<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
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<S> <C>
Date of Report (Date of earliest event reported) December 5, 2000 (September 22, 2000)
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T H E L A M S O N & S E S S I O N S C O.
-----------------------------------------------
(Exact name of Registrant as specified in its charter)
Ohio 34-0349210
---------------------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
25701 Science Park Drive
Cleveland, Ohio 44122-7313
---------------------------------------- ------------------------------------
(Address of principal executive offices) (Zip Code)
216/464-3400
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(Registrant's telephone number, including area code)
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
This Current Report on Form 8-K/A amends the Current Report on Form 8-K filed by
The Lamson & Sessions Co. on October 6, 2000 solely for the purpose of adding
the financial statements of the business acquired as required by Item 7(a) and
the pro forma financial information as required by Item 7(b).
<PAGE> 2
The Registrant hereby amends Item 7 of its Current Report on Form 8-K previously
filed with the Securities and Exchange Commission on October 6, 2000 relating to
the acquisition by The Lamson & Sessions Co., an Ohio corporation ("Lamson")
through its wholly-owned subsidiary LMS Acquisition Co., a Delaware corporation,
of 99.98% of the outstanding capital stock of Pyramid Industries, Inc., a
Pennsylvania corporation ("Pyramid"). The following documents are included as
part of this report:
ITEM 7 - FINANCIAL STATEMENTS, PROFORMA FINANCIAL INFORMATION AND EXHIBITS
--------------------------------------------------------------------------
Page
----
(a) Financial Statements of Business Acquired
Consolidated Financial Statements of
Pyramid Industries, Inc. and Subsidiary
As of December 31, 1999, June 30, 1999 and June 30, 2000
with Report of Independent Auditors................................... 4
(b) Pro Forma Financial Information of Combined Business
Unaudited Pro Forma Condensed Combined Statement of Income of
The Lamson & Sessions Co. and Pyramid Industries, Inc. and Subsidiary
Financial Information for the Year Ended January 1, 2000 and
Six Month Period Ended July 1, 2000................................... 18
(c) Exhibits
Exhibit 23 - Consent of Brown Schwab Bergquist & Co
2
<PAGE> 3
Report of Independent Auditors
on the Consolidated Financial Statements
To the Board of Directors
Pyramid Industries, Inc. and subsidiary
Erie, Pennsylvania
We have audited the accompanying consolidated statement of financial
position of Pyramid Industries, Inc. and subsidiary as of December 31, 1999
and the related consolidated statements of income, stockholders' equity, and
cash flows for the year then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit 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 our audit provides a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Pyramid
Industries, Inc. and subsidiary as of December 31, 1999, and the results of
their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
Brown Schwab Bergquist & Co.
Erie, Pennsylvania
January 28, 2000
3
<PAGE> 4
ITEM 7(a) - FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
-----------------------------------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
PYRAMID INDUSTRIES, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
(UNAUDITED) AS OF
AS OF JUNE 30, DECEMBER 31,
---------------------------------------- -------------------
2000 1999 1999
------------------- ------------------- -------------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 63,073 $ 1,143,708 $ 1,077,468
Trade receivables (net of allowance for
doubtful accounts of $105,000 in 2000
and $100,000 in 1999) 7,209,069 4,814,805 5,726,913
Inventories 2,392,902 1,789,074 1,929,527
Prepaid expenses and other current assets 74,935 109,938 204,949
Prepaid and deferred income taxes 374,801 218,200 377,300
------------------- ------------------- -------------------
Total current assets 10,114,780 8,075,725 9,316,157
PROPERTY AND EQUIPMENT
Machinery and equipment 6,965,187 4,716,710 6,043,456
Leasehold improvements 287,861 189,610 280,411
Office furniture and equipment 515,266 421,901 515,266
Vehicles 71,123 84,084 84,084
Project in progress 496,316 678,049 129,954
------------------- ------------------- -------------------
8,335,753 6,090,354 7,053,171
Less accumulated depreciation and amortization 3,646,984 2,925,892 3,239,636
------------------- ------------------- -------------------
Net property and equipment 4,688,769 3,164,462 3,813,535
OTHER ASSETS
Goodwill and noncompete (net of accumulated
amortization) 621,936 669,457 645,696
Other - 16,941 49,819
------------------- ------------------- -------------------
Total other assets 621,936 686,398 695,515
------------------- ------------------- -------------------
Total assets $ 15,425,485 $ 11,926,585 $ 13,825,207
=================== =================== ===================
</TABLE>
See Notes to Financial Statements.
4
<PAGE> 5
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
PYRAMID INDUSTRIES, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
(UNAUDITED) AS OF
AS OF JUNE 30, DECEMBER 31,
---------------------------------------- -------------------
2000 1999 1999
------------------- ------------------- -------------------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit $ 1,300,000
Notes payable - subsidiary shareholders - $ 100,000 $ 100,000
Current portion of long-term debt - 250,000 223,444
Trade payables and accrued expenses 5,346,354 4,780,038 5,999,586
Corporate income taxes payable - 500,590 353,215
------------------- ------------------- -------------------
Total current liabilities 6,646,354 5,630,628 6,676,245
LONG-TERM DEBT,
LESS CURRENT LIABILITIES - 263,916 107,955
NONCOMPETE OBLIGATION 128,844 121,710 123,809
DEFERRED INCOME TAXES 223,100 146,200 210,700
MINORITY INTEREST IN SUBSIDIARY 49,827 301 29,972
------------------- ------------------- -------------------
Total liabilities 7,048,125 6,162,755 7,148,681
COMMITMENTS AND CONTINGENT
LIABILITIES (NOTE 6)
STOCKHOLDERS' EQUITY
Common stock, no par value; 100,000 shares
authorized, 8,000 shares issued 400,000 400,000 400,000
Class B common stock, no par value;
50,000 shares authorized, 416 (2000) and
208 (1999) shares issued and outstanding 260,000 130,000 260,000
Additional paid-in capital 95,140 95,140 95,140
Retained earnings 7,787,320 5,303,790 6,086,486
------------------- ------------------- -------------------
8,542,460 5,928,930 6,841,626
Less 254 shares of common stock in treasury 165,100 165,100 165,100
------------------- ------------------- -------------------
Total stockholders' equity 8,377,360 5,763,830 6,676,526
------------------- ------------------- -------------------
Total liabilities and stockholders' equity $ 15,425,485 $ 11,926,585 $ 13,825,207
=================== =================== ===================
</TABLE>
See Notes to Financial Statements.
5
<PAGE> 6
CONSOLIDATED STATEMENTS OF INCOME
PYRAMID INDUSTRIES, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
(UNAUDITED) YEAR ENDED
SIX MONTHS ENDED DECEMBER 31,
----------------------------------------- -------------------
2000 1999 1999
------------------- ------------------- -------------------
<S> <C> <C> <C>
Sales $ 27,560,857 $ 19,792,225 $ 43,012,668
Cost of sales 18,972,556 14,059,819 32,144,811
------------------- ------------------- -------------------
Gross Profit 8,588,301 5,732,406 10,867,857
Operating expenses:
Selling 1,649,652 1,389,327 2,596,217
General and administrative 3,628,606 2,438,964 4,933,311
------------------- ------------------- -------------------
Total operating expenses 5,278,258 3,828,291 7,529,528
------------------- ------------------- -------------------
Operating income 3,310,043 1,904,115 3,338,329
Other income (expense)
Interest income 12,598 14,662 27,145
Interest expense (68,109) (42,075) (81,578)
Other income (expense) (108,525) - 118,155
------------------- ------------------- -------------------
Total other income (expense) (164,036) (27,413) 63,722
------------------- ------------------- -------------------
Income before income taxes 3,146,007 1,876,702 3,402,051
Provision for income taxes 1,254,000 697,195 1,263,800
------------------- ------------------- -------------------
Earnings before minority interest in subsidiary 1,892,007 1,179,507 2,138,251
Minority interest in subsidiary earnings 19,855 301 29,972
------------------- ------------------- -------------------
Net income before extraordinary gain 1,872,152 1,179,206 2,108,279
Extraordinary gain on plant fire, net of taxes - 546,724 546,724
------------------- ------------------- -------------------
Net income $ 1,872,152 $ 1,725,930 $ 2,655,003
=================== =================== ===================
Basic and diluted earnings per share:
Income before extraordinary gain $ 229.37 $ 145.89 $ 261.02
Extraordinary gain on plant fire - 67.69 67.69
------------------- ------------------- -------------------
$ 229.37 $ 213.58 $ 328.71
=================== =================== ===================
</TABLE>
See Notes to Financial Statements.
6
<PAGE> 7
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
PYRAMID INDUSTRIES, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
COMMON STOCK CLASS B COMMON ADDITIONAL TREASURY STOCK
---------------- ---------------- PAID-IN RETAINED ----------------
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT
------ ------ ------ ------ ------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 8,000 $ 400,000 - $ - $ 94,140 $ 3,698,242 - $ -
Net Income 2,655,003
Cash dividends (266,759)
Issuance of Class B common
stock to employees 416 260,000
Purchase and redemption of
common stock (254) (165,100)
Additional paid in capital for
subsidiary 1,000
----- --------- --- --------- -------- ----------- ---- ----------
Balance at December 31, 1999 8,000 $ 400,000 416 $ 260,000 $ 95,140 $ 6,086,486 (254) $ (165,100)
Net income (unaudited) 1,872,152
Cash dividends (unaudited) (171,318)
----- --------- --- --------- -------- ----------- ---- ----------
Balance at June 30, 2000 (unaudited) 8,000 $ 400,000 416 $ 260,000 $ 95,140 $ 7,787,320 (254) $ (165,100)
===== ========= === ========= ======== =========== ==== ==========
</TABLE>
See Notes to Financial Statements.
7
<PAGE> 8
CONSOLIDATED STATEMENT OF CASH FLOWS
PYRAMID INDUSTRIES, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
(UNAUDITED) YEAR ENDED
SIX MONTHS ENDED DECEMBER 31,
-------------------------------------- ------------------
2000 1999 1999
------------------ ------------------ ------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 1,872,152 $ 1,725,930 $ 2,655,003
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 470,760 379,727 817,629
Deferred incomes taxes 73,000 - (94,600)
Minority interest in subsidiary 19,855 301 29,972
Gain on sale of property and equipment (10,700) - (69,251)
Stock based compensation - 130,000 130,000
Changes in assets and liabilities, net of effects
of business acquisitions:
Increase in trade receivables (1,482,156) (754,116) (1,666,223)
Increase in inventories (463,375) (294,099) (434,552)
Decrease in prepaid expenses
and other receivables 130,014 185,529 190,518
(Decrease) increase in trade payables,
accrued expenses and other payables (1,064,548) 1,676,713 2,878,884
------------------ ------------------ ------------------
Net cash provided by (used in) operating activities (454,998) 3,049,985 4,437,380
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for acquisition of subsidiary - (400,000) (400,000)
Purchases of property and equipment (1,314,765) (634,400) (1,703,355)
Proceeds from sale of property and equipment 3,231 - 85,136
Decrease (increase) in other assets 49,819 - (133,532)
------------------ ------------------ ------------------
Net cash used in investing activities (1,261,715) (1,034,400) (2,151,751)
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of treasury stock - (165,100) (165,100)
Principal payments on long-term debt (426,364) (76,357) (266,264)
Net borrowings (repayments) on line of credit 1,300,000 (600,000) (600,000)
Cash dividends paid to stockholders (171,318) (120,382) (266,759)
------------------ ------------------ ------------------
Net cash provided by (used in) financing activities 702,318 (961,839) (1,298,123)
------------------ ------------------ ------------------
Net increase (decrease) in cash and cash equivalents (1,014,395) 1,053,746 987,506
Cash and cash equivalents at beginning of year 1,077,468 89,962 89,962
------------------ ------------------ ------------------
Cash and cash equivalents at end of period $ 63,073 $ 1,143,708 $ 1,077,468
================== ================== ==================
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 68,109 $ 42,075 $ 84,230
Income taxes 1,665,316 1,174,570 1,531,582
</TABLE>
See Notes to Financial Statements.
8
<PAGE> 9
PYRAMID INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
------------------
Pyramid Industries, Inc. (Company) operations include the manufacture and sale
of plastic conduit systems primarily to companies in the telecommunications and
construction industries located in the United States. VisionTeq, Inc. operations
include design, manufacturing and selling products for the cable television and
telecommunications industry.
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of Pyramid
Industries, Inc. and its 70%-owned subsidiary, VisionTeq, Inc. All material
intercompany transactions have been eliminated in consolidation.
Unaudited Financial Statements
------------------------------
The condensed consolidated financial statements as of June 30, 2000 and 1999 and
for the six month periods ended June 30, 2000 and 1999 are unaudited and reflect
all adjustments (consisting only of normal recurring adjustments) which are, in
the opinion of management necessary for a fair presentation of financial
condition, results of operation and cash flows.
Business Segment Information
----------------------------
The Company considers all of its material operations to be part of a single
industrial segment consisting of the manufacture and sale of plastic conduit
systems.
Fair Value of Financial Instruments
-----------------------------------
The carrying amounts reflected in the consolidated balance sheets for cash and
cash equivalents, accounts receivable, bank loans, and accounts payable
approximate fair value due to the short maturities of these instruments.
Asset Purchase Agreements
-------------------------
On June 27, 2000, the Company purchased 70% (700 shares) of the common shares of
VisionTeq, Inc. The purchase method was used to account for the acquisition, and
the purchase price was $400,000. The tangible net book value of VisionTeq, Inc.
was $0 at the date of acquisition. The purchase price created $400,000 of
goodwill which is being amortized on a straight line basis over 15 years.
Results of VisionTeq, Inc. operations are reflected in the accompanying
financial statements since June 1999. The purchase price included cash payments
at closing of $300,000 and the issuance of two promissory notes in the amounts
of $66,667 and $33,333 payable in June 2000.
9
<PAGE> 10
PYRAMID INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICES
(CONTINUTED)
The unaudited consolidated pro forma information utilizes unaudited information
for VisionTeq for the period January 1, 1999 through June 27, 1999. The
information presented below shows Company sales and net income assuming the
acquisition was effective as of January 1, 1999.
Year ended December 31, 1999
----------------------------
Sales $43,373,329
Net income 2,801,601
The unaudited consolidated pro forma information is not necessarily indicative
of the combined results that would have occurred had the acquisition occurred on
these dates, nor is it indicative of the results that may occur in the future.
Revenue Recognition
-------------------
Revenues are derived from sales to unaffiliated customers and are recognized
when products are shipped and title has transferred.
Use of Estimates
----------------
The preparation of 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 assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Concentration of Credit Risk and Major Customers
------------------------------------------------
The Company performs credit evaluations of its customers and generally does not
require collateral. The Company maintains an allowance for doubtful accounts
based upon the expected collectibility of all accounts receivable. Two customers
accounted for 21% of sales for the year ended December 31, 1999. Accounts
receivable balances related to these customers represented 16% of total accounts
receivable at December 31, 1999.
Cash Equivalents
----------------
Cash equivalents include balances in interest bearing checking accounts and
money market funds.
Inventories
-----------
Inventories are stated at the lower of aggregate cost or market. Cost is
determined using the first-in, first-out method.
10
<PAGE> 11
PYRAMID INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Depreciation and Amortization
-----------------------------
Depreciation and amortization are computed using both straight-line and
accelerated methods to charge the cost of depreciable or amortizable assets to
operations over their estimated service lives, as follows:
Machinery, equipment and vehicles 3-7 years
Leasehold improvements 5-20 years
Office furniture and equipment 5-7 years
Goodwill 15 years
Impairment
----------
Long-term assets are reviewed for impairment following the provisions of SFAS
No. 121 (Accounting for the Impairment of Long-Lived Assets to be Disposed Of).
Goodwill and non-compete agreements not associated with particular assets are
reviewed for impairment based on an analysis of undiscounted future cash flows
associated with the related operation.
Advertising
-----------
Advertising costs are expensed as incurred. Advertising costs were $145,715 for
the year ended December 31, 1999.
Income Taxes
------------
Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences, as well as operating loss
and tax credit carryforwards. Deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the differences between
the reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
Earnings Per Share
------------------
Basic and diluted earnings per share is computed by dividing income by the
weighted average number of common shares.
11
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PYRAMID INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - INVENTORIES
The components of inventories are as follows:
<TABLE>
<CAPTION>
(UNAUDITED) AS OF
AS OF JUNE 30, DECEMBER 31,
---------------------------------------- -------------------
2000 1999 1999
------------------- ------------------- -------------------
<S> <C> <C> <C>
Raw materials $ 996,777 $ 540,614 $ 726,806
Finished products 883,196 860,794 685,625
Reels 399,708 362,666 418,054
Fittings, parts and supplies 113,221 25,000 99,042
------------------- ------------------- -------------------
$ 2,392,902 $ 1,789,074 $ 1,929,527
=================== =================== ===================
</TABLE>
NOTE 3 - LINE OF CREDIT AND NOTES PAYABLE
The Company has a $2,000,000 line of credit agreement with PNC Bank. Borrowings
on the line are limited to 80% of current receivables plus 50% of eligible
inventory (limited to $500,000). Interest is payable monthly on the outstanding
balance at prime (8.5% at December 31, 1999 and 9% at June 30, 2000) or at the
Bank's Euro-rate plus 2.35%. There are no borrowings outstanding on the line as
of December 31, 1999. On May 24, 2000 the line was renewed for one year and
increased to $3,000,000. As of June 30, 2000 there was $1,300,000 outstanding on
the line.
Debt at December 31, 1999 consisted of the following:
PNC Bank, agreement dated June 23, 1998. $ 110,670
PNC Bank, agreement dated November 27, 1996. 216,307
PNC Bank, agreement dated July 29, 1994. 4,422
--------------
$ 331,399
Less current maturities 223,444
--------------
$ 107,955
==============
On June 23, 1998, the Company entered into a credit agreement with PNC Bank and
obtained $416,000 for the purchase of equipment. Monthly payments of $18,820,
including interest at 8.03% are required to amortize the loan over a two year
term. The balance outstanding at December 31, 1999 is $110,670.
12
<PAGE> 13
PYRAMID INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - LINE OF CREDIT AND NOTES PAYABLE (CONTINUED)
On November 27, 1996, the Company entered into a credit agreement with PNC Bank
and obtained $500,000 for the purchase of equipment and electrical upgrade to
the Erie plant. Monthly payments of $10,205, including interest at 8.28% are
required to amortize the loan over a five year term. The principal balance
outstanding at December 31, 1999 is $216,307.
The Company entered into a credit agreement with PNC Bank on July 29, 1994, and
obtained a $225,900 loan to purchase equipment. Interest is being charged at the
Treasury Index Rate plus 2 1/4% and is adjusted annually. The rate being charged
at December 31, 1999 is 8%. Monthly payments are required in amounts necessary
to fully amortize the loan by February, 2000. The balance outstanding at
December 31, 1999 is $4,422.
Collateral on the loans from PNC Bank described above includes substantially all
assets of the Company. The credit agreements require Pyramid Industries, Inc. to
maintain certain financial ratio covenants.
The aggregate maturities of long-term debt for years following December 31, 1999
are as follows:
2000 $223,444
2001 107,955
NOTE 4 - PROFIT-SHARING PLAN
The Company has a profit-sharing plan covering substantially all of its
employees. The Company's profit-sharing plan consists of the Salaried Employees'
Profit-Sharing Plan and the Union Employees' Profit-Sharing Plan. The Salaried
Plan includes a 401(k) feature whereby employees can contribute up to 16% of
their compensation to the plan. The Company matches 25% of the employee's
contributions up to 8% of the employee's total compensation. Contributions to
the profit-sharing plans are made at the discretion of the Board of Directors.
For the year ended December 31, 1999, the Company's total contribution expense
is $281,563.
13
<PAGE> 14
PYRAMID INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 - INCOME TAX MATTERS
Deferred tax assets and liabilities derive from the following components at
December 31, 1999:
Deferred tax assets:
Receivable allowances $ 42,420
Warranty accruals 71,040
Inventory 52,490
Accrued expenses 20,300
Deferred benefits 191,050
-------------------
$ 377,300
===================
Deferred tax liabilities:
Property and equipment $ 210,700
===================
The deferred tax amounts mentioned above have been classified on the
accompanying statements of financial position as of December 31, 1999 as
follows:
Current assets $ 377,300
Noncurrent liabilities (210,700)
-------------------
$ 166,600
===================
The income tax provision for the year ended December 31, 1999 is as follows:
Current:
Federal $ 1,478,200
State 210,200
-------------------
Total current 1,688,400
Deferred:
Federal (71,200)
State (23,400)
-------------------
Total deferred (94,600)
Extraordinary gain, due to fire (included
in provision above) (330,000)
-------------------
Total tax provision $ 1,263,800
===================
14
<PAGE> 15
PYRAMID INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 - INCOME TAX MATTERS (CONTINUED)
The following table reconciles the income tax provision at the statutory rate to
that in the financial statements.
Taxes computed at 34% $ 1,455,000
State taxes (net of federal benefit) 123,000
Other 15,800
Extraordinary gain, due to fire (330,000)
--------------------
Income tax provision $ 1,263,800
====================
NOTE 6 - COMMITMENTS AND CONTINGENT LIABILITIES
Lease
-----
The Company is obligated under an operating lease to rent its Erie, Pennsylvania
production, warehouse and office facilities from a partnership consisting of a
current stockholder of the Company for a term ending December 31, 2000. Under
the terms of this agreement, the annual rental is adjusted every three years for
changes in the Consumer Price Index and the lessor's interest rate on certain
indebtedness. The Company is also responsible for the payment of utilities,
insurance and maintenance costs. Rent expense for the year ended December 31,
1999 was $139,305. Subsequent to December 31, 1999, the Company renegotiated the
lease and extended the term to December 31, 2008. The Company has the option to
renew the lease for three four year terms. The base rent is adjusted by a CPI
factor effective January 1, 2001.
The Company incurs rent for its production facility in El Dorado, Arkansas. The
facility is currently being rented on a month-to-month basis. The rent is $1,500
per month. The Company is also responsible for the payment of utilities,
insurance and maintenance costs. Rent expense for the year ended December 31,
1999 was $18,000 in each year.
The Company is obligated under an operating lease to rent administrative offices
for a term ending April 15, 2001. The Company is also responsible for payment of
taxes, utilities, and maintenance costs. Rent expense for the year ended
December 31, 1999 was $99,027. The Company has the option to renew the lease for
three two year terms.
The Company is obligated under an operating lease to rent the plant facility for
H&H Aero in Cranesville, Pennsylvania for a term ending November 4, 2012. The
building is owned by Crosby Circle Partners, a partnership consisting of
officers of Pyramid Industries. The base rent is $4,167 per month. Rent expense
for the year ended December 31, 1999 was $50,000.
15
<PAGE> 16
PYRAMID INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 - COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
The Company is obligated under an operating lease to rent plant equipment for
H&H Aero in Cranesville, Pennsylvania for a term ending November 4, 2000. The
base rent is $10,000 per month. Rent expense for the year ended December 31,
1999 was $120,000. The Company has the right to purchase the equipment during
the year 2000 for $600,000.
The Company is obligated under other operating leases for vehicles and
equipment. Rent expense under these other operating leases for the year ended
December 31, 1999 was $257,545.
VisionTeq, Inc. was leasing office and production space on a month-to-month
basis during 1999. Rent expense for the year ended December 31, 1999 was
$12,243. Effective January 1, 2000, the subsidiary is obligated under an
operating lease to rent office and production facilities for a term ending
December 31, 2003. The rental payments are $5,000 a month, which includes a
provision for operating expenses. The subsidiary has the option to renew the
lease for two two year terms.
The committed obligations of operating leases for years following December 31,
1999 are as follows:
2000 $477,788
2001 330,831
2002 280,180
2003 246,161
2004 176,648
Noncompete Agreement
--------------------
The Company entered into employment agreements and covenants not to compete with
former stockholders of H&H Aero which took effect November 4, 1997. The
agreement restricts the participation in any business which competes with the
Company. The agreement requires $75,000 payments on November 1, 2001 and 2002.
Litigation
----------
The Company is involved in various legal proceedings that have arisen in the
ordinary course of business. In the opinion of the Company, such proceedings
should not ultimately result in any liability which would have a material
adverse effect on the financial position, liquidity or results of operations of
the Company.
16
<PAGE> 17
PYRAMID INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 - COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
Stock Redemption Plan
---------------------
The Company adopted a stock redemption plan in November 1998. The Company may
annually set aside a percentage of its earnings to redeem shares. The amount of
earnings to be set aside may be determined annually by the Board of Directors
considering various factors such as earnings and anticipated Company capital
requirements.
During 1999, the Company purchased 254 shares of stock for $165,100.
Stock Based Compensation Plan
-----------------------------
In December 1998, the Company adopted a restricted stock award plan that
provides for stock awards to key employees of the Company. Under the Plan,
awards of Class B stock valued at $130,000 were given in 1999 for services in
1998. The stock has dividend but no voting rights. The 1998 financial statements
include a charge of $130,000 for stock earned under the plan. During 1999, the
Company issued the stock earned during 1998. An additional $130,000 of stock was
issued in 1999 for compensation earned in 1999.
NOTE 7 - PLANT FIRE
On October 21, 1998, the Company sustained damage to inventory and equipment
from a fire which occurred in a warehouse located at the Erie plant. The Company
maintained insurance for property damage.
During 1999, the Company recognized an extraordinary gain on the plant fire of
$876,724, for insurance proceeds in excess of depreciated equipment cost. The
gain is reported net of income taxes equal to $330,000. Insurance proceeds for
business interruption and damage done to inventory are netted against the
related costs.
NOTE 8 - STOCKHOLDERS' EQUITY
The components of stockholders' equity are as follows:
Preferred stock consists of 50,000 shares authorized with no shares issued or
outstanding.
Common stock is voting stock with no par value. There are 100,000 shares
authorized with 8,000 shares issued and 254 shares held as treasury stock.
Class B common stock is non-voting stock with no par value. There are 50,000
shares authorized with 416 shares issued and outstanding (June 30, 2000) and 208
issued and outstanding (December 31, 1999 and June 30, 1999).
17
<PAGE> 18
ITEM 7(b) - UNAUDITED PRO FORMA FINANCIAL INFORMATION
-----------------------------------------------------
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The accompanying unaudited pro forma financial information has been prepared to
give effect to the acquisition of Pyramid by Lamson. The unaudited pro forma
combined statement of income for the year ended January 1, 2000 gives effect to
the acquisition as if the acquisition had occurred on January 2, 1999. The
unaudited pro forma combined statement of income presented for the six month
period ended July 1, 2000 includes the historical financial results of Lamson
for the six month period ended July 1, 2000 and of Pyramid for the six month
period ended June 30, 2000 as if the acquisition had occurred on January 1,
2000. Synergies and expected cost savings from the integration of Pyramid with
Lamsons' previously existing businesses or any additional profitability
resulting from the application of Lamson revenue enhancement measures have not
been included in the unaudited pro forma combined statements of income.
The unaudited pro forma financial information includes the adjustments that have
a continuing impact to the combined company to reflect the transaction using
purchase accounting. The pro forma adjustments are described in the notes to the
unaudited pro forma financial information. The adjustments are based upon
preliminary information and certain management judgments and estimates.
Management is presently evaluating the rationalization of the Pyramid facilities
and the completion of such evaluation may result in an adjustment to the
purchase price allocation. Accordingly, the purchase accounting adjustments are
preliminary and subject to revisions.
The unaudited pro forma financial information and accompanying notes are
presented for illustration purposes only and do not purport to be indicative of
and should not be relied upon as indicative of the operating results which may
occur in the future, or that would have occurred if the acquisition had been
consummated on January 2, 1999. The unaudited pro forma financial information
should be read in conjunction with Pyramid's consolidated financial statements
and notes thereto for the year ended December 31, 1999 filed under Item 7(a) of
this report and Lamson's consolidated financial statements and notes thereto and
management's discussion and analysis for the year ended January 1, 2000 and the
six month period ended July 1, 2000 filed as part of the Company's 10-K and
10-Q, respectively.
18
<PAGE> 19
The Lamson & Sessions Co.
Unaudited Pro Forma Condensed Combined Statement of Income
For the Year Ended January 1, 2000
(Dollars in Thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Lamson Pyramid Adjustments Combined
------------------ ------------------- ------------------- ------------------
<S> <C> <C> <C> <C>
Net Sales $ 291,381 $ 43,013 $ 334,394
Cost of products sold $ 429 (5)
229,981 32,145 265 (6) 262,820
------------------ ------------------- ------------------- ------------------
Gross profit 61,400 10,868 (694) 71,574
Operating expenses 1,700 (1)
1,300 (2)
48,054 7,530 (2,400)(4) 56,184
------------------ ------------------- ------------------- ------------------
Operating income 13,346 3,338 (1,294) 15,390
Interest and other (income) expense 3,913 (3)
3,558 (64) (54)(8) 7,353
------------------ ------------------- ------------------- ------------------
Income before income taxes 9,788 3,402 (5,153) 8,037
Income tax (benefit) (9,000) 1,264 (1,278)(7) (9,014)
------------------ ------------------- ------------------- ------------------
Income from continuing operations
before minority interest in subsidiary 18,788 2,138 (3,875) 17,051
Minority interest in
subsidiary earnings - 30 - 30
------------------ ------------------- ------------------- ------------------
Income from continuing operations $ 18,788 $ 2,108 $ (3,875) $ 17,081
================== =================== =================== ==================
Net income per share - basic $ 1.40 $ 1.27
================== ==================
Net income per share - diluted $ 1.39 $ 1.26
================== ==================
Weighted average shares
outstanding - basic 13,448 13,448
================== ==================
Weighted average shares
outstanding - diluted 13,482 13,482
================== ==================
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Statement of Income.
19
<PAGE> 20
The Lamson & Sessions Co.
Unaudited Pro Forma Condensed Combined Statement of Income
For the Six Months Ended July 1, 2000
(Dollars in Thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Lamson Pyramid Adjustments Combined
------------------ ------------------ ------------------- ------------------
<S> <C> <C> <C> <C>
Net Sales $ 171,639 $ 27,561 $ 199,200
Cost of products sold $ 215 (5)
123,411 18,973 265 (6) 142,864
------------------ ------------------ ------------------- ------------------
Gross profit 48,228 8,588 (480) 56,336
Operating expenses 850 (1)
650 (2)
28,699 5,278 (2,074) (4) 33,403
------------------ ------------------ ------------------- ------------------
Operating income 19,529 3,310 94 22,933
Interest and other (income) expense 1,957 (3)
1,546 164 (56) (8) 3,611
------------------ ------------------ ------------------- ------------------
Income before income taxes 17,983 3,146 (1,807) 19,322
Income tax (benefit) 6,154 1,254 (354) (7) 7,054
------------------ ------------------ ------------------- ------------------
Income from continuing operations
before minority interest in subsidiary 11,829 1,892 (1,453) 12,268
Minority interest in
subsidiary earnings - 20 - 20
------------------ ------------------ ------------------- ------------------
Income from continuing operations $ 11,829 $ 1,872 $ (1,453) $ 12,248
================== ================== =================== ==================
Net income per share - basic $ 0.88 $ 0.91
================== ==================
Net income per share - diluted $ 0.86 $ 0.89
================== ==================
Weighted average shares
outstanding - basic 13,474 13,474
================== ==================
Weighted average shares
outstanding - diluted 13,704 13,704
================== ==================
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Statement of Income.
20
<PAGE> 21
THE LAMSON & SESSIONS CO.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
1. PRO FORMA ADJUSTMENTS
The pro forma adjustments to the unaudited pro forma condensed combined
financial statements are as follows:
(1) Record amortization of excess of purchase price over acquired net
assets (goodwill) based on a estimated life of 20 years.
(2) Record amortization of 5-year non-compete agreements entered into
as part of the acquisition.
(3) Record additional estimated interest expense ($47.4 million
borrowed at 8 1/4%) on financing the acquisition.
(4) Elimination of compensation expense for former shareholders who
are not continuing as employees of Lamson net of the cost of a
consulting contract related to one such former shareholder.
(5) Increased depreciation over an average of a 7 year period
resulting from the write up of fixed assets to fair value.
(6) Increase in cost of products sold from the write up of inventory
to fair value.
(7) Provision for income taxes on pro forma adjustments, excluding
goodwill amortization, at 37%.
(8) Elimination of interest on debt retired by Pyramid in conjunction
with the acquisition.
21
<PAGE> 22
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE LAMSON & SESSIONS CO.
-------------------------
(Registrant)
DATE: December 5, 2000 By /s/ James J. Abel
--------------------------------
Executive Vice President, Secretary,
Treasurer and Chief Financial Officer
22
