to make dividend payments on its common stock. The most restrictive of
such provisions would have permitted the Company to pay $3,495,000 of dividends
on its common stock at December 31, 1995. (See also Notes 6 and 7 to the
consolidated financial statements in Part II, Item 8.)
The Board of Directors intends, for the foreseeable future, to follow a
policy of retaining the Company's earnings in order to reduce the indebtedness
of the Company and finance the development and expansion of its business.
-8-
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ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data of
the Company as of and for each of the years in the five-year period ended
December 31, 1995 (dollar amounts in thousands, except per share amounts). The
financial data set forth below has been taken from the consolidated financial
statements of the Company, which have been audited by Ernst & Young LLP,
independent certified public accountants. The information set forth below is
not necessarily indicative of the results of future operations and should be
read in conjunction with, and are qualified by, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in Part II, Item 7
and the consolidated financial statements in Part II, Item 8.
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
SELECTED STATEMENTS OF OPERATIONS DATA:
Net sales $104,298 $88,532 $74,976 $65,201 $65,180
======== ======= ======= ======= =======
Income from continuing operations (1) $ 9,657 $ 8,102 $ 6,347 $ 548 $ 3,965
Interest expense 7,585 6,272 5,496 5,041 5,867
Other income/(expense), net 641 536 - - (56)
Provision/(credits) for income taxes 425 34 - - (396)
-------- ------- ------- ------- -------
Income/(loss) before discontinued operations
and extraordinary item 2,288 2,332 851 (4,493) (1,562)
Loss from discontinued operations - - - - (209)
Extraordinary item (2) - - - - 978
-------- ------- ------- ------- -------
Net income/(loss) $ 2,288 $ 2,332 $ 851 $(4,493) $ (793)
======== ======= ======= ======= =======
Per fully diluted share of common stock (3):
Income/(loss) before discontinued operations
and extraordinary item $ .49 $ .51 $ .13 $ (1.11) $ (.39)
Discontinued operations - - - - (.05)
Extraordinary item - - - - .24
-------- ------- ------- ------- -------
Net income/(loss) $ .49 $ .51 $ .13 $ (1.11) $ (.20)
======== ======= ======= ======= =======
(Footnotes on following page) (Continued)
- 9 -
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ITEM 6. SELECTED FINANCIAL DATA (CONTINUED)
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
OTHER DATA:
Average number of employees 1,147 968 860 883 905
Depreciation and amortization expenses $ 6,449 $ 5,060 $ 4,297 $ 5,050 $ 5,216
Capital expenditures $ 17,902 $ 15,319 $ 6,288 $ 2,235 $ 613
DECEMBER 31,
--------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
SELECTED BALANCE SHEET DATA:
Current assets $ 24,478 $ 22,752 $ 15,715 $ 14,257 $ 15,211
Current liabilities (4) 29,253 24,330 12,733 51,224 50,940
--------- ---------- --------- ---------- ---------
Net working capital/(deficit) $ (4,775) $ (1,578) $ 2,982 $ (36,967) $ (35,729)
========= ========== ========= ========== =========
Total assets $ 81,876 $ 67,396 $ 49,983 $ 45,584 $ 50,978
Long-term debt, excluding current portion (4) $ 56,033 $ 49,627 $ 46,273 $ 3,795 $ 5,013
Redeemable preferred stock at par value $ 510 $ 555 $ 600 $ 735 $ 735
Total stockholders' deficit $ (4,976) $ (7,215) $ (9,623) $ (10,170) $ (5,710)
[FN]
(1) In 1992, income from continuing operations included charges of $1,113,000
for the amortization of and $2,132,000 for the write-off of covenants not to
compete. In 1991, income from continuing operations included a charge of
$1,113,000 for the amortization of covenants not to compete.
(2) In 1991, the extraordinary item represented the gain on the repurchase of
$1,500,000 principal amount of the Company's 12-3/4% Subordinated Notes, due
February 1, 1997.
(3) In 1995, 1994 and 1993, fully diluted income per common share was reduced by
$.02, $.02 and $.07, respectively, to reflect the effect of dividends paid
or accrued on the Company's preferred stock and the amount by which payments
made to effect the redemption of the preferred stock exceeded the par value
of such shares.
(4) At December 31, 1992 and 1991, $29,046,000 and $30,429,000, respectively, of
debt obligations with scheduled maturities of one year or more were
classified as current liabilities because of certain defaults. In January
1993, the Company completed a restructuring of substantially all of its
indebtedness which eliminated all defaults on its outstanding debt.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Various statements in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this report are based
upon projections and estimates, as distinct from past or historical facts and
events. These forward-looking statements are subject to a number of risks and
uncertainties that could cause actual results to be materially different. Such
risks and uncertainties include changes in future economic conditions, changes
in the competitive environment, changes in the capital markets, unanticipated
operating results and a number of other factors.
The results of operations for any particular fiscal period of the
Company are not necessarily indicative of the results to be expected for any
one or more succeeding fiscal periods. In addition, because the Company's
business is materially affected by the level of activity in the automotive
industry, any material reduction in the level of activity in that industry may
have a material adverse effect on the Company's results of operations.
RESULTS OF OPERATIONS
1995 VERSUS 1994
NET SALES
A summary of the net sales of the Rubber Group and the Metals Group for
1995 and 1994 follows (dollar amounts in thousands):
PERCENTAGE
1995 1994 INCREASE
---- ---- --------
Rubber Group $ 62,302 $46,868 32.9%
Metals Group 41,996 41,664 0.8
-------- ------- ----
$104,298 $88,532 17.8%
======== ======= ====
Approximately 89% of the $15,434,000 increase in net sales of the Rubber
Group came from increased sales of seals for primary wire-harnesses and
insulators for ignition-wire-harnesses. Increased sales of tooling and
medical components were responsible for the balance of the increase. If net
sales of the Extruded and Lathe-Cut Products Division, which was sold on June
30, 1995, were excluded from the above table, net sales of the Rubber Group
would have increased from $44,306,000 to $60,981,000, an increase of 37.6%.
In 1995, net sales of the Metals Group were adversely affected by a
decline of $3,978,000 in sales of a single component to TRW VSSI. The decline
in sales of the component resulted from the planned phase-out of the inflator
system of which the component is a part. (See also "Liquidity and Capital
Resources - Dependence on Large Customers" in this Item 7.)
-11-
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COST OF SALES
A summary of cost of sales and cost of sales as a percentage of net
sales for the Rubber Group and the Metals Group for 1995 and 1994 follows
(dollar amounts in thousands):
PERCENTAGE
1995 1994 INCREASE
---------------- --------------- ----------
Rubber Group $50,623 81.3% $39,314 83.9% 28.8%
Metals Group 34,138 81.3 32,320 77.6 5.6
------- ---- ------- ---- ----
$84,761 81.3% $71,634 80.9% 18.3%
======= ==== ======= ==== ====
The decrease in cost of sales of the Rubber Group as a percentage of net
sales from 83.9% in 1994 to 81.3% in 1995, resulted from reduced direct labor
expense as a percentage of net sales, primarily because of the purchase of new
equipment and the introduction of improved manufacturing processes, and reduced
factory overhead expense as a percentage of net sales, primarily because
factory overhead expense grew at a slower rate than sales at the Precision
Seals Division and the Electrical Insulator Division. Reductions in factory
overhead expense as a percentage of net sales at the Precision Seals Division
and the Electrical Insulator Division were offset in part by costs associated
with the development and startup of new products at Lexington Medical. The
reduction in factory overhead expense as a percentage of net sales at the
Precision Seals Division would have been greater but for the impact of startup
expenses and production inefficiencies at the Division's new facility in
LaGrange, Georgia.
Cost of sales of the Metals Group as a percentage of net sales increased
from 77.6% in 1994 to 81.3% in 1995, primarily because of increased factory
overhead expense as a percentage of net sales and, to a lesser extent,
increased direct labor expense as a percentage of net sales at Ness. Increased
factory overhead expense and direct labor expense as a percentage of net sales
at Ness were offset in part by lower material costs as a percentage of net
sales and decreased factory overhead expense and direct labor expense as a
percentage of net sales at Falconer. Factory overhead and direct labor expense
as a percentage of net sales increased at Ness because of the installation of
new equipment and the start-up of new products. In addition, factory overhead
expense as a percentage of net sales increased because of reduced absorption
of fixed factory overhead expense due to a decrease in net sales at Ness.
SELLING AND ADMINISTRATIVE EXPENSES
A summary of selling and administrative expenses and selling and
administrative expenses as a percentage of net sales for the Rubber Group, the
Metals Group and the Corporate Office follows (dollar amounts in thousands):
PERCENTAGE
1995 1994 INCREASE
--------------- -------------- ----------
Rubber Group $4,175 6.7% $3,694 7.9% 13.0%
Metals Group 3,712 8.8 3,284 7.9 13.0
Corporate Office 1,993 N/A 1,818 N/A 9.6
------ ---- ------ ---- ----
$9,880 9.5% $8,796 9.9% 12.3%
====== ==== ====== ==== ====
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15
At the Rubber Group, selling and administrative expenses as a percentage
of net sales decreased to 6.7% during 1995, primarily because most selling and
administrative expenses grew at a slower rate than net sales and because of
reduced legal expenses.
At the Metals Group, selling and administrative expenses as a percentage
of net sales increased to 8.8% during 1995, primarily because of increased
legal expenses.
In 1995, administrative expenses at the Corporate Office increased,
primarily because of increased wage expenses and increased accruals for
incentive compensation, offset in part by reduced legal expenses.
INTEREST EXPENSE
Interest expense totaled $7,585,000 during 1995, an increase of
$1,313,000, compared to 1994. This increase was caused primarily by an
increase in average borrowings outstanding.
OTHER INCOME
On June 30, 1995, the Company sold the Extruded and Lathe-Cut Products
Division of LCI for cash and the assumption by the purchaser of certain
liabilities, which resulted in a pre-tax gain of $578,000. In addition, during
1995, the Company realized a pre-tax gain in the amount of $63,000 on the sale
of several other pieces of equipment. During 1994, other income consisted of a
gain of $336,000 on the sale of marketable securities and a gain of $200,000
from the sale of real estate in connection with the settlement of litigation.
PROVISION FOR INCOME TAXES
The income tax provisions otherwise recognizable during 1995 and 1994
were reduced by the utilization of portions of the Company's tax loss
carryforwards and tax credit carryforwards. In 1995, the income tax provision
was also reduced by $265,000 because the Company's valuation allowance was
reduced by the recognition of federal operating loss carryforwards which the
Company expects to utilize during 1996. The Company's valuation allowance
decreased $703,000 in 1995.
At December 31, 1994, the Company's valuation allowance equaled 100% of
its net deferred tax assets. (For additional information concerning income tax
expense and the utilization of tax loss carryforwards and tax credit
carryforwards, see Note 10 to the consolidated financial statements in Part II,
Item 8.)
1994 VERSUS 1993
NET SALES
A summary of the net sales of the Rubber Group and the Metals Group for
1994 and 1993 follows (dollar amounts in thousands):
PERCENTAGE
1994 1993 INCREASE
---- ---- --------
Rubber Group $46,868 $40,388 16.0%
Metals Group 41,664 34,588 20.5
------- ------- ----
$88,532 $74,976 18.1%
======= ======= ====
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16
Approximately 77% of the $6,480,000 increase in net sales of the Rubber
Group came from increased sales of seals for primary wire-harnesses and
insulators for ignition-wire-harnesses. Increased net sales of medical
components were primarily responsible for the balance of the increase.
Net sales of the Metals Group increased by $7,076,000 in 1994, primarily
due to a $2,762,000 increase in net sales to TRW VSSI and a $2,690,000 increase
in net sales of die cast components.
COST OF SALES
A summary of cost of sales and cost of sales as a percentage of net
sales for the Rubber Group and the Metals Group for 1994 and 1993 follows
(dollar amounts in thousands):
PERCENTAGE
1994 1993 INCREASE
------------------ ----------------- ----------
Rubber Group $ 39,314 83.9% $ 33,280 82.4% 18.1%
Metals Group 32,320 77.6 27,413 79.3 17.9
-------- ---- -------- ---- ----
$ 71,634 80.9% $ 60,693 80.9% 18.0%
======== ==== ======== ==== ====
Cost of sales of the Rubber Group as a percentage of net sales increased
from 82.4% in 1993 to 83.9% in 1994, primarily as a result of increased factory
overhead expense as a percentage of net sales. During 1994, increased factory
overhead expense included increased indirect labor expense, increased workers'
compensation expense and increased depreciation and amortization expense.
Increased factory overhead expense as a percentage of net sales was offset in
part by lower direct labor expense as a percentage of net sales resulting from
the installation of new and refurbished equipment and the introduction of
improved manufacturing processes.
Cost of sales of the Metals Group as a percentage of net sales decreased
from 79.3% in 1993 to 77.6% in 1994. During 1994, material costs and direct
labor expense as percentages of net sales were essentially unchanged, while
factory overhead expense as a percentage of net sales decreased, primarily
because sales increased while certain components of factory overhead expense
remained relatively unchanged.
SELLING AND ADMINISTRATIVE EXPENSES
A summary of selling and administrative expenses and selling and
administrative expenses as a percentage of net sales for the Rubber Group, the
Metals Group and the Corporate Office follows (dollar amounts in thousands):
PERCENTAGE
1994 1993 INCREASE
------------------ ----------------- ----------
Rubber Group $ 3,694 7.9% $ 3,166 7.8% 16.7%
Metals Group 3,284 7.9 2,894 8.4 13.5
Corporate Office 1,818 N/A 1,876 N/A N/A
-------- ---- -------- ---- ----
$ 8,796 9.9% $ 7,936 10.6% 10.8%
======== ==== ======== ==== ====
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At the Rubber Group, selling and administrative expenses as a percentage
of net sales increased to 7.9% in 1994 compared to 7.8% in 1993, primarily as a
result of the addition of sales and administrative personnel.
At the Metals Group, selling and administrative expenses as a percentage
of net sales decreased to 7.9% in 1994, compared to 8.4% in 1993. Increased
sales of products subject to sales commissions and increased advertising costs
were more than offset by efficiencies related to increased volume.
In 1994, administrative expenses at the Corporate Office decreased by
$58,000, or 3.1%, primarily as a result of reduced legal fees. In 1993,
administrative expenses at the Corporate Office included $730,000 of expenses
recorded in connection with the Company's restructuring of its 12-3/4%
Subordinated Notes, due February 1, 1997 (the "12-3/4% Notes"), and 14% Junior
Subordinated Convertible Notes, due May 1, 2000, which were partially offset by
a credit of $215,000 resulting from the settlement of litigation.
INTEREST EXPENSE
Interest expense totaled $6,272,000 during 1994, an increase of
$776,000, compared to 1993. This increase was caused primarily by an increase
in average borrowings outstanding and increases in the Prime Rate.
OTHER INCOME
During 1994, other income consisted of a gain of $336,000 on the sale of
marketable securities and a gain of $200,000 from the sale of real estate in
connection with the settlement of litigation.
PROVISION FOR INCOME TAXES
The income tax provisions otherwise recognizable during 1994 and 1993
were reduced by the utilization of portions of the Company's tax loss
carryforwards and tax credit carryforwards. (For additional information
concerning income tax expense and the utilization of tax loss carryforwards and
tax credit carryforwards, see Note 10 to the consolidated financial statements
in Part II, Item 8.)
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARD ADOPTED DURING 1994
FINANCIAL ACCOUNTING STANDARD NO. 112
Effective January 1, 1994, the Company changed its method of accounting
for postemployment benefits, such as Company funded disability benefits, from
the cash basis (recognizing expense as benefits are paid) to the accrual method
(recognizing the estimated cost of providing such benefits as an expense while
the employee renders service) as required by "Financial Accounting Standard No.
112, Employers' Accounting for Postemployment Benefits" ("FAS 112"). The
adoption of FAS 112 did not materially affect the financial position or results
of operations of the Company because benefits of this type currently provided
by the Company are de minimis in amount.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS TO BE ADOPTED DURING 1996
FINANCIAL ACCOUNTING STANDARD NO. 121 - IMPAIRMENT OF LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board issued
"Financial Accounting Standard No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("FAS 121"),
which requires losses to be recorded on long-lived assets used in operations
where indicators of
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18
impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the carrying amount of such assets.
FAS 121 also addresses the accounting for long-lived assets to be disposed of.
The Company plans to adopt FAS 121 during the first quarter of 1996 and
believes that, at the time of adoption, FAS 121 will not affect the financial
position or results of operations of the Company.
FINANCIAL ACCOUNTING STANDARD NO. 123 - STOCK-BASED COMPENSATION
The Company has a Restricted Stock Award Plan and an Incentive Stock
Option Plan pursuant to which it may award to officers and key employees
restricted shares of the Company's common stock and options to purchase shares
of the Company's common stock. Awards under both plans are accounted for in
accordance with the provisions of "Accounting Principles Board Opinion Number
25, Accounting for Stock Issued to Employees" ("APB 25"). With respect to
restricted shares, the Company recognizes compensation expense on the date of
grant equal to the then market value of the Company's common stock. With
respect to options to purchase shares of common stock or shares of common stock
issued at the time options are exercised, the Company does not recognize
compensation expense.
During 1995, the Financial Accounting Standards Board issued "Financial
Accounting Standard No. 123, Accounting for Stock-Based Compensation"
("FAS 123"), which establishes new standards for the measurement and recognition
of stock-based compensation, but allows entities to continue using APB 25 to
account for the issuance of stock-based compensation if they disclose the pro
forma effect of stock-based compensation on net income and earnings per share as
if FAS 123 had been adopted. FAS 123 is effective for 1996. The Company
intends to continue using the provisions of APB 25 to account for stock-based
compensation.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS RELATING TO OPERATING ACTIVITIES
During 1995, net cash provided by the operating activities of the
Company totaled $7,860,000.
During 1995, $481,000 of cash was used to fund increased levels of
accounts receivable, resulting primarily from increased levels of sales and
orders during the fourth quarter of 1995, compared to the fourth quarter of
1994.
At December 31, 1995, the Company's trade accounts payable included
approximately $2,876,000 relating to the purchase of new property, equipment
and customer-owned tooling, compared to $4,325,000 at December 31, 1994.
Excluding accounts payable balances related to purchases of new property,
equipment and customer-owned tooling, trade accounts payable increased by
$1,588,000, from $6,164,000 at December 31, 1994 to $7,752,000 at December 31,
1995. The increase resulted from higher levels of production during the fourth
quarter of 1995, compared to the fourth quarter of 1994, and, to a lesser
extent, a temporary slowing of payments to suppliers.
Compared to December 31, 1994, accrued expenses at December 31, 1995
included increased accruals for employee compensation and related taxes and
benefits and increased accruals for alternative minimum taxes.
Net working capital declined during 1995 by $3,197,000, primarily
because capital expenditures were financed with increased short-term borrowings
under the Company's revolving line of credit (the "Revolving Line of Credit")
provided to the Company by Congress Financial Corporation ("Congress"). (For
additional information concerning the Revolving Line of Credit, see "Cash Flows
Relating to Financing Activities" in this Item 7 and Notes 5 and 6 to the
consolidated financial statements in Part II, Item 8.)
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19
CASH FLOWS RELATING TO INVESTING ACTIVITIES
During 1995, the investing activities of the Company used $17,997,000 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 1995 and 1994 (dollar
amounts in thousands):
Year Ended December 31,
-----------------------
1995 1994 Total
---- ---- -----
Rubber Group:
Equipment $ 8,487 $ 6,537 $ 15,024
Land and buildings 4,097 2,114 6,211
----------- ---------- ----------
12,584 8,651 21,235
----------- ---------- ----------
Metals Group:
Equipment 3,384 6,622 10,006
Land and buildings 1,918 34 1,952
----------- ---------- ----------
5,302 6,656 11,958
----------- ---------- ----------
Corporate Office:
Equipment 16 12 28
Land and buildings - - -
----------- ---------- ----------
16 12 28
----------- ---------- ----------
Total Company:
Equipment 11,887 13,171 25,058
Land and buildings 6,015 2,148 8,163
----------- ---------- ----------
$ 17,902 $ 15,319 $ 33,221
=========== ========== ==========
As a result of growing market share in certain market niches and
increased volume because of a healthy economy and, in particular, a strong
automotive industry, the Company commenced a major expansion plan in 1994. Net
sales increased from $74,976,000 in 1993, to $88,532,000 in 1994 and then to
$104,298,000 in 1995. Net sales for 1996 are currently projected to range
between $110,000,000 and $120,000,000. The Company estimates that
approximately $4,000,000 of capital expenditures are required annually to
maintain or replace existing equipment or to effect cost reductions and that
the balance of capital expenditures are for the expansion of facilities and the
purchase of production equipment to meet increased demand for product.
During 1995, $958,000 of funds were used to finance deferred tooling
expense. Also, during 1995, $998,000 of funds were provided by the sale of the
Extruded and Lathe-Cut Products Division of LCI.
The Company presently estimates that capital expenditures will total
approximately $13,000,000 during 1996. At December 31, 1995, the Company had
commitments outstanding for capital expenditures totaling approximately
$6,700,000. The Company anticipates that the funds needed for capital
expenditures in 1996 will be provided by cash flows from operations and from
borrowings. (See also "Liquidity" in this Item 7.)
-17-
20
CASH FLOWS RELATING TO FINANCING ACTIVITIES
During 1995, the financing activities of the Company provided
$10,176,000 of cash, primarily from increased borrowings.
The Company finances its day-to-day operations through the Revolving
Line of Credit. The Company also uses the Revolving Line of Credit to fund
capital expenditures with the intention of later refinancing such borrowings
with term loans. The Company borrows and repays loans outstanding under the
Revolving Line of Credit daily, depending on cash receipts and disbursements.
The ability of the Company to borrow under the Revolving Line of Credit is
based on certain availability formulas, agreed upon by the Company and
Congress, which are based on the levels of accounts receivable and inventories
of the Company.
In addition to borrowings under the Revolving Line of Credit, in 1995,
the Company borrowed an aggregate of $15,067,000 in term loans from Congress.
Proceeds from the term loans were used to refinance loans outstanding under the
Revolving Line of Credit. Congress provides the Company with a line of credit
which can be used to finance a portion of qualifying new equipment purchases
through term loans (the "Equipment Line of Credit"). Generally, the amount of
financing available to fund new equipment purchases is equal to 85% of the
appraised orderly liquidation value of the equipment being purchased. At
December 31, 1995, the Equipment Line of Credit totaled $5,466,000.
In the first quarter of 1996, the Company obtained from Congress, The
CIT Group/Equipment Financing, Inc. and Bank One, Akron, NA ("Bank One") term
loans in the aggregate amount of $10,302,000. Proceeds from the term loans
were used to refinance $4,035,000 of term loans outstanding with Congress and
$6,267,000 of loans outstanding under the Revolving Line of Credit.
As a result of the borrowings under long-term agreements during the
first quarter of 1996, $3,730,000 of loans outstanding under the Revolving Line
of Credit were classified as long-term debt at December 31, 1995.
Also, in the first quarter of 1996, the Company borrowed $1,000,000 from
Bank One on a demand basis. The $1,000,000 loan is scheduled to be refinanced
as part of a $2,500,000 term loan to be advanced during the second quarter of
1996 (the "Bank One Commitment").
The Company's financing arrangements, which are secured by substantially
all of the Company's assets and the stock of LCI, require the Company to
maintain certain financial ratios and limit the payment of dividends.
LIQUIDITY
The Company operates with high financial leverage and limited liquidity.
During 1995, aggregate indebtedness of the Company, excluding accounts payable,
increased by $10,808,000 to $68,086,000 at December 31, 1995. As a result of
increased borrowings during the first quarter of 1996, the aggregate
indebtedness of the Company, excluding accounts payable, totaled $75,390,000 as
of March 26, 1996.
Cash interest and principal payments totaled $7,299,000 and $3,228,000,
respectively, in 1995. During 1996, cash interest and principal payments are
projected to total approximately $7,986,000 and $5,163,000, respectively.
Availability under the Revolving Line of Credit totaled $2,340,000 at
March 26, 1996. Availability under the Revolving Line of Credit is calculated
without deducting outstanding checks issued by the Company. Typically,
outstanding checks average approximately $1,500,000.
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21
During 1996, the Company anticipates that, in addition to its projected
cash flows from operations, borrowings in the amount of approximately
$10,400,000 will be required to meet the Company's working capital, capital
expenditure and debt service requirements. Peak borrowing requirements during
1996 of approximately $78,000,000 are projected to occur on August 1, 1996, the
scheduled payment date for $2,022,000 of interest then due on the 12-3/4%
Notes. Although no assurances can be given, based on its present business
plan, the Company currently believes that cash flows from operations and
availability under the Revolving Line of Credit, the Equipment Line of Credit,
and the Bank One Commitment should be adequate to meet its anticipated working
capital, capital expenditure and debt service requirements for 1996. If cash
flows from operations or availability under the Revolving Line of Credit, the
Equipment Line of Credit, and the Bank One Commitment fall below expectations,
the Company intends to reduce or delay its capital expenditure program and/or
to extend accounts payable balances with suppliers beyond terms which the
Company believes are customary in the industries in which it operates.
DEPENDENCE ON LARGE CUSTOMERS
During 1995, 1994 and 1993, net sales to TRW VSSI, the Company's second
largest customer, accounted for 8.1%, 13.0% and 11.8%, respectively, of the
Company's total net sales and consisted primarily of sales of a single
component. During 1995, net sales of the single component declined by
$3,978,000. The decline in sales, which occurred because of the planned
phase-out of the inflator system of which the component is a part, had an
adverse affect on the operating profit of Ness and the Company. Currently,
management of the Company believes that the component will only be in
production through June 30, 1996. The Company believes that, during 1996,
orders for new parts from TRW VSSI and other companies which supply TRW VSSI
will not offset the decrease in sales of the single component and that the
decrease will result in a significant reduction of operating profit at Ness in
1996. The Company currently believes that the reduction in operating profit at
Ness will not have a material adverse effect on the financial position or
operating profit of the Company.
ACQUISITIONS
The Company is seeking to acquire assets and businesses related to its
current operations with the intention of expanding its existing operations.
Depending on, among other things, the size and terms of such acquisitions, the
Company may be required to obtain additional financing and, in some cases, the
approval of Congress and the holders of other debt of the Company. The
Company's ability to effect acquisitions may be dependent upon its ability to
obtain such financing and, to the extent applicable, consents.
INFLATION
Many customers of the Company will not accept price increases from the
Company to compensate for increases in labor and overhead expenses that result
from inflation. To the extent practical, fluctuations in material costs are
passed through to customers. Although the Company may, in certain cases,
commit to a fixed material cost for a specified time period, generally, a
similar offsetting commitment is made to the Company by its material supplier.
To offset inflationary costs which the Company cannot pass through to its
customers and to maintain or improve its operating margins, the Company has
continually worked to improve its production efficiencies and manufacturing
processes. Although the Company believes that during the three-year period
ended December 31, 1995 inflationary increases in labor and overhead expenses
have been substantially offset as a result of its efforts, there can be no
assurance that the Company will continue to be able offset inflationary cost
increases through such measures.
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22
ENVIRONMENTAL MATTERS
The Company has been named from time to time as one of numerous
potentially responsible parties under applicable environmental laws for
restoration costs at waste disposal sites, as a third-party defendant
in cost recovery actions pursuant to applicable environmental laws and as a
defendant or potential defendant in various other environmental law matters.
It is the Company's policy to record accruals for such matters when a loss is
deemed probable and the amount of such loss can be reasonably estimated. The
various actions to which the Company is or may be a party in the future are at
various stages of completion and, although there can be no assurance as to the
outcome of existing or potential environmental litigation, in the event such
litigation were commenced, based upon the information currently available to
the Company, the Company believes that the outcome of such actions would not
have a material adverse effect upon its financial position.
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THIS PAGE INTENTIONALLY LEFT BLANK
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TABLE OF CONTENTS
Page
----
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . 23
Consolidated Balance Sheets at December 31, 1995 and 1994 . . . . . . . . . . . 24
Consolidated Statements of Income for the Years Ended
December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . 26
Consolidated Statements of Stockholders' Deficit for
the Years Ended December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . 27
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . 28
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . 30
-22-
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REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Lexington Precision Corporation and Subsidiary
We have audited the accompanying consolidated balance sheets of
Lexington Precision Corporation and subsidiary at December 31, 1995 and 1994,
and the related consolidated statements of income, stockholders' deficit, and
cash flows for each of the three years in the period ended December 31, 1995.
Our audits also included the financial statement schedule listed in the table
of contents in Part IV, Item 14(a). 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 generally accepted auditing
standards. 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 subsidiary at December 31, 1995 and
1994, and the consolidated results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 1995, in
conformity with 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.
ERNST & YOUNG LLP
Cleveland, Ohio
March 22, 1996
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26
LEXINGTON PRECISION CORPORATION
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
DECEMBER 31,
------------------------
1995 1994
---- ----
ASSETS:
Current assets:
Cash $ 118 $ 79
Accounts receivable 12,959 12,478
Inventories 8,105 8,186
Prepaid expenses and other assets 2,101 2,009
Deferred income taxes 1,195 -
---------- ---------
Total current assets 24,478 22,752
---------- ---------
Property, plant and equipment:
Land 1,525 823
Buildings 17,190 12,274
Equipment 57,110 46,516
---------- ---------
75,825 59,613
Less accumulated depreciation 30,887 27,019
---------- ---------
Property, plant and equipment, net 44,938 32,594
---------- ---------
Excess of cost over net assets of businesses acquired, net 9,726 10,041
---------- ---------
Other assets, net 2,734 2,009
---------- ---------
$ 81,876 $ 67,396
========== =========
See notes to consolidated financial statements. (Continued)
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LEXINGTON PRECISION CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(THOUSANDS OF DOLLARS)
DECEMBER 31,
-----------------------
1995 1994
---- ----
LIABILITIES AND STOCKHOLDERS' DEFICIT:
Current liabilities:
Accounts payable $ 10,628 $ 10,489
Accrued expenses 6,572 6,190
Short-term debt 7,522 5,052
Current portion of long-term debt 4,531 2,599
---------- ---------
Total current liabilities 29,253 24,330
---------- ---------
Long-term debt, excluding current portion 56,033 49,627
---------- ---------
Deferred income taxes and other long-term liabilities 1,056 99
---------- ---------
Redeemable preferred stock, $100 par value,
at redemption value 1,020 1,110
Less excess of redemption value over par value 510 555
---------- ---------
Redeemable preferred stock at par value 510 555
---------- ---------
Stockholders' deficit:
Common stock, $.25 par value, 10,000,000
shares authorized, 4,348,951 shares issued 1,087 1,087
Additional paid-in-capital 12,547 12,659
Accumulated deficit (18,305) (20,593)
Cost of common stock in treasury, 120,915 and
145,915 shares, respectively (305) (368)
---------- ---------
Total stockholders' deficit (4,976) (7,215)
---------- ---------
$ 81,876 $ 67,396
========== =========
See notes to consolidated financial statements.
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LEXINGTON PRECISION CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31,
--------------------------------------
1995 1994 1993
---- ---- ----
Net sales $ 104,298 $ 88,532 $ 74,976
--------- --------- ---------
Costs and expenses:
Cost of sales 84,761 71,634 60,693
Selling and administrative expenses 9,880 8,796 7,936
--------- --------- ---------
Total costs and expenses 94,641 80,430 68,629
--------- --------- ---------
Income from operations 9,657 8,102 6,347
Interest expense 7,585 6,272 5,496
Other income 641 536 -
--------- --------- ---------
Income before income taxes 2,713 2,366 851
Provision for income taxes 425 34 -
--------- --------- ---------
Net income $ 2,288 $ 2,332 $ 851
========= ========= =========
Net income per primary and fully diluted
common share:
Primary $ .52 $ .53 $ .13
========= ========= =========
Fully diluted $ .49 $ .51 $ .13
========= ========= =========
See notes to consolidated financial statements.
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29
LEXINGTON PRECISION CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(THOUSANDS OF DOLLARS)
ADDITIONAL TOTAL
COMMON PAID-IN ACCUMULATED TREASURY STOCKHOLDERS'
STOCK CAPITAL DEFICIT STOCK DEFICIT
----- ------- ------- ----- -------
Balance at January 1, 1993 $ 1,087 $ 13,286 $ (23,783) $ (760) $ (10,170)
Net income - - 851 - 851
Preferred stock dividends
and redemptions - (311) - - (311)
Deferred compensation expense
on restricted stock - - 7 - 7
-------- -------- --------- -------- ----------
Balance at December 31, 1993 1,087 12,975 (22,925) (760) (9,623)
Net income - - 2,332 - 2,332
Preferred stock dividends
and redemptions - (92) - - (92)
Issuance of common shares - (224) - 392 168
-------- -------- --------- -------- ----------
Balance at December 31, 1994 1,087 12,659 (20,593) (368) (7,215)
Net income - - 2,288 - 2,288
Preferred stock dividends
and redemptions - (89) - - (89)
Issuance of common shares - (23) - 63 40
-------- -------- --------- -------- ----------
Balance at December 31, 1995 $ 1,087 $ 12,547 $ (18,305) $ (305) $ (4,976)
======== ======== ========= ======== ==========
See notes to consolidated financial statements.
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LEXINGTON PRECISION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
YEAR ENDED DECEMBER 31,
--------------------------------------
1995 1994 1993
---- ---- ----
OPERATING ACTIVITIES:
Net income $ 2,288 $ 2,332 $ 851
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,449 5,060 4,297
Deferred income taxes (265) - -
Gain on sale of property, plant and equipment (668) - -
Gain on sale of marketable equity securities - (336) -
Gain on sale of real estate - (200) -
Changes in operating assets and liabilities which
provided/(used) cash:
Receivables (481) (3,399) (1,672)
Inventories 81 (2,488) (348)
Prepaid expenses and other assets (92) (1,149) 529
Accounts payable 139 6,037 32
Accrued expenses 382 (110) 5,844
Other 27 210 68
--------- ----------- --------
Net cash provided by operating activities 7,860 5,957 9,601
--------- ----------- --------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (17,902) (15,319) (6,288)
Decrease/(increase) in equipment deposits, net 20 229 (575)
Proceeds from sales of property, plant and equipment 998 614 5
Proceeds from sale of marketable securities - 338 -
Additions to deferred tooling expense (958) (824) (373)
Other (155) (4) -
--------- ----------- --------
Net cash used by investing activities (17,997) (14,966) (7,231)
--------- ----------- --------
See notes to consolidated financial statements. (Continued)
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31
LEXINGTON PRECISION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(THOUSANDS OF DOLLARS)
YEAR ENDED DECEMBER 31,
--------------------------------------
1995 1994 1993
---- ---- ----
FINANCING ACTIVITIES:
Net increase in short-term debt $ 2,470 $ 5,052 $ 498
Proceeds from issuance of long-term debt 15,566 9,847 -
Repayment of long-term debt (7,263) (5,735) (2,421)
Redemption of preferred stock (90) (90) (270)
Preferred stock dividends (44) (47) (176)
Issuance of common stock 40 90 -
Other (503) (62) -
--------- --------- --------
Net cash provided/(used) by financing activities 10,176 9,055 (2,369)
--------- --------- --------
Net increase in cash 39 46 1
Cash at beginning of year 79 33 32
--------- -------- --------
Cash at end of year $ 118 $ 79 $ 33
========= ======== =========
Supplemental disclosure of cash flow information:
Interest paid $ 7,299 $ 9,779 $ 1,134
Income taxes paid $ 99 $ 26 $ -
Supplemental disclosure of noncash financing activities:
Accrued interest converted to long-term debt $ - $ - $ 10,525
Issuance of 100,000 shares of common stock in exchange
for investment banking services $ - $ 78 $ -
See notes to consolidated financial statements.
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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 ("LPC") and its wholly-owned subsidiary, Lexington
Components, Inc. ("LCI"). Unless the context otherwise requires all references
herein to the "Company" are to LPC and LCI. All significant intercompany
accounts and transactions have been eliminated.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of the
consolidated financial statements and the reported amount of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
CONCENTRATION OF CREDIT RISK
At December 31, 1995 and 1994, trade accounts receivable outstanding
from automotive customers totaled $8,357,000 and $7,904,000, respectively. The
Company provides for credit losses based upon historical experience and ongoing
credit evaluations of its customers' financial condition but does not generally
require collateral from its customers to support the extension of trade credit.
At December 31, 1995 and 1994, the Company had reserves for credit losses of
$175,000 and $174,000, respectively.
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,
----------------------
1995 1994
---- ----
Finished goods $ 3,040 $ 2,696
Work in process 2,213 2,285
Raw materials and purchased parts 2,852 3,205
-------- --------
$ 8,105 $ 8,186
======== ========
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost less accumulated
depreciation. Depreciation is calculated principally on the straight-line
method over the estimated useful life of the various assets (15 to 32 years for
buildings and 3 to 10 years for equipment). Maintenance and repair expenses
were $3,162,000, $2,484,000 and $2,189,000 for 1995, 1994 and 1993,
respectively. Maintenance and repair expenses are charged against income as
incurred, while major improvements are capitalized. When property is retired
or otherwise disposed of, the related cost and accumulated depreciation are
eliminated.
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33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EXCESS OF COST OVER NET ASSETS OF BUSINESSES ACQUIRED
Excess of cost over the net assets of businesses acquired (goodwill)
is amortized on the straight-line method, principally over 40 years. At
December 31, 1995 and 1994, accumulated amortization of goodwill was $2,264,000
and $1,948,000, respectively. Amortization of goodwill is classified as part
of selling and administrative expenses. During each of 1995, 1994 and 1993,
amortization of goodwill totaled $316,000. The carrying value of goodwill is
assessed for impairment quarterly. Based upon such assessment, the Company
believes that no impairment of goodwill existed at December 31, 1995.
INCOME PER SHARE
Primary net income per common share and fully diluted net income per
common share are computed using the weighted average number of common shares
and dilutive common equivalent shares outstanding. For purposes of the income
per share calculations, income for each period is reduced by preferred stock
dividends and by the amount by which payments made to redeem shares of the
Company's $8 Cumulative Convertible Redeemable Preferred Stock, Series B (the
"Redeemable Preferred Stock"), exceed the par value of such shares. Common
equivalent shares are those shares issuable upon the assumed exercise of
outstanding dilutive stock options and conversion of Redeemable Preferred
Stock, calculated using the treasury stock method. Fully diluted income per
share assumes conversion of the 14% Junior Subordinated Convertible Notes, due
May 1, 2000 (the "14% Convertible Notes").
REPORTING OF CASH FLOWS
The Company considers all highly liquid investments with maturities at
the time of purchase of less than three months to be cash equivalents.
FINANCIAL ACCOUNTING STANDARD NO. 121 - IMPAIRMENT OF LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board issued
"Financial Accounting Standard No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("FAS 121"),
which requires losses to be recorded on long-lived assets used in operations
where indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the carrying amount of
such assets. FAS 121 also addresses the accounting for long-lived assets to be
disposed of. The Company plans to adopt FAS 121 during the first quarter of
1996 and believes that, at the time of adoption, FAS 121 will not affect the
financial position or results of operations of the Company.
FINANCIAL ACCOUNTING STANDARD NO. 123 - STOCK-BASED COMPENSATION
The Company has a Restricted Stock Award Plan and an Incentive Stock
Option Plan pursuant to which it may award to officers and key employees
restricted shares of the Company's common stock and options to purchase shares
of the Company's common stock. Awards under both plans are accounted for in
accordance with the provisions of "Accounting Principles Board Opinion Number
25, Accounting for Stock Issued to Employees" ("APB 25"). With respect to
restricted shares, the Company recognizes compensation expense on the date of
grant equal to the then market value of the Company's common stock. With
respect to options to purchase shares of common stock or shares of common stock
issued at the time options are exercised, the Company does not recognize
compensation expense.
-31-
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During 1995, the Financial Accounting Standards Board issued
"Financial Accounting Standard No. 123, Accounting for Stock-Based
Compensation" ("FAS 123"), which establishes new standards for the measurement
and recognition of stock-based compensation, but allows entities to continue
using APB 25 to account for the issuance of stock-based compensation if they
disclose the pro forma effect of stock-based compensation on net income and
earnings per share as if FAS 123 had been adopted. FAS 123 is effective for
1996. The Company intends to continue using the provisions of APB 25 to
account for stock-based compensation.
RECLASSIFICATIONS
Certain amounts in the consolidated financial statements have been
reclassified to conform to the 1995 presentation.
NOTE 2 -- PREPAID EXPENSES AND OTHER ASSETS
At December 31, 1995 and 1994, other current assets included
$1,790,000 and $1,242,000, respectively, of tooling acquired by the Company for
certain customers. Upon customer approval of the components produced from such
tooling, which normally takes less than 90 days, the customer is required to
purchase the tooling from the Company.
NOTE 3 -- OTHER NONCURRENT ASSETS
At December 31, 1995 and 1994, other noncurrent assets included
$1,481,000 and $990,000, respectively, which represented amounts paid by the
Company for tooling owned by the Company's customers in excess of the amounts
paid by the customers for such tooling. Such excess amounts are amortized over
periods not exceeding three years. During 1995 and 1994, amortization expense
related to tooling owned by customers but funded by the Company was $626,000
and $272,000, respectively.
NOTE 4 -- ACCRUED EXPENSES
Accrued expenses at December 31, 1995 and 1994 are summarized below
(dollar amounts in thousands):
DECEMBER 31,
----------------------
1995 1994
---- ----
Interest $ 1,717 $ 1,716
Employee fringe benefits 1,196 1,645
Salaries and wages 1,562 976
Taxes 1,264 755
Other 833 1,098
------- -------
$ 6,572 $ 6,190
======= =======
NOTE 5 -- SHORT-TERM DEBT
At December 31, 1995 and 1994, short-term debt consisted of loans
outstanding under the revolving line of credit (the "Revolving Line of Credit")
provided to the Company by Congress Financial Corporation ("Congress"). The
Revolving Line of Credit has an expiration date of January 2, 1998. Except for
certain loans
-32-
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
which were refinanced under long-term agreements before the consolidated
financial statements were issued, the loans outstanding under the Revolving
Line of Credit have been classified as short-term debt at December 31, 1995 and
1994 because the Company's cash receipts are automatically used to reduce the
loans outstanding under the Revolving Line of Credit on a daily basis, by means
of a lock-box sweep arrangement, and Congress has the ability to modify certain
terms of the Revolving Line of Credit without the prior approval of the
Company. (See also Note 6, "Long-Term Debt.")
At December 31, 1995, 1994 and 1993, the interest rates on borrowings
under the Revolving Line of Credit were 9.1%, 10.0% and 7.5%, respectively.
NOTE 6 -- LONG-TERM DEBT
Long-term debt at December 31, 1995 and 1994 is summarized below
(dollar amounts in thousands):
DECEMBER 31,
------------------------
1995 1994
---- -----
Loans outstanding under the Revolving Line of Credit $ 3,730 $ 7,267
Congress term loans, payable in monthly installments, final
maturities in 2002 or 2003 20,488 8,029
12% Note, payable in monthly installments through 2000 2,635 3,078
Industrial Revenue Bond, 75% of prime, payable in monthly
installments, final maturity in 2000 498 598
12-3/4% Senior Subordinated Notes, due 2000 31,682 31,647
14% Junior Subordinated Convertible Notes, due 2000 1,000 1,000
14% Junior Subordinated Nonconvertible Notes, due 2000 347 347
Other 184 260
--------- ---------
Total long-term debt 60,564 52,226
Less current portion 4,531 2,599
--------- ---------
Total long-term debt, excluding current portion $ 56,033 $ 49,627
========= =========
LOANS OUTSTANDING UNDER THE REVOLVING LINE OF CREDIT CLASSIFIED AS
LONG-TERM DEBT
At December 31, 1995 and 1994, there were loans of $3,730,000 and
$7,267,000, respectively, outstanding under the Revolving Line of Credit which
were classified as long-term debt because the loans were refinanced under
long-term agreements before the consolidated financial statements for the
respective years were issued.
During the first quarter of 1996, the Company obtained term loans in
the aggregate amount of $10,302,000, payable in installments ranging from 48 to
84 months. Of that amount, $4,035,000 was used to refinance term loans and
$6,267,000 was used to refinance loans outstanding under the Revolving Line of
Credit. Of the latter amount, $3,730,000 was used to refinance loans that were
outstanding under the Revolving Line of Credit at December 31, 1995.
-33-
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The term loans obtained during the first quarter of 1996 are payable
in monthly installments with final maturities in 2000, 2001, 2002 or 2003.
Interest on the loans is due monthly at the London Interbank Offered Rate
("LIBOR") plus 3% or 3-1/4%, Prime Rate plus 3/4% or 1%, or a fixed rate of
8.37%. The loans are secured, in the aggregate, by all receivables,
inventories and equipment, and by certain real property and other personal
property.
CONGRESS TERM LOANS
At December 31, 1995 and 1994, term loans in the aggregate amounts of
$20,488,000 and $8,029,000, respectively, were outstanding with Congress. The
loans are payable in monthly installments with final maturities in 2002 or
2003, subject to earlier maturity in the event the Revolving Line of Credit
terminates or expires. Interest on the loans is due monthly at LIBOR plus
3-1/4% or Prime Rate plus 1%. The loans are secured by all receivables and
inventories and by certain equipment, real property and other personal
property.
12% NOTE
The 12% Note, due April 30, 2000 (the "12% Note"), is payable by LCI,
is secured by a mortgage on LCI's Rock Hill, South Carolina, facility and is
guaranteed by LPC. Level payments of principal and interest in the amount of
$66,000 are due monthly until the 12% Note is paid in full.
12-3/4% NOTES
The 12-3/4% Senior Subordinated Notes, due February 1, 2000 (the
"12-3/4% Notes"), are unsecured obligations of the Company, redeemable at the
option of the Company, in whole or in part, at a declining premium over the
principal amount thereof. Interest on the 12-3/4% Notes is due semi-annually
on February 1 and August 1.
14% NOTES
The 14% Junior Subordinated Convertible Notes, due May 1, 2000, and
14% Junior Subordinated Nonconvertible Notes, due May 1, 2000 (collectively,
the "14% Notes"), are unsecured obligations of the Company and are redeemable
at the option of the Company, in whole or in part, at a declining premium over
the principal amount thereof. Interest on the 14% Notes is due quarterly on
February 1, May 1, August 1 and November 1. The 14% Convertible Notes are
convertible into 440,000 shares of the Company's common stock.
RESTRICTIVE COVENANTS
Certain of the Company's loan agreements contain covenants restricting
the Company's business and operations, including restrictions on the issuance
or assumption of additional debt, the sale of all or substantially all of the
Company's assets, the purchase of common stock, the redemption of preferred
stock and the payment of cash dividends.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company believes that, at December 31, 1995, the fair value of the
Congress term loans and the loans outstanding under the Revolving Line of
Credit approximately equaled the outstanding principal balances of such loans
because the interest rates on these loans floated at a spread over LIBOR or
Prime Rate and because the Company obtained commitments for similar loans from
lending institutions other than Congress during 1995.
-34-
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The 12% Note is secured by a mortgage on the Company's manufacturing
facility located in Rock Hill, South Carolina. The Company believes that the
fair value of the 12% Note is probably between 85% and 115% of its principal
amount because, although the interest rate on the loans is probably in excess
of market rates for industrial mortgage loans, the market value of the facility
may be less than the outstanding balance of the 12% Note so that a portion of
the 12% Note may be unsecured. Depending on how unsecured the loan is
perceived to be, the rate on the note may actually be lower than market rates
and, as a result, the fair value for the loan may be less than the outstanding
principal balance.
There is a limited market for the 12-3/4% Notes. The Company believes
that, based on informal discussions with securities brokers that have traded
the 12-3/4% Notes and with buyers and sellers of the 12-3/4% Notes, that the
12-3/4% Notes traded at discounts of between 15% and 30% during 1995.
The Company believes that the 14% Nonconvertible Notes would
hypothetically trade at a discount equal to or in excess of the discount
assumed for the 12-3/4% Notes and that the 14% Convertible Notes would
hypothetically trade at around par or in excess of par because, at December 31,
1995, they were convertible at a price per common share of $2.2727, which was
9% below the last reported trade of the Company's common stock in 1995.
Fair value estimates of the Company's securities are subjective in
nature and involve uncertainties and matters of judgement and therefore cannot
be determined definitively. Any change in the market for similar securities,
the financial performance of the Company or interest rates could materially
affect the fair value of all of the Company's securities.
SCHEDULED MATURITIES OF LONG-TERM DEBT
Maturities of long-term debt for the five-year period ending December
31, 2000 and for the years thereafter are listed below (dollar amounts in
thousands):
1996 $ 4,531
1997 4,927
1998 4,999
1999 5,082
2000 35,385
Thereafter 5,640
-----------
$ 60,564
===========
NOTE 7 -- PREFERRED STOCK
REDEEMABLE PREFERRED STOCK
Each share of $8 Cumulative Convertible Redeemable Preferred Stock,
Series B, 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. On November 30, 1995, 450 shares of Redeemable Preferred Stock were
redeemed for $90,000. Further redemptions of $90,000 are scheduled on November
30 of each year in order to retire annually
-35-
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
450 shares of Redeemable Preferred Stock. Scheduled redemptions for the years
1996 through 2000 total $450,000. For accounting purposes, when such stock is
redeemed, the redeemable preferred stock account is reduced by the $100 par
value of each share redeemed and paid-in-capital is charged for the $100 excess
of redemption value over par value of each share redeemed. Under the terms of
the Redeemable Preferred Stock, the Company may not declare any cash dividends
on its common stock if there exists a dividend arrearage on the Redeemable
Preferred Stock. During 1995, the Company paid the holders of the Redeemable
Preferred Stock regular dividends aggregating $8.00 per share.
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, $100 par value ("Series A Preferred Stock"). At
December 31, 1995 and 1994, no shares of the Series A Preferred Stock were
issued or outstanding.
The Company's Restated Certificate of Incorporation also provides that
the Company is authorized to issue 2,500,000 shares of preferred stock having a
par value of $1 per share. At December 31, 1995 and 1994, no shares of the
preferred stock, $1 par value, were issued or outstanding.
NOTE 8 -- COMMON STOCK
COMMON STOCK, $.25 PAR VALUE
At December 31, 1995 and 1994, there were 4,228,036 and 4,203,036
shares, respectively, of the Company's common stock outstanding and 385,000 and
410,000 shares, respectively, reserved for issuance under the Company's
Restricted Stock Award Plan and Incentive Stock Option Plan.
RESTRICTED STOCK AWARD PLAN
The Company has a Restricted Stock Award Plan pursuant to which the
Company may award restricted shares of common stock to officers and key
employees. Plan participants are entitled to receive cash dividends (if any)
and to vote their respective shares. The restricted shares vest at a rate set
by the Compensation Committee of the Company's Board of Directors, which has
generally set the rate at 25% per year on each of the four anniversary dates
subsequent to the award date. Unless otherwise amended, the Restricted Stock
Award Plan expires on December 31, 2001.
During 1995, 1994 and 1993, no shares of restricted common stock were
awarded. At December 31, 1995 and 1994, 350,000 shares of common stock were
available for grant under the terms of the Restricted Stock Award Plan.
INCENTIVE STOCK OPTION PLAN
The Company has an Incentive Stock Option Plan that provides for
grants to officers and key employees of options to purchase shares of the
Company's common stock. The exercise price of an option is established by the
Compensation Committee of the Company's Board of Directors at the date of grant
at a price not less than the then market price of the Company's common stock.
During 1995, 1994 and 1993, no options were granted. At December 31, 1995,
options for 35,000 shares were outstanding and no options were available for
future grant.
-36-
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Activity in the Company's Incentive Stock Option Plan for 1995 and
1994 is summarized below:
OPTION PRICE
OR SHARES
PRICE RANGE UNDER OPTION
------------------- ----------------
Outstanding at January 1, 1994 $.625 to $1.625 125,000
Granted None
Exercised $1.625 55,000
Terminated $1.625 10,000
---------
Outstanding at December 31, 1994 $.625 to $1.625 60,000
=========
Granted None
Exercised $1.625 25,000
Terminated None
---------
Outstanding at December 31, 1995 $.625 35,000
=========
At December 31, 1995 and 1994, outstanding options for 35,000 and
51,250 shares, respectively, were exercisable.
NOTE 9 -- EMPLOYEE BENEFIT PLANS
RETIREMENT AND SAVINGS PLAN
The Company maintains a Retirement and Savings Plan (the "Plan")
pursuant to Section 401 of the Internal Revenue Code (i.e., a 401(k) plan).
All employees of the Company are entitled to participate in the Plan after
meeting the eligibility requirements. Generally, employees may contribute up
to 15% of their annual compensation but not more than prescribed amounts as
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 1995, 1994 and 1993, provisions for Company
matching contributions totaled approximately $372,000, $339,000 and $296,000,
respectively. In addition, the Company has the option to make a profit sharing
contribution to the Plan. The size of the profit sharing contribution is set
annually at the end of each Plan year by the Company's Board of Directors.
Provisions recorded for profit sharing contr