SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 1996
Commission File Number: 33-95452
LANESBOROUGH CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 13-3389799
(State of Incorporation) (I.R.S. employer identification number)
65 East 55th Street
New York, New York 10022
(Address of principal executive offices, including zip code)
(212) 759-6301
(Telephone number, including area code)
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 _____
As of October 22, 1996, the aggregate number of outstanding shares of
the Registrant's Common Stock, $0.01 par value, was 99,911.
<PAGE>
LANESBOROUGH CORPORATION
FORM 10-Q
Quarter Ended September 30, 1996
INDEX
Page
No.
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements:
Consolidated Balance Sheets (unaudited) as of
December 31, 1995 and September 30, 1996 3
Consolidated Statements of Operations (unaudited)
for the three months and nine months ended September 30, 1995
and September 30, 1996 4
Consolidated Statements of Cash Flows (unaudited)
for the nine months ended September 30, 1995 and
September 30, 1996 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings 14
Item 2 - Changes in Securities 14
Item 3 - Defaults Upon Senior Securities 14
Item 4 - Submission of Matters to a Vote of Security Holders 15
Item 5 - Other Information 15
Item 6 - Exhibits and Reports on Form 8-K 15
Signatures 16
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
See pages 3-8
2
<PAGE>
<TABLE>
LANESBOROUGH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)
(unaudited)
<CAPTION>
December 31, September 30,
1995 1996
--------------- ----------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,576 $ 965
Accounts receivable (net of allowances
of $142) 9,480 10,103
Inventories 5,382 6,240
Deferred income taxes 1,045 907
Other current assets 573 742
----------- --------
Total current assets 18,056 18,957
Property, plant and equipment 16,846 16,436
Goodwill 1,957 1,889
Debt financing costs 374 313
Deferred income taxes 4,420 3,499
Other assets 3,435 3,445
---------- ---------
Total assets $ 45,088 $ 44,539
========== =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt $ 5,182 $ 4,443
Accounts payable 2,622 3,181
Accrued interest payable 34 20
Accrued liabilities 4,969 4,279
Income taxes payable 482 354
---------- ---------
Total current liabilities 13,289 12,277
Long-term debt 54,096 52,078
Other non-current liabilities 8,040 8,410
---------- ----------
Total liabilities 75,425 72,765
---------- ----------
Commitments and Contingencies (Note 7)
Stockholders' deficit:
Common stock of par value $0.01; 1,000,000 shares
authorized, 99,911 issued and outstanding 1 1
Additional paid-in capital 7,138 7,138
Accumulated deficit ( 35,169) ( 33,058)
Deferred pension cost ( 2,307) ( 2,307)
---------- ---------
Total stockholders' deficit ( 30,337) ( 28,226)
---------- ---------
Total liabilities and stockholders' deficit $ 45,088 $ 44,539
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
<TABLE>
LANESBOROUGH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except share data)
(unaudited)
<CAPTION>
For the three For the nine
months ended months ended
September 30, September 30,
1995 1996 1995 1996
-------- -------- -------- ------
<S> <C> <C> <C> <C>
Net sales $ 12,662 $ 13,267 $ 37,561 $ 40,985
Cost of sales 8,657 9,792 25,592 29,372
--------- ------- -------- -------
Gross profit 4,005 3,475 11,969 11,613
Selling and administrative 2,280 2,086 6,677 6,489
Research, development and engineering 194 247 631 711
Amortization of intangible assets 22 22 68 68
---------- -------- --------- --------
Operating profit 1,509 1,120 4,593 4,345
Interest expense 113 199 3,124 635
Amortization of debt financing costs 20 20 149 61
Other expense, net 181 116 423 169
--------- -------- -------- --------
Income from continuing
operations before income taxes 1,195 785 892 3,480
Provision for (benefit of) income taxes 257 326 ( 3,686) 1,369
-------- -------- ------- -------
Income from continuing
operations 938 459 4,578 2,111
Loss of discontinued operation - - ( 622) -
---------- --------- -------- ----------
Net income $ 938 $ 459 $ 3,956 $ 2,111
======== ======== ======== ========
Net income per share:
Continuing operations $ 9.39 $ 4.59 $ 67.12 $ 21.13
Discontinued operations - - ( 9.12) -
---------- -------- --------- ----------
Net income per share $ 9.39 $ 4.59 $ 58.00 $ 21.13
======== ======== ======== ========
Weighted average number of
common shares outstanding 99,911 99,911 68,208 99,911
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
<TABLE>
LANESBOROUGH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
<CAPTION>
For the nine months ended
September 30,
1995 1996
----------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,956 $ 2,111
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,812 1,726
Deferred income taxes 93 1,059
Net increase in receivable and
inventory reserves 271 107
Increase in accounts receivable ( 348) ( 623)
Decrease (increase) in inventories 426 ( 965)
Net decrease (increase) in other assets 462 ( 180)
(Decrease) increase in accounts payable ( 824) 322
Net (decrease) increase in accrued liabilities
and income taxes payable ( 2,147) 746
Net decrease in other non-current obligations ( 238) ( 602)
Net increase in net liabilities of
discontinued operation 622 -
--------- -----------
Net cash provided by operating activities 4,085 3,701
--------- ---------
Cash flows from investing activities:
Additions to property, plant and equipment ( 848) ( 1,251)
--------- --------
Net cash used in investing activities ( 848) ( 1,251)
--------- --------
Cash flows from financing activities:
Repayments under term loan ( 950) ( 1,200)
Repayment of secured notes to parent ( 1,519) -
Reduction in long-term debt - ( 1,861)
---------- ---------
Net cash used in financing activities ( 2,469) ( 3,061)
--------- --------
Net increase (decrease) in cash and
cash equivalents 768 ( 611)
Cash and cash equivalents at beginning of period 1,144 1,576
--------- ---------
Cash and cash equivalents at end of period $ 1,912 $ 965
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
LANESBOROUGH CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Lanesborough Corporation
Lanesborough Corporation (formerly, Sherborne Group Incorporated and
herein referred to as "Lanesborough") is a holding company whose assets consist
principally of the common stock of its wholly-owned subsidiary Buffalo Color
Corporation ("BCC"). For financial statement purposes Lanesborough and its
subsidiaries (collectively "the Company") operate in one business segment: the
manufacture and sale of synthetic organic chemicals.
Note 2 - Basis of Presentation
The consolidated financial statements included herein have been prepared
by the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission for reporting on Form 10-Q. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. In addition,
certain reclassifications have been made to the prior year financial statements
to conform to the current year's presentation. The statements should be read in
conjunction with the Company's report on Form 10-K for the year ended December
31, 1995 and the Audited Consolidated Financial Statements included therein.
In the opinion of management, the financial statements herein reflect
all adjustments, consisting only of normal recurring accruals, necessary for a
fair presentation of financial position, results of operations and cash flows
for the interim periods presented. The results of operations for the three and
nine month periods ended September 30, 1996 are not necessarily indicative of
the results to be expected for the full year.
Note 3 - Net Income Per Share
Net income per common share for the three and nine month periods ended
September 30, 1995 and 1996 is calculated by dividing net income by the
weighted average number of common shares outstanding during the respective
periods.
Note 4 - Supplemental Schedule of Cash Flow Information
Cash payments for interest and income taxes from continuing operations
were as follows:
Nine Months Ended
September 30,
1995 1996
------------ --------
(dollars in thousands)
Interest $ 307 $ 2,187
Income Taxes 112 470
6
<PAGE>
LANESBOROUGH CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 4 - Supplemental Schedule of Cash Flow Information (cont'd)
Included in the cash interest payments for the nine months ended
September 30, 1996 is an interest payment of $2.0 million on the Company's 10%
Senior Notes. Of this amount, $1.9 million has been recorded as a reduction in
the carrying value of these notes and, accordingly, has been reflected in the
Company's consolidated financial statements as a reduction in long-term debt.
Note 5 - Inventories
The major components of inventories were as follows:
December 31, September 30,
1995 1996
-------------- ----------
(dollars in thousands)
Raw materials $ 912 $ 742
Work in process 812 576
Finished goods 3,658 4,922
--------- --------
$ 5,382 $ 6,240
========= ========
Note 6 - Debt
Long-term debt includes $39.9 million principal amount of 10% Senior
Notes due 2000 (the "Notes") that were issued in an exchange transaction
completed on June 19, 1995 (the "Exchange Transaction"). The Exchange
Transaction involved (a) the exchange of $49.9 million in principal amount of
12 3/8% Senior Subordinated Notes due 1997 (the "Old Notes") (plus all accrued
interest from September 15, 1994 to June 19, 1995) for $37.0 million in
principal amount of the Notes and 50,911 shares of Lanesborough's Common Stock;
(b) the waiver of all interest accrued since October 1, 1994 on intercompany
indebtedness due to Sherborne Holdings Incorporated ("SHI Indebtedness"); (c)
the contribution to the capital of the Company of the balance of the SHI
Indebtedness in excess of $2.9 million in principal amount of Notes received by
Sherborne Holdings Incorporated, amounting to approximately $4.8 million; and
(d) the reduction in management fee charged to the Company from $100,000 per
month to $50,000 per month.
In accordance with Statement of Financial Accounting Standards No. 15,
"Accounting by Debtors and Creditors for Troubled Debt Restructurings", ("SFAS
No. 15"), at the date of the Exchange Transaction the carrying value of the
Notes was adjusted upward to $56.9 million to include substantially all future
interest payments on the Notes to the date of maturity. Capitalized interest
when paid is reported as a reduction in the carrying value of the Notes as
opposed to being expensed.
7
<PAGE>
LANESBOROUGH CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 7 - Commitments and Contingencies
The Company is currently a defendant in lawsuits that have arisen in the
ordinary course of its business. Management does not believe that any such
lawsuits or unasserted claims will have a material adverse effect on the
Company's financial position or results of operations.
BCC is also involved in various stages of investigation and clean-up
activities and other matters related to past operating and disposal practices.
The Company has not accrued any amounts where it has been identified as a
potentially responsible party ("PRP") for offsite contamination because it has
denied liability with respect to such sites and because at present it is not
possible to estimate a probable range of costs which may be incurred by the
Company regarding such matters if liability is established. The Company has not
accrued any amounts to remediate any conditions that might exist at its active
plant site, pending completion of the RCRA facility investigation. The Company
believes that any amounts that it may be required to pay with regard to these
matters will be expended over several years and funded from operating cash
flows. However, the Company is unable to forecast the ultimate amounts that may
be incurred and when specific amounts become known they may be material to the
Company's financial position, results of operation and cash flows.
Note 8 - Income Taxes
As of December 31, 1995, the Company had net operating loss
carryforwards for income tax purposes of $32.2 million expiring in the years
2009 through 2010. The completion of the Exchange Transaction discussed in the
consolidated financial statements for the year ended December 31, 1995 has
substantially limited the Company's net operating loss carryforwards available
to offset taxes on future operating income.
Note 9 - Subsequent Events
In October 1996, BCC consummated a secured term loan and revolving
credit facility with a commercial bank. This term loan is in the principal
amount of $3.0 million, of which $2.0 million was used to repay the Company's
existing $2.0 million term loan balance. The new term loan bears interest at
the bank's prime rate plus 2.0% and provides for monthly repayments of
principal through October 1, 1999. The revolving credit facility, which expires
on October 1, 1999, provides for maximum aggregate advances of $3.5 million,
and maximum aggregate face amount of letters of credit of $2.0 million.
Borrowings bear interest at the bank's prime rate plus 1.5%. Terms of the
agreement contain, among other provisions, a requirement that BCC maintain a
prescribed minimum level of tangible net worth and meet other financial tests.
Combined availability under the term loan and revolving credit facility is
limited to a specific factor of eligible inventories and trade accounts
receivable.
The Company did not make the scheduled October 15, 1996 interest payment
on the Notes. The Company currently anticipates that available cash will be
sufficient to enable it to make the interest payment during the 30-day grace
period described in the Indenture governing the Notes and has established
November 7, 1996 as the payment date for Default Interest. If Default Interest
is not paid during the 30-day grace period, an Event of Default (as defined)
would exist pursuant to the Indenture.
8
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and
results of operations of the Company should be read in conjunction with the
unaudited Consolidated Financial Statements and related notes included
elsewhere in this report, and the Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in the Company's Form 10-K for the year ended December 31,
1995, as filed with the Securities and Exchange Commission (file no.
33-95452) (the "1995 Form 10-K").
This Form 10-Q contains forward-looking statements that involve
risks and uncertainties. The Company's actual results may differ materially
from those anticipated. Important factors that the Company believes might cause
such differences are discussed in cautionary statements contained in this Form
10-Q, including, without limitation, the factors discussed under "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
in the Company's 1995 Form 10-K. In assessing forward-looking statements
contained herein, readers are urged to read carefully all cautionary statements
contained in this Form 10-Q, the Form 10-Q for the quarters ended March 31,
1996 and June 30, 1996 and the 1995 Form 10-K.
Overview
The Company manufactures a variety of specialty chemicals for sale
in the United States and abroad, through its principal subsidiary BCC. It is a
leading supplier of synthetic indigo dye for the blue denim market in the
United States and operates the only synthetic indigo dye chemical manufacturing
plant in North America. The Company also produces a range of synthetic organic
"intermediate" chemicals.
The Company's results of operations are highly dependent upon the
sale by BCC of a limited group of chemical products, particularly synthetic
indigo dye to U.S. denim manufacturers. Sales of synthetic indigo dye, which
accounted for 78% of the Company's total net sales for the nine month period
ended September 30, 1996, are subject to cyclical fluctuations in demand from
denim mills. In addition, the Company's results are affected by competition
from foreign producers of indigo dye in both the U.S. and international
markets. In recent periods, aggressive price competition from foreign producers
has affected net selling prices for indigo dye realized in both the domestic
and international markets. However, the stronger demand for its indigo which
the Company has experienced in 1996 has enabled it to realize earnings before
interest, taxes, depreciation and amortization ("EBITDA") of $5.8 million in
the first nine months of 1996. This result is consistent with EBITDA achieved
in the comparable period of 1995. Recently, many of the U.S. denim mills have
announced they have curtailed production by approximately 15% in response to an
excessive inventory of denim. While this condition is expected to be temporary,
the Company's financial results in future periods will be adversely affected by
this cyclical downturn.
9
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Product Classes
The Company, through its subsidiary, BCC, operates in a single
business segment: the manufacture and sale of synthetic organic chemicals. The
following table sets forth for the periods ended September 30, 1995 and 1996
the percentage of net sales attributable to each of the Company's principal
classes of similar products:
Nine Months Ended
Product Classes September 30,
1995 1996
------ -----
Indigo Dye 75.1% 78.0%
Alkylanilines 12.2 11.0
Anhydrides 12.7 11.0
Results of Operations for the Three Months and Nine Months Ended September 30,
1995 and 1996
Net Sales. Net sales increased from $12.7 million in the third
quarter of 1995 to $13.3 million in the third quarter of 1996 (an increase of
4.8%), and from $37.6 million in the first nine months of 1995 to $41.0 million
in the first nine months of 1996 (an increase of 9.1%). These increases are
primarily due to 1996 export indigo sales volume increases of 40.4% and
improved pricing in export indigo, offset, in part by a decline in anhydride
sales volumes.
Gross Profit. Gross profit as a percentage of net sales declined
from 31.6% in the third quarter of 1995 to 26.2% in the third quarter of 1996
and from 31.9% in the first nine months of 1995 to 28.3% in the first nine
months of 1996. The decline for the nine month period is due to an increase in
the Company's export indigo sales which typically yield lower margins and
higher fuel costs, and for the quarter ended September 30, 1996 reduced
domestic indigo selling prices as compared to the same period in 1995.
Other Operating Expenses. Other operating expenses, consisting of
selling and administrative expenses, research, development and engineering
expenses and amortization of intangible assets, were marginally lower for the
three and nine month periods ended September 30, 1995 and 1996 reflecting
continued efforts to control these costs.
Interest Expense. Interest expense for the nine months ended
September 30, 1996 decreased $2.5 million compared to the nine months ended
September 30, 1995. This decline is a direct result of the effects of the
Exchange Transaction which was accounted for in accordance with SFAS No. 15.
Substantially all cash interest payable on the Notes in future periods has been
capitalized as a component of the carrying value of the Notes. Capitalized
interest when paid is being recorded as a reduction in the carrying amount of
the Notes as opposed to being expensed.
10
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations for the Three Months and Nine Months Ended September 30,
1995 and 1996 (cont'd)
Amortization of Debt Financing Costs. The reduction in
amortization of debt financing costs for the nine month period ended September
30, 1995 compared to the same period in 1996 is a direct result of the effects
of the Exchange Transaction. The 1996 amounts reflect periodic amortization of
financing costs over the remaining term of the Notes.
Other Expense, Net. The decline in other expense, net is a direct
result of a reduction from $100,000 to $50,000 in monthly management fees being
accrued by the Company pursuant to the Exchange Transaction. The management fee
was last paid on October 24, 1995.
Income From Continuing Operations Before Income Taxes. The Company
reported income from continuing operations before income taxes of $1.2 million
in the third quarter of 1995, compared to $0.8 million in the third quarter of
1996, and income from continuing operations before income taxes of $0.9 million
in the first nine months of 1995, compared to $3.5 million in the first nine
months of 1996. The improvement for the nine months ended September 30, 1996 is
due to increased sales levels and reduced operating and interest expense
discussed above.
Provision for (Benefit of) Income Taxes. The (benefit of) income
taxes of $(3.7) million for the nine months ended September 30, 1995, is
primarily attributable to the change in valuation allowance pertaining to the
Company's net operating loss carryforwards. The provision for income taxes of
$0.3 million and $1.4 million for the three and nine months ended September 30,
1996, respectively, consists primarily of federal and state taxes on BCC's
income which is not sheltered by Lanesborough's net operating losses.
Loss of Discontinued Operation. The Company ceased to control a
non-recourse subsidiary that had filed for bankruptcy protection in 1993, once
its plan had been approved in 1994 and consummated in early 1995. The Company
expects no further gains or losses attributable to this former subsidiary.
Net Income. Net income decreased from $0.9 million in the third
quarter of 1995 to $0.5 million in the third quarter of 1996 (a decrease of
51.1%), and from $4.0 million in the first nine months of 1995 to $2.1 million
in the first nine months of 1996 (a decrease of 46.6%). These decreases are
primarily attributable to the recognition of tax benefits of the Company's net
operating loss in 1995.
Liquidity and Capital Resources
The operations of BCC for the nine months ended September 30, 1996
generated net cash of $3.7 million, and $4.1 million for the comparable period
ended September 30, 1995. These results reflect increased production costs
offset in part by improved indigo sales volumes and pricing in foreign markets.
The export sales growth has caused an increase in inventory levels and foreign
trade accounts receivable during the comparable periods.
11
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources (cont'd)
In recent months, inventories at certain domestic denim mills have
reached relatively high levels. Partially in response to this condition, most
U.S. mills slowed or stopped denim production during the July 4th holiday week
and have begun to cut back production from seven to six days per week. It is
also anticipated that the mills will shut down during the Thanksgiving and
Christmas holiday periods. Consequently, domestic indigo sales volumes for the
next several quarters are expected to be less than realized in the comparable
quarters of 1995 and 1996.
The Company is currently experiencing cyclically strong demand for
indigo in many of its export markets. Accordingly, it intends to increase
production of 42% liquid indigo in response to this demand. Historically, 42%
liquid indigo has been manufactured by others under the Company's direction.
The Company may not be able to obtain this product in desired quantities or may
be required to maintain higher levels of raw materials in support of its
tolling operations. Sales to export accounts have historically been at lower
margins and on longer terms which adversely affects its gross profit margin and
cash flow.
The Company has budgeted $2.5 million of capital expenditures in
1996, up from $1.5 million incurred in 1995. Such budgeted expenditures include
$1.1 million for pollution control, reflecting anticipated one-time costs of
installing additional air emission control equipment at the BCC facility. In
the nine month period ended September 30, 1996, the Company incurred capital
expenditures of $1.3 million. The Company currently expects that foreseeable
capital expenditures will be funded out of internally generated funds. However,
environmental regulations are becoming increasingly stringent and there can be
no assurance that the Company's capital expenditures will not exceed current
estimates. Also, the Company is studying the feasibility of building an
ancillary indigo processing facility to meet increased worldwide customer
demand. This facility would require additional capital outlays up to $5.0
million and may need to be financed by the issuance of additional debt or
equity securities.
The Company is engaged in various environmental investigation,
remediation and monitoring activities at its manufacturing facility and has
been named a PRP, and in certain instances is being sued, with respect to
various proceedings relating to other sites. The Company has not accrued any
amounts where it has been identified as a PRP for offsite contamination because
it has denied liability with respect to such sites and because it is not
possible to estimate a probable range of costs which may be incurred by the
Company regarding such matters if liability is established. The Company has not
accrued any amounts to remediate any conditions that might exist at its active
plant site, pending completion of the RCRA facility investigation. The Company
believes that any amounts that it may be required to pay with regard to these
matters will be expended over several years and funded from operating cash flow
and available bank borrowings. However, the Company is unable to forecast the
ultimate amounts that may be incurred, and when specific amounts become known,
they may be material to the Company's financial position, results of operations
and cash flow.
12
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources (cont'd)
In October 1996, BCC consummated a new secured term loan and
revolving credit facility that replaces the bank term loan and provides
additional funds for working capital purposes. The term loan is in the
principal amount of $3.0 million, bears interest at the bank's prime rate plus
2.0% and provides for monthly repayments of principal through October 1, 1999.
Under terms of the revolving credit facility, BCC may borrow up to $3.5 million
and obtain letters of credit of up to $2.0 million through October 1, 1999.
Borrowings bear interest at the bank's prime rate plus 1.5%.
The Exchange Transaction has reduced the Company's annual interest
expenditure from approximately $6.6 million to $4.4 million. The Exchange
Transaction has been accounted for in accordance with SFAS No. 15 "Accounting
by Debtors and Creditors for Troubled Debt Restructurings". Capitalized
interest on the Notes when paid is reported as a reduction in the carrying
amount of the Notes as opposed to being expensed.
The cyclical decline in operating performance, the relatively high
level of capital spending and the need to increase the investment in working
capital to support an increased level of export sales, resulted in insufficient
available cash to make the $2.0 million October 15, 1996 interest payment on
the Notes. The interest payment is scheduled to be paid on November 7, 1996,
which is within the 30-day grace period provided in the Indenture. The Company
may seek to obtain additional equity capital, obtain additional capital
financing and/or restructure its existing indebtedness in order to expand its
existing business, pursue other growth opportunities and fund scheduled debt
service obligations. However, there can be no assurance that such funding will
be available to it. If business conditions were to deteriorate due to cyclical
factors or for other reasons, the Company might be required to restructure its
indebtedness or to take other actions to enable it to meet its ongoing
commitments.
13
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is a defendant in lawsuits that have arisen in the
ordinary course of its business. The Company does not believe
that any of such lawsuits in which it is a defendant will have a
material adverse effect on the Company's financial position or
results of operations.
In addition, the Company is also subject to significant
governmental regulation in nearly all areas of its operations.
The Occupational Safety and Health Administration, the
Environmental Protection Agency and the New York State
Department of Environmental Conservation exercise broad control
over conditions at the Company's manufacturing facility.
The Company is required to comply with complex regulations
relating to the discharge of hazardous materials into the
environment. These include the Clean Water Act, the Clean Air
Act, the Resource Conservation & Recovery Act, the Comprehensive
Environmental Response, Compensation and Liability Act, the
Emergency Planning and Community Right to Know Act and the Toxic
Substances Control Act. The Company has in the past incurred,
and expects to continue to incur, substantial costs for
remediation of prior operating and disposal activities and to
comply with environmental laws and regulations.
The Company has been named as a PRP, and in certain instances is
being sued, with respect to various sites in the western New
York State area where it is alleged that the Company arranged
for the disposal of hazardous materials. The Company has denied
such allegations and intends to vigorously defend itself in such
litigation. In addition, in October 1996, the Company filed an
action against its primary general liability insurance carrier
seeking its defense costs and indemnity with regard to several
third party site claims. Because of the uncertainty as to
various aspects of environmental matters, including the degree
of contamination or environmental damage, the selection of an
appropriate remediation technique and the allocation of costs
among PRPs, it is not possible for the Company to estimate with
a reasonable degree of certainty a range of costs that may be
incurred by the Company with respect to these sites. The Company
believes that any amounts that it may be required to pay with
regard to the remediation of its facilities and off-site
locations will be expended over several years and funded from
operating cash flow. However the Company is unable to forecast
the ultimate amounts that may be incurred and when specific
amounts become known, they may be material to the Company's
financial position, results of operations and cash flow. For
further information concerning legal proceedings affecting the
Company see "Legal Proceedings" and "Governmental Regulations"
in the 1995 Form 10-K.
The Company's manufacturing facility includes modern pollution
control equipment and facilities, and the Company believes it is
operating generally in compliance with applicable environmental
requirements. However, environmental regulations applicable to
the chemical industry are frequently changed and are becoming
increasingly stringent. Compliance with environmental
requirements has in the past and can in the future be expected
to impose substantial costs upon the Company.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable .
14
<PAGE>
Item 4. Submission of Matters to a Vote of Security
Holders
Not applicable.
Item 5. Other Information
On September 11, 1996, pursuant to the authority granted to the
Board of Directors, (the "Board"), in the Company's present
Certificate of Incorporation, the Board filled the vacancy
created by the resignation of Jeffrey H. Coats by appointing
Kenneth W. McCourt, President of BCC, to serve on the Board.
Messrs. French and McKibben continue to serve on the Board.
Item 6(a). Exhibits
Exhibit
Number Description
10.1 Corporate Revolving and Term Loan Agreement
between BCC and Manufacturers and Traders Trust
Company dated October 11, 1996 (to be filed by
amendment)
11.1 Computation of Earnings (Loss) per Share
27.1 Financial Data Schedule
Item 6(b). Reports on Form 8-K
Not applicable.
15
<PAGE>
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.
LANESBOROUGH CORPORATION
Date: October 23, 1996 /s/ Craig L. McKibben
---------------- -------------------------
Craig L. McKibben
Chairman and Chief Executive
Officer
Date: October 23, 1996 /s/ William O. Fields, Jr.
---------------- -----------------------------
William O. Fields, Jr.
Secretary and Treasurer
16
<PAGE>
LANESBOROUGH CORPORATION
FORM 10-Q for the Quarter Ended
September 30, 1996
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
10.1 Corporate Revolving and Term Loan Agreement between BCC and
Manufacturers and Traders Trust Company dated October 11,
1996 (to be filed by amendment)*
11.1 Computation of Earnings (Loss) per Share
27.1 Financial Data Schedule
* To be filed by amendment.
<PAGE>
EXHIBIT 11.1
<TABLE>
LANESBOROUGH CORPORATION
COMPUTATION OF EARNINGS (LOSS) PER SHARE
(dollars in thousands, except share and per share data)
(unaudited)
<CAPTION>
For the three For the nine
months ended months ended
September 30, September 30,
1995 1996 1995 1996
-------- -------- -------- ------
<S> <C> <C> <C> <C>
Income from continuing
operations $ 938 $ 459 $ 4,578 $ 2,111
Loss of discontinued
operation - - ( 622) -
---------- ---------- --------- ----------
Net income $ 938 $ 459 $ 3,956 $ 2,111
======== ======== ======== ========
Weighted average number of
common shares outstanding 99,911 99,911 68,208 99,911
Income per share from
continuing operations $ 9.39 $ 4.59 $ 67.12 $ 21.13
Loss per share of discontinued
operation - - ( 9.12) -
---------- ---------- -------- ----------
Net income per share $ 9.39 $ 4.59 $ 58.00 $ 21.13
======== ======== ======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THE SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION EXTRACTED
FROM THE COMPANY'S CONSOLIDATED
FINANCIAL STATEMENTS FOR THE
THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL
STATEMENTS
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> JUL-01-1996 JAN-01-1996
<PERIOD-END> SEP-30-1996 SEP-30-1996
<CASH> 965 965
<SECURITIES> 0 0
<RECEIVABLES> 10,245 10,245
<ALLOWANCES> (142) (142)
<INVENTORY> 6,240 6,240
<CURRENT-ASSETS> 18,957 18,957
<PP&E> 53,976 53,976
<DEPRECIATION> (37,540) (37,540)
<TOTAL-ASSETS> 44,539 44,539
<CURRENT-LIABILITIES> 12,277 12,277
<BONDS> 0 0
0 0
0 0
<COMMON> 1 1
<OTHER-SE> (28,227) (28,227)
<TOTAL-LIABILITY-AND-EQUITY> 44,539 44,539
<SALES> 13,267 40,985
<TOTAL-REVENUES> 13,267 40,985
<CGS> 9,792 29,372
<TOTAL-COSTS> 12,125 <F1> 36,572 <F2>
<OTHER-EXPENSES> 158 <F3> 298 <F4>
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 199 635
<INCOME-PRETAX> 785 3,480
<INCOME-TAX> 326 1,369
<INCOME-CONTINUING> 459 2,111
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 459 2,111
<EPS-PRIMARY> 4.59 21.13
<EPS-DILUTED> 4.59 21.13
<FN>
<F1> INCLUDES S&A AND RD&E OF 2,086 AND 247, RESPECTIVELY
<F2> INCLUDES S&A AND RD&E OF 6,489 AND 711, RESPECTIVELY
<F3> INCLUDES AMORTIZATION OF INTANGIBLE ASSETS OF 22
<F4> INCLUDES AMORTIZATION OF INTANGIBLE ASSETS OF 68
</FN>
</TABLE>
