- --------------------------------------------------------------------------------
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: SEPTEMBER 30, 1999
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
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, 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 |X| No |_|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.4,932,390 shares of common stock
as of October 22, 1999.
- --------------------------------------------------------------------------------
<PAGE>
LBP, INC.
INDEX TO FINANCIAL STATEMENTS FILED WITH
QUARTERLY REPORT OF REGISTRANT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
(UNAUDITED)
--------------------------------------------
Page
----
PART I - FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF OPERATIONS 3
CONSOLIDATED BALANCE SHEETS 4
CONSOLIDATED STATEMENTS OF CASH FLOWS 5
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7-9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 10-13
PART II - OTHER INFORMATION
Not Applicable
SIGNATURES 14
<PAGE>
LBP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
----------------- ------------------
1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Continuing Operations:
Investment Income $ 1,378 $ 1,024 $ 250 $ 881
General and administrative expenses 437 410 138 145
-------- -------- --------- -------
Operating income 941 614 112 736
Imputed interest expense 117 117 39 39
-------- -------- --------- -------
Income from continuing operations
before income taxes 824 497 73 697
Provision for income taxes 329 264 39 306
-------- -------- --------- -------
Income from continuing
operations 495 233 34 391
-------- -------- --------- -------
Discontinued Operations (Note 1):
Income from operations, before income taxes -- 1,736 -- --
Provision for income taxes -- -- -- --
-------- -------- --------- -------
Income from operations -- 1,736 -- --
-------- -------- --------- -------
Gain on disposal of assets before income taxes 41 17,214 41 --
Benefit (provision) for income taxes 124 (4,916) 124 --
-------- --------- --------- -------
Gain on disposal of assets 165 12,298 165 --
-------- -------- --------- -------
Income from discontinued operations 165 14,034 165 --
-------- -------- --------- -------
Net income $ 660 $ 14,267 $ 199 $ 391
======== ======== ========= =======
Net income per common share:
Basic:
Continuing operations $ .10 $ .05 $ .01 $ .08
Discontinued operations (Note 1) .03 2.88 .03 --
-------- -------- --------- -------
Net income $ .13 $ 2.93 $ .04 $ .08
======== ======== ========= =======
Diluted:
Continuing operations $ .10 $ .05 $ .01 $ .08
Discontinued operations (Note 1) .03 2.85 .03 --
-------- -------- --------- -------
Net income $ .13 $ 2.90 $ .04 $ .08
======== ======== ========= =======
Weighted average common shares outstanding:
Basic 4,917 4,862 4,932 4,861
Diluted 4,936 4,914 4,949 4,918
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
LBP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
- -------------------------------------------------------------------------------------------------------------------------
(In thousands, except shares and per share amounts)
<S> <C> <C>
ASSETS
Current assets
Cash and equivalents (Note 1) $ 7,049 $ 12,981
Investments in securities (Note 2) 20,694 20,053
Prepaid expenses and other current assets 856 83
Discontinued operations - Prime Acquisition, Inc., net (Note 1) 127 --
-------- ---------
Total assets $ 28,726 $ 33,117
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable, accrued expenses and other current liabilities $ 319 $ 709
Discontinued operations - Prime Acquisition Corp. (Note 1) -- 5,034
Discontinued operations - White Metal Rolling and Stamping, Inc., net (Note 4) 4,126 4,009
-------- ---------
Total current liabilities 4,445 9,752
-------- ---------
Commitments and Contingencies (Notes 1 and 4)
Stockholders' equity
Common stock par value $.01 per share: authorized 20,000,000 shares;
issued 5,021,390 shares in September 1999, and 4,867,390 shares in December 1998 50 48
Paid-in capital 20,623 20,369
Retained earnings 3,872 3,212
-------- ---------
24,545 23,629
Treasury stock at cost - 89,000 shares (264) (264)
-------- ---------
Total stockholders' equity 24,281 23,365
-------- ---------
Total liabilities and stockholders' equity $ 28,726 $ 33,117
======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
LBP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Income from continuing operations $ 495 $ 233
Adjustments to reconcile income from continuing operations
to cash flows from operating activities:
Imputed interest 117 117
Mark to market investment in trading securities 563 -
Changes in prepaid expenses and other assets (773) (41)
Changes in accounts payable, accrued expenses and other current liabilities (390) 350
--------- --------
Net cash flows provided by operating activities
of continuing operations 12 659
--------- --------
Cash flows from discontinued operations:
Income from discontinued operations 165 14,034
Changes in net assets of discontinued operations - Prime Acquisition Corp. (5,161) 18,537
--------- --------
Net cash flows (used for) provided by discontinued operations (4.996) 32,571
--------- --------
Cash flows from investing activities:
Investments in trading securities (1,100) --
Investments in securities (104) --
--------- --------
Net cash flows used for investing activities (1,204) --
--------- --------
Cash flows from financing activities:
Exercise of employee stock options 256 --
Employee purchases of common stock 14
Purchase of treasury stock (63)
--------- --------
Net cash flows provided (used for) by financing activities 256 (49)
--------- --------
Net (decrease) increase in cash (5,932) 33,181
Cash and equivalents at beginning of period 12,981 20
--------- --------
Cash and equivalents at end of period $ 7,049 $ 32,201
========= ========
Supplemental disclosure of cash flows information:
Cash paid during the period for:
Interest on debt - discontinued operations $ -- $ 196
Income taxes $ 5,946 $ 11
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
LBP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Total
Common Treasury Paid-in Retained Stockholders'
Stock Stock Capital Earnings Equity
- ----------------------------------------------------------------------------------------------------------------------
(In thousands, except shares)
<S> <C> <C> <C> <C> <C>
Balance - December 31, 1998 $ 48 $ (264) $ 20,369 $ 3,212 $ 23,365
Net income nine months ended September 1999 660 660
Exercise of employee stock options - 154,000 shares 2 254 256
------ -------- --------- -------- ---------
Balance - September 30, 1999 $ 50 $ (264) $ 20,623 $ 3,872 $ 24,281
====== ======== ========= ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<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 $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 relating to the discontinued
operations, Prime has cash and investments of approximately $28 million. During
the third quarter of 1999, the Company recorded income from discontinued
operations of $165,000 as a result of an adjustment of the accrual for state
income taxes as well as the collection of a note receivable in excess of its
carrying value.
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
September 30, 1999 was approximately $5.2 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.
2. INVESTMENTS 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 Holding, Inc., ("Impac"). The shares were originally
convertible into Common Stock of Impac (symbol "IMH") at $4.95 per share, or an
aggregate of 4,040,404 shares, representing 13.7 percent of IMH common stock.
The terms of the acquisition provided for a downward adjustment of the
conversion price if, among other things, certain earnings levels were not
attained by Impac through June 30, 1999. Subsequent to September 30,
7
<PAGE>
LBP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1999 the conversion rate was adjusted, by an agreement in principle, to $4.72
per share, or an aggregate of 4,237,288 shares of common stock of IMH.
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 included as investment
income $525,000, the amount of the dividend declared by Impac on September 22,
1999, to shareholders of record on September 24, 1999 and payable on October 26,
1999. The Company has recorded this investment at cost of $20,157,000. The
Company believes that the book value of this investment does not exceed fair
value at September 30, 1999.
At September 30, 1999 the Company owned 90,530 shares of the common shares
of The North Face, Inc. which has been written down to its market value of
$537,000. The original cost of these shares, considered to be trading
securities, was $1.1 million.
These investments were 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 reasonable possible.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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, 1998 Annual Report on Form 10-K and should be read in conjunction
with the Notes to Consolidated Financial Statements which appear in that report.
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 nine month and three month periods ended September
30, 1999 and 1998. 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.
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.
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.
8
<PAGE>
LBP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
At June 30, 1999, White Metal's estimated future product liability, which
is no longer covered by insurance, was approximately $4.1 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.
On May 7, 1996, the Company and Prime, and Drew Industries Incorporated
("Drew"), the former parent of Prime, and its subsidiary, Kinro, Inc. ("Kinro"),
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.
5. Weighted Average Common Shares Outstanding
Net income per diluted common share reflects the dilution of the weighted
average common shares by the assumed issuance of common stock pertaining to
stock options. The numerator, which is equal to net income, is constant for both
the basic and diluted earnings per share calculations.
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
------------------------------ ----------------------------
1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted average common
shares outstanding - basic 4,916,990 4,862,206 4,932,390 4,860,863
Assumed issuance of common
stock pertaining to stock options 19,122 51,542 16,285 57,294
--------- --------- --------- ---------
Weighted average common
shares outstanding - diluted 4,936,112 4,913,748 4,948,675 4,918,157
========= ========= ========= =========
</TABLE>
9
<PAGE>
LBP, INC.
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 relating to the sale, Prime
has cash and investments of approximately $28 million at September 30, 1999.
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 have
been invested in certain common and preferred stocks as well as in liquid U.S.
Treasury money market accounts. The Company's income consists primarily of
dividend income from these investments. 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 September
30, 1999 was approximately $5.2 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.
10
<PAGE>
LBP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Investments 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 4,040,404 shares representing 13.7 percent of IMH common stock. The
terms of the acquisition provided for a downward adjustment of the conversion
price if, among other things, certain earnings levels were not attained by Impac
through June 30, 1999. Subsequent to September 30, 1999 the conversion rate was
adjusted, by an agreement in principle, to $4.72 per share, or an aggregate of
4,237,288 shares of common stock of IMH.
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 $20,157,000.
At September 30, 1999 the Company owned 90,530 shares of the common shares
of The North Face, Inc. which has been written down to its market value of
$537,000. The original cost of the shares, considered to be trading securities,
was $1.1 million.
These investments were 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 September 30, 1999, White Metal's estimated future product liability,
which is no longer covered by insurance, was approximately $4.1 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.
11
<PAGE>
LBP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
On May 7, 1996, the Company and Prime, and Drew, the former parent of
Prime, and its subsidiary, Kinro, Inc., ("Kinro") 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.
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 September 30, 1999, approximately $7 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. ("Impac"), the common stock of which is
publicly traded and is listed on the American Stock Exchange. The Company has
reviewed the Year 2000 disclosure in the latest Form 10Q filed by Impac and
found that while certain risks are addressed, Impac expects to be Year 2000
compliant before the end of 1999. 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. Additional disclosure requirements
regarding Year 2000 issues will be considered when the Company makes such an
acquisition or as its investment portfolio changes.
12
<PAGE>
LBP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
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.
13
<PAGE>
LBP, 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.
LBP, INC.
Registrant
By /s/ Fredric M. Zinn
-----------------------
Fredric M. Zinn
Principal Financial Officer
November 9, 1999
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> SEP-30-1999
<CASH> 7,049
<SECURITIES> 20,694
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 28,726
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 28,726
<CURRENT-LIABILITIES> 4,445
<BONDS> 0
0
0
<COMMON> 50
<OTHER-SE> 24,231
<TOTAL-LIABILITY-AND-EQUITY> 28,726
<SALES> 0
<TOTAL-REVENUES> 1,378
<CGS> 0
<TOTAL-COSTS> 554
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 824
<INCOME-TAX> 329
<INCOME-CONTINUING> 495
<DISCONTINUED> 165
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 660
<EPS-BASIC> .13
<EPS-DILUTED> .13
</TABLE>
