================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Year End Commission File Number
December 31, 1998 0-24094
LBP, 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, NY 10601
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number including Area Code: (914) 421-2545
Securities Registered pursuant to Section 12(b) of the Act: None
Securities Registered pursuant to Section 12(g) of the Act:
Common Stock
(Title of Class)
Check mark indicates 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|
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, if 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|
Aggregate market value of voting stock (Common Stock, $.01 par value) held by
non affiliates of Registrant (computed by reference to the closing price as of
March 12, 1999) was $12,073,137.
The number of shares outstanding of the Registrant's Common Stock, as of the
latest practicable date (March 12, 1999) was 4,932,390 shares of Common Stock.
Documents Incorporated by Reference
Proxy Statement with respect to Annual Meeting of Stockholders to be held on May
20, 1999 is incorporated by reference into Part III.
================================================================================
<PAGE>
FORWARD LOOKING STATEMENTS
This Form 10-K contains certain statements, including the Company's
long-term plans, which could be construed to be forward looking statements
within the meaning of the Securities Exchange Act of 1934. These statements
reflect the Company's current views with respect to plans to acquire an
operating company. The Company has identified certain factors which could cause
actual plans to differ substantially from those included in the forward looking
statements. These factors include the availability of suitable acquisition
candidates, acquisition price and terms, and general economic conditions.
Item 1. BUSINESS
Introduction
On November 12, 1997, Leslie Building Products, Inc., now known as LBP,
Inc. (the "Company"), announced that its Board of Directors was considering
strategic alternatives for the Company's long-range business plans. In this
connection, the Company retained Harris Williams & Co. to assist in evaluating,
and possibly disposing of, all or certain of the three major operating divisions
of the Company's sole operating subsidiary, Leslie-Locke, Inc. ("Leslie-Locke"),
a manufacturer and marketer of a wide variety of specialty building products for
the professional and do-it-yourself remodeling and residential construction
industry. Leslie-Locke's products consisted of (i) ornamental iron security
products (including doors, window guards, fencing and railings), (ii)
residential ventilation products, and (iii) specialty building products
consisting of metal and fiberglass air distribution products for the HVAC
industry, and a full line of door louvers and vision lite products for the
architectural door market.
The Board's decision was motivated by the Company's desire to achieve
greater per share value for its stockholders. The home improvements products
business is in the midst of fundamental changes, including the rapid
consolidation of manufacturers and retailers, resulting in intense competitive
pressure. As a result, the Company's Board of Directors believed that the goal
of increased per share return to its stockholders was unlikely to be realized in
the near future. Although operating management was optimistic about the growth
opportunities available to Leslie-Locke, the Board of Directors believed that
these opportunities could best be realized by a significantly larger company
which is in a better position than the Company to compete in the changing
industry. In connection with its decision concerning Leslie-Locke, the Board of
Directors adopted resolutions regarding the Company's intent that, subsequent to
the sale of its assets, Leslie-Locke would acquire an operating company and
would be engaged in a business other than that of investing, reinvesting or
trading in securities, as soon as it is reasonably possible.
Almost 300 potential buyers were contacted by Harris Williams & Co. and
were provided with preliminary information concerning the assets and businesses
for sale. Those potential buyers which expressed interest were provided with a
confidential memorandum describing in detail the operations of Leslie-Locke's
three business units. Twelve of these buyers attended presentations by
management, and eight submitted bids for all or part of the assets and
businesses for sale. The Company considered (i) price, (ii) payment terms, (iii)
"caps," "baskets," escrow requirements, and time periods relating to
Leslie-Locke's liability for representations and warranties, (iv) financing
considerations, and (v) exclusivity requirements of buyers. After consideration
of these and other factors, four bidders were selected as "finalists." After
further negotiations with these bidders, Building Materials Corporation of
America, d/b/a GAF Materials Corporation, was selected as the most desirable
purchaser.
Pursuant to an Asset Purchase Agreement, dated May 26, 1998 (the
"Agreement"), Leslie-Locke sold substantially all of its net assets to LL
Building Products, Inc., a newly-formed Delaware subsidiary of Building
Materials Corporation of America, d/b/a GAF Materials Corporation. The purchase
price was approximately $44 million in cash. The transaction was consummated on
June 18, 1998 (the "Closing Date"), as of May 31, 1998. Pursuant to the
Agreement, certain adjustments were made to the purchase price within 120 days
from the Closing
(2)
<PAGE>
Date. Immediately after the closing of the transaction, the name of Leslie-Locke
was changed to Prime Acquisition Corp., ("Prime") and the name of the Company
was changed from Leslie Building Products, Inc. to LBP, Inc. From this point
throughout this Annual Report, Leslie-Locke is referred to as Prime, unless the
context otherwise requires.
After payment of all its outstanding debt, closing costs, and income
taxes, $28 million of the proceeds from the sale are available to acquire
businesses and for certain other purposes. Stockholders' equity at December 31,
1998 was $23.4 million. Pursuant to the Agreement, a substantial portion of such
proceeds was deposited in escrow for two years from the Closing Date, initially
invested primarily in liquid U.S. Treasury money market accounts. However, in
excess of $20 million of the escrow deposit may be released from escrow and used
by Prime at any time to acquire other businesses, for certain investments, and
for certain other permitted payments.
Recent Event
On December 22, 1998, Prime purchased 800,000 shares of the Series B 10.5%
Cumulative Convertible Preferred Stock, liquidation preference $25 per share
(the "Preferred Stock"), of Impac Mortgage Holdings, Inc. ("IMH"). The purchase
price for the Preferred Stock was $20,000,000, which was withdrawn from the
escrow deposit, and the Preferred Stock was deposited in escrow. The Preferred
Stock is convertible into the Common Stock of IMH at $4.95 per share, or an
aggregate of 4,040,000 shares, representing 13.2% of IMH. The Common Stock of
IMH is traded on the American Stock Exchange (symbol: IMH). The conversion price
may be adjusted downward if, among other things, certain earning levels are not
attained by IMH through June 30, 1999. In addition, Prime is entitled to receive
as a dividend each quarter, payable in cash or shares of IMH Common Stock, the
higher of 10.5% or the amount paid as dividends to common stockholders of IMH.
IMH is a publicly-owned specialty finance company, which, together with
its subsidiaries and related companies, operates three businesses: (1) the
Long-Term Investment Operations, (2) the Conduit Operations, and (3) the
Warehouse Lending Operations. The Long-Term Investment Operations invests
primarily in non-conforming residential mortgage loans and securities backed by
such loans. The Conduit Operations purchases and sells or securitizes primarily
non-conforming mortgage loans, and the Warehouse Lending Operations provides
warehouse and repurchase financing to originators of mortgage loans. IMH is
organized as a real estate investment trust ("REIT") for federal income tax
purposes, which generally allows it to pass through qualified income to
stockholders without federal income tax at the corporate level.
The investment in IMH was made in order for the Company to enhance
stockholder value while efforts to acquire an operating company continue. In
that regard, on December 17, 1998, the Company's Board of Directors reaffirmed
the previously adopted resolutions regarding the Company's intent that Prime be
engaged in a business other than that of investing, reinvesting or trading in
securities, as soon as it is reasonably possible.
The Company's principal executive and administrative offices are located
at 200 Mamaroneck Avenue, White Plains, New York, 10601; telephone number (914)
421-2545. The Common Stock of the Company is traded on the OTC-Bulletin Board
(symbol: LBPI).
Business of the Company Prior to the Sale of Assets
Prior to the sale of its assets, Leslie-Locke's categories of products
consisted of (i) patented do-it-yourself systems of ornamental iron railings,
columns and accessories, security doors and window and door guards; (ii)
ventilation devices, including exterior applied static ventilators, energy-free
turbine ventilators, power attic ventilators, chimney caps, and whole-house
fans; and (iii) specialty building products consisting of metal and fiberglass
air distribution products for the HVAC industry door louvers, and glass frames
and vision lite products for architectural doors. Most of these categories of
products included a wide variety of styles, sizes and colors resulting in the
availability of over 2,000 different products.
(3)
<PAGE>
In December 1986, Leslie-Locke acquired White Metal Rolling and Stamping
Corp. ("White Metal"), a manufacturer of aluminum consumer and industrial
ladders. After an initial period of profitable operations, the ladder operation
incurred substantial operating losses as a result of competitive market
conditions, volatile raw material costs, and product liability claims which
became uninsured as a result of the insolvency of several of its insurance
carriers in the late 1980's. Because of these losses, White Metal's ladder
manufacturing operations were discontinued as of November 1990 and its assets
were sold. On September 30, 1994, White Metal filed a voluntary petition seeking
liquidation under the provisions of chapter 7 of the United States Bankruptcy
Code. White Metal was not included in the sale of Leslie-Locke's assets. See
"Item 3. Legal Proceedings" and Note 5 of Notes to Consolidated Financial
Statements.
On April 19, 1994, the Board of Directors of Drew Industries Incorporated
("Drew") approved a plan to transfer the stock of Leslie-Locke to the Company
and to distribute the common stock of the Company to Drew's stockholders on a
one-for-one basis (the "Spin-off"). The transfer of the stock of Leslie-Locke to
the Company was effective May 10, 1994, and the Spin-off was effective July 29,
1994. Since the Spin-off, the Company has been a stand-alone company, the common
stock of which is traded on the OTC-Bulletin Board (symbol: LBPI).
Pursuant to a Shared Services Agreement, the Company and Drew agreed to
share certain administrative functions and employee services, such as management
overview and planning, tax preparation, financial reporting, coordination of the
independent audit, stockholder relations, and regulatory matters. The Company
reimburses Drew for the fair market value of such services. The Agreement was
extended to December 31, 1999.
Employees
The Company has no full-time employees. Pursuant to the Shared Services
Agreement, certain employees of Drew perform administrative functions and
employee services such as management overview and planning, tax preparation,
financial reporting, coordination of the independent audit, stockholder
relations, and regulatory matters. The Company reimburses Drew for the fair
market value of such services.
Item 2. PROPERTIES
The Company has no owned or leased properties, and reimburses Drew for use
of a portion of Drew's offices. All Leslie-Locke's owned and leased real
properties were included in the sale of its assets.
Item 3. LEGAL PROCEEDINGS
The ladder manufacturing business formerly conducted by White Metal,
Prime's subsidiary, ceased operations in 1990. On September 30, 1994, the date
White Metal filed a voluntary petition seeking liquidation under chapter 7,
there were approximately 45 pending personal injury claims against White Metal
in various stages of demand or litigation, alleging a variety of injuries. The
initial demands made by claimants range from nominal amounts to several million
dollars; however, the average settlement amount of a claim against White Metal
had been in the range of $30,000. White Metal anticipates that additional claims
may be asserted in the future. As of December 31, 1998, based on past actuarial
studies and past experience, White Metal's estimated future product liability
was approximately $4 million, representing existing and future claims and
associated administrative costs. Most of White Metal's product liability
insurance has either expired or was provided by insurers that are now insolvent.
As a result, White Metal became self-insured for a substantial portion of
pending, and virtually all new, product liability claims. As a result of the
chapter 7 petition, all litigation against White Metal was stayed. Under certain
circumstances, the Bankruptcy Court could lift the stay and permit litigation of
specific claims to proceed.
(4)
<PAGE>
In a limited number of cases, the Company and Prime have been named as
defendants in personal injury cases based on allegations of White Metal's
negligence in the manufacture of ladders. Neither the Company nor Prime has been
held liable in any such case. Because neither the Company nor Prime engaged in
the manufacture or marketing of ladders, and because the Company and Prime
maintained separate and distinct corporate entities, businesses, manufacturing
facilities and operations from White Metal and did not assume White Metal's
liabilities or succeed to its business, the Company and Prime disclaim any
liability for the obligations of White Metal. There can be no assurance that in
the future any claim brought against White Metal which is also asserted against
the Company or Prime, will not result in liability. While the Company and Prime
will vigorously oppose and defend any White Metal claim asserted against them,
because claims against White Metal are asserted in various jurisdictions, it is
impossible to predict the outcome of any future litigation involving these
matters.
On May 7, 1996, the Company and Prime, and Drew, the former parent of
Prime, 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 have alleged several duplicate claims, sought
damages in the aggregate amount of $10.6 million plus attorneys fees, of which
approximately $7.5 million of tax-related claims was sought, jointly and
severally, from the Company, Prime, Drew and Kinro. On July 14, 1998, the
Bankruptcy Court granted defendants' motion to dismiss the trustee's tax-related
claims. The Court permitted the trustee to replead the dismissed claims, but the
trustee elected not to replead. The trustee could appeal the Court's decision
dismissing these claims on termination of the proceeding.
Other than the dismissed tax-related claims, the trustee alleges that
White Metal made certain payments to Prime which were preferential and are
recoverable by White Metal, in the approximate amount of $2.2 million. Although
these claims were not dismissed, Prime believes that the claims are without
merit, 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 the Company's financial condition or results
of operations.
Neither the Company nor Prime is a party to any other legal proceedings
which, in the opinion of Management, could have a material adverse effect on the
Company or its consolidated financial position.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
(5)
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following tables set forth certain information with respect to the
Directors and Executive Officers of the Company as of December 31, 1998.
Name Position
---- --------
Leigh J. Abrams President, Chief Executive Officer and Director of
(Age 56) the Company since July 1994.
Edward W. Rose, III Chairman of the Board of Directors of the Company
(Age 57) since July 1994.
James F. Gero Director since July 1994.
(Age 53)
Marshall B. Payne Director since July 1994.
(Age 41)
Fredric M. Zinn Chief Financial Officer of the Company since July
(Age 47) 1994.
Harvey J. Kaplan Secretary and Treasurer of the Company since July
(Age 64) 1994.
LEIGH J. ABRAMS, for more than the past five years has also been
President, Chief Executive Officer and a Director of Drew.
EDWARD W. ROSE, III, for more than the past five years, has been President
and principal stockholder of Cardinal Investment Company, Inc., an investment
firm. Mr. Rose also serves as a director of the following public companies:
Osprey Holding, Inc., previously engaged in selling computer software for
hospitals; Liberte Investors, Inc., engaged in real estate loans and
investments; and ACE Cash Express, Inc., engaged in check cashing services. Mr.
Rose is also Chairman of the Board of Drew.
JAMES F. GERO, since March 1992, has been Chairman and Chief Executive
Officer of Sierra Technologies, Inc., a manufacturer of defense systems
technologies. From July 1987 to October 1989, Mr. Gero was Chairman and Chief
Executive Officer of Varo, Inc., a manufacturer of defense electronics, and from
1985 to 1987, Mr. Gero was President and Chief Executive Officer of Varo, Inc.
Mr. Gero also serves as a director of the following public companies: Orthofix
International, N.V., an international supplier of orthopedic devices for bone
fixation and stimulation; and Spar Aerospace Ltd., engaged in space robotics,
communications equipment and aerospace products and services. Mr. Gero is also a
Director of Drew.
MARSHALL B. PAYNE, for more than the past five years, has been Vice
President of Cardinal Investment Company, Inc., an investment firm. Mr. Payne
also serves as a director of the following public companies: Osprey Holding,
Inc., previously engaged in selling computer software for hospitals; and ACE
Cash Express, Inc., engaged in check cashing services; and Restoration Hardware,
Inc., a specially retailer of home furnishings.
FREDRIC M. ZINN, a certified public accountant, for more than the past
five years, has also been Chief Financial Officer of Drew.
(6)
<PAGE>
HARVEY J. KAPLAN, a certified public accountant, for more than the past
five years, has also been Secretary and Treasurer of Drew.
RALPH C. PEPPER, a director of the Company from July 1994, and President
of Leslie-Locke from 1989, resigned as a director of the Company and as an
officer of Leslie-Locke on June 18, 1998 in connection with the sale of
Leslie-Locke's assets. Mr. Pepper became employed by the purchaser.
Compliance with Section 16(a) of the Securities Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors, and persons who beneficially own
more than ten percent of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and greater than ten-percent shareholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file.
Based on its review of the copies of such forms received by it, the
Company believes that during 1998 all such filing requirements applicable to its
officers and directors (the Company not being aware of any ten percent holder
other than Edward W. Rose, III a Director) were complied with.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Per Share Market Price Information
The Common Stock of the Company is traded on the OTC-Bulletin Board
(symbol: LBPI). On March 12, 1999, there were 2,317 holders of record of the
Common Stock. The Company estimates that 2,000 to 4,000 additional stockholders
own shares of its Common Stock held in the name of Cede & Co. and other broker
and nominee names.
The table below sets forth, for the periods indicated, the range of high
and low prices per share for the Common Stock as reported by the National
Association of Securities Dealers. The prices set forth below represent
quotations between dealers, without adjustment for retail mark up, mark down or
commissions, and do not necessarily represent actual transactions.
High Low
---- ---
Calendar 1998
Quarter ended March 31...................... $ 2.75 $ 2.25
Quarter ended June 30....................... $ 3.88 $ 2.13
Quarter ended September 30.................. $ 3.41 $ 2.69
Quarter ended December 31................... $ 3.31 $ 2.81
High Low
---- ---
Calendar 1997
Quarter ended March 31...................... $ 2.75 $ 1.38
Quarter ended June 30....................... $ 1.81 $ 1.13
Quarter ended September 30.................. $ 1.75 $ 1.25
Quarter ended December 31................... $ 2.50 $ 1.19
(7)
<PAGE>
The closing price per share for the common stock on March 12, 1999, was
$4.125.
Dividend Information
The Company has not paid any cash dividends on its Common Stock. Future
dividend policy with respect to the Common Stock will be determined by the Board
of Directors of the Company in light of prevailing financial needs and earnings
of the Company and other relevant factors; however, it is not anticipated that
the Company will pay dividends on its Common Stock in the foreseeable future.
Item 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the consolidated financial statements and related notes thereto included herein
(in thousands, except per share amounts):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------
1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Data:
Income (loss) from continuing
operations before income taxes $ 671 $ (663) $ (641) $ (637) $ (453)
Provision for income taxes 295
------- ---------- ---------- ---------- ----------
Income (loss) from continuing operations 376 (663) (641) (637) (453)
Discontinued operations 14,354 942 1,268 (7,432) (4,013)
------- ---------- ---------- ---------- ----------
Net income (loss) $14,730 $ 279 $ 627 $ (8,069) $ (4,466)
======= ========== ========== ========== ==========
Net income (loss) per common share:
Basic:
Continuing operations $ .08 $ (.14) $ (.13) $ (.13) $ (.09)
Discontinued operations 2.96 .20 .26 (1.55) (.84)
------- ---------- ---------- ---------- ----------
Net income (loss) $ 3.04 $ .06 $ .13 $ (1.68) $ (.93)
======= ========== ========== ========== ==========
Diluted:
Continuing operations $ .08 $ (.14) $ (.13) $ (.13) $ (.09)
Discontinued operations 2.93 .20 .26 (1.55) (.84)
------- ---------- ---------- ---------- ----------
Net income (loss) $ 3.01 $ .06 $ .13 $ (1.68) $ (.93)
======= ========== ========== ========== ==========
Balance Sheet Data (at end of period):
Total Assets(a) $33,117 $ 12,927 $ 12,323 $ 11,539 $ 16,003
Stockholders' Equity(a) $23,365 $ 8,885 $ 8,563 $ 7,868 $ 15,921
</TABLE>
- -----------------------------
(a) On June 18, 1998, effective as of May 31, 1998, Prime sold substantially
all its net assets and business for approximately $44 million in cash.
Prime was the sole operating subsidiary of the Company, and the Company
and its subsidiaries do not now conduct any operations. The Company will
continue to incur expenses associated with the management of its assets,
its financial reporting obligations, and other administrative functions.
(See Note 1 of Notes to Consolidated Financial Statements).
(8)
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
In connection with the sale of substantially all of the assets of the
Company's wholly-owned subsidiary, Leslie-Locke, Inc., the name of Leslie
Building Products, Inc. was changed to LBP, Inc. and the name of Leslie- Locke,
Inc. was changed to Prime Acquisition Corp. ("Prime").
On June 18, 1998, effective as of May 31, 1998, Prime sold substantially
all its net assets and business for approximately $44 million in cash. Prime
realized an after-tax gain of $12.6 million from the sale, and after payment of
its outstanding debt, closing costs and income taxes, Prime will have cash of
approximately $28 million.
The Board of Directors of the Company adopted a resolution regarding the
Company's intent to be engaged in a business other than that of investing,
reinvesting or trading in securities, as soon as it is reasonably possible, and
that the proceeds from the sale of the assets of Prime be utilized to acquire
other businesses.
RESULTS OF OPERATIONS
Prime was the sole operating subsidiary of the Company, and the Company
and its subsidiaries do not now conduct any operations. The net proceeds, as
well as funds being held for payment of closing costs and income taxes, were
initially invested primarily in liquid U.S. Treasury money market accounts which
yielded approximately 5% per annum for the period the funds were invested. In
addition, the Company had a one-time pre-tax gain from a securities transaction
of $463,000 during the third quarter. The Company will continue to incur
expenses of approximately $550,000 to $750,000 annually, associated with the
management of its assets, its financial reporting obligations, other
administrative functions and imputed interest costs. Such expenses exclude costs
which may be incurred in connection with acquisition searches and unanticipated
costs, if any, in connection with discontinued operations.
LIQUIDITY AND CAPITAL RESOURCES
Sale of Assets
In connection with the June 1998 sale of Prime's assets, Prime has agreed
to indemnify the buyer as follows: (i) for up to $4 million of losses incurred
by the buyer during the two years following the closing resulting from breaches
of representations and warranties made by Prime, (ii) for up to $4 million of
losses incurred by the buyer during the four years following the closing
resulting from certain environmental matters, and (iii) for losses incurred by
the buyer resulting from liabilities of Prime not assumed by the buyer. In
connection with Prime's indemnification obligations, Prime deposited in escrow
an aggregate of $25.4 million for a period of two years following the closing.
Up to approximately $21.4 million of the escrow funds may be withdrawn by Prime
at any time during the escrow period to acquire other businesses, for
investments, and for certain other permitted payments. In this connection, $20
million was withdrawn in December 1998 to fund Prime's investment in the
preferred stock of Impac Mortgage Holdings, Inc. and such preferred stock was
deposited in escrow. The balance in the escrow accounts at December 31, 1998 was
approximately $5 million, which is invested in liquid U.S. Treasury money market
accounts. The escrow will terminate two years from the closing, and any escrow
funds not paid to the buyer or subject to claims outstanding at that time will
be returned to Prime. The Company is not aware of any events that may trigger an
indemnifiable claim.
(9)
<PAGE>
Investment in Securities
On December 22, 1998, the company's wholly-owned subsidiary, Prime
Acquisition Corp., acquired, at a cost of $20 million, 800,000 shares of 10.5
percent Cumulative Convertible Preferred Stock, having a liquidation preference
of $25 per share, of Impac Mortgage Holding, Inc., ("Impac"). The shares are
convertible into Common Stock of Impac (symbol "IMH") at $4.95 per share, or an
aggregate of 4,040,000 shares representing 13.2 percent of IMH common stock. The
conversion price may be adjusted downward if, among other things, certain
earning levels are not attained by Impac through June 30, 1999. In addition,
Prime is entitled to receive as a dividend each quarter, in cash or Impac common
stock, the higher of 10.5 percent per annum or the dividend paid to common
stockholders calculated on the shares of common stock into which the preferred
stock is convertible. The Company has recorded this investment at cost of
$20,053,000.
This investment was made in order to enhance stockholder value while
efforts to acquire an operating company continue. In that regard, the Board of
directors of the company reaffirmed previously adopted resolutions regarding its
intent to be engaged in a business other than that of investing, reinvesting or
trading in securities, as soon as it is reasonably possible.
Contingent Liabilities
The sale of Prime's assets did not include the assets and liabilities of
White Metal Rolling and Stamping Corp.("White Metal"), the operations of which
were discontinued in 1990. All manufacturing operations of White Metal ceased as
of January 31, 1991 and substantially all of its remaining assets have since
been liquidated.
At December 31, 1998, White Metal's estimated future product liability,
which is no longer covered by insurance, was approximately $4.0 million. Such
liability is reflected in discontinued operations - White Metal Rolling and
Stamping Corp., net, on the Consolidated Balance Sheet. Although Prime was named
as a defendant in certain product liability actions, Prime has not been held
responsible, and the Company and Prime 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 $1.7 million 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 in determining the Company's estimated
product liability accrual. The Company and Prime have in the past disclaimed,
and continue to disclaim, any liability for the obligations of White Metal.
On May 7, 1996, the Company and Prime, and Drew, the former parent of
Prime, 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 have alleged several duplicate claims, sought
damages in the aggregate amount of $10.6 million plus attorneys fees, of which
approximately $7.5 million of tax related claims was sought, jointly and
severally, from the Company, Prime, Drew and Kinro. On July 14,1998, the
bankruptcy court granted defendants' motion to dismiss the trustee's tax-related
claims. The court permitted the trustee to replead the dismissed claims, but the
trustee elected not to replead. The trustee could appeal the court's decision
dismissing these claims on termination of the proceeding.
(10)
<PAGE>
Other than the dismissed tax-related claims, the trustee alleges that
White Metal made certain payments to Prime which were preferential and are
recoverable by White Metal, in the approximate amount of $2.2 million. Although
these claims were not dismissed, the Company believes that the claims are
without merit, 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 the Company's financial condition or
results of operations.
INFLATION
Future changes from current levels of inflation may be expected to impact
the investment income earned by the Company on its temporary investments.
YEAR 2000
The company has determined, without taking into account any remedial steps
which have been taken, that the potential consequences of Year 2000 issues would
not have a material effect on the business, results of operations, or financial
condition of LBP, Inc.
As described in Note 1 of Notes to Consolidated Financial Statements,
substantially all of the assets of the Company's sole operating subsidiary were
sold. As a result, LBP and its subsidiaries do not now conduct any operations
and therefore do not rely on any significant data processing for their business.
At December 31, 1998, approximately $13 million of the Company's assets
were invested in liquid U.S. Treasury money market accounts, which the Company
does not believe are susceptible to significant risk as a result of Year 2000
issues. The Company also has invested $20 million in a Convertible Preferred
Stock of Impac Mortgage Holdings, Inc., the common stock of which is publicly
traded and is listed on the American Stock Exchange. This investment is not
viewed as long-term, and it continues to be the Company's intention to be
engaged in a business other than that of investing, reinvesting or trading in
securities, as soon as it is reasonably possible. The proceeds from the sale of
these investments will be ultimately used to acquire other businesses.
Disclosure requirements regarding Year 2000 issues will be reconsidered when the
Company makes such an acquisition or as its investment portfolio changes.
FORWARD LOOKING STATEMENTS AND RISK FACTORS
This report contains certain statements, including the Company's long-term
plans, which could be construed to be forward looking statements within the
meaning of the Securities Exchange Act of 1934. These statements reflect the
Company's current views with respect to future events, financial performance and
plans to acquire an operating company.
The Company has identified certain risk factors which could cause actual
plans and results to differ substantially from those included in the forward
looking statements. These factors include certain contingent indemnification
obligations as described in Note 1 of Notes to Consolidated Financial
Statements, contingencies described in Note 4 of Notes to Consolidated Financial
Statements, interest rates, and the potential availability of suitable
acquisition candidates, acquisition price and terms, as well as general economic
conditions.
(11)
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and Schedule of the Company and its
subsidiaries pursuant to this Item and Item 14 of this Report are set forth in
the Index to Consolidated Financial Statements included herein.
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
Part III of Form 10-K is incorporated by reference to the Company's Proxy
Statement with respect to its Annual Meeting of Stockholders to be held on May
20, 1999.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES and REPORTS ON FORM 8 K
(a) Documents Filed
(1) Financial Statements. See " Index to Consolidated Financial
Statements."
(2) Schedule. See " Index to Consolidated Financial Statements."
(3) Exhibits. See "List of Exhibits" at the end of this report
incorporated herein by reference.
(b) Reports on Form 8-K
On December 28, 1998, the Company filed a Current Report on Form 8-K
reporting the acquisition of 800,000 shares of the Series B 10.5% Cumulative
Convertible Preferred Stock of Impac Mortgage Holdings, Inc.
(12)
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Registrant has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized.
LBP, INC.
Date: March 24, 1999 By: /s/ Leigh J. Abrams
----------------------
Leigh J. Abrams, President
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and dates indicated.
Each person whose signature appears below hereby authorizes Leigh J.
Abrams and Harvey J. Kaplan, or either of them, to file one or more amendments
to the Annual Report on Form 10-K which amendments may make such changes in such
Report as either of them deems appropriate, and each such person hereby appoints
Leigh J. Abrams and Harvey J. Kaplan, or either of them, as attorneys-in-fact to
execute in the name and on behalf of each such person individually, and in each
capacity stated below, such amendments to such Report.
Date Signature Title
- ---- --------- -----
March 24, 1999 By: /s/ Leigh J. Abrams Director, President and
--------------------- Chief Executive Officer
(Leigh J. Abrams)
March 24, 1999 By: /s/ Harvey J. Kaplan Secretary and Treasurer
---------------------
(Harvey J. Kaplan)
March 24, 1999 By: /s/ Fredric M. Zinn Chief Financial Officer
---------------------
(Fredric M. Zinn)
March 24, 1999 By: /s/ John F. Cupak Controller
---------------------
(John F. Cupak)
March 24, 1999 By: /s/ Edward W. Rose, III Director
---------------------
(Edward W. Rose, III)
March 24, 1999 By: /s/ James F. Gero Director
---------------------
(James F. Gero)
March 24, 1999 By:/s/Marshall B. Payne Director
---------------------
(Marshall B. Payne)
(13)
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements
Independent Auditors' Report
Consolidated statements of operations for the years ended December 31,
1998, 1997 and 1996
Consolidated balance sheets at December 31, 1998 and 1997
Consolidated statements of cash flows for the years ended December 31,
1998, 1997 and 1996
Consolidated statements of stockholders' equity for the years ended
December 31, 1998, 1997 and 1996
Notes to consolidated financial statements
Consolidated Financial Statement Schedules for the years ended December 31,
1998, 1997 and 1996
Schedule II - Valuation and Qualifying Accounts
Schedules other than that listed above are omitted as they are not
applicable or the information required is included in the consolidated financial
statements and notes thereto.
(14)
<PAGE>
Report of Independent Auditors
The Board of Directors
LBP, Inc.:
We have audited the consolidated balance sheets of LBP, Inc. and subsidiaries as
of December 31, 1998 and 1997, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1998. In connection with our audits of the
consolidated financial statements, we also have audited the financial statement
schedule as listed in Item 14. These consolidated financial statements and the
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of LBP, Inc. and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
KPMG LLP
Stamford, Connecticut
February 17, 1999
(15)
<PAGE>
LBP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1998 1997 1996
- -----------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Continuing Operations:
Investment income $ 1,400 $ -- $ --
General and administrative expenses 573 507 485
------- ------- -------
Operating income (loss) 827 (507) (485)
Imputed interest expense 156 156 156
------- ------- -------
Income (loss) from continuing
operations before income taxes 671 (663) (641)
Provision for income taxes (Note 5) 295 -- --
------- ------- -------
Income (loss) from continuing
operations 376 (663) (641)
------- ------- -------
Discontinued Operations (Note 1):
Income from operations, before income taxes 1,736 942 1,268
Provision for income taxes (Note 5) -- -- --
------- ------- -------
Income from operations 1,736 942 1,268
------- ------- -------
Gain on disposal of assets before income taxes 17,614 -- --
Provision for income taxes (Note 5) 4,996 -- --
------- ------- -------
Gain on disposal of assets 12,618 -- --
------- ------- -------
Income from discontinued operations 14,354 942 1,268
------- ------- -------
Net income $14,730 $ 279 $ 627
======= ======= =======
Net income (loss) per common share:
Basic:
Continuing operations $ .08 $ (.14) $ (.13)
Discontinued operations (Note 1) 2.96 .20 .26
------- ------- -------
Net income $ 3.04 $ .06 $ .13
======= ======= =======
Diluted:
Continuing operations $ .08 $ (.14) $ (.13)
Discontinued operations (Note 1) 2.93 .20 .26
------- ------- -------
Net income $ 3.01 $ .06 $ .13
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
(16)
<PAGE>
LBP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------
1998 1997
- -----------------------------------------------------------------------------------
(In thousands, except shares and per share amounts)
<S> <C> <C>
ASSETS
Current assets
Cash and equivalents $ 12,981 $ 20
Investment in securities (Note 2) 20,053 --
Prepaid expenses and other current assets 83 19
Discontinued operations - Prime Acquisition Corp. (Note 1) -- 12,888
-------- --------
Total assets $ 33,117 $ 12,927
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable, accrued expenses and other current
liabilities $ 709 $ 189
Discontinued operations - Prime Acquisition Corp.,
net (Notes 1 and 5) 5,034 --
Discontinued operations - White Metal Rolling and
Stamping, Corp., net (Note 4) 4,009 3,853
-------- --------
Total liabilities 9,752 4,042
-------- --------
Commitments and Contingencies (Notes 1 and 4)
Stockholders' equity (Note 6)
Common stock, par value $.01 per share: authorized
20,000,000 shares; issued 4,867,390 shares in 1998,
and 4,860,178 shares in 1997 48 48
Paid-in capital 20,369 20,355
Retained earnings (deficit) 3,212 (11,518)
-------- --------
23,629 8,885
Treasury stock at cost -- 89,000 shares in 1998 (264) --
-------- --------
Total stockholders' equity 23,365 8,885
-------- --------
Total liabilities and stockholders' equity $ 33,117 $ 12,927
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
(17)
<PAGE>
LBP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1998 1997 1996
- -----------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Income (loss) from continuing operations $ 376 $ (663) $ (641)
Adjustments to reconcile income (loss) from
continuing operations to cash flows from
operating activities:
Gain on sale of investments (463) -- --
Imputed interest 156 156 156
Changes in prepaid expenses and other assets (64) (19) 18
Changes in accounts payable, accrued expenses
and other current liabilities 520 126 (67)
------- ------- -------
Net cash flows provided by (used for)
operating activities of continuing
operations 525 (400) (534)
------- ------- -------
Cash flows from discontinued operations:
Cash proceeds from sale of assets and business
of Prime, net of closing costs of $4,175 39,344 -- --
Income from discontinued operations 1,736 942 1,268
Paydown of debt with proceeds of sale (10,018) -- --
Change in unliquidated net liabilities and assets 1,214 (590) (783)
------- ------- -------
Net cash from discontinued operations 32,276 352 485
------- ------- -------
Cash flows from investing activities:
Investment in securities (31,616) -- --
Sales of securities 12,026 -- --
------- ------- -------
Net cash flows used for investing activities (19,590) -- --
------- ------- -------
Cash flows from financing activities:
Purchase of treasury stock (264)
Employee purchases of common stock 14 43 68
------- ------- -------
Net cash flows (used for) provided by
financing activities (250) 43 68
------- ------- -------
Net increase (decrease) in cash 12,961 (5) 19
Cash and equivalents at beginning of period 20 25 6
------- ------- -------
Cash and equivalents at end of period $12,981 $ 20 $ 25
======= ======= =======
Supplemental disclosure of cash flows information:
Cash paid (received) during the period for:
Interest on debt - discontinued operations $ 196 $ 1,010 $ 1,567
Income taxes - discontinued operations $ 11 $ -- $ (270)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
(18)
<PAGE>
LBP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Retained Total
Common Treasury Paid-in Earnings Stockholders'
Stock Stock Capital (Deficit) Equity
- ---------------------------------------------------------------------------------------------------------------------
(In thousands, except shares)
<S> <C> <C> <C> <C> <C>
Balance - December 31, 1995 $ 48 $ -- $ 20,244 $(12,424) $ 7,868
Net income 627 627
Employee purchases of 36,155 shares -- 68 68
------ ------ -------- -------- --------
Balance - December 31, 1996 48 20,312 (11,797) 8,563
Net income 279 279
Employee purchases of 27,103 shares 43 43
------ ------ -------- -------- --------
Balance - December 31, 1997 48 -- 20,355 (11,518) 8,885
Net income 14,730 14,730
Employee purchases of 6,212 shares 13 13
Exercise of employee stock options - 1,000 shares 1 1
Purchase of 89,000 shares of treasury stock (264) (264)
------ ------ -------- -------- --------
Balance - December 31, 1998 $ 48 $ (264) $ 20,369 $ 3,212 $ 23,365
====== ====== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
(19)
<PAGE>
LBP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DISCONTINUED OPERATIONS - PRIME ACQUISITION CORP.
In connection with the sale of substantially all of the assets of the
Company's wholly-owned subsidiary, Leslie-Locke, Inc., the name of Leslie
Building Products, Inc. was changed to LBP, Inc. and the name of Leslie- Locke,
Inc. was changed to Prime Acquisition Corp. ("Prime").
On June 18, 1998, effective as of May 31, 1998, Prime sold substantially
all its net assets and business for approximately $44 million in cash. Prime
realized an after-tax gain of $12.6 million from the sale, and after payment of
its outstanding debt, closing costs and income taxes, Prime will have cash of
approximately $28 million.
Prime has agreed to indemnify the buyer as follows: (i) for up to $4
million of losses incurred by the buyer during the two years following the
closing resulting from breaches of representations and warranties made by Prime,
(ii) for up to $4 million of losses incurred by the buyer during the four years
following the closing resulting from certain environmental matters, and (iii)
for losses incurred by the buyer resulting from liabilities of Prime not assumed
by the buyer. In connection with Prime's indemnification obligations, Prime
deposited in escrow an aggregate of $25.4 million for a period of two years
following the closing. Up to approximately $21.4 million of the escrow funds may
be withdrawn by Prime at any time during the escrow period to acquire other
businesses, for investments, and for certain other permitted payments. In this
connection, $20 million was withdrawn in December 1998 to fund Prime's
investment in the preferred stock of Impac Mortgage Holdings, Inc. and such
preferred stock was deposited in escrow. The balance in the escrow accounts at
December 31, 1998 was approximately $5 million, which is invested in liquid U.S.
Treasury money market accounts. The escrow will terminate two years from the
closing, and any escrow funds not paid to the buyer or subject to claims
outstanding at that time will be returned to Prime. The Company is not aware of
any events that may trigger an indemnifiable claim.
Prime was the sole operating subsidiary of the Company, and the Company
and its subsidiaries do not now conduct any operations. The Company will
continue to incur expenses associated with the management of its assets, its
financial reporting obligations, and other administrative functions.
The Board of Directors of the Company adopted a resolution regarding the
Company's intent to be engaged in a business other than that of investing,
reinvesting or trading in securities, as soon as it is reasonably possible, and
that the proceeds from the sale of the assets of Prime be utilized to acquire
other businesses.
The sale did not include the assets and liabilities of White Metal Rolling
and Stamping Corp.("White Metal"), Prime's discontinued ladder manufacturing
subsidiary. See Note 4.
Discontinued operations consists of income taxes payable ($5,033,000) and
accrued expenses ($588,000) offset by notes receivable ($403,000) and deferred
income tax benefits ($185,000).
2. INVESTMENT IN SECURITIES
On December 22, 1998, the Company's wholly-owned subsidiary, Prime,
acquired, at a cost of $20 million, 800,000 shares of 10.5 percent Cumulative
Convertible Preferred Stock, having a liquidation preference of $25 per share,
of Impac Mortgage Holdings, Inc., ("Impac"). The shares are convertible into
Common Stock of Impac (symbol "IMH") at $4.95 per share, or an aggregate of
4,040,000 shares, representing 13.2 percent of IMH common stock. The
(20)
<PAGE>
LBP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
conversion price may be adjusted downward if, among other things, certain
earning levels are not attained by Impac through June 30, 1999. In addition,
Prime is entitled to receive as a dividend each quarter, in cash or Impac common
stock, the higher of 10.5 percent per annum or the dividend paid to common
stockholders calculated on the shares of common stock into which the preferred
stock is convertible. The Company has recorded this investment at cost of
$20,053,000. The Company believes that the book value of this investment
approximates fair value at December 31, 1998.
This investment was made in order to enhance stockholder value while
efforts to acquire an operating company continue. In that regard, the Board of
Directors of the Company reaffirmed previously adopted resolutions regarding its
intent to be engaged in a business other than that of investing, reinvesting or
trading in securities, as soon as it is reasonably possible.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Consolidated Financial Statements include the accounts of LBP, Inc.
and its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.
Income Taxes
The Company and its subsidiaries file separate Federal and state income
tax returns. The Company's subsidiaries generally file separate state income tax
returns on the same basis as the Federal income tax returns.
New Accounting Standards
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income."
Statement 130 establishes standards for reporting and display of comprehensive
income and components in the financial statements. The Company has had no
"other" comprehensive income for the years ended December 31, 1998, 1997 and
1996.
In June 1997, the Financial Accounting Standards Board issued SFAS 131,
"Disclosure about Segments of an Enterprise and Related Information," for fiscal
years beginning after December 15, 1997. This statement addresses presentation
and disclosure matters and has no impact on the Company's financial position or
results of operations. The Company currently has no segments.
Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(21)
<PAGE>
LBP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(4) DISCONTINUED OPERATIONS - WHITE METAL ROLLING AND STAMPING CORP.
In fiscal 1990, the Company discontinued the operations of White Metal
Rolling and Stamping Corp. ("White Metal"), the Company's ladder manufacturing
subsidiary. All manufacturing operations of White Metal ceased as of January 31,
1991 and substantially all of its remaining assets have since been liquidated.
At December 31, 1998, White Metal's estimated future product liability,
which is no longer covered by insurance, was approximately $4.0 million. Such
liability is reflected in discontinued operations - White Metal Rolling and
Stamping Corp., net, on the Consolidated Balance Sheet. Although Prime (formerly
known as Leslie-Locke, Inc.) was named as a defendant in certain product
liability actions, Prime has not been held responsible, and the Company and
Prime 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 $1.7 million 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 in determining the Company's estimated
product liability accrual. The Company and Prime have in the past disclaimed,
and continue to disclaim, any liability for the obligations of White Metal.
On May 7, 1996, the Company and Prime, and Drew, the former parent of
Prime, 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 have alleged several duplicate claims, sought
damages in the aggregate amount of $10.6 million plus attorneys fees, of which
approximately $7.5 million of tax related claims was sought, jointly and
severally, from the Company, Prime, Drew and Kinro. On July 14,1998, the
bankruptcy court granted defendants' motion to dismiss the trustee's tax-related
claims. The court permitted the trustee to replead the dismissed claims, but the
trustee elected not to replead. The trustee could appeal the court's decision
dismissing these claims on termination of the proceeding.
Other than the dismissed tax-related claims, the trustee alleges that
White Metal made certain payments to Prime which were preferential and are
recoverable by White Metal, in the approximate amount of $2.2 million. Although
these claims were not dismissed, the Company believes that the claims are
without merit, 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 the Company's financial condition or
results of operations.
(22)
<PAGE>
LBP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(5) INCOME TAXES
Income tax provision (benefit) in the Consolidated Statements of
Operations is as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1998 1997 1996
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Continuing operations
Current:
Federal $ 294 $ -- $ --
State 65 -- --
Deferred:
Federal (64) -- --
State -- -- --
------- ------- -------
$ 295 $ -- $ --
======= ======= =======
Discontinued operations $ 4,996 $ -- $ --
======= ======= =======
</TABLE>
The provision (benefit) for income taxes differs from the amount computed
by applying the Federal statutory rate (34%) to income before income taxes
for the following reasons (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1998 1997 1996
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Continuing operations:
Income tax (benefit) at Federal statutory rate $ 228 $ (225) $ (218)
State income taxes, net of Federal income tax
benefit 43 -- --
Change in valuation allowance (29) 172 165
Non-deductible expenses 53 53 53
------- ------- -------
Provision for income taxes $ 295 $ -- $ --
======= ======= =======
</TABLE>
The tax effects of temporary differences from continuing operations that
give rise to significant portions of the deferred tax assets at December 31,
1998 and 1997 are as follows (in thousands):
1998 1997
- --------------------------------------------------------------------------------
Deferred tax assets:
Accruals $ 64 $ 51
Less deferred tax valuation allowance -- 51
-------- --------
Net deferred tax asset $ 64 $ --
======== ========
A deferred tax valuation allowance applies to deferred tax assets that may
expire before the Company can utilize them. At December 31, 1997, based upon its
prior operating results, the Company could not conclude that the deferred tax
assets were likely to be realized in the ordinary course of operations.
Accordingly, a valuation allowance was required to reduce the carrying value of
the net deferred tax asset to zero at December 31, 1997. The valuation
(23)
<PAGE>
LBP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
allowance is periodically re-evaluated based upon expected operating results. At
December 31, 1998, the Company concluded that it is more likely than not that
the deferred tax asset will be realized in the ordinary course of operations
based an income from operating activities, therefore no valuation allowance is
required.
Net deferred tax assets of $64,000 are included in prepaid expenses and
other current assets in the Consolidated Balance Sheet at December 31, 1998.
At December 31, 1998, the Company's liabilities for income taxes was
$5,424,000, of which $5,033,000 is included in discontinued operations and
$391,000 is included in accrued expenses and other current liabilities in the
Consolidated Balance Sheet.
(6) STOCKHOLDERS' EQUITY
There are 20,000,000 shares of Par Value $.01 Per Share Common Stock
authorized and there are 1,000,000 shares of Par Value $5 Per Share Preferred
Stock authorized, of which 4,778,390 shares of Common Stock and no shares of
Preferred Stock are outstanding.
Employee Stock Option Plan
The Company has an Employee Stock Option Plan (the "Stock Option Plan")
pursuant to which the Company may grant officers, directors and key employees of
LBP and Prime options to purchase LBP Common Stock. The Stock Option Plan
provides for the grant of stock options that qualify as incentive stock options
("ISOs") under Section 422 of the Code and non-qualified stock options
("NQSOs").
Under the Stock Option Plan, since 1994 LBP's Stock Option Plan Committee
has been authorized to grant options to purchase up to an aggregate of 300,000
shares of LBP's Common Stock. The Committee will determine the period for which
each stock option may be exercisable, but in no event may a stock option be
exercisable more than 10 years from the date of grant thereof. The number of
shares available under the Stock Option Plan, and the exercise price of options
granted under the Stock Option Plan, are subject to adjustments that may be made
by the Committee to reflect stock splits, stock dividends, recapitalization,
mergers, or other major corporate action.
The exercise price for options granted under the Stock Option Plan is
determined by the Committee in its sole discretion; provided, however, in the
case of an ISO granted to an optionee, the exercise price shall be at least
equal to 100% of the fair market value of the shares subject to such option on
the date of grant. The exercise price may be paid in cash or in shares of LBP
Common Stock. Options granted under the Stock Option Plan become exercisable in
annual installments determined by the Committee and accelerated vesting is
subject to performance criteria.
(24)
<PAGE>
LBP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Transactions in stock options under this plan are summarized as follows:
<TABLE>
<CAPTION>
Number
Of Shares Option Price
- ------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1995 193,000 $ 1.55-$2.26
Granted 7,883 $ 2.31-$3.21
Canceled (5,000) $ 1.66
-------
Outstanding at December 31, 1996 195,883 $ 1.55-$3.21
Granted 12,500 $ 1.37-$2.05
-------
Outstanding at December 31, 1997 208,383 $ 1.375-$3.21
Granted 7,500 $ 3.179
Exercised (1,000) $ 1.375
Canceled (4,000) $ 1.375
-------
Outstanding at December 31, 1998 210,883 $ 1.55-$3.21
=======
Exercisable at December 31, 1998 202,283 $ 1.55-$3.21
=======
Options available for grant at December 31, 1998 88,117
=======
</TABLE>
Stock options generally expire in five years from the date they are
granted; options vest over service periods that range from zero to five years.
The Company adopted the disclosure-only option under SFAS No.123,
Accounting for Stock-Based Compensation ("FAS 123"), as of December 31, 1996.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model. The weighted average assumptions used for
grants included no dividend yields, risk-free interest rates of 5.5%, 5.5% and
5.9%; assumed expected volatilities of 45.2%, 76.9% and 56.8%; and expected
lives of 5, 5, and 5 years; for 1998, 1997 and 1996, respectively. The number of
shares available for granting options were 88,117 shares, 91,617 shares and
104,117 shares at December 31, 1998, 1997 and 1996, respectively.
(25)
<PAGE>
LBP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
If compensation cost for the Company's stock option plan had been
recognized in the income statement based upon the fair market method, income
from continuing operations would have been reduced to the pro forma amounts
indicated below:
Year Ended December 31,
----------------------------
1998 1997 1996
---- ---- ----
Income (loss from continuing
operations (in thousands):
As reported $ 376 $ (663) $ (641)
Pro forma $ 361 $ (677) $ (658)
Earnings (loss) per share from
continuing operations (basic)
As reported $ .08 $ (.14) $ (.13)
Pro forma $ .07 $ (.14) $ (.14)
Earnings (loss) per share from
continuing operations (diluted)
As reported $ .08 $ (.14) $ (.13)
Pro forma $ .07 $ (.14) $ (.14)
The following table summarizes information about stock options outstanding
at December 31, 1998:
Average
Option Remaining Option
Exercise Shares Life Shares
Price Outstanding (Years) Exercisable
----- ----------- ------- -----------
$ 1.55 21,500 3.0 12,900
$ 1.66 154,000 .1 154,000
$ 2.05 7,500 4.0 7,500
$ 2.21 7,500 2.0 7,500
$ 2.26 5,000 2.0 5,000
$ 2.31 383 .1 383
$ 3.18 7,500 5.0 7,500
$ 3.21 7,500 3.0 7,500
------- -------
210,883 202,283
======= =======
Stock Purchase Plan
Under the terms of the Company's 1995 Employee Stock Purchase Plan,
eligible employees could purchase shares of the Company's common stock through
payroll deductions.
During 1998, 6,212 shares were purchased under the Stock Purchase Plan at
a cost of $2.13 per share. During 1997, 27,103 shares were purchased at a cost
of $1.12 to $2.12 per share. At December 31, 1998, there were 296,003 shares
available for future purchases under the Plan.
(26)
<PAGE>
LBP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Common Stock and Shares Outstanding
The following reconciliation details the denominator used in the
computation of basic and diluted earnings per share:
Year Ended December 31,
----------------------------
1998 1997 1996
---- ---- ----
Weighted average shares outstanding
for basic earnings per share 4,843,010 4,850,905 4,817,138
Common stock equivalents pertaining
to stock options 51,876 13,588 71,092
--------- --------- ---------
Total for diluted shares 4,894,886 4,864,493 4,888,230
========= ========= =========
(7) SHARED SERVICES AGREEMENT
Pursuant to a Shares Services Agreement with Drew Industries Incorporated,
the Parent of the Company until the Company was spun off in July 1994, the
Company has paid management fees for certain administrative services as follows
(in thousands):
Included in
----------------------------
Administrative Discontinued
Total Expenses Operations
----- -------- ----------
Year ended December 31, 1998 $512 $ 146 $366
Year ended December 31, 1997 $526 $ 112 $414
Year ended December 31, 1996 $509 $ 112 $397
(27)
<PAGE>
LBP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(8) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Interim unaudited financial information follows (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1998
Income (loss) from continuing operations $ (171) $ 13 $ 391 $ 143 $ 376
Income (loss) from discontinued operations (175) 14,209 -- 320 14,354
Net income (loss) (346) 14,222 391 463 14,730
Income (loss) per basic common share:
Continuing operations $ (.04) $ -- $ .08 $ .03 $ .08
Discontinued operations (.03) 2.92 -- .07 2.96
Net income (loss) per share (.07) 2.92 .08 .10 3.04
Income (loss) per diluted common share:
Continuing operations $ (.04) $ -- $ .08 $ .03 $ .08
Discontinued operations (.03) 2.90 -- .07 2.93
Net income (loss) per share (.07) 2.90 .08 .10 3.01
Year Ended December 31, 1997
Income (loss) from continuing operations $ (173) $(176) $(168) $ (146) $ (663)
Income (loss) from discontinued operations (1,094) 1,035 919 82 942
Net income (loss) (1,267) 859 751 (64) 279
Income (loss) per basic common share:
Continuing operations $ (.04) $ (.04) $ (.03) $ (.03) $ (.14)
Discontinued operations (.22) .22 .18 .02 .20
Net income (loss) per share (.26) .18 .15 (.01) .06
Income (loss) per diluted common share:
Continuing operations $ (.04) $ (.04) $ (.03) $ (.03) $ (.14)
Discontinued operations (.22) .22 .18 .02 .20
Net income (loss) per share (.26) .18 .15 (.01) .06
</TABLE>
(28)
<PAGE>
LBP, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------- -------- -------------------------- -------- --------
Additions
--------------------------
Balance At Charged To Charged To Balance At
Beginning Costs and Other End
Of Period Expenses Accounts Deductions Of Period
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998:
Allowance for doubtful accounts
receivable, trade $ 627 $127(a) $ 265(b)
489(c) $ --
Reserve for liquidation losses -
disposal of businesses 3,853 156 4,009
YEAR ENDED DECEMBER 31, 1997:
Allowance for doubtful accounts
receivable, trade $ 404 $359(a) $ 136(b) $ 627
Reserve for liquidation losses -
disposal of businesses 3,697 156 3,853
YEAR ENDED DECEMBER 31, 1996:
Allowance for doubtful accounts
receivable, trade $ 355 $73(a) $ 24(b) $ 404
Reserve for liquidation losses -
disposal of businesses 3,541 156 3,697
</TABLE>
(a) charged to discontinued operation
(b) Represents accounts written-off net of recoveries.
(c) Accounts receivable, to which this reserve applies, were disposed of in
connection with the sale of assets of Prime Acquisition Corp.
(29)
<PAGE>
EXHIBIT INDEX
Exhibit Sequentially
Number Description Numbered Page
- --------------------------------------------------------------------------------
3. Articles of Incorporation and By laws.
3.1 Leslie Building Products, Inc.
Certificate of Incorporation, as amended.
3.2 Leslie Building Products, Inc. By laws.
Exhibits 3.1 and 3.2 are incorporated by reference to the Exhibits bearing
the same numbers indicated on the Registration Statement of Leslie Building
Products, Inc. on Form 10 (Registration No. 0-24094).
10. Material Contracts.
10.1 Plan and Agreement of Distribution between the Registrant and Drew
Industries Incorporated, dated July 29, 1994.
10.3 Shared Services Agreement between the Registrant and Drew Industries
Incorporated, dated July 29, 1994.
10.4 Tax Matters Agreement between the Registrant and Drew Industries
Incorporated, dated July 29, 1994.
10.5 1994 Stock Option Plan of the Registrant and Subsidiaries, dated July 29,
1994.
10.42 Asset Purchase Agreement, dated May 26, 1998, by and between Leslie-Locke,
Inc., now known as Prime Acquisition Corp. ("Seller") and BMCA Key
Acquisition Corp., now known as LL Building Products, Inc. ("Buyer").
10.43 First Escrow Agreement, dated June 18, 1998, by and among Seller, Buyer
and The Chase Manhattan Bank ("Escrow Agent").
10.44 Second Escrow Agreement, dated June 18, 1998, by and among Seller, Buyer
and the Escrow Agent.
10.45 Net Proceeds Escrow Agreement, dated June 18, 1998, by and among Seller,
Buyer and the Escrow Agent.
10.46 Parent Guaranty Agreement, dated June 18, 1998, by and between Registrant
and Buyer.
10.47 Stock Purchase Agreement, dated December 22, 1998, relating to purchase of
800,000 of Series B 10.5% Cumulative Convertible Preferred Stock.
10.48 Articles Supplementary of Series B 10.5% Cumulative Convertible Preferred
Stock.
Exhibits 10.1-10.5 are incorporated by reference to the Exhibits bearing
the same numbers indicated on Post-Effective Amendment No. 1 on Form 10/A, dated
August 30, 1994, to the Registration Statement of Leslie Building Products, Inc.
on Form 10 (Registration No. 0-24094).
(30)
<PAGE>
Exhibits 10.42 to 10.46 are incorporated by reference to exhibits bearing
numbers 1 through 5 included in the Company's Current Report on Form 8-K, dated
July 2, 1998.
Exhibits 10.47 and 10.48 are incorporated by reference to exhibits bearing
numbers 1 and 2 included in the Company's Current Report on Form 8-K, dated
December 28, 1998, as amended.
21. Subsidiaries
Exhibit 21 is filed herewith. ___________________
23. Consent of Independent Auditors.
Exhibit 23 is filed herewith. ___________________
24. Powers of Attorney.
Powers of Attorney of persons signing this Report are included as part of
this Report.
(31)
EXHIBIT 23
Consent of Independent Auditors
The Board of Directors
LBP, Inc.
We consent to incorporation by reference in the registration statements (No.
33-97702, No. 33-97704) on Form S-8 of LBP, Inc. of our reports dated February
17, 1999 relating to the consolidated balance sheets of LBP, Inc. and
subsidiaries as of December 31, 1998 and 1997, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1998, and related financial
statement schedule.
KPMG LLP
Stamford, Connecticut
March 29, 1999
EXHIBIT 21 - Active Subsidiaries of Registrant
State of
Name Incorporation
---- -------------
Prime Acquisition Corp. Delaware
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 12,981
<SECURITIES> 20,053
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 33,117
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 33,117
<CURRENT-LIABILITIES> 9,752
<BONDS> 0
0
0
<COMMON> 48
<OTHER-SE> 23,317
<TOTAL-LIABILITY-AND-EQUITY> 33,117
<SALES> 0
<TOTAL-REVENUES> 1,400
<CGS> 0
<TOTAL-COSTS> 573
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 156
<INCOME-PRETAX> 671
<INCOME-TAX> 295
<INCOME-CONTINUING> 376
<DISCONTINUED> 14,354
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,730
<EPS-PRIMARY> 3.04
<EPS-DILUTED> 3.01
</TABLE>
