- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT
OF 1934
For the transition period from _________________ to _________________
Commission File Number: 0-24094
LESLIE BUILDING PRODUCTS, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-3764357
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
200 Mamaroneck Avenue, White Plains, N.Y. 10601
(Address of principal executive offices)
(Zip Code)
(914) 421-2545
Registrant's Telephone Number including Area Code
(Former name, former address and former fiscal year,
if changed since last year)
Indicate by check marks 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 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 |XX| No |__|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. 4,843,552 shares of common
stock as of April 30, 1997.
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<PAGE>
LESLIE BUILDING PRODUCTS, INC.
INDEX TO FINANCIAL STATEMENTS FILED WITH
QUARTERLY REPORT OF REGISTRANT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1997
(UNAUDITED)
------------------------------------------------------
Page
----
PART I - FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF OPERATIONS 3
CONSOLIDATED BALANCE SHEETS 4
CONSOLIDATED STATEMENTS OF CASH FLOWS 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7-8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9-12
PART II - OTHER INFORMATION
Not applicable
SIGNATURES 13
<PAGE>
LESLIE BUILDING PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
-------------------------------
1997 1996
- --------------------------------------------------------------------------------
(In thousands, except per share amounts)
Net sales $ 20,399 $ 18,751
Cost of sales (Note 2) 17,742 15,504
------------ -----------
Gross profit 2,657 3,247
Selling, general and administrative expenses 3,474 3,094
------------ -----------
Operating income (loss) (817) 153
Interest expense, net 450 420
------------ -----------
Net loss $ (1,267) $ (267)
============ ============
Net loss per common share $ (.26) $ (.06)
============ ===========
Weighted average common shares outstanding 4,841 4,804
============ ===========
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
LESLIE BUILDING PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31,
---------------- December 31,
1997 1996 1996
- --------------------------------------------------------------------------------
(In thousands, except shares and per share amounts)
ASSETS
Current assets
Cash $ 9 $ 36 $ 34
Accounts receivable, trade, less allowance
for doubtful accounts 11,138 12,151 7,815
Inventories (Note 2) 16,772 12,868 16,891
Prepaid expenses and other current assets 1,302 1,955 1,455
-------- ------- --------
Total current assets 29,221 27,010 26,195
Fixed assets, net 14,835 16,605 15,320
Other assets 393 549 442
-------- ------- --------
Total assets $ 44,449 $44,164 $ 41,957
======== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 937 $ 784 $ 933
Accounts payable, trade 9,465 8,161 6,442
Accrued expenses and other current liabilities 6,072 4,768 3,882
Discontinued operations, net (Note 3) 3,736 3,580 3,697
-------- ------- --------
Total current liabilities 20,210 17,293 14,954
Long-term debt (Note 4) 16,028 17,825 17,598
Other long-term liabilities 894 1,430 842
-------- ------- --------
Total liabilities 37,132 36,548 33,394
-------- ------- --------
Commitments and Contingencies (Note 3)
Stockholders' equity
Common stock par value $.01 per share:
authorized 20,000,000 shares; issued
4,843,552 shares in March 1997,
4,805,762 shares in March 1996, and
4,833,075 shares in December 1996 48 48 48
Paid-in capital 20,333 20,259 20,312
Accumulated deficit (13,064) (12,691) (11,797)
-------- ------- --------
Total stockholders' equity 7,317 7,616 8,563
-------- ------- --------
Total liabilities and stockholders'
equity $ 44,449 $44,164 $ 41,957
======== ======= ========
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
LESLIE BUILDING PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
---------------------
1997 1996
- --------------------------------------------------------------------------------
(In thousands)
Cash flows from operating activities:
Net loss $(1,267) $ (267)
Adjustments to reconcile net loss to cash flows
provided by (used for) operating activities:
Depreciation and amortization 504 499
Provision for accounts receivable 118 18
Gain on disposal of fixed assets (2)
Changes in assets and liabilities:
Accounts receivable (3,441) (4,462)
Inventories 119 (626)
Prepaid expenses and other assets 162 (140)
Accounts payable, accrued expenses and
other current liabilities 5,252 2,358
------- -------
Net cash flows provided by (used for)
operating activities 1,445 (2,620)
------- -------
Cash flows from investing activities:
Capital expenditures (36) (683)
Sale of fixed assets 59
------- -------
Net cash flows provided by (used for)
investing activities 23 (683)
------- -------
Cash flows from financing activities:
Equipment loan 925
Proceeds from secured line of credit 6,794 7,530
Repayments under secured line of credit and
other borrowings (8,360) (5,053)
Other 73 (78)
------- -------
Net cash flows (used for) provided by
financing activities (1,493) 3,324
------- -------
Net (decrease) increase in cash (25) 21
Cash at beginning of period 34 15
------- -------
Cash at end of period $ 9 $ 36
======= =======
Supplemental disclosure of cash flows information:
Cash paid during the period for:
Interest on debt $ 405 $ 422
Income taxes $ 8
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
LESLIE BUILDING PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Total
Common Paid-in Accumulated Stockholders'
Stock Capital Deficit Equity
- -------------------------------------------------------------------------------------------------------
(In thousands, except shares)
<S> <C> <C> <C> <C>
Balance - December 31, 1996 $ 48 $ 20,312 $(11,797) $8,563
Net loss for three months ended March 31, 1997 (1,267) (1,267)
Employee purchases of 10,477 shares of common stock 21 21
------- -------- -------- ------
Balance - March 31, 1997 $ 48 $ 20,333 $(13,064) $7,317
======= ======== ======== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
LESLIE BUILDING PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The Consolidated Financial Statements presented herein have been prepared
by the Company in accordance with the accounting policies described in its
December 31, 1996 Annual Report on Form 10-K and should be read in conjunction
with the Notes to Consolidated Financial Statements included therein.
In the opinion of management, the information furnished in this Form 10-Q
reflects all adjustments necessary for a fair statement of the results of
operations as of and for the three month periods ended March 31, 1997 and 1996.
All such adjustments are of a normal recurring nature. The Consolidated
Financial Statements have been prepared in accordance with the instructions to
Form 10-Q and therefore do not include some information and notes necessary to
conform with annual reporting requirements. Certain prior year amounts have been
reclassified to conform with the current year presentation.
2. Inventories
Inventories are valued at the lower of cost (using the last-in, first-out
and first-in, first-out methods) or market. Cost includes material, labor and
overhead (for manufactured products); market is replacement cost or realizable
value after allowance for costs of distribution.
Quarterly inventories valued on the last-in, first-out method are based on
an annual determination of quantities and costs as of the previous year-end.
Therefore, such quarterly inventory valuations are based on estimates.
3. Discontinued Operations
In fiscal 1990, the Company discontinued the operations of White Metal
Rolling and Stamping Corp. ("White Metal"), the Company's ladder manufacturing
subsidiary, and sold certain assets of White Metal, (machinery, equipment and
supplies and customer lists) to a private company. The buyer did not assume any
liabilities of White Metal, nor acquire the White Metal name and will not
produce White Metal ladders. All manufacturing operations of White Metal ceased
as of January 31, 1991 and substantially all of its remaining assets have since
been liquidated.
At March 31, 1997, White Metal's estimated future product liability, which
is no longer covered by insurance, was approximately $3.7 million (net of
imputed interest). Such liability is reflected in discontinued operations, net,
on the Consolidated Balance Sheet. Although Leslie-Locke was named as a
defendant in certain product liability actions, Leslie-Locke has not been held
responsible, and the Company and Leslie-Locke disclaim any liability for the
obligations of White Metal.
On September 30, 1994, White Metal filed a voluntary petition seeking
liquidation under the provisions of chapter 7 of the United States Bankruptcy
Code. In connection with the chapter 7 filing by White Metal, numerous proofs of
claim have been filed against White Metal. Included is a claim by Sears Roebuck
& Co., ("Sears") dated April 7, 1995, in the amount of $164 million, including
actual losses of $1,657,000 and estimated future product liability losses for
the next 20 years, based upon indemnification
7
<PAGE>
LESLIE BUILDING PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
obligations which Sears alleges White Metal undertook in connection with White
Metal's sale of ladders to Sears. These proofs of claim have been evaluated and
no change was required in the Company's estimated product liability accrual. The
Company and Leslie-Locke have in the past disclaimed, and continue to disclaim,
any liability for the obligations of White Metal.
On May 7, 1996, the Company and Leslie-Locke, and Drew, the former parent
of Leslie-Locke, and its subsidiary, Kinro, Inc., were served with a summons and
complaint in an adversary proceeding commenced by the chapter 7 trustee of White
Metal. The complaint, which appears to allege several duplicate claims, seeks
damages in the aggregate amount of approximately $10.6 million plus attorneys'
fees, of which approximately $9.7 million is sought, jointly and severally, from
the Company, Leslie-Locke, Drew and Kinro. The proceeding is based principally
upon the trustee's allegations, previously disclosed by the Company, that the
Company and its affiliated companies obtained tax benefits attributable to the
use of White Metal's net operating losses. The trustee seeks to recover the
purported value of the tax savings achieved, which appears to be approximately
$7.5 million. Management believes that the trustee's allegations are without
merit and have no basis in fact. In addition, the trustee alleges that White
Metal made certain payments to Leslie-Locke which were preferential and are
recoverable by White Metal, in the approximate amount of $2.2 million.
Leslie-Locke denies liability for any such amount and is vigorously defending
against the allegations. However, an estimate of potential loss, if any, cannot
be made at this time. The Company believes that the defense of this proceeding
will not have a material adverse impact on its financial condition or results of
operations.
4. Long-Term Debt
The Company has a seasonally adjusted $12 million revolving line of credit
with Branch Banking and Trust Company ("BBT"), consisting of cash advances of a
maximum of $10.5 million and letters of credit of $1.5 million, with interest
initially payable at 0.375% over the prime rate. The interest rate was amended
to 0.625% over the prime rate on February 20, 1996. At March 31, 1997, the
interest rate on this line of credit was 9.125%.
Pursuant to its bank agreements the Company is prohibited from declaring
or paying dividends without the prior written consent of the lender.
Leslie-Locke is also required to maintain certain financial covenants typical to
secured borrowing arrangements.
8
<PAGE>
LESLIE BUILDING PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Leslie Building Products, Inc. ("Leslie Building Products"), including its
wholly-owned subsidiary Leslie-Locke, Inc. ("Leslie-Locke") (together, the
"Company"), is a diversified manufacturer and marketer of a wide variety of
specialty building products for the professional and do-it-yourself home
remodeling and residential construction industry. Its products consist of
ornamental iron security products (including doors, window guards, fencing and
railings), residential ventilation products, metal and fiberglass air
distribution products for the HVAC industry, skylights, a line of professional
aluminum rakes, and a full line of door louvers and vision lite products for the
architectural door market. This broad range of products is marketed primarily to
leading home center chains and, to a lesser extent, to building material
distributors, hardware co-ops and mass merchandisers.
RESULTS OF OPERATIONS
Operations
The results of operations for the three months ended March 31, 1997 and
1996 should not be regarded as indicative of the results that may be expected
for the entire year, since operations are seasonal in nature. Operations are
historically stronger in the spring and summer months with 60% of sales
occurring during the six month period March to August.
Net sales increased 9% for the three months ended March 31, 1997 compared
to the same period last year, as a result of increased sales of security
products and, to a lesser extent, ventilation products and ductwork. This sales
increase is primarily volume related. During December 1996, the Company was
awarded approximately $10 million of new ventilation product business from two
of the Company's major customers. Shipments of these products began during the
latter part of the first quarter.
Gross profit as a percentage of sales declined 4.3% for the three months
ended March 31, 1997 from the same period last year. While material costs were
lower and efficiencies modestly improved, gross profit declined as a result of
additional trade discounts and approximately $.5 million of one-time costs of
acquiring the new business described above. In addition, selling prices were
reduced on certain other items. In order to alleviate the impact on profits for
1997, substantial overhead cuts have been made and additional steps to improve
manufacturing processes are being developed. The impact of these cost saving
actions will begin to be realized in the second quarter of 1997. However, as a
result of the impact of these additional costs on results in the first quarter,
the Company does not expect operating results for 1997 to show an improvement
over 1996 results.
Selling, general and administrative expenses increased 12% over the 1996
quarter, which is more than the increase in net sales. The increase is primarily
attributable to market development costs in acquiring the new business described
above.
Interest Expense, Net
Interest expense, net includes interest on bank debt, as well as imputed
interest on certain long-term obligations of White Metal, Leslie-Locke's
discontinued ladder manufacturing subsidiary. The $30,000
9
<PAGE>
LESLIE BUILDING PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
increase in interest expense for the quarter ended March 31, 1997 results
primarily from higher average borrowings under the Company's revolving line of
credit.
Income Taxes
The Company's income tax provision is recorded pursuant to the
requirements of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" ("Statement 109"). At December 31, 1996, the Company had a net operating
loss carryforward for Federal income tax purposes of approximately $4.3 million
that expires in the years 2010 and 2011. Due to the uncertainty of future
realization, no income tax benefit has been recorded.
Other
Pursuant to a Shared Services Agreement, following the Spin-off of the
Company from Drew Industries Incorporated ("Drew") on July 29, 1994, Drew and
Leslie Building Products have shared certain administrative functions and
employee services, such as management overview and planning, tax preparation,
financial reporting, coordination of independent audit, stockholder relations,
and regulatory matters. Drew has been reimbursed by Leslie Building Products for
the fair market value of such services. This Agreement expires on December 31,
1997 but may be extended. The Company was charged management fees by Drew of
$146,000 and $129,000 for the quarters ended March 31, 1997 and 1996,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a seasonally adjusted $12 million revolving line of credit
with Branch Banking and Trust Company ("BBT"), consisting of cash advances of a
maximum of $10.5 million and letters of credit of $1.5 million, with interest
initially payable at 0.375% over the prime rate. The interest rate was amended
to 0.625% over the prime rate on February 20, 1996. The line of credit, of which
$3.5 million is available at the close of business on March 31, 1997, is
adequate for the Company's anticipated needs. The loan agreement expires in July
1998.
Pursuant to its bank agreements the Company is prohibited from declaring
or paying dividends without the prior written consent of the lender. Leslie
Locke is also required to maintain certain financial covenants typical to
secured borrowing arrangements.
The Statements of Cash Flows reflect the following (in thousands):
<TABLE>
<CAPTION>
Quarter Ended March 31,
1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Net cash flows provided by (used for) operating activities $ 1,445 $(2,620)
Net cash flows provided by (used for) investing activities $ 23 $ (683)
Net cash flows (used for) provided by financing activities $ (1,493) $ 3,324
</TABLE>
10
<PAGE>
LESLIE BUILDING PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Net cash provided by operating activities was $1.4 million in the 1997
quarter compared to $2.6 million used for operating activities in the 1996
quarter. The seasonal increase in accounts receivable was $3.4 million compared
to $4.5 million for the 1996 quarter as a result of shorter average payment
terms. Inventories did not change significantly during the 1997 quarter and
increased $.6 million during the prior year's quarter. Accounts payable and
accrued expenses increased $5.3 million in 1997 compared to $2.4 million in 1996
as a result of more favorable payment terms received from vendors.
Cash flows used for investing activities represent capital expenditures
which were not significant during the 1997 quarter and aggregated $.7 million
for the three months ended March 31, 1996.
At March 31, 1997, the estimated future product liability of White Metal,
Leslie-Locke's discontinued ladder manufacturing subsidiary, which is no longer
covered by insurance, was approximately $3.7 million (net of imputed interest).
Such liability is reflected in discontinued operations, net, on the Consolidated
Balance Sheet. Although Leslie-Locke was named as a defendant in certain product
liability actions, Leslie-Locke has not been held responsible, and the Company
and Leslie-Locke disclaim any liability for the obligations of White Metal.
On September 30, 1994, White Metal filed a voluntary petition seeking
liquidation under the provisions of chapter 7 of the United States Bankruptcy
Code. In connection with the chapter 7 filing by White Metal, numerous proofs of
claim have been filed against White Metal. Included is a claim by Sears Roebuck
& Co., ("Sears") dated April 7, 1995, in the amount of $164 million, including
actual losses of $1,657,000 and estimated future product liability losses for
the next 20 years, based upon indemnification obligations which Sears alleges
White Metal undertook in connection with White Metal's sale of ladders to Sears.
These proofs of claim have been evaluated and no change was required in the
Company's estimated product liability accrual. The Company and Leslie-Locke have
in the past disclaimed, and continue to disclaim, any liability for the
obligations of White Metal.
On May 7, 1996, the Company and Leslie-Locke, and Drew, the former parent
of Leslie-Locke, and its subsidiary, Kinro, Inc., were served with a summons and
complaint in an adversary proceeding commenced by the chapter 7 trustee of White
Metal. The complaint, which appears to allege several duplicate claims, seeks
damages in the aggregate amount of approximately $10.6 million plus attorneys'
fees, of which approximately $9.7 million is sought, jointly and severally, from
the Company, Leslie-Locke, Drew and Kinro. The proceeding is based principally
upon the trustee's allegations, previously disclosed by the Company, that the
Company and its affiliated companies obtained tax benefits attributable to the
use of White Metal's net operating losses. The trustee seeks to recover the
purported value of the tax savings achieved, which appears to be approximately
$7.5 million. Management believes that the trustee's allegations are without
merit and have no basis in fact. In addition, the trustee alleges that White
Metal made certain payments to Leslie-Locke which were preferential and are
recoverable by White Metal, in the approximate amount of $2.2 million.
Leslie-Locke denies liability for any such amount and is vigorously defending
against the allegations. However, an estimate of potential loss, if any, cannot
be made at this time. The Company believes that the defense of this proceeding
will not have a material adverse impact on its financial condition or results of
operations.
11
<PAGE>
LESLIE BUILDING PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
INFLATION
The prices of raw materials, consisting primarily of steel, aluminum,
paint, electric motors and packaging materials are influenced by demand and
other factors specific to these commodities rather than being directly affected
by inflationary pressures.
12
<PAGE>
LESLIE BUILDING PRODUCTS, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LESLIE BUILDING PRODUCTS, INC.
Registrant
By /s/ Fredric M. Zinn
--------------------------
Fredric M. Zinn
Principal Financial Officer
May 12, 1997
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 9
<SECURITIES> 0
<RECEIVABLES> 11,612
<ALLOWANCES> 474
<INVENTORY> 16,772
<CURRENT-ASSETS> 29,221
<PP&E> 22,295
<DEPRECIATION> 7,460
<TOTAL-ASSETS> 44,449
<CURRENT-LIABILITIES> 20,210
<BONDS> 0
0
0
<COMMON> 48
<OTHER-SE> 7,269
<TOTAL-LIABILITY-AND-EQUITY> 44,449
<SALES> 20,399
<TOTAL-REVENUES> 20,399
<CGS> 17,742
<TOTAL-COSTS> 21,216
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 450
<INCOME-PRETAX> (1,267)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,267)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,267)
<EPS-PRIMARY> (.26)
<EPS-DILUTED> (.26)
</TABLE>
