FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ______ to ______
Commission File No. 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
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act: Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
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 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. [ X ]
As of March 4, 1997, there were outstanding 99,911 shares of the Registrant's
Common Stock, par value $0.01. The approximate aggregate market price of the
voting stock held by non-affiliates of the Registrant as of March 4, 1997 was
$5,480 based on a price of $0.50 per share. See Part II, Item 5 of the Report.
DOCUMENTS INCORPORATED BY REFERENCE
Certain exhibits contained in the Registrant's Registration Statement on Form
S-1 (Registration No. 33- 95452) are incorporated by reference into Part IV
(Item 14(a)3) of this Form 10-K.
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LANESBOROUGH CORPORATION
FORM 10-K
Year Ended December 31, 1996
INDEX
Page
PART I
Item 1 - Business 3
Item 2 - Properties 8
Item 3 - Legal Proceedings 8
Item 4 - Submission of Matters to a Vote of
Security Holders 8
Item 4A - Executive Officers of the Registrant 9
PART II
Item 5 - Market for Registrant's Common Equity and
Related Stockholders Matters 10
Item 6 - Selected Financial Data 10
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 8 - Financial Statements and Supplementary Data 12
Item 9 - Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 12
PART III
Item 10 - Directors and Executive Officers of the Registrant 13
Item 11 - Executive Compensation 14
Item 12 - Security Ownership of Certain Beneficial
Owners and Management 16
Item 13 - Certain Relationships and Related Transactions 17
PART IV
Item 14 - Exhibits, Financial Statement Schedules and
Reports on Form 8-K 18
Signatures 22
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PART I
ITEM 1. BUSINESS
General
Lanesborough Corporation ("Lanesborough" or "the Company") was
incorporated in Delaware in May 1987. The Company, through its principal
subsidiary, Buffalo Color Corporation ("BCC"), manufactures a variety of
specialty chemicals for sale in the United States and abroad. It is the 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 sold for use in pharmaceuticals, polyester resins and
textile dyes. The Company's principal facility, which is located in Buffalo,
New York, has been operated as a chemical manufacturing facility since prior to
1900.
The Company is offering to exchange all of the outstanding shares of
common stock issued by its wholly-owned subsidiary BCC for its outstanding 10%
Senior Notes due 2000, including accrued interest thereon, subject to various
terms and conditions described in the Exchange Offer. The Company intends to
liquidate shortly after consummation of the Exchange Offer, since it will have
no other significant assets. The Company intends to consummate the Exchange
Offer if at least 51% of the holders of the Notes consent to the Exchange
Offer. The Company will continue to hold the pro rata number of shares of
common stock that collateralize the Notes that are not tendered for exchange,
pending final liquidation of the Company. If a majority of the holders of the
Notes do not tender their Notes in exchange for the common stock of BCC, the
Exchange Offer will not be consummated and the Company may be required to seek
the protection of the courts under the bankruptcy code.
This Form 10-K 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-K,
including, without limitation, the factors discussed under "Management's
Discussion and Analysis of Financial Condition and Results of Operations." In
assessing forward-looking statements contained herein, readers are urged to
read carefully all cautionary statements contained in this Form 10-K.
The principal executive offices of the Company are located at 65 East 55th
Street, New York, New York 10022, and its telephone number is (212) 759-6301.
Product Classes
The Company, through its subsidiary BCC, operates in a single business
segment, the manufacture and sale of synthetic organic chemicals. The Company
currently has three principal classes of such products: indigo dye,
alkylanilines and anhydrides. These product classes are discussed below. For
information as to the percentages of net sales attributable to each product
class, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Synthetic Indigo Dye. The Company's principal product, synthetic indigo
dye, is sold by the Company principally to the textile industry and is used in
the dyeing of cotton to produce blue jeans and other denim products. Synthetic
indigo dye is the only dyestuff suitable for the commercial production of blue
jeans primarily because it fades without changing tone in a way not duplicated
by any other commercialized dye. It is this unique factor that gives blue jeans
their distinctive appearance.
Alkylanilines and Anhydrides. The Company also produces a range of
specialty "intermediate" chemicals which, in contrast to finished chemical
products such as synthetic indigo dye, typically require further chemical
reactions prior to use and are usually purchased by chemical process companies.
Chemical intermediates sold by the Company include alkylanilines sold for use
in pharmaceuticals (e.g. synthetic penicillin), polyester resins and dyestuffs.
The Company also manufactures anhydrides sold for use in high performance
electrical/electronic app major consumers of alkylaniline products, typically
produce dyes used by the textile and paper industries. The plastics industry
uses alkylanilines in unsaturated polyester resins as a secondary cure promotor
for fast gelation.
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The pharmaceutical industry uses alkylanilines as a hydrochloric acid acceptor
in an amino coupling process, which eventually produces penicillins and
cephalosporins.
Anhydrides are used as hardeners in epoxy resin systems which are consumed
by the electrical, computer, aerospace and conduit industries. Anhydrides
impart excellent weathering properties, resistance to heat distortion, aging,
arcing and shrinkage.
Marketing and Customers
Substantially all the Company's domestically distributed products are sold
directly by its own sales force, and senior executives of the Company maintain
regular contact with major customers to assist in the marketing effort.
Sales of synthetic indigo dye to domestic customers are currently made to
approximately five large textile companies concentrated in the Southern United
States. During the fiscal year ended December 31, 1996, the three largest
customers, Cone Mills, Burlington Industries and Greenwood Mills accounted for
20.0%, 11.6% and 11.5%, respectively, of the Company's total net sales for such
period. The Company's business can be regarded as dependent upon its continued
sales to its major United States synthetic indigo dye customers. The three
largest domestic customers accounted for between approximately 40%and 45% of
the Company's total net sales during each of the three years ended December 31,
1996. An adverse change in, or termination of, the Company's relationship with
one or more of the Company's large customers could have a material adverse
effect on the Company's business.
While the long-term demand for denim textiles has been increasing,
fluctuations in the demand for synthetic indigo dye used to dye denim cloth can
have a material effect on the results of operations of the Company. Such
fluctuations can be caused by inventory adjustments at textile mills, demand
for denim from blue jeans manufacturers, competition from foreign suppliers of
synthetic indigo dye and other factors. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
in this Report.
International Sales
The Company's export sales are significant to its results of operations.
Export sales from the United States accounted for approximately 20.7%, 22.0%
and 28.2% of total net sales of the Company for the years ended December 31,
1994, 1995 and 1996, respectively.
The Company currently sells its products in approximately 21 foreign
countries. Foreign marketing operations are conducted primarily through the
Company's own international sales personnel and through local agents. The
Company has no sales offices or manufacturing facilities in foreign countries.
In recent years, the Company's export sales have been subject to intense
competition from foreign manufacturers and in 1994 were affected by a labor
dispute which curtailed production of export products.
International sales are subject to various risks such as unfavorable
foreign currency exchange fluctuations, political instability, governmental
regulations intended to protect local producers, restrictions on currency
repatriation, royalty arrangements and embargoes. Substantially all export
sales are invoiced in U.S. dollars. Accordingly, the Company does not engage in
foreign exchange trading activities for the purpose of hedging against its
exposure to currency fluctuations. The Company's foreign currency translation
gains and losses have not been material in any recent periods.
Manufacturing
The production of synthetic organic chemicals takes place at the Company's
manufacturing facility, located in Buffalo, New York. Synthetic indigo dye
requires the use of specialized manufacturing equipment which is not suitable
for the production of other dyes.
The manufacturing processes for many of the Company's chemical products
require handling of potentially hazardous materials, under conditions of heat
and pressure. Accordingly, the Company is required to make considerable capital
investments and operating expenditures to provide for the safety of its
employees, its products and the environment and to comply with applicable laws
and regulations. See "Governmental Regulation" below.
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The Buffalo, New York facility is the Company's sole manufacturing
facility. Any significant interruption of operations at the facility, by reason
of fire, explosion, strike, legal action or other cause, could have a material
adverse effect on the Company's business.
Research and Development
The Company conducts its research and development efforts at its
manufacturing facility. Expenditures for research and development during the
three fiscal years ended December 31, 1996 were approximately $0.3 million per
year. Research and development programs are aimed primarily at development of
improved processes to reduce manufacturing costs, improve yields and meet
increasingly stringent environmental and occupational safety compliance
standards.
Competition
The Company competes with a number of companies in the production and
marketing of its chemical products, including a number of multinational
chemical companies which have substantially greater technical and financial
resources than the Company. The Company is the 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.
Accordingly, the Company's continued ability to make timely and reliable
delivery is important to the maintenance of its competitive position. In the
production and sale of synthetic indigo dye, other major producers include BASF
AG, which recently merged with Imperial Chemical Industries PLC, a former
independent competitor, as well as a number of other foreign producers,
principally in Far Eastern countries. The construction of a facility for the
production of synthetic indigo in the United States by a competitor would
involve significant capital expenditures and compliance with stringent
environmental and other regulatory requirements applicable to chemical
companies. However, the Company does not believe that the absence of a
competitive domestic plant presents a significant barrier to entry into the
United States market by foreign producers, and the Company has experienced
significant competition from importers in the sale of all its products in the
United States.
Competition in the sale of the Company's synthetic organic chemical
products is based primarily on product quality, manufacturing technology,
timeliness and reliability of delivery, technical service and price. The
Company considers itself competitive in all these areas. However, price
reductions by foreign manufacturers can materially affect prices that the
Company is able to realize for its products as well as the Company's market
share. The Company has been subject to intense foreign competition in recent
periods which has resulted in declines in the Company's selling prices. It can
be expected that the Company will continue to experience price competition from
foreign producers of indigo dye. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Report.
Raw Materials and Fuel
The Company uses a broad variety of raw materials and chemical
intermediates in its manufacturing operations, including aniline, metallic
sodium, cyanides and fuel oil. Major raw materials are normally available from
two or more sources of supply, and where available from a single domestic
source, the Company has not experienced any significant difficulty in obtaining
adequate supplies. At present, BCC's primary source of certain chemical
products used in the production of synthetic indigo is E. I. DuPont DeNemours &
Company ("DuPont"). In the event that, as a result of shortages, interruption
of production or other factors, DuPont could not supply the Company's
requirements, the Company believes that either these products could be obtained
from one or more foreign producers or that the production process could be
reformulated to permit substitution of an alternative material. Unavailability
of key raw materials could have a materially adverse effect on the Company's
manufacturing operations until a foreign or domestic replacement source or
alternative process could be obtained or implemented. The Company's
manufacturing processes are energy intensive. Shortage of petroleum as a raw
materials feedstock and source of energy could have a material effect on the
cost of the Company's business.
The Company's raw materials supply contracts are normally terminable by
either party on an annual basis and would not necessarily assure the Company of
adequate supplies or provide price protection in the event of shortages.
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Governmental Regulation
The Company is subject to significant governmental regulation in nearly
all areas of its operations. The Occupational Safety and Health Administration,
the Environmental Protection Agency ("EPA") and the New York State Department
of Environmental Conservation ("DEC") exercise broad control over conditions at
the Company's manufacturing facility.
The Company is required to comply with complex regulations relating to the
manufacture, use, storage, disposal and discharge of hazardous materials into
the environment. These include the Clean Water Act, the Clean Air Act, the
Resource Conservation & Recovery Act ("RCRA"), the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), the Emergency Planning and
Community Right to Know Act ("EPCRA") and the Toxic Substances Control Act
("TSCA"). The Company has in the past incurred, and expects to continue to
incur, substantial costs for remediation of prior disposal activities and to
maintain compliance with environmental laws and regulations, including those
described below.
The Company is engaged in various environmental investigation, remediation
and monitoring activities at its manufacturing facility. An inactive portion of
the site known as Area D has been designated an inactive hazardous waste
disposal site by the DEC as a result of activities conducted by Allied Signal,
Inc. ("Allied") before BCC acquired the site. The Company has entered into a
cost sharing agreement with Allied pursuant to which the Company agreed to pay
a fixed sum of $2.2 million as its share of the costs of remediation in
exchange for Allied's commitment to be solely responsible for remediation
specified by the DEC. As of the date of this agreement BCC's management
believed that such fixed sum represented approximately 20% of the total costs
of the remediation. At December 31, 1996, the Company owed a total of
approximately $0.3 million under this agreement, which has subsequently been
paid.
The Company is also subject to a DEC permit requiring a RCRA facility
investigation, ("RFI"), of the active plant site. An initial facility
investigation, although not completed, revealed contamination in the active
plant site. A corrective measure study ("CMS") is expected to be completed by
the end of 1997 that will assess alternative corrective measures that are
technologically feasible and implementable. Following completion of the CMS,
the Commissioner of the DEC will select the corrective measure(s) from the
alternatives presented in the CMS and require implementation of a remedial
design and remedial construction through permit modification. The design is
projected to be completed by the end of 1998 at the earliest, and construction
would likely begin in 1999, conclude by 2000 or 2001 and be followed by a
minimum of 30 years of operation and maintenance.
Allied has agreed, on an interim basis, to share in the costs of the RFI
and the CMS, without prejudice to a final allocation. Allied has not agreed to
share in the costs of any interim or final remedial measures that the DEC might
require. The Company has accrued its share of the estimated RFI and CMS
expenses associated with its active plant site and the low end of the range of
its estimated share of the estimated environmental remediation obligations
associated with this matter. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 9 of Notes to
Consolidated Financial Statements of the Company included elsewhere in this
Report.
The Company has also been identified as a potentially responsible party
("PRP") by the EPA with respect to three contaminated sites in the western New
York area, that have been designated by EPA for remediation under CERCLA
(referred to below as the Bern Metal, Clinton/Bender and Frontier Chemical
matters). In the Bern Metal matter, EPA made a demand against the Company and
the other identified parties for recovery of $2.3 million spent to remediate
surface lead contamination at the site. The Company has denied that it disposed
of any lead containing materials at this site. A settlement was not reached,
and in December 1995 the United States instituted a cost recovery action, under
42 U.S.C. ss.9607(a), against the Company and other PRPs. The Company has
answered the complaint and is contesting the claim. In the Clinton/Bender
matter, which is a neighborhood site adjacent to Bern Metal, the PRPs have
incurred costs of approximately $3.3 million pursuant to an EPA interim order
requiring emergency removal to address lead contamination and related matters.
The Company agreed to cooperate with the other PRPs on an interim basis,
without prejudice to its position that it sent no lead material to the site. In
addition, the other PRPs have signed a consent order with the DEC to conduct a
remedial investigation and feasibility study at the Bern Metal property. The
results of the remedial investigation indicate the need for additional remedial
work. Preliminary cost estimates are in the range of $3.0 million. The Company
withdrew from the PRP committee after contributing $62,500 to the initial clean
up. Certain PRPs have asserted a
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claim for contribution against the Company and the other non-participating PRPs
with regard to the costs incurred and to be incurred at the Bern Metal and
Clinton/Bender sites.
EPA has initiated two separate CERCLA removal actions with regard to the
former Frontier Chemical facility in Niagara Falls, New York, in which the
Company has been named as a PRP. Based upon existing allocation proposals, the
Company believes that its final share of the costs associated with one of these
actions has been paid, and as to the other, the Company believes that its share
should be less than $10,000.
Because of the uncertainty as to various aspects of environmental matters,
including the degree of contamination or environmental damage, the selection of
an appropriate remedial technology, and the allocation of cost and
responsibilities among various PRPs, the Company has accrued its best estimate
of its share of the estimated environmental remediation obligations with
respect to the sites discussed above. Accordingly, it is possible that the
Company could incur additional environmental remediation obligations or
liabilities beyond the amounts accrued, and such costs could be material to the
Company.
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. Capital expenditures for pollution control were approximately
$139,000 and $638,000 for the fiscal years ended December 31, 1994 and 1996,
respectively. There were no such expenditures for the year ended December 31,
1995. The Company expects that such capital expenditures for the fiscal years
ending December 31, 1997 and 1998 will range between approximately $0.8 million
and $1.1 million per annum. The increased level of expenditures reflects in
part anticipated costs of installing additional air emission control equipment
at the Buffalo facility to comply with recent amendments to the Clean Air Act.
Insurance
The Company's operations are subject to the hazards of chemical production
operations, including fire, explosion and weather-related perils, any of which
could result in damage to the Company's manufacturing facility and injury or
death to personnel. The Company maintains insurance coverage, including
business interruption insurance, subject to certain deductibles, which it
considers to be customary under the circumstances; however, there is no
assurance that the Company will not incur losses beyond the limits of, or
outside the coverage of, its insurance, which could cause the Company to incur
unanticipated expenses and a loss of revenue.
The Company currently maintains, in addition to general liability and
property insurance, pollution liability coverage in the amount of $10.0 million
($5.0 million per occurrence), although coverage is excluded for costs and
liabilities resulting from prior waste disposal at the Company's manufacturing
facility.
Employees
The Company has approximately 240 employees, including about 150 hourly
employees who are covered by a collective bargaining agreement with the United
Steelworkers of America ("USW"). The Company experienced a significant work
stoppage in the third quarter of 1994 in connection with renegotiation of its
collective bargaining agreement with the USW, which adversely affected its
results of operations for 1994. Management estimates that the new contract with
the USW will result in average labor cost increases of approximately 1.0% per
annum during the four year contract period. The Company's current collective
bargaining agreement with the USW is scheduled to expire in July 1998. The
Company believes that its employee relations are satisfactory.
The Company has no employment agreements with members of its management,
and the loss of the services of one or more key members of senior management
could have an adverse effect on the Company's business.
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ITEM 2. PROPERTIES
The Company's principal properties are described below:
Approximate
Location Type of Property Square Footage
Buffalo, New York Chemical Manufacturing Facility 431,000
Parsippany, New Jersey(1) Executive Offices 2,600
(1) These premises are leased under a lease expiring in 1999.
In addition to the properties listed above, BCC leases a sales office in
the United States and utilizes leased warehouse facilities from time to time at
various domestic and foreign locations.
The Company believes that its facilities provide adequate capacity for its
needs and that its properties, including machinery and equipment, are generally
in good condition, well maintained and suitable for their intended uses.
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in several lawsuits arising 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.
In late 1993, an action was commenced in the Supreme Court, Erie County,
New York, entitled Cynthia Frys, et al. v. General Motors Corporation, et al.,
by current and former residents of the Clinton/Bender neighborhood seeking to
recover for alleged personal injuries and property damages due to contamination
associated with the Bern Metal site and another similar facility nearby, naming
the Company and other corporations as defendants. Plaintiffs, in the aggregate,
are claiming $30.0 million in compensatory damages and $10.0 million in
punitive damages. The Company intends to defend this claim vigorously, and has
tendered the defense of the claim to its insurance carriers who have asserted
that the policies do not provide coverage for claims based on contamination. 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. The Company is unable to
predict the outcome of this action or make a meaningful estimate of the
potential liability that it may incur in this action, but the Company has
denied shipping to the site any of the principal contaminant (lead) alleged to
have caused plaintiffs' injuries and based on all information available to it,
including advice of legal counsel, it does not believe that the ultimate amount
of such liability, if any, is likely to be material to its financial condition
or results of operations. See also "Governmental Regulation" above and Note 9
of Notes to Consolidated Financial Statements included elsewhere in this
Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The names and ages of the executive officers of the Company and BCC are as
follows:
Name Age Position
Craig L. McKibben 46 Chairman and Chief Executive Officer
William O. Fields, Jr. 39 Secretary and Treasurer
Kenneth W. McCourt 57 President and Chief Executive Officer of
BCC
Each of the executive officers of the Company serves in such capacity at
the discretion of the Board.
Craig L. McKibben is Chairman of the Board, President and Chief Executive
Officer of the Company. He has been an officer and director of the Company
since 1989. Mr. McKibben also serves as Vice President of BCC. He is also an
officer and director of Sherborne Holdings Incorporated ("SHI"), former parent
of the Company, Sherborne & Company, which is the sole general partner of
Newhill Partners, Ampex Corporation ("Ampex"), a manufacturer of magnetic
recording products, and a limited partner of Newhill Partners, a limited
partnership. From 1983 to 1989 he was a partner at the firm Coopers & Lybrand
L.L.P., independent public accountants.
William O. Fields, Jr. is Secretary and Treasurer of the Company. He has
been an officer of the Company since 1989. Mr. Fields has also been Secretary
and Treasurer of BCC since 1989 and its Director of Finance and Administration
since 1994. He has been employed in various financial management positions at
BCC since 1987.
Kenneth W. McCourt has been President, Chief Executive Officer and a
Director of BCC since 1987. He has been employed by BCC and its predecessor in
various management capacities since 1962.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of March 4, 1997 there were 18 holders of record of the Company's
Common Stock.
There is no established trading market for the shares of the Company's
Common Stock. To the best of the Company's knowledge, trading in shares of the
Company's Common Stock has only occurred in conjunction with trading in its 10%
Senior Notes, which trading has been limited and sporadic. The Company has been
unable to obtain historical trading price data for its shares from customary
sources. In November 1995, SHI sold 4,014 shares of Common Stock in connection
with the sale of Senior Notes of the Company to an unaffiliated buyer and the
parties agreed to allocate $0.50 per share to the Common Stock.
The Company has never paid dividends on its Common Stock and does not
anticipate paying any cash dividends on its Common Stock. Subject to completion
of the Exchange Offer, the Company expects to dissolve. It is not expected that
stockholders will receive any liquidating payments for these shares of the
Company's Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
The financial data required by Item 6 is included immediately following
Item 14 hereof.
ITEM 7. 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 and its subsidiaries should be read in conjunction
with the Consolidated Financial Statements and related Notes included elsewhere
in this Report. Terms used and not defined herein have the meanings given such
terms in the Notes to Consolidated Financial Statements.
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 each of the last three fiscal years the percentage of net
sales attributable to each of the Company's principal classes of similar
products:
Product Classes Years Ended December 31,
1994 1995 1996
-------- -------- ------
Indigo Dye 71.2% 76.2% 77.8%
Alkylanilines 16.9 11.8 10.9
Anhydrides 11.9 12.0 11.3
Results of Operation for the Three Years Ended December 31, 1996
Net Sales. Net sales increased from $45.0 million in 1994 to $50.5 million
in 1995 and to $53.4 million in 1996. BCC's results of operations are highly
dependent upon the sale of a limited group of specialty chemical products,
particularly synthetic indigo dye. Demand for indigo dye from the U.S. and
export markets is subject to cyclical factors, including the popularity of blue
jeans and other denim products, the levels of denim cloth inventories
maintained at the mill level and the extent of price competition exhibited by
indigo producers. The Company operated at full capacity during 1995 and 1996
and at times supplemented internal production by purchasing indigo from other
manufacturers. While prices modestly increased in 1995 and 1996 from 1994
levels, in the second half of 1996, many of the U.S. denim mills curtailed
production in response to excessive inventories
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of denim. The excessive inventory position of the U.S. denim mills has
depressed both sales levels and pricing in recent periods from earlier levels.
While the Company has been able to redirect its indigo production to export
markets, these markets yield lower selling prices due to competitive factors.
In 1994, the Company's work stoppage at its plant resulted in a decrease in
export sales of approximately $4.0 million. The Company's alkylaniline and
anhydride products are mature businesses which in recent years have been
subject to intense pricing pressure by foreign and domestic competitors.
Gross Profit. Gross profit as a percentage of net sales increased from
29.6% in 1994 to 31.1% in 1995 and decreased to 26.4% in 1996. The Company's
fixed costs of operations comprise a material percentage of total manufacturing
costs, which cannot be quickly reduced when production volumes are at
cyclically low levels. Also, the Company's sole manufacturing facility is
designed for the manufacture of its current product mix, and it is not possible
to offset cyclical declines in demand for the Company's products by shifting
the production mix of the Company's current product classes or by manufacturing
alternative products. The decline in gross margins in 1996 primarily resulted
from a higher concentration of export indigo sales, beginning in the latter
half of the year. Also, fuel costs and certain raw material prices increased
during 1996 to contribute to a lower gross margin percentage. The improved
gross margin in 1995 reflected increases in selling prices in all of BCC's
product classes as well as increased sales volumes of indigo which resulted in
improved absorption of fixed costs over 1994 levels.
Selling and Administrative Expenses. Selling and administrative expenses
declined from $9.4 million in 1994 to $9.0 million in 1995 and to $8.8 million
in 1996. Administrative costs of the parent company, consisting primarily of
executive compensation, legal and accounting expenses accounted for 6.9%, 5.8%
and 6.3% of such costs, for the years ended December 31, 1994, 1995 and 1996,
respectively. The decrease of $0.4 million from 1994 to 1995 reflects the
impact of reductions in the number of BCC's salaried employees and in retiree
medical expenses during 1994. The decrease of $0.2 million from 1995 to 1996
reflects continued efforts to control costs.
Research, Development and Engineering, and Amortization of Intangible
Assets. These expenses were virtually unchanged for the three years ended
December 31, 1996.
Interest Expense. As a result of the Exchange Transaction in June 1995,
substantially all cash interest payable on the Notes in future periods was
capitalized as a component of the carrying value of the Notes and, when paid,
is recorded as a reduction in the carrying amount of the Notes as opposed to
being expensed. The cash outlay for interest during 1994, 1995 and 1996
totalled $6.7 million, $1.7 million and $4.3 million, respectively.
Amortization of Debt Financing Costs. The reduction in amortization of
debt financing costs results from the 1995 Exchange Transaction.
Environmental Remediation. During 1996, the Company accrued its estimated
share of estimated environmental remediation obligations with respect to
various environmental matters. See Note 9 of Notes to Consolidated Financial
Statements included elsewhere in this Report.
Other Expense, net. Other expense, net decreased in 1995 as a result of a
reduction in the monthly management fee from $100,000 to $50,000 as negotiated
as part of the Exchange Transaction. The management fee was last paid in
October 1995.
Provision for (Benefit of) Income Taxes. The provision for income taxes
includes provisions for state and foreign income taxes on BCC's operations that
are not sheltered by interest deductions of the parent company. In 1995 and
1996 adjustments to the valuation allowance pertaining to deferred tax assets
were recorded and comprised the major component of the tax provision. See Note
12 of Notes to Consolidated Financial Statements included elsewhere in this
Report.
Gain (Loss) of Discontinued Operation. The gain (loss) from discontinued
operation resulted from the reorganization of a non-recourse subsidiary of the
Company, engaged in an unrelated business, which had filed for relief under
Chapter 11 of the Bankruptcy Code. The Company expects no further gains or
losses attributable to this former subsidiary.
Net Income (Loss). Excluding the effects of discontinued operation, income
(loss) from continuing operations in 1995 improved over 1994 levels due to
increased sales levels, reduced operating expenses, reduction
470941.1
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<PAGE>
in interest expense and tax benefits related to the Exchange Transaction. In
1996, the net loss was due substantially to the adjustment of the valuation
allowance for deferred tax assets as discussed above.
Liquidity and Capital Resources
Recently, the Company's liquidity has been adversely impacted by
cyclically depressed conditions in the U.S. denim industry. While the Company
has been able to redirect indigo production originally anticipated for the U.S.
market into various export markets, such sales are at lower selling prices and
are on longer payment terms which factors adversely impact liquidity. Industry
sources anticipate that the excessive inventory situation may not be resolved
by the U.S. denim mills until at least the second half of 1997.
The Company is required to incur substantial capital expenditures to
maintain its plant and equipment and to comply with requirements under numerous
Federal, state and local environmental, health and safety laws and regulations.
During 1996, the Company spent $2.1 million on capital expenditures, which
includes $0.6 million for pollution control, and has budgeted $1.9 million in
1997. Such budgeted expenditures for 1997 include $0.8 million for pollution
control, which reflects the remaining costs of installing additional air
emission control equipment at the BCC facility to comply with the Clean Air
Act. The Company currently expects that foreseeable capital expenditures will
be funded out of internally generated funds. However, environmental regulations
are becoming increasingly stringent in recent years, and there can be no
assurance that the Company's capital expenditures will not exceed current
estimates.
The Company is engaged in various environmental investigation, remediation
and monitoring activities at its manufacturing facility and has been named a
PRP in various proceedings relating to other sites. At December 31, 1996 the
Company has accrued approximately $1.8 million representing its share of the
estimated RFI and CMS expenses associated with its active plant site and the
low end of the range of its estimated share of the estimated environmental
remediation obligations. 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 bank borrowings. However, it is
possible that the Company could incur additional environmental remediation
obligations beyond the amount accrued, and such costs could be material to the
Company's financial position, results of operations and cash flow.
In October 1996, BCC entered into a new secured term loan and revolving
credit facility that replaced BCC's then existing $2.0 million term loan and
provided additional funds for working capital purposes. See Note 7 of Notes to
Consolidated Financial Statements included elsewhere in this Report.
In December 1996, the Company's Board of Directors engaged the firm of Jay
Alix & Associates, restructuring advisors, to evaluate the Company's strategic
direction and restructuring alternatives. Jay Alix & Associates has advised the
board that, in its opinion, the Company's available cash balances and projected
cash flow are not sufficient to enable it to meet its scheduled interest
payments in 1997, and it is unlikely that it will be able to do so for the
foreseeable future.
The Company's Board of Directors has concluded that it is in the best
interest of the holders of the Company's debt securities to exchange its 10%
Senior Notes for the BCC common stock which collateralizes the Notes and
represents substantially all of the assets of the Company. Upon the successful
consummation of the Exchange Offer, the Company intends to liquidate as it will
have no significant assets beyond amounts reserved for expenses of liquidation
and dissolution. Sherborne Holdings, the Company's former parent company, has
agreed to waive the accrued management fee, contingent upon the successful
completion of the Exchange Offer. If a majority of the holders of the Notes do
not tender their Notes in exchange for the common stock of BCC, the Exchange
Offer will not be consummated and the Company may be required to seek the
protection of the courts under of the bankruptcy code.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by Item 8 are included following Item 14
hereof. The financial statement schedules required by Item 14(d) and the
supplementary data called for by Item 8 are not applicable to the Registrant.
470941.1
-12-
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
470941.1
-13-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The names and ages of the directors of the Company as of December 31, 1996
are as follows:
Name Age Position
Craig L. McKibben 46 Chairman of the Board
Michael C. French 54 Director
Kenneth B. Funsten 44 Director
Kenneth W. McCourt 57 Director
Michael C. French, who resigned as a director of the Company on March 3,
1997, had been a director of the Company since July 1995. Mr. French will not
receive any compensation from the Company for periods after the date of his
resignation.
Kenneth B. Funsten, who resigned as a director of the Company on January
12, 1997, had been a director since October 1996. Mr. Funsten has not received
any compensation from the Company.
Kenneth W. McCourt, who resigned as director of the Company on January 9,
1997, had been a director since September 1996. Mr. McCourt has not received
any director fees from the Company.
All directors of the Company are elected at the annual meeting of the
stockholders to serve for one year or until their successors are elected and
qualify. The Company's by-laws provide that the annual meeting shall be held in
May of each year. Directors receive a fee of $25,000 per annum for serving on
the Board of Directors of the Company. Directors who are officers of the
Company or its subsidiaries receive no additional compensation for serving on
the Board. There are no existing committees of the Board of Directors of the
Company.
Information regarding executive officers is included in Part I hereof as
Item 4A and is incorporated by reference into this Item 10.
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes the compensation earned by or paid to the
Company's Chief Executive Officer and the four most highly paid senior
executives of the Company and BCC whose total annual salary and bonus exceeded
$100,000 for the years ended December 31, 1996 and 1995 (collectively, the
"Named Executives") for their services to the Company and its subsidiaries. The
Company does not have employment contracts, termination of employment or
change-in-control arrangements with any of the Named Executives.
Summary Compensation Table
Annual Compensation
(e)
(a) (b) (c) (d) All Other
Name and Principal Positions Year Salary Bonus Compensation
Craig L. McKibben 1996 $200,000 $ - $ -
President and Chief 1995 150,417 - -
Executive Officer of
the Company
Kenneth W. McCourt 1996 $125,000 $ - $13,660(1)
President and Chief 1995 125,000 - 13,660(1)
Executive Officer of BCC
William O. Fields, Jr. 1996 $102,000 $34,000 $10,590(2)
Secretary and Treasurer 1995 98,667 15,000 9,753(2)
470941.1
-14-
<PAGE>
of the Company and BCC
Horst Barkemeyer 1996 $109,500 $25,000 $10,045(3)
Director of Export 1995 106,167 - 9,695(3)
Sales
Thomas P.Gormley 1996 $102,000 $23,000 $10,260(4)
Director of Marketing 1995 98,667 - 9,470(4)
- -----------------
(1) Amounts included under column (e) consist of matching contributions to the
Company's 401(k) savings and investment plan: $3,750; and company
automobile: $9,910.
(2) Amounts included under column (e) consist of matching contributions to the
Company's 401(k) savings and investment plan: $4,080 and $3,410; and
company automobile: $6,510 and $6,343 for the years ended December 31,
1996 and 1995, respectively.
(3) Amounts included under column (e) consist of matching contributions to the
Company's 401(k) savings and investment plan: $4,035 and $3,185; and
company automobile: $6,010 and $6,510 for the years ended December 31,
1996 and 1995, respectively.
(4) Amounts included under column (e) consist of matching contributions to the
Company's 401(k) savings and investment plan: $3,750 and $2,960; and
company automobile: $6,510 and $6,510 for the years ended December 31,
1996 and 1995, respectively.
Pension Benefits
BCC maintains a defined benefit pension plan (the "Plan") for all of its
salaried employees, including executive officers. The Plan's annual basic
pension benefits are based upon the number of years of service with BCC and its
predecessors and the monthly average of the participant's 60 highest
consecutive months of total earnings during such participant's last 120 months
of employment. Earnings include base salary, overtime, severance pay,
commissions and before-tax contributions to the 401(k) savings and investment
plans. Earnings exclude incentive compensation, bonuses and relocation pay. In
order to receive benefits under the plan upon retirement, a participant must
(a) be at least age 50, completed at least five years of service with the sum
of his age and service totaling 60 or more or (b) have the sum of his age and
service total at least 80 or (c) be at least 65 years of age.
Under the Plan, a participant's benefits will be determined according to a
formula such that the participant receives the greater of (i) the sum of (x)
1.1% of average salary plus (y) 0.4% of the excess of average salary over the
social security earnings limit multiplied by credited service and (ii) 2.0% of
average salary multiplied by credited service (not to exceed 25 years) less
64.0% of the social security benefit. The benefit formulas under the Plan give
greater weight to earnings in excess of the earnings on which the social
security tax is payable. Under applicable ceilings, the maximum annual benefit
payable under the Plan currently is limited to $125,000 on a qualified joint
and survivor basis at age 65.
The Company and BCC have maintained deferred compensation plans for
certain key executive employees. At December 31, 1996, amounts outstanding
under such plans totaled $860,498 and were payable to five individuals other
than the Named Executives listed above.
The following table illustrates the estimated annual pension benefits
under the Plan as in effect at January 1, 1997, assuming retirement at age 65,
at various levels of compensation and years of service.
470941.1
-15-
<PAGE>
<TABLE>
<CAPTION>
Pension Plan Table
Years of Service
-------------------------------------------------------------------------------
Average
Annual
Compensation* 10 15 20 25 30 35
------------- -------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 75,000 $ 10,100 $ 15,100 $ 20,200 $ 27,300 $ 30,200 $ 35,300
100,000 13,800 20,700 29,800 39,800 41,500 48,400
125,000 17,600 27,300 39,800 52,300 52,700 61,500
150,000 21,300 34,800 49,800 64,800 64,800 74,600
160,000 22,800 37,800 53,800 69,800 69,800 79,900
</TABLE>
* The Internal Revenue Service ("IRS") limits compensation for pension
plan purposes to $160,000 for 1997.
As of December 31, 1996, the Final Average Annual Compensation and the
estimated years of Credited Service for each of the Named Executives were as
follows:
Mr. McCourt - $125,000, 34 years 6 months. Mr. Fields - $92,933, 9 years 4
months. Mr. Barkemeyer - $100,073, 18 years and 4 months. Mr. Gormley -
$92,933, 16 years and 7 months. Mr. McKibben is a participant in the Plan with
frozen benefits. He is not accruing additional benefits.
In addition to the Plan, the Company maintains a defined benefit pension
plan for all of its hourly union employees. The plan's benefit for eligible
hourly employees who retire during the term of the current collective
bargaining agreement is a flat monthly dollar amount of $32 multiplied by the
number of years of service with BCC and its predecessors.
401(k) Plan
The Company has a 401(k) Savings and Investment Plan (the "401(k) Plan"),
which is qualified under Section 401(a) and 401(k) of the Internal Revenue
Code, as amended (the "Code"). All salaried employees of the company are
eligible to participate as of their date of hire. They can contribute from 1%
to 10% of their compensation as before tax contributions and/or 1% to 9% as
after-tax contributions to the 401(k) Plan. If the employee contributes at
least 2% of his compensation to the 401(k) Plan, this plan provides that after
the employee completes one year of service, the Company shall make 100%
matching contributions up to 3% of compensation. The Company also maintains a
401(k) Plan for hourly union employees. All hourly union employees of the
Company are eligible to participate on the first day of the month following
their completion of 440 hours of actual work. They can contribute from 2% to
10% of their compensation as before-tax contributions and/or 1% to 9% as
after-tax contributions to this plan. After the employee completes one year of
service, the Company shall make 50%(increasing to 75% in 1997) matching
contributions up to 3% of compensation. In no event, however, may the
allocations to a participant's account under the 401(k) Plans exceed the
specialized limits set forth in the Code. "Compensation" is defined to include
compensation paid by the Company that is required to be reported as wages on a
participant's Form W-2 subject to limitations under the Code. Generally, assets
will be distributed to the participant or his or her beneficiaries in the event
of the participant's retirement, death, disability or termination of
employment.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of March 4, 1997,
regarding the shares of Common Stock owned by (a) each person known by the
Company to be the beneficial owner of more than 5.0% of the outstanding Common
Stock, (b) each director of the Company, (c) each named Executive Officer and
(d) all directors and executive officers as a group. Except as otherwise
indicated, to the best of the Company's knowledge, the persons named in the
table below have sole voting and investment power with respect to the shares
shown as beneficially owned by such persons subject to applicable community
property laws. However, as indicated by the notes following the table, certain
shares are deemed to be beneficially owned by more than one person or entity as
a result of attribution of ownership among affiliated persons and entities.
470941.1
-16-
<PAGE>
Amount and
Nature of
Name and Address of Beneficial Percentage
Beneficial Owner Ownership of Class
Edward J. Bramson(1) 44,986(2) 45.0%
Craig L. McKibben(1) - -
William O. Fields, Jr.(3) - -
Michael C. French - -
8080 North Central Expressway
Suite 1300
Dallas, TX 75206
Kenneth W. McCourt - -
959 Route 46 East, Suite 201
Parsippany, NJ 07054
Cede & Co. 19,915(4) 20.0%
P. O. Box 20
Bowling Green Station
New York, NY 10004
Cede & Co. 15,662(4) 15.7%
P. O. Box 222
Bowling Green Station
New York, NY 10274
Bear Stearns Securities Corp. 8,389(4) 8.4%
245 Park Ave., 4th Floor
New York, NY 10167
All current directors and executive officers
as a group - -
- ---------------
(1) This person's address is 65 East 55th St., New York, NY 10022.
(2) These shares are owned directly by SHI. SHI is a wholly-owned subsidiary
of Newhill Partners, a limited partnership, of which Sherborne & Company
is the sole general partner. Mr. Bramson, a former director of the
Company, owns all the shares of voting stock of Sherborne & Company and
accordingly may be deemed to beneficially own all shares of Common Stock
of the Company owned directly or indirectly by SHI and Newhill Partners.
Mr. Bramson disclaims beneficial ownership of such shares.
(3) This person's address is 100 Lee St., Buffalo, NY 14210.
(4) The Company believes that all or a portion of these shares are held as
nominee by the stockholders of record on behalf of customers who are the
actual beneficial owners of such shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Other than as set forth below, from January 1, 1996 to the date of this
Report, there have been no transactions, and there are no currently proposed
transactions, or series of similar transactions, involving more than $60,000,
between the Company and its subsidiaries and any executive officer, director,
beneficial owner of more than 5.0% of the Company's Common Stock, or member of
the immediate family of any of the foregoing persons, in which, to the
knowledge of the Company, any of the foregoing individuals or entities had a
material interest, except for compensation for services as an officer or
director of the Company or its subsidiaries.
During 1996, the Company accrued $50,000 per month as a management and
consulting fee payable to Sherborne Holdings for services through December 31,
1996. Sherborne Holdings has agreed to cancel this fee, contingent upon
successful consummation of the Exchange Offer. See Note 14 of Notes to the
Consolidated Financial Statements of the Company included elsewhere in this
Report.
470941.1
-17-
<PAGE>
For information concerning certain contingent obligations of the Company
and its subsidiaries, with respect to the unfunded pension liabilities of a
former affiliate, see Note 9 of Notes to the Consolidated Financial Statements
of the Company included elsewhere in this Report.
For information as to transactions and relationships between the Company
and certain affiliates prior to January 1, 1996, see Item 13 of the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995.
For additional information concerning related party transactions, see Note
14 of Notes to Consolidated Financial Statements of the Company included
elsewhere in this Report.
470941.1
-18-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents Filed with this Report.
1. Financial Statements (see Item 8 above)
Lanesborough Corporation and Subsidiaries Consolidated Financial
Statements as of December 31, 1995 and 1996 and for each of the
three years in the period ended December 31, 1996.
2. Financial Statement Schedules (see Item 8 above)
Schedule II Valuation and Qualifying Accounts
3. Exhibits
Exhibit
Number Description
------- --------------------------------------------------
3.1 Amended and Restated Certificate of Incorporation
of the Registrant (filed as Exhibit 3.1 to the
Registrant's Registration Statement on Form S-1
(Registration No. 33-95452) (the "1995 Form S-1")
and incorporated herein by reference)
3.2 By-Laws of the Registrant, as amended (filed as
Exhibit 3.2 to the 1995 Form S-1 and incorporated
herein by reference)
4.1 Form of Common Stock Certificate (filed as Exhibit
4.1 to the 1995 Form S-1 and incorporated herein
by reference)
4.2 Exchange Agreement, dated April 19, 1995, among
the Registrant and the Holders named therein
(filed as Exhibit 4.2 to the 1995 Form S-1 and
incorporated herein by reference)
4.3 Indenture dated as of June 19, 1995 between the
Registrant and State Street Bank and Trust
Company, as Trustee, relating to the Registrant's
Notes, and forms of Notes and Pledge Agreement
attached thereto (filed as Exhibit 4.3 to the 1995
Form S-1 and incorporated herein by reference)
4.4 Registration Rights Agreement for Common Stock
dated as of June 19, 1995 among the Registrant and
the Holders named therein (filed as Exhibit 4.4 to
the 1995 Form S-1 and incorporated herein by
reference)
4.5 Registration Rights Agreement for Notes dated as
of June 19, 1995 among the Registrant and the
Holders named therein (filed as Exhibit 4.5 to the
1995 Form S-1 and incorporated herein by
reference)
4.6 Indenture dated as of March 1, 1987, between the
Registrant and United States Trust Company of New
York, as Trustee, relating to the Registrant's Old
Notes (filed as Exhibit 4.6 to the 1995 Form S-1
and incorporated herein by reference)
4.7 Supplemental Indenture dated as of June 19, 1995,
between the Registrant and United States Trust
Company of New York, as Trustee, relating to the
Registrant's Old Notes (filed as Exhibit 4.7 to
the 1995 Form S-1 and incorporated herein by
reference)
470941.1
-19-
<PAGE>
Exhibit
Number Description
------- --------------------------------------------------
10.1 Agreement between BCC and USW, dated August 13,
1994 (filed as Exhibit 10.1 to the 1995 Form S-1
and incorporated herein by reference)
10.2 Cost Sharing Agreement between Allied and BCC,
dated April 12, 1993 (filed as Exhibit 10.2 to the
1995 Form S-1 and incorporated herein by
reference)
10.3 Buffalo Color Hourly Employees' Pension Plan, as
of January 1, 1993 (filed as Exhibit 10.3 to the
1995 Form S-1 and incorporated herein by
reference)
10.4 Buffalo Color Hourly Savings and Investment Plan
as of January 1, 1993 (filed as Exhibit 10.4 to
the 1995 Form S-1 and incorporated herein by
reference)
10.5 Buffalo Color Salaried Employees' Pension Plan as
of January 1, 1993 (filed as Exhibit 10.5 to the
1995 Form S-1 and incorporated herein by
reference)
10.6 Buffalo Color Salaried Savings and Investment Plan
as of January 1, 1993 (filed as Exhibit 10.6 to
the 1995 Form S-1 and incorporated herein by
reference)
10.7 Credit Agreement between BCC and Fleet National
Bank dated September 10, 1993 (filed as Exhibit
10.7 to the 1995 Form S-1 and incorporated herein
by reference)
10.8 First Amendment to Credit Agreement between BCC
and Fleet National Bank dated September 30, 1994
(filed as Exhibit 10.8 to the 1995 Form S-1 and
incorporated herein by reference)
10.9 Agreement among SHI, the Company and BCC dated
June 19, 1995 (filed as Exhibit 10.9 to the 1995
Form S-1 and incorporated herein by reference)
10.10 Hillside-Ampex/Sherborne Agreement dated December
1, 1994 (filed as Exhibit 10.10 to the 1995 Form
S-1 and incorporated herein by reference)
10.11 Joint Settlement Agreement among PBGC, the Ampex
Group, the Limited Hillside Group and the
Sherborne Group dated November 22, 1994 (filed as
Exhibit 10.11 to the 1995 Form S-1 and
incorporated herein by reference)
10.12 Corporate Revolving and Term Loan Agreement
between BCC and Manufacturers and Traders Trust
Company dated October 11, 1996 (filed as Exhibit
10.1 to the Form 10-Q/A, Amendment No. 1 for the
Quarter Ended September 30, 1996 and incorporated
herein by reference)
11.1* Computation of Earnings (Loss) Per Share
21.1 Subsidiaries of the Registrant (filed as Exhibit
21.1 to the 1995 Form S-1 and incorporated herein
by reference)
24.1* Power of Attorney (included in the signature pages
of this Report)
27.1* Financial Data Schedule
(b) Reports on Form 8-K.
Not applicable.
470941.1
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<PAGE>
(c) Exhibits.
See Item 14(a)3 above.
(d) Financial Statement Schedules.
See Items 8 and 14(a)2 above.
- -------------------
* Filed herewith.
470941.1
-21-
<PAGE>
SELECTED FINANCIAL DATA
The following table summarizes certain selected financial data, which have
been derived from and should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto, and with Management's
Discussion and Analysis of Financial Condition and Results of Operations,
both of which are included elsewhere in this Report.
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------------------------------------
1992 1993 1994 1995 1996
---------- ---------- ---------- ---------- ----------
(dollars in thousands, except share data)
Statement of Operations Data:
<S> <C> <C> <C> <C> <C>
Net sales $ 49,475 $ 47,244 $ 45,009 $ 50,519 $ 53,439
Operating profit 5,860 3,381 2,973 5,716 4,302
Interest expense 7,423 7,265 7,383 3,189 831
Income (loss) from
continuing operations ( 3,637) ( 5,279) ( 5,921) 5,905 ( 4,490)
Gain (loss) of discontinued
operation(1) ( 70,353) ( 70,284) 350,893 ( 622) -
Net income (loss) ( 73,990) ( 74,895) 344,972 5,283 ( 4,490)
Net income (loss) per share
from continuing operations ( 74.22) ( 107.73) ( 120.84) 77.49 ( 44.94)
Net income (loss) per share
from discontinued operation (1,435.78) (1,434.37) 7,161.08 ( 8.16) -
Net income (loss) per share (1,510.00) (1,528.47) 7,040.24 69.33 ( 44.94)
Weighted average number of common
shares outstanding(2) 49,000 49,000 49,000 76,199 99,911
Balance Sheet Data:
Current assets 26,051 16,284 17,796 18,056 18,008
Current liabilities(3) 8,393 9,718 9,762 8,107 8,581
Property, plant and equipment 18,758 18,623 17,640 16,846 16,819
Total assets 48,723 45,505 42,608 45,088 39,682
Total debt 69,527 66,085 66,325 59,278 55,593
Stockholders' deficit (308,159) (384,108) ( 38,574) ( 30,337) ( 33,375)
Other Data:
Cash provided from operations 2,499 192 2,052 4,760 4,692
Capital expenditures 2,084 2,111 1,237 1,459 2,141
Cash dividends N/A N/A N/A N/A N/A
EBITDA(4) 6,190 4,828 4,221 7,478 5,996
</TABLE>
(1) See Note 1 of Notes to Consolidated Financial Statements of the Company
included elsewhere in this Report.
(2) The weighted average number of shares of Common Stock outstanding has been
adjusted for the years ended December 31, 1992, 1993, 1994 and 1995 for
the changes described in Note 7 of Notes to Consolidated Financial
Statements of the Company included elsewhere in this Report.
(3) Excludes the current portion of long-term indebtedness of the Company
classified as short-term, which is reflected as long-term debt in this
table. See Note 7 of Notes to Consolidated Financial Statements of the
Company included elsewhere in this Report.
(4) EBITDA represents income (loss) from continuing operations before income
taxes plus interest expense, depreciation, amortization charges and the
provision for environmental remediation.
470941.1
-22-
<PAGE>
LANESBOROUGH CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Accountants.........................................F-2
Consolidated Balance Sheets As of December 31, 1995 and 1996..............F-3
Consolidated Statements of Operations For Each of the Three Years
in the Period Ended December 31, 1996.................................F-4
Consolidated Statements of Cash Flows For Each of the Three Years
in the Period Ended December 31, 1996.................................F-5
Consolidated Statement of Changes in Stockholders' Deficit
For the Three Years in the Period Ended December 31, 1996.............F-6
Notes to Consolidated Financial Statements................................F-7
470941.1
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Lanesborough Corporation
We were engaged to audit the accompanying consolidated balance sheets of
Lanesborough Corporation and Subsidiaries as of December 31, 1995 and 1996, and
the related consolidated statements of operations, cash flows and changes in
stockholders' deficit and the financial statement schedule for each of the
three years in the period ended December 31, 1996. These financial statements
and financial statement schedule are the responsibility of the Company's
management.
The Company is experiencing cash flow difficulties and expects that it will not
be able to continue to meet its debt service obligation under its 10% Senior
Notes. As discussed in Note 2 of the financial statements, the Company is
offering to exchange all of the outstanding shares of common stock of its
wholly-owned subsidiary, Buffalo Color Corporation, for the Company's
outstanding 10% Senior Notes and accrued interest thereon. If the exchange is
not consummated, the Company may be required to seek the protection of the
courts under the bankruptcy code.
Because of the uncertainty described in the preceding paragraph, the scope of
our work was not sufficient to enable us to express, and we do not express, an
opinion on these financial statements and financial statement schedule.
COOPERS & LYBRAND L.L.P.
Rochester, New York
March 14, 1997
470941.1
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Lanesborough Corporation
We were engaged to audit the accompanying consolidated balance sheets of
Lanesborough Corporation and Subsidiaries as of December 31, 1995 and 1996, and
the related consolidated statements of operations, cash flows and changes in
stockholders' deficit and the financial statement schedule for each of the
three years in the period ended December 31, 1996. These financial statements
and financial statement schedule are the responsibility of the Company's
management.
The Company is experiencing cash flow difficulties and expects that it will not
be able to continue to meet its debt service obligation under its 10% Senior
Notes. As discussed in Note 2 of the financial statements, the Company is
offering to exchange all of the outstanding shares of common stock of its
wholly-owned subsidiary, Buffalo Color Corporation, for the Company's
outstanding 10% Senior Notes and accrued interest thereon. If the exchange is
not consummated, the Company may be required to seek the protection of the
courts under the bankruptcy code.
Because of the uncertainty described in the preceding paragraph, the scope of
our work was not sufficient to enable us to express, and we do not express, an
opinion on these financial statements and financial statement schedule.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Rochester, New York
March 14, 1997
F-2
470941.1
<PAGE>
LANESBOROUGH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)
DECEMBER 31,
---------------------------
1995 1996
---------- -------
ASSETS
Current assets:
Cash and cash equivalents $ 1,576 $ 278
Accounts receivable (net of allowances
of $142 and $128) 9,480 10,188
Inventories 5,382 5,824
Deferred income taxes 1,045 934
Other current assets 573 784
--------- ---------
Total current assets 18,056 18,008
Property, plant and equipment 16,846 16,819
Goodwill 1,957 1,866
Debt financing costs 374 291
Deferred income taxes 4,420 -
Other assets 3,435 2,698
--------- --------
Total assets $ 45,088 $ 39,682
========= ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt $ 5,599 $ 4,524
Accounts payable 2,622 3,420
Accrued interest payable 34 36
Accrued liabilities 4,969 4,963
Income taxes payable 482 162
--------- ---------
Total current liabilities 13,706 13,105
Long-term debt 53,679 51,069
Deferred income taxes - 1,920
Other non-current liabilities 8,040 6,963
--------- ---------
Total liabilities 75,425 73,057
--------- --------
Commitments and Contingencies (Note 9)
Stockholders' deficit:
Common stock of $0.01 par value:
Authorized: 1,000,000 shares
Issued and outstanding: 99,911 shares 1 1
Additional paid-in capital 7,138 7,138
Accumulated deficit ( 35,169) ( 39,659)
Deferred pension cost ( 2,307) ( 855)
--------- ---------
Total stockholders' deficit ( 30,337) ( 33,375)
--------- ---------
Total liabilities and stockholders'
deficit $ 45,088 $ 39,682
========= ========
The accompanying notes are an integral part of the financial statements.
470941.1
F-3
<PAGE>
LANESBOROUGH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except share data)
YEARS ENDED DECEMBER 31,
---------------------------------
1994 1995 1996
--------- --------- ---------
Net sales $ 45,009 $ 50,519 $ 53,439
Cost of sales 31,694 34,823 39,315
--------- --------- ---------
Gross profit 13,315 15,696 14,124
Selling and administrative 9,366 9,022 8,800
Research, development and engineering 885 867 931
Amortization of intangible assets 91 91 91
--------- -------- ----------
Operating profit 2,973 5,716 4,302
Interest expense 7,383 3,189 831
Amortization of debt financing costs 292 172 83
Environmental remediation - - 1,788
Other expense, net 963 419 467
--------- --------- ----------
Income (loss) from continuing
operations before income taxes ( 5,665) 1,936 1,133
Provision for (benefit of) income taxes 256 ( 3,969) 5,623
--------- --------- ----------
Income (loss) from continuing operations ( 5,921) 5,905 ( 4,490)
Gain (loss) of discontinued operation 350,893 ( 622) -
--------- --------- ----------
Net income $ 344,972 $ 5,283 $( 4,490)
========= ========= ==========
Net income (loss) per share:
Continuing operations $( 120.84) $ 77.49 $( 44.94)
Discontinued operation 7,161.08 ( 8.16) -
--------- --------- ----------
Net income (loss) per share $7,040.24 $ 69.33 $( 44.94)
========= ========= ==========
Weighted average number of common shares
outstanding 49,000 76,199 99,911
========= ========= ==========
The accompanying notes are an integral part of the financial statements.
470941.1
F-4
<PAGE>
LANESBOROUGH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
YEARS ENDED DECEMBER 31,
1994 1995 1996
Cash flows from operating activities:
Net income (loss) $ 344,972 $ 5,283 $( 4,490)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 2,502 2,353 2,243
Deferred income taxes 235 ( 4,330) 5,463
Net (decrease) increase in receivable
and inventory reserves ( 427) 226 95
Increase in accounts receivable ( 666) ( 759) ( 694)
Decrease (increase) in inventories 1,299 505 ( 550)
Net decrease in other assets 1,491 514 156
Increase (decrease) in accounts payable 835 ( 405) 440
Net increase (decrease) in accrued
liabilities and income taxes payable 2,405 850 ( 39)
Increase in environmental remediation
accrual - - 1,788
Net increase (decrease) in other non-current
obligations 299 ( 99) 280
Net (decrease) increase in net liabilities
of discontinued operation (350,893) 622 -
--------- -------- --------
Net cash provided by operating
activities 2,052 4,760 4,692
--------- ------- --------
Cash flows from investing activities:
Additions to property, plant and equipment ( 1,237) ( 1,459) ( 2,141)
Change in other assets 2,691 - -
--------- -------- --------
Net cash provided by (used in)
investing activities 1,454 ( 1,459) ( 2,141)
--------- -------- --------
Cash flows from financing activities:
Borrowings under subsidiary revolving
credit facility - - 3,500
Repayments under subsidiary revolving
credit facility - - ( 3,000)
Repayments under term loan ( 3,050) ( 950) -
Borrowings under subsidiary term loan - - 3,000
Repayments under subsidiary term loans - ( 400) ( 3,767)
Capitalized interest paid on 10% Senior Notes - - ( 3,582)
Repayment of secured notes to parent - ( 1,519) -
--------- -------- --------
Net cash used in financing activities ( 3,050) ( 2,869) ( 3,849)
--------- -------- --------
Net increase (decrease) in cash
and cash equivalents 456 432 ( 1,298)
Cash and cash equivalents at beginning of year 688 1,144 1,576
--------- -------- --------
Cash and cash equivalents at end of year $ 1,144 $ 1,576 $ 278
========= ======== ========
The accompanying notes are an integral part of the financial statements.
470941.1
F-5
<PAGE>
LANESBOROUGH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
(dollars in thousands)
ADDITIONAL DEFERRED TOTAL
COMMON PAID-IN ACCUMULATED PENSION STOCKHOLDERS'
STOCK CAPITAL DEFICIT COST DEFICIT
Balances, January 1, 1994 $ 1 $ 2,369 $(385,424) $(1,054) $(384,108)
Adjustment to long-term
pension liability 562 562
Net income 344,972 344,972
---- -------- --------- ------- ---------
Balances, December 31, 1994 1 2,369 ( 40,452) ( 492) ( 38,574)
Adjustment to long-term
pension liability (1,815) ( 1,815)
Contribution of SHI
Indebtedness to
additional paid-in capital 4,769 4,769
Net income 5,283 5,283
---- -------- --------- ------- ---------
Balances, December 31, 1995 1 7,138 ( 35,169) (2,307) ( 30,337)
Adjustment to long-term
pension liability 1,452 1,452
Net loss ( 4,490) ( 4,490)
---- -------- --------- ------- ---------
Balances, December 31, 1996 $ 1 $ 7,138 $( 39,659) $( 855) $( 33,375)
==== ======== ========= ======= =========
The accompanying notes are an integral part of the financial statements.
470941.1
F-6
<PAGE>
LANESBOROUGH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BUSINESS ORGANIZATION
Lanesborough Corporation ("Lanesborough" or "the Company"), is a
holding company and prior to the Exchange Transaction (as discussed
in Note 7) was a wholly-owned subsidiary of Sherborne Holdings
Incorporated ("Sherborne Holdings"). The consolidated financial
statements as of and for the year ended December 31, 1996, reflect
the results of operations and financial position of Lanesborough and
its wholly-owned subsidiary Buffalo Color Corporation ("BCC"). The
Company's financial statements also reflect its majority ownership in
NH Holding Incorporated ("NHI") as a discontinued operation which on
September 2, 1993 filed a separate voluntary petition for relief
under Chapter 11 of the bankruptcy code. NHI's Plan of
Reorganization, which was consummated on December 28, 1994, provided
for the distribution of all assets of NHI to its creditors in
complete satisfaction of their claims. The consolidated financial
statements reflect the elimination of NHI's net liabilities from the
Company's financial statements, adjustments to the carrying value of
NHI's debt securities held by the Company and the elimination of the
Company's investment in the equity of NHI, all as specified under the
Plan of Reorganization.
The Company, through its principal subsidiary, BCC, manufactures
and distributes certain synthetic organic chemicals. Synthetic indigo
dye, which the Company sells to denim producers throughout the world,
accounts for more than 70.0% of total net sales. The Company also
produces a line of intermediate chemicals which it primarily sells to
domestic manufacturers of dye stuffs, automotive coatings,
pharmaceuticals and epoxies.
The Company relies on cash flows from BCC to meet its
obligations under its debt agreements. The operations, assets and
liabilities of BCC are separate and distinct from those of
Lanesborough.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been prepared
assuming the Company will continue as a going concern. The Company is
offering to exchange all of the outstanding shares of common stock
issued by its wholly-owned subsidiary BCC for the Company's
outstanding 10% Senior Notes due 2000, including accrued interest
thereon, subject to various terms and conditions described in the
Exchange Offer. The Company
470941.1
F-7
<PAGE>
LANESBOROUGH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
Basis of Presentation (cont'd)
intends to liquidate shortly after consummation of the Exchange
Offer, since it will have no other significant assets. The Company
intends to consummate the Exchange Offer if at least 51% of the
holders of the Notes consent to the Exchange Offer. The Company will
continue to hold the pro rata number of shares of common stock that
collateralize the Notes that are not tendered for exchange, pending
final liquidation of the Company. If a majority of the holders of the
Notes do not tender their Notes in exchange for the common stock of
BCC, the Exchange Offer will not be consummated and the Company may
be required to seek the protection of the courts under the bankruptcy
code. The financial statements do not include any adjustments that
would be required to reflect the liquidation basis of accounting that
is contemplated by the Exchange Offer.
The consolidated financial statements include the accounts of
the Company and its subsidiaries. All intercompany balances and
transactions have been eliminated. In addition, certain
reclassifications have been made to the prior years' financial
statements to conform to the current year's presentation.
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.
Cash Equivalents
Cash equivalents consist of temporary cash investments with
original maturities of ninety days or less.
Inventories
Inventories are stated at the lower of cost or market. The LIFO
(last-in, first-out) method of determining cost is used for
substantially all inventories.
470941.1
F-8
<PAGE>
LANESBOROUGH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
Property, Plant and Equipment
Property, plant and equipment are recorded at cost and are
depreciated over their estimated useful lives on the straight-line
method for financial statement purposes and accelerated methods for
income tax purposes.
When assets are disposed of, the cost of the property and
related accumulated depreciation are removed from the respective
accounts, and any resulting gains or losses are included in income.
Goodwill is amortized on a straight-line basis over 40 years and
is stated net of accumulated amortization of $1.7 million and $1.8
million at December 31, 1995 and 1996, respectively. At each balance
sheet date the Company evaluates the realizability of goodwill based
upon expectations of cash flows. Based upon its most recent analysis,
the Company believes that no material impairment of goodwill exists
at December 31, 1996.
Revenue Recognition
BCC has established consignment programs with certain customers
where revenue is recognized at the time of consumption. Revenue from
other product sales is recognized at the time of shipment.
Research and Development
Research and development costs are primarily related to process
enhancements and are expensed as incurred. Such costs amounted to
approximately $0.3 million in each of the years ended December 31,
1994, 1995 and 1996.
Environmental
Environmental expenditures that relate to current operations are
expensed or capitalized as appropriate. Expenditures that relate to
an existing condition caused by past operations, and which do not
contribute to current or future revenue generation, are expensed.
Liabilities are recorded when environmental assessments and/or
remedial efforts are probable, and the costs can be reasonably
estimated. Generally, the timing of these accruals coincides with
substantial completion of a feasibility study or BCC's commitment to
a formal plan of action. Such accruals
470941.1
F-9
<PAGE>
LANESBOROUGH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
Environmental (cont'd)
are adjusted as further information develops or circumstances change.
Costs of future expenditures for environmental remediation
obligations, consisting of direct costs of the remediation effort,
legal fees and costs related to completing the remedial
investigation/feasibility study ("RI/FS"), are not discounted to
their present value. Costs of future expenditures for the operation
and maintenance of the remedial action, including the costs of
postremediation monitoring required by the remedial action plan are
discounted to their present value.
Income Taxes
The Company files a consolidated federal tax return with its
subsidiaries. The provisions for income taxes included in the
consolidated statements of income have been calculated in accordance
with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes", ("SFAS 109").
The Company joined in the consolidated federal income tax return
filed by its former parent, Sherborne Holdings, from January 1, 1995
through June 19, 1995, the date of the Exchange Transaction (as
discussed in Note 7). As a direct result of the Exchange Transaction,
the Company ceased to be a member of the Sherborne Holdings
consolidated group. A separate consolidated federal income tax return
was filed by the Company from the date of the Exchange Transaction
through December 31, 1995.
Earnings (Loss) Per Share
In May 1995, the Company amended its certificate of
incorporation to increase the authorized number of shares of common
stock from 1,000 to 1,000,000 shares and to reduce the par value from
$1.00 to $0.01 per share, and issued 49,000 new shares in exchange
for the 1,000 old shares of common stock previously outstanding. All
share and per share amounts for the years ended December 31, 1994 and
1995 have been presented as if the Exchange Transaction (as discussed
in Note 7) had occurred at the beginning of these periods.
470941.1
F-10
<PAGE>
LANESBOROUGH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of risk consist principally of temporary cash
investments and trade receivables. The Company invests surplus cash
balances in U.S. Treasury securities with original maturities of
ninety days or less. Credit risk on trade receivables is minimized as
a result of BCC's credit and collection policies which are monitored
closely for compliance.
NOTE 3. SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Year Ended December 31,
----------------------------------------------
1994 1995 1996
-------- -------- --------
(dollars in thousands)
Interest paid $ 6,679 $ 1,673 $ 4,269
Income taxes paid 162 173 524
In 1995, the Company cancelled indebtedness to Sherborne
Holdings in excess of $2,900 principal amount of Notes issued to
Sherborne Holdings and accounted for the cancellation as a
contribution to capital of $4,769.
NOTE 4. INVENTORIES
The major components of inventories are as follows:
December 31,
----------------------------
1995 1996
------- -------
(dollars in thousands)
Raw materials and supplies $ 912 $ 816
Work in process 812 714
Finished goods 3,658 4,294
------- -------
Total $ 5,382 $ 5,824
======= =======
470941.1
F-11
<PAGE>
LANESBOROUGH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. INVENTORIES (cont'd)
Inventories, if valued on a first-in, first-out basis, would
have been approximately $128 thousand and $368 thousand higher than
reported at December 31, 1995 and 1996, respectively.
NOTE 5. PROPERTY, PLANT AND EQUIPMENT
A summary of the major components of property, plant and
equipment is as follows:
December 31,
------------------------
1995 1996
--------- ---------
(dollars in thousands)
Land $ 1,841 $ 1,841
Buildings and improvements 12,062 12,070
Furniture, fixtures and equipment 38,162 39,988
Construction in progress 724 872
--------- ---------
52,789 54,771
Less accumulated depreciation ( 35,943) ( 37,952)
--------- ---------
Total $ 16,846 $ 16,819
========= =========
Depreciation charged to continuing operations was approximately
$2.1 million, in 1994, 1995 and 1996. Buildings and improvements
under capital leases totaled $0.6 million and $0.5 million net of
accumulated depreciation of approximately $0.1 million at December
31, 1995 and 1996, respectively.
470941.1
F-12
<PAGE>
LANESBOROUGH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. ACCRUED LIABILITIES
A summary of the major components of accrued liabilities is as
follows:
December 31,
----------------------
1995 1996
--------- --------
(dollars in thousands)
Compensation and employee benefits $ 1,724 $ 1,796
Environmental 692 504
Postretirement benefits other than pensions 736 693
Other 1,817 1,970
--------- --------
Total $ 4,969 $ 4,963
========= ========
NOTE 7. DEBT
A summary of the components of debt is as follows:
December 31,
----------------------
1995 1996
--------- ---------
(dollars in thousands)
Current Portion of Long-Term Debt:
Subsidiary Term Loan $ 1,600 $ 1,000
10% Senior Notes 3,999 3,443
12 3/8% Senior Subordinated Notes - 81
--------- ---------
Total $ 5,599 $ 4,524
========= =========
Long-Term Debt:
Subsidiary Revolving Credit Facility $ - $ 500
Subsidiary Term Loan 2,000 1,833
10% Senior Notes 51,598 48,736
12 3/8% Senior Subordinated Notes 81 -
--------- ---------
Total $ 53,679 $ 51,069
========= =========
470941.1
F-13
<PAGE>
LANESBOROUGH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. DEBT (cont'd)
Subsidiary Revolving Credit Facility and Term Loan
On October 11, 1996, BCC entered into a secured term loan,
("Subsidiary Term Loan"), and revolving credit facility, ("Subsidiary
Revolving Credit Facility"), with a commercial bank. The subsidiary
term loan was in the initial principal amount of $3.0 million, of
which $2.0 million was used to repay BCC's then existing $2.0 million
term loan balance. The subsidiary 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 subsidiary 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. Outstanding borrowings at
December 31, 1996 totaled $0.5 million and bore interest at the
bank's prime rate plus 1.5%. The carrying value of the subsidiary
term loan and subsidiary revolving credit facility approximates fair
market value at December 31, 1996. Borrowings under this facility are
secured by a lien and security interest on substantially all BCC's
assets other than its real properties. The loan agreement contains
customary covenants, restrictions, and financial maintenance tests,
including a requirement that BCC maintain tangible net worth of at
least $18.0 million; restrictions on changes in management or control
of BCC; limitations on the incurrence of additional indebtedness of
BCC; and restrictions on the payment of dividends or other
distributions on account of its capital stock in an amount in excess
of $5.0 million per year, reduced by the amount of certain
environmental expenditures. BCC was in compliance with all covenants
of this agreement at December 31, 1996. Additional availability under
the subsidiary revolving credit facility is limited to a specific
factor of BCC's eligible inventories and trade accounts receivable.
Subsequent to December 31, 1996, BCC issued a letter of credit in the
amount of $1.3 million.
10% Senior Notes
The Notes due 2000, are secured obligations of the Company and
are effectively subordinated to all outstanding indebtedness of
subsidiaries of the Company. The Notes are secured by a pledge of all
of the Capital Stock of BCC. There are no sinking fund requirements
on the Notes.
In June 1995, the Company completed a restructuring of
substantially all of its outstanding indebtedness (the "Exchange
Transaction") which was undertaken following negotiations with
certain holders of the Company's then outstanding 12 3/8% Senior
Subordinated Notes (the "Old Notes"). The Exchange Transaction
involved (a) the exchange of $49.9 million in principal amount of Old
Notes (plus accrued interest from September 15, 1994 to June 19,
1995) for $37.0 million in principal amount of 10% Senior Notes due
2000 (the "Notes") and 50,911 shares of Common Stock; (b) the waiver
of all interest accrued since October 1, 1994 on intercompany
indebtedness due to Sherborne Holdings ("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
470941.1
F-14
<PAGE>
LANESBOROUGH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. DEBT (cont'd)
10% Senior Notes (cont'd)
Holdings, amounting to approximately $4.8 million; and (d) the
reduction of the management fee charged to the Company from $100,000
per month to $50,000 per month.
The Exchange Transaction has been accounted for in accordance
with Statement of Financial Accounting Standards No. 15, "Accounting
by Debtors and Creditors for Troubled Debt Restructurings", ("SFAS
15"). At the date of the Exchange Transaction the principal amount of
the Notes, totalling $39.9 million, was adjusted upward to $56.9
million to include substantially all future interest payments on the
Notes to the date of maturity. Interest is payable semi-annually.
Capitalized interest when paid is reflected as a reduction in the
carrying amount of the Notes as opposed to being expensed. The
Company is permitted at anytime prior to the maturity date to redeem
the Notes at their principal amount plus a declining redemption
premium and accrued interest to the date of redemption.
At December 31, 1996, the carrying value of the Notes amounted
to $52.2 million. Based upon limited market transactions management
estimates that the current fair market value is approximately $50 to
$70 per hundred face value of the Notes.
12 3/8% Senior Subordinated Notes
The Old Notes, due 1997, are unsecured obligations of the
Company that are structurally subordinated to all debts and
liabilities of the issuer's operating subsidiaries. There are no
sinking fund requirements on the Old Notes. Interest is payable
semiannually.
As a result of the Exchange Transaction, the Company exchanged
approximately $49.9 million of the Old Notes (representing
approximately 99.8% of the $50.0 million Old Notes then outstanding)
for approximately $37.0 million of the 10% Senior Notes.
Maturities of Long-Term Debt
The following table summarizes the scheduled non-current
maturities of the Company's long-term debt for years subsequent to
1997:
Year (dollars in thousands)
1998 $ 4,444
1999 4,777
2000 41,848
---------
$ 51,069
470941.1
F-15
<PAGE>
LANESBOROUGH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. OTHER NON-CURRENT LIABILITIES
A summary of the components of other non-current liabilities is
as follows:
December 31,
----------------------
1995 1996
--------- ---------
(dollars in thousands)
Pension $ 4,803 $ 1,985
Environmental 244 1,617
Postretirement benefits other than pensions 1,176 1,637
Other 1,817 1,724
--------- --------
Total $ 8,040 $ 6,963
========= =========
NOTE 9. COMMITMENTS AND CONTINGENCIES
Lease Commitments and Rent Expense
BCC leases various facilities and equipment under operating
lease agreements with varying terms. As of December 31, 1996,
significant future annual lease obligations under leases with
non-cancelable lease terms originally in excess of one year are
approximately $0.1 million in 1997, 1998, 1999 and none thereafter.
Total rent expense for all operating leases was approximately
$0.3 million in each of the years ended December 31, 1994, 1995 and
1996.
A consolidated entity is obligated to make rental payments under
a capital lease agreement for cooling water supply facilities. The
obligation requires maximum quarterly payments of $26 thousand and
matures on March 31, 2003. Such payments are not included above.
Environmental Contingencies
The Company is required to comply with complex regulations
relating to the use, storage, disposal and discharge of hazardous
materials. The Company has in the past, 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 a potentially responsible party
("PRP"), and in certain instances is being sued along with a number
of other parties, with respect to 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. Preliminary
estimates of the total remediation costs for these sites are in the
range of $8.5 to $10.0 million.
470941.1
F-16
<PAGE>
LANESBOROUGH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. COMMITMENTS AND CONTINGENCIES (cont'd)
Environmental Contingencies (cont'd)
The Company is subject to a New York State Department of
Environmental Conservation ("DEC") permit requiring a Resource
Conservation and Recovery Act ("RCRA") facility investigation,
("RFI"), of the active plant site. An initial facility investigation,
although not completed, revealed contamination in the active plant
site. A corrective measure study ("CMS") is expected to be completed
by the end of 1997 that will assess alternative corrective measures
that are technologically feasible and implementable. Following
completion of the CMS, the Commissioner of the DEC will select the
corrective measure(s) from the alternatives presented in the CMS and
require implementation of a remedial design and remedial construction
through a permit modification. The design is projected to be
completed by the end of 1998 at the earliest, and construction would
likely begin in 1999, conclude by 2000 or 2001 and be followed by a
minimum of 30 years of operation and maintenance.
Allied Signal, Inc. ("Allied"), previous owner/operator of the
site, has agreed, on an interim basis to share in the costs of the
RFI and the CMS, without prejudice to a final allocation. Allied has
not agreed to share in the costs of any interim or final remedial
measures that the DEC might require. If necessary, the Company
intends to pursue litigation against Allied to require Allied to
contribute its equitable share of the costs of remediating
contamination arising from activities conducted by Allied. Management
has estimated that the capital costs for remediation could be in the
range of $6.5 million and $9.0 million and that the present value of
total operating and maintenance costs for 30 years could be in the
range of $4.5 million and $6.0 million.
At December 31, 1996, the Company has accrued its share of the
estimated RFI and CMS expenses associated with its active plant site
and the low end of the range of its estimated share of the estimated
environmental remediation obligations with respect to the sites
discussed above. The Company's share of such environmental
remediation costs has been based on the contaminants identified
during the preliminary facility investigation. Accordingly, it is
possible that the Company could incur additional environmental
remediation obligations beyond the amount accrued, and such costs
could be material to operations, financial position and cash flow in
future periods as more current information becomes known.
Pension Plan Termination Liability of Affiliates
The Company and other affiliated companies had been members of a
common control group under which, by statute, they were jointly and
severally obligated for any liability to the Pension Benefit Guaranty
Corporation ("PBGC") upon termination of any of the entities' pension
plans. Certain affiliates maintain defined benefit pension plans that
are substantially underfunded based on plan termination assumptions.
In order to accommodate the corporate reorganization of NHI, the PBGC
and various control group members entered into contractual
arrangements
470941.1
F-17
<PAGE>
LANESBOROUGH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. COMMITMENTS AND CONTINGENCIES (cont'd)
Pension Plan Termination Liability of Affiliates (cont'd)
whereby the entities have retained liability for plan termination in
the event certain affiliates' underfunded pension plans are
terminated at a future date. Pursuant to these contractual
arrangements, liability for plan termination is triggered upon
certain reorganization events of the Company, including a
commencement of liquidation of either the Company or its subsidiaries
under the bankruptcy code. The estimated liability for plan
termination is approximately $83.0 million at December 31, 1996. No
claims are pending or, to the knowledge of the Company, threatened
against the Company or BCC under the contractual arrangements.
NOTE 10. EMPLOYEE BENEFIT PLANS
BCC provides noncontributory pension plans covering
substantially all of its employees. Benefits under these plans are
computed based, primarily, on an employee's years of credited service
and/or earnings. BCC's funding policy is to fund the benefits
expected to be paid to the plan members. Contributions equal or
exceed the minimum funding requirements of ERISA.
The components of net periodic pension expense for the years
ended December 31, are as follows:
1994 1995 1996
------- -------- --------
(dollars in thousands)
Service cost $ 512 $ 457 $ 543
Interest cost 1,546 1,708 1,694
Net amortization 200 291 302
Return on plan assets (1,649) (1,535) (1,823)
------- ------- -------
Net periodic pension
expense $ 609 $ 921 $ 716
======= ======= =======
In accordance with the requirements of Statement of Financial
Accounting Standards No. 87 "Employers' Accounting for Pensions"
("SFAS 87") the balance sheet at December 31, reflects the following:
470941.1
F-18
<PAGE>
LANESBOROUGH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. EMPLOYEE BENEFIT PLANS (cont'd)
1995 1996
------- -------
(dollars in thousands)
Intangible asset $ 926 $ 549
Long-term pension
liability 4,803 1,985
Direct reduction in
stockholders' deficit
(net of tax benefits
of $1,570 and $581) 2,307 855
The assumptions used in determining pension costs for 1995 and
1996 under SFAS 87 include a discount rate of 7.25%, a rate of
increase in future compensation levels per annum of 3.5% and 4.5%,
respectively and an expected long-term rate of return on pension
assets per annum of 9.0%.
Plan assets are invested in a directed trust. Assets of the
directed trust are primarily invested in United States Government
obligations, corporate bonds, common stock, and units of common
investment trusts consisting of short term interest bearing
instruments, United States Government direct and guaranteed
obligations, and common stock.
The following table sets forth the funded status of the plans
and the amounts recognized in the Company's consolidated balance
sheets as of December 31, 1995 and 1996, except for the amounts
described in the preceding paragraph that have been recognized to
conform with the additional requirements of SFAS 87:
1995 1996
--------- ---------
(dollars in thousands)
Actuarial present value of benefit
obligations:
Vested $(22,399) $(23,040)
-------- --------
Accumulated $(22,984) $(23,621)
-------- --------
Projected $(24,238) $(24,910)
Less: plan assets at fair value 20,376 23,229
-------- --------
( 3,862) ( 1,681)
Unrecognized prior service cost 646 582
Unrecognized net obligation at date of
initial application being amortized
over 12 and 15 years for the salaried
and hourly plans, respectively 242 222
Unrecognized net loss 5,168 3,368
-------- --------
Pension prepayment $ 2,194 $ 2,491
======== ========
470941.1
F-19
<PAGE>
LANESBOROUGH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. EMPLOYEE BENEFIT PLANS (cont'd)
BCC also maintains 401(k) defined contribution plans for its
hourly and salaried employees. Under the salaried plan, the
employee's contribution of 2.0% or 3.0% of wages is matched
dollar-for-dollar by BCC. Under the hourly plan, the employee's
contribution of 2.0% or 3.0% of wages is matched by BCC fifty cents
on the dollar. Expenses related to the plans amounted to
approximately $0.2 million for the years ended December 31, 1995 and
1996.
NOTE 11. POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
BCC provides certain health care and life insurance benefits for
substantially all retirees who attained normal retirement age while
working for BCC. These benefits are provided through insurance
companies whose premiums are primarily community rated. Generally,
the health care plans pay a stated dollar contribution towards the
medical insurance premiums. A non-contributory life insurance benefit
is provided with additional coverage available primarily at the
retirees' expense. For hourly retirees these benefits vary based upon
the collectively bargained agreement in effect at the time of their
retirement. The plans are unfunded.
In accordance with Statement of Financial Accounting Standards
No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions", ("SFAS 106"), the funded status of the plans,
reconciled to the accrued postretirement benefit obligation
recognized in the Company's balance sheets at December 31, is as
follows:
1995 1996
------- -------
(dollars in thousands)
Accumulated postretirement benefit
obligation:
Retirees $(6,576) $(6,375)
Fully eligible active plan
participants (1,375) (1,285)
Other active participants ( 791) ( 769)
------- -------
(8,742) (8,429)
Unrecognized net loss 1,103 709
Unamortized net transition
obligation 5,727 5,390
------- -------
Accrued postretirement benefit
obligation $(1,912) $(2,330)
======= =======
470941.1
F-20
<PAGE>
LANESBOROUGH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS (cont'd)
The components of net periodic postretirement benefit costs at
December 31, are as follows:
1995 1996
------- -------
(dollars in thousands)
Service cost $ 57 $ 71
Interest cost 637 589
Amortization of transition
obligation 337 337
Amortization of gains and losses - 38
------ ------
Net periodic postretirement benefit
cost $1,031 $1,035
====== ======
For measuring the accumulated postretirement benefit obligations
("APBO"), an 8.6% annual rate of increase in the per capita claims
cost was assumed for 1996, but is expected to gradually decline each
year until 2002, to an ultimate trend rate of 5.0%. The
weighted-average discount rate used in determining the APBO at
January 1, 1996 and December 31, 1996 was 7.25%.
If the health care cost trend rate were increased 1.0%, the APBO
as of December 31, 1996 and the aggregate of service and interest
cost for 1996 would have increased by approximately 1.0%.
The cash paid by the Company to provide postretirement benefits
other than pensions amounted to approximately $0.6 million in each of
the years ended December 31, 1994, 1995 and 1996.
NOTE 12. INCOME TAXES
The provision for (benefit of) income taxes comprised the
following:
Year Ended December 31,
----------------------------------------
1994 1995 1996
-------- -------- -------
(dollars in thousands)
Current:
State $ 201 $ 343 $ 131
Foreign 14 17 29
-------- -------- -------
215 360 160
-------- -------- -------
Deferred:
Federal - (4,324) 5,569
State 41 ( 5) ( 106)
-------- -------- -------
41 (4,329) 5,463
-------- -------- -------
$ 256 $( 3,969) $ 5,623
======== ======== =======
470941.1
F-21
<PAGE>
LANESBOROUGH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. INCOME TAXES (cont'd)
The difference between taxes computed by applying the statutory
federal corporate income tax rate of 34% to income (loss) before
taxes and the actual provision for income taxes charged to continuing
operations was:
Year Ended December 31,
---------------------------
1994 1995 1996
-------- -------- -------
(dollars in thousands)
Federal income tax (benefit)
provision at statutory rate $( 1,926) $ 658 $ 385
Tax benefit of (provision for) domestic
losses not recorded in provision 1,926 ( 658) ( 385)
(Decrease) increase in valuation allowance - ( 4,183) 5,551
State taxes, net 134 231 87
Other, net 122 ( 17) ( 15)
-------- ------- -------
Total $ 256 $(3,969) $ 5,623
======== ======= =======
The temporary differences which give rise to deferred tax assets
and (liabilities) at December 31, are as follows:
1995 1996
-------- ---------
(dollars in thousands)
Deferred compensation $ 424 $ 420
Environmental accruals 350 804
LIFO inventory ( 275) ( 275)
Pension ( 954) ( 1,062)
Insurance accruals 147 163
Inventory capitalization 89 108
Vacation accrual 430 444
SFAS 87 adjustment 1,570 581
Depreciation and amortization ( 3,227) ( 3,144)
Postretirement medical 732 892
Loss carryforwards 11,614 11,298
Capitalized interest 5,838 4,656
Financing fees 189 147
Other 152 145
Less valuation allowance (11,614) (16,163)
-------- -------
$ 5,465 $( 986)
======== =======
Of the net deferred tax assets (liabilities) presented, the
current portion of deferred income taxes amounted to $1.0 million and
$0.9 million and the non-current portion of deferred income taxes
amounted to $4.4 million and $(1.9) million at December 31, 1995 and
1996, respectively.
470941.1
F-22
<PAGE>
LANESBOROUGH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. INCOME TAXES (cont'd)
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 resulted in an ownership change for Federal income tax
purposes, and has substantially limited the Company's net operating
loss carryforwards available to offset taxes on future operating
income. Based on the criteria set forth in SFAS 109, the Company has
recorded valuation allowances against certain deferred tax assets of
$11.6 million and $16.2 million for the years ended December 31, 1995
and 1996, respectively.
NOTE 13. MAJOR CUSTOMERS
Sales to three customers representing 10% or more of net sales,
amounted to $11.4 million, $5.6 million and $5.5 million during 1995,
and $10.7 million, $6.2 million and $6.2 million during 1996.
Export sales were approximately 20.7%, 22.0% and 28.2% of the
Company's net sales for the years ended December 31, 1994, 1995 and
1996, respectively. The principal international markets served by the
Company include Mexico, Europe and Asia.
NOTE 14. RELATED PARTY TRANSACTIONS
Included in "Other expense, net" on the Statement of Operations
for the year ended December 31, 1994 is $1.2 million of management
fees charged to the Company. As a direct result of the Exchange
Transaction, management fees charged to the Company for the years
ended December 31, 1995 and 1996 amounted to $0.9 million and $0.6
million, respectively. The management fee was last paid on October
24, 1995. At December 31, 1996 accrued management fees aggregated
$0.7 million and are included in other accrued liabilities.
470941.1
F-23
<PAGE>
LANESBOROUGH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. QUARTERLY FINANCIAL DATA AND INFORMATION (UNAUDITED)
The following table sets forth the unaudited quarterly results
of operation for each of the fiscal quarters in the years ended
December 31, 1995 and 1996 (dollars in thousands, except per share
data):
<TABLE>
<CAPTION>
Fiscal 1995
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
<S> <C> <C> <C> <C> <C>
Net sales $ 12,273 $12,626 $12,662 $ 12,958 $ 50,519
Gross profit 3,775 4,189 4,005 3,727 15,696
Income (loss) from
continuing operations ( 868) 4,508 938 1,327 5,905
Loss of discontinued
operation - ( 622) - - ( 622)
Net income (loss) ( 868) 3,886 938 1,327 5,283
Net income (loss) per share(1):
Continuing operations $( 17.71) $ 81.74 $ 9.39 $ 13.28 $ 77.49
Discontinued operation - ( 11.28) - - ( 8.16)
-------- -------- ------- -------- --------
Net income (loss)
per share $( 17.71) $ 70.46 $ 9.39 $ 13.28 $ 69.33
======== ======= ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
Fiscal 1996
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
<S> <C> <C> <C> <C> <C>
Net sales $ 13,794 $13,924 $13,267 $ 12,454 $ 53,439
Gross profit 4,186 3,952 3,475 2,511 14,124
Net income (loss) 947 705 459 ( 6,601) ( 4,490)
Net income (loss) per share $ 9.48 $ 7.06 $ 4.59 $( 66.07) $( 44.94)
======== ======= ======= ======== ========
</TABLE>
(1) The sum of the quarterly amounts do not equal the total as a
result of Common Stock transactions during the year.
470941.1
F-24
<PAGE>
LANESBOROUGH CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENT SCHEDULE
Page
Schedule II - Valuation and Qualifying Accounts ..................... S-2
470941.1
S-1
<PAGE>
<TABLE>
<CAPTION>
LANESBOROUGH CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(dollars in thousands)
Balance at Additions Charges to Balance
Beginning Costs and Other at End of
Description of Period Expenses Accounts (Deductions) Period
<S> <C> <C> <C> <C> <C>
Allowance for
doubtful accounts
December 31, 1994 $ 133 $ - $( 1) $ - $ 132
-----------------
December 31, 1995 132 51 - ( 41)(1) 142
-----------------
December 31, 1996 142 - - ( 14)(1) 128
-----------------
Valuation allowance
for deferred taxes
December 31, 1994 $ 64,205 $ - $ - $(48,320)(2) $ 15,885
-----------------
December 31, 1995 15,885 - - ( 4,271) 11,614
-----------------
December 31, 1996 11,614 4,549 - - 16,163
-----------------
</TABLE>
- -------------------------
(1) Includes write-offs of accounts receivable.
(2) As a direct result of the disaffiliation of NHI and its subsidiaries, the
valuation allowance attributable to operating loss carryforwards decreased
by approximately $48.3 million for the ended December 31, 1994.
470941.1
S-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11.1
LANESBOROUGH CORPORATION
COMPUTATION OF EARNINGS (LOSS) PER SHARE
(dollars in thousands, except share and per share data)
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------
1992 1993 1994 1995 1996
---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Income (loss) from continuing operations $( 3,637) $( 5,279) $( 5,921) $ 5,905 $( 4,490)
Gain (loss) of discontinued operation ( 70,353) ( 70,284) 350,893 ( 622) -
Cumulative effect of change in accounting
for income taxes - 668 - - -
Net income (loss) ( 73,990) ( 74,895) 344,972 5,283 ( 4,490)
Weighted average number of common
shares outstanding 49,000 49,000 49,000 76,199 99,911
Income (loss) per share from continuing
operations ( 74.22) ( 107.73) ( 120.84) 77.49 ( 44.94)
Gain (loss) per share of discontinued
operations (1,435.78) (1,434.37) 7,161.08 ( 8.16) -
Cumulative per share effect of change in
accounting for income taxes - 13.63 - - -
Net income (loss) per share (1,510.00) (1,528.47) 7,040.24 69.33 ( 44.94)
470941.1
S-3
</TABLE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By:
Craig L. McKibben
Chairman and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below does hereby constitute and appoint Craig L. McKibben, with full
power to act, his attorney-in-fact, with the power of substitution for him in
any and all capacities, to sign any or all amendments to this report and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission under the Securities
Exchange Act of 1934, hereby ratifying and confirming all that said
attorney-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
__________________________ Chairman, Chief Executive March 14, 1997
Craig L. McKibben Officer and Director
(Principal Executive Officer)
__________________________ Secretary and Treasurer March 14, 1997
William O. Fields, Jr. (Principal Financial
Officer and Accounting
Officer)
470941.1
S-6
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By: /s/ Craig L. McKibben
Craig L. McKibben
Chairman and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below does hereby constitute and appoint Craig L. McKibben, with full
power to act, his attorney-in-fact, with the power of substitution for him in
any and all capacities, to sign any or all amendments to this report and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission under the Securities
Exchange Act of 1934, hereby ratifying and confirming all that said
attorney-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
/s/ Craig L. McKibben Chairman, Chief Executive March 14, 1997
- --------------------------
Craig L. McKibben Officer and Director
(Principal Executive Officer)
/s/ William O. Fields, Jr. Secretary and Treasurer March 14, 1997
- ----------------------------
William O. Fields, Jr. (Principal Financial
Officer and Accounting
Officer)
470941.1
S-7
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS FOR THE FOR
FISCAL YEARS ENDED DECEMBER 31, 1995 AND 1996 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 DEC-31-1996
<CASH> 1,576 278
<SECURITIES> 0 0
<RECEIVABLES> 9,622 10,316
<ALLOWANCES> (142) (128)
<INVENTORY> 5,382 5,824
<CURRENT-ASSETS> 18,056 18,008
<PP&E> 52,789 54,771
<DEPRECIATION> (35,943) (37,952)
<TOTAL-ASSETS> 45,088 39,682
<CURRENT-LIABILITIES> 13,706 13,105
<BONDS> 0 0
0 0
0 0
<COMMON> 1 1
<OTHER-SE> (30,337) (33,375)
<TOTAL-LIABILITY-AND-EQUITY> 45,088 39,682
<SALES> 50,519 53,439
<TOTAL-REVENUES> 50,519 53,439
<CGS> 34,823 39,315
<TOTAL-COSTS> 44,712 <F1> 49,046 <F2>
<OTHER-EXPENSES> 682 <F3> 2,454 <F4>
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 3,189 831
<INCOME-PRETAX> 1,936 1,133
<INCOME-TAX> (3,969) 5,623
<INCOME-CONTINUING> 5,905 (4,490)
<DISCONTINUED> (622) 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 5,283 (4,490)
<EPS-PRIMARY> 69.33 (44.94)
<EPS-DILUTED> 69.33 (44.94)
<FN>
<F1> INCLUDES S&A AND RD&E OF 9,022 AND 867,
RESPECTIVELY
<F2> INCLUDES S&A AND RD&E OF 8,800 AND 931,
RESPECTIVELY
<F3> INCLUDES AMORTIZATION OF INTANGIBLE ASSETS
OF 91
<F4> INCLUDES AMORTIZATION OF INTANGIBLE ASSETS
AND ENVIRONMENTAL REMEDIATION COSTS OF 91
AND 1,788, RESPECTIVELY
</FN>
</TABLE>
