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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, 1999 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, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
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 13, 2000) was $8,992,081.
The number of shares outstanding of the Registrant's Common Stock, as of the
latest practicable date (March 13, 2000) was 4,937,390 shares of Common Stock.
Documents Incorporated by Reference
Proxy Statement with respect to Annual Meeting of Stockholders to be held on May
17, 2000 is incorporated by reference into Part III.
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<PAGE>
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. These factors also include
general economic conditions, as well as the possibility that the Company may, in
the future, be deemed to be an "investment company" within the meaning of the
Investment Company Act of 1940.
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.
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.
Pursuant to an Asset Purchase Agreement, dated May 26, 1998 (the
"Agreement"), Leslie-Locke sold substantially all of its net assets, including
its owned and leased real property, to LL Building Products, Inc., a newly-
formed Delaware subsidiary of Building Materials Corporation of America, d/b/a
GAF Materials Corporation (the "Sale Transaction"). The purchase price was
approximately $44 million in cash. The Sale Transaction was consummated on June
18, 1998 (the "Closing Date"), as of May 31, 1998. Immediately after the closing
of the Sale 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.
As a result of the Sale Transaction, after payment of outstanding debt,
closing costs and income taxes, the Company had net proceeds of approximately
$28 million. In accordance with the terms of the Sale Transaction, approximately
$25 million of the net proceeds were deposited in escrow until June 2000, of
which approximately
(2)
<PAGE>
$21 million may be released from escrow and used by the Company at any time to
acquire other businesses, for certain investments, and for certain other
permitted payments. The net proceeds from the sale were initially invested
primarily in liquid U.S. Treasury money market accounts. The Company's Board of
Directors has continued to reaffirm 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. Accordingly, management of the Company has been actively seeking a
suitable acquisition candidate for Prime.
In order for the Company to enhance stockholder value while efforts to
acquire a business continue, the Company has made certain investments intended
to be short-term. In the third quarter of 1998, the Company realized a gain of
$463,000 from a short-term securities transaction. In February 2000, the Company
realized a loss of $509,000 from the sale of securities purchased in September
1999 as a short-term investment, which was also considered as an acquisition
candidate.
In December 1998, the Company utilized $20 million of the funds held in
escrow to purchase 800,000 shares of 10.5% Cumulative Convertible Preferred
Stock of Impac Mortgage Holdings, Inc. ("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 Company did not register as an investment company, initially relying
on (and in compliance with) the exemption provided by Rule 3a-2, promulgated
under the Investment Company Act of 1940, as amended (the "'40 Act"). The
Company continues to believe that it is not an investment company for the
following reasons: (i) the Company has a bona fide intent to be engaged in a
business other than that of investing, reinvesting, owning, holding or trading
in securities as soon as it is reasonably possible; (ii) the Company made
short-term investments solely to preserve the value of its assets and enhance
stockholder value while the Company engages in efforts to invest its assets in a
non-investment company business; (iii) the Company does not in any way hold
itself out to be engaged, nor does it propose to be engaged, primarily in the
business of investing, reinvesting or trading in securities; (iv) the Company's
failure to consummate the acquisition of a non-investment company business has
been due to factors beyond the Company's control, principally the lack of
candidates with which to consummate an acquisition transaction on terms
acceptable to the Company and in the best interests of its stockholders; and (v)
the Company's officers and employees continue in good faith their efforts to
identify a suitable acquisition on acceptable terms, and thereby to engage in
and operate a non-investment business. Notwithstanding these facts, if the
Company is deemed to be an investment company required to register under the '40
Act, its structure and operations would be subject to substantial changes from
its current structure and operations. Moreover, the Company's ability to acquire
a business and to avoid '40 Act regulation could be affected.
Accordingly, the Company has made application to the Securities and
Exchange Commission for an order pursuant to Section 3(b)(2) of the '40 Act
finding and declaring that the Company is primarily engaged in a business or
businesses other than that of investing, reinvesting, owning, holding or trading
in securities either directly, through majority-owned subsidiaries, or through
controlled companies conducting similar types of businesses and, therefore, is
not an investment company within the meaning of the Act; or, alternatively, for
an order pursuant to Section 6(c) of the Act exempting the Company from all of
the provisions of the Act and any rule or regulation thereunder.
(3)
<PAGE>
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).
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, 2000.
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.
Item 3. LEGAL PROCEEDINGS
In fiscal 1990, the operations of White Metal Rolling and Stamping Corp.
("White Metal"), Leslie-Locke's ladder manufacturing subsidiary were
discontinued. All manufacturing operations of White Metal ceased as of January
31, 1991. On September 30, 1994, White Metal filed a voluntary petition seeking
liquidation under the provisions of chapter 7 of the United States Bankruptcy
Code. At the time of filing, the liabilities of White Metal were primarily
product liability claims, and related costs, resulting from its discontinued
ladder manufacturing business. White Metal was not included in the sale of
Leslie-Locke's assets. See Note 4 of Notes to Consolidated Financial Statements.
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. However, the Company and
Prime intend to vigorously oppose and defend any White Metal claim asserted
against them.
On or about May 7, 1996, the Company and Prime, were served with a Summons
and Complaint in an adversary proceeding commenced by the Chapter 7 Trustee of
White Metal entitled In re White Metal Rolling and Stamping Corp., Alan
Nisselson, Chapter 7 Trustee of White Metal Rolling and Stamping Corp. vs. Drew
Industries,
(4)
<PAGE>
Inc., Leslie-Locke, Inc., Leslie Building Products, Inc., and Kinro, Inc.
pending in the United States Bankruptcy Court, Southern District of New York
(Adversary Proceeding No. 96/9618544A (the "Adversary Proceeding"). 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
up to approximately $7.5 million of tax-related claims was sought, jointly and
severally, from the Company, Prime, Drew, and Kinro, Inc. ("Kinro"), a
subsidiary of Drew. In addition, the trustee alleged that White Metal made
certain payments to the Company and to Prime which were preferential and
recoverable by White Metal of approximately $2.2 million against Prime, and
$900,000 against Drew.
On July 14, 1998, the Bankruptcy Court granted defendants' motion to
dismiss the trustee's $7.5 million tax- related claims. Other than the dismissed
tax-related claims, the trustee alleged that White Metal made certain payments
to the defendants which were preferential and recoverable by White Metal, in the
approximate amount of $3.1 million, of which $2.2 million was sought from the
Company and Prime. Pursuant to a Consent Order Settling and Compromising Claims,
dated January 27, 2000 (the "Settlement"), by and among the trustee, on behalf
of White Metal, the Company, Prime, Kinro and Sears Roebuck & Co., Inc.
("Sears"), White Metal's largest creditor, the parties agreed to settle the
Adversary Proceeding in consideration for payment by the defendants to White
Metal's estate in the aggregate amount of $672,000, of which $485,500 was paid
by Prime. The defendants, the trustee and Sears agreed to release each other,
and their respective affiliates, and the trustee agreed not to appeal the
Bankruptcy Court's dismissal of the tax-related claims. In connection with the
Settlement, the Adversary Proceeding was terminated.
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, 1999.
Name Position
---- --------
Leigh J. Abrams President, Chief Executive Officer and
(Age 57) Director of the Company since July 1994.
Edward W. Rose, III Chairman of the Board of Directors of
(Age 58) the Company since July 1994.
James F. Gero Director since July 1994.
(Age 54)
Marshall B. Payne Director since July 1994.
(Age 42)
Fredric M. Zinn Chief Financial Officer of the Company
(Age 48) since July 1994.
Harvey J. Kaplan Secretary and Treasurer of the Company
(Age 65) since July 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, and a director of its affiliates. 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 company: Orthofix International, N.V., an international
supplier of orthopedic devices for bone fixation and stimulation. 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 specialty 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.
HARVEY J. KAPLAN, a certified public accountant, for more than the past
five years, has also been Secretary and Treasurer of Drew.
(6)
<PAGE>
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 1999 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 13, 2000, there were 2,230 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 closing 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 1999
Quarter ended March 31................. $ 4.13 $ 3.19
Quarter ended June 30.................. $ 4.19 $ 3.88
Quarter ended September 30............. $ 4.19 $ 3.56
Quarter ended December 31.............. $ 3.75 $ 3.28
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
The closing price per share for the common stock on March 13, 2000 was
$3.19.
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
(7)
<PAGE>
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,
-----------------------------------------------------------------------
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Data:
Income (loss) from continuing
operations before income taxes $ 1,337 $ 671 $ (663) $ (641) $ (637)
Provision for income taxes 518 295 -- -- --
---------- --------- -------- ---------- ---------
Income (loss) from continuing operations 819 376 (663) (641) (637)
Discontinued operations 3,514 14,354 942 1,268 (7,432)
---------- --------- -------- ---------- ---------
Net income (loss) $ 4,333 $ 14,730 $ 279 $ 627 $ (8,069)
========== ========= ======== ========== =========
Net income (loss) per common share:
Basic:
Continuing operations $ .17 $ .08 $ (.14) $ (.13) $ (.13)
Discontinued operations .71 2.96 .20 .26 (1.55)
---------- --------- -------- ---------- ---------
Net income (loss) $ .88 $ 3.04 $ .06 $ .13 $ (1.68)
========== ========= ======== ========== =========
Diluted:
Continuing operations $ .17 $ .08 $ (.14) $ (.13) $ (.13)
Discontinued operations .71 2.93 .20 .26 (1.55)
---------- --------- -------- ---------- ---------
Net income (loss) $ .88 $ 3.01 $ .06 $ .13 $ (1.68)
========== ========= ======== ========== =========
Balance Sheet Data (at end of period):
Total Assets(a) $ 29,106 $ 33,117 $ 12,927 $ 12,323 $ 11,539
Stockholders' Equity(a) $ 28,058 $ 23,365 $ 8,885 $ 8,563 $ 7,868
</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 relating to the sale, Prime
has cash and investments of approximately $28 million at December 31, 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. While the Company seeks to acquire an
operating business, the Company will continue to incur expenses of approximately
$400,000 to $600,000 annually, associated with the management of its assets, its
financial reporting obligations, and other administrative functions. 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, 1999 was
approximately $5.3 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>
Investments in Securities
On December 22, 1998, 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 are convertible into Common Stock of Impac (symbol "IMH")
originally at $4.95 per share, or an aggregate of 4,040,404 shares. 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. Subsequently, the conversion rate was adjusted to $4.72 per
share, or an aggregate of 4,237,288 shares of common stock of Impac,
representing approximately 15 percent of the Impac common stock outstanding.
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 December 31, 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
$368,000. The original cost of the shares, considered to be trading securities,
was $1.1 million. These shares were sold in February 2000 for $590,000.
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
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.
On September 30, 1994, White Metal filed a voluntary petition seeking
liquidation under the provisions of chapter 7 of the United States Bankruptcy
Code. The liabilities of White Metal were all product liability claims, and
related costs, resulting from its discontinued ladder manufacturing business.
While the Company was named as a defendant in certain actions commenced in
connection with these claims, the Company has not been held responsible, and the
Company disclaims 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, will not result in liability. However, the
Company intends to vigorously oppose and defend any White Metal claim asserted
against it.
On May 7, 1996, the Company and its subsidiary, Prime, were served with a
summons and complaint in an adversary proceeding commenced by the chapter 7
trustee of White Metal (the "Adversary Proceeding"). The Company's former parent
company, Drew Industries Incorporated ("Drew") and its subsidiary Kinro, Inc.
("Kinro") were also served in the Adversary Proceeding. The complaint 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. Other than the dismissed tax-related claims, the trustee alleged that
White Metal made certain payments to the defendants which were preferential and
recoverable by White Metal, in the approximate amount of $3.1 million, of which
$2.2 million was sought from the Company and Prime. Pursuant to a Consent Order
Settling and Compromising Claims, dated January 27, 2000 (the "Settlement"), by
and among the trustee, on behalf of White Metal, the Company, Prime, Kinro and
Sears Roebuck & Co., Inc. ("Sears"), White Metal's largest creditor, the parties
agreed to settle the Adversary Proceeding in consideration for payment by the
(10)
<PAGE>
defendants to White Metal's estate in the aggregate amount of $672,000, of which
$485,500 was paid by Prime. The defendants, the trustee and Sears agreed to
release each other, and their respective affiliates, and the trustee agreed not
to appeal the Bankruptcy Court's dismissal of the tax-related claims. In
connection with the Settlement, the Adversary Proceeding was terminated.
In anticipation of the Settlement, the Company's previously recorded loss
on disposal of White Metal was reduced in 1999 resulting in income from
discontinued operations of $3,270,000. Likewise, imputed interest will no longer
be recorded on the outstanding balance of this reserve.
Other
Subsequent to the June 1998 sale of Prime's assets and business, the
Company made certain short-term investments in order to enhance stockholder
value while efforts to acquire an operating company continue. The Company did
not register as an investment company, initially relying on (and in compliance
with) the exemption provided by Rule 3a-2, promulgated under the Investment
Company Act of 1940, as amended (the "'40 Act"). The Company continues to
believe that it is not an investment company for the following reasons: (i) the
Company has a bona fide intent to be engaged in a business other than that of
investing, reinvesting, owning, holding or trading in securities as soon as it
is reasonably possible; (ii) the Company made short-term investments solely to
preserve the value of its assets and enhance stockholder value while the Company
engages in efforts to invest its assets in a non-investment company business;
(iii) the Company does not in any way hold itself out to be engaged, nor does it
propose to be engaged, primarily in the business of investing, reinvesting or
trading in securities; (iv) the Company's failure to consummate the acquisition
of a non-investment company business has been due to factors beyond the
Company's control, principally the lack of candidates with which to consummate
an acquisition transaction on terms acceptable to the Company and in the best
interests of its stockholders; and (v) the Company's officers and employees
continue in good faith their efforts to identify a suitable acquisition on
acceptable terms, and thereby to engage in and operate a non-investment
business. Notwithstanding these facts, if the Company is deemed to be an
investment company required to register under the '40 Act, its structure and
operations would be subject to substantial changes from its current structure
and operations. Moreover, the Company's ability to acquire a business and to
avoid '40 Act regulation could be affected.
Accordingly, the Company has made application to the Securities and
Exchange Commission for an order pursuant to Section 3(b)(2) of the '40 Act
finding and declaring that the Company is primarily engaged in a business or
businesses other than that of investing, reinvesting, owning, holding or trading
in securities either directly, through majority-owned subsidiaries, or through
controlled companies conducting similar types of businesses and, therefore, is
not an investment company within the meaning of the Act; or, alternatively, for
an order pursuant to Section 6(c) of the Act exempting the Company from all of
the provisions of the Act and any rule or regulation thereunder.
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 "Year 2000" issue referred to the risk of disruptions of operations
caused by the failure of computer- controlled systems, including systems used by
third parties, to properly recognize date sensitive information when the year
changed from 1999 to 2000.
(11)
<PAGE>
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.
The Company has not experienced any significant business disruptions due
to year 2000 issues causing processing errors in its systems, or a third party's
systems, including the period of operation after January 1, 2000.
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. These factors also include
general economic conditions, as well as the possibility that the Company may, in
the future, be deemed to be an "investment company" within the meaning of the
Investment Company Act of 1940.
Item 7a. QUANTITIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to market risk in the normal course of its
investing activities. The Company does not have significant exposure to
fluctuations in interest rates because it has only a modest amount of temporary
investments in money market funds and no debt. The Company does not undertake
any specific actions to cover its exposure to interest rate risk.
The Company is also exposed to changes in the value of its investment in
securities resulting from changes in the operating results of the companies
issuing these equity securities, as well as other conditions which impact the
fair value of such securities, such as general economic conditions and interest
rates. The impact of changes in interest rates and other conditions on the value
of such securities cannot currently be determined.
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.
(12)
<PAGE>
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
17, 2000.
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
None.
(13)
<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, 2000 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, 2000 By:/s/Leigh J. Abrams Director, President and
----------------------------- Chief Executive Officer
(Leigh J. Abrams)
March 24, 2000 By:/s/Harvey J. Kaplan Secretary and Treasurer
-----------------------------
(Harvey J. Kaplan)
March 24, 2000 By:/s/Fredric M. Zinn Chief Financial Officer
-----------------------------
(Fredric M. Zinn)
March 24, 2000 By:/s/John F. Cupak Controller
-----------------------------
(John F. Cupak)
March 24, 2000 By:/s/Edward W. Rose, III Director
-----------------------------
(Edward W. Rose, III)
March 24, 2000 By:/s/ James F. Gero Director
-----------------------------
(James F. Gero)
March 24, 2000 By:/s/Marshall B. Payne Director
-----------------------------
(Marshall B. Payne)
(14)
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements
Independent Auditors' Report
Consolidated statements of operations for the years ended December
31, 1999, 1998 and 1997
Consolidated balance sheets at December 31, 1999 and 1998
Consolidated statements of cash flows for the years ended December
31, 1999, 1998 and 1997
Consolidated statements of stockholders' equity for the years ended
December 31, 1999, 1998 and 1997
Notes to consolidated financial statements
Consolidated Financial Statement Schedules for the years ended December 31,
1999, 1998 and 1997
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.
(15)
<PAGE>
Independent Auditors' Report
The Board of Directors
LBP, Inc.:
We have audited the consolidated balance sheets of LBP, Inc. and subsidiaries as
of December 31, 1999 and 1998, 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, 1999. In connection with our audits of the
consolidated financial statements, we also have audited the financial statement
schedule as listed in the accompanying index. These consolidated financial
statements and the financial statement schedule are 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, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999, 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.
/s/ KPMG LLP
Stamford, Connecticut
March 13, 2000
(16)
<PAGE>
LBP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Continuing Operations:
Investment income $ 1,861 $ 1,400 $ --
General and administrative expenses 368 573 507
-------- -------- --------
Operating income (loss) 1,493 827 (507)
Imputed interest expense 156 156 156
-------- -------- --------
Income (loss) from continuing
operations before income taxes 1,337 671 (663)
Provision for income taxes (Note 5) 518 295 --
-------- -------- --------
Income (loss) from continuing
operations 819 376 (663)
-------- -------- --------
Discontinued Operations (Note 1):
Income from operations, before income taxes -- 1,736 942
Provision for income taxes (Note 5) -- -- --
-------- -------- --------
Income from operations -- 1,736 942
-------- -------- --------
Gain on disposal of assets before income taxes (Note 1) 137 17,614 --
Adjustment to the 1990 loss on disposal of White Metal
Rolling and Stamping Corp. (Note 4) 3,270 -- --
Benefit (provision) for income taxes (Note 5) 107 (4,996) --
-------- -------- --------
Gain on disposal of assets 3,514 12,618 --
-------- -------- --------
Income from discontinued operations 3,514 14,354 942
-------- -------- --------
Net income $ 4,333 $ 14,730 $ 279
======== ======== ========
Net income (loss) per common share:
Basic:
Continuing operations $ .17 $ .08 $ (.14)
Discontinued operations (Note 1) .71 2.96 .20
-------- -------- --------
Net income $ .88 $ 3.04 $ .06
======== ======== ========
Diluted:
Continuing operations $ .17 $ .08 $ (.14)
Discontinued operations (Note 1) .71 2.93 .20
-------- -------- --------
Net income $ .88 $ 3.01 $ .06
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
(17)
<PAGE>
LBP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------------
1999 1998
- --------------------------------------------------------------------------------------------------------------------------
(In thousands, except shares and per share amounts)
<S> <C> <C>
ASSETS
Current assets
Cash and equivalents (Note 1) $ 7,326 $ 12,981
Investment in securities (Note 2) 20,525 20,053
Prepaid expenses and other current assets 1,034 83
Discontinued operations - Prime Acquisition Corp. (Note 1) 221 --
--------- --------
Total assets $ 29,106 $ 33,117
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable, accrued expenses and other current liabilities $ 153 $ 709
Discontinued operations - Prime Acquisition Corp., net (Notes 1 and 5) -- 5,034
Discontinued operations - White Metal Rolling and Stamping, Corp., net (Note 4) 895 4,009
--------- --------
Total liabilities 1,048 9,752
--------- --------
Commitments and Contingencies (Notes 1 and 4)
Stockholders' equity (Note 6)
Common stock, par value $.01 per share: authorized 20,000,000 shares;
issued 5,026,390 shares in 1999, and 4,867,390 shares in 1998 50 48
Paid-in capital 20,727 20,369
Retained earnings 7,545 3,212
--------- --------
28,322 23,629
Treasury stock at cost -- 89,000 shares (264) (264)
--------- ---------
Total stockholders' equity 28,058 23,365
--------- --------
Total liabilities and stockholders' equity $ 29,106 $ 33,117
========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
(18)
<PAGE>
LBP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Income (loss) from continuing operations $ 819 $ 376 $ (663)
Adjustments to reconcile income (loss) from continuing operations
to cash flows from operating activities:
Deferred taxes (186) (64) --
Mark to market investment in trading securities 731 -- --
Gain on sale of investments -- (463) --
Imputed interest 156 156 156
Changes in prepaid expenses and other assets (765) -- (19)
Changes in accounts payable, accrued expenses and other
current liabilities (557) 520 126
-------- --------- --------
Net cash flows provided by (used for) operating activities
of continuing operations 198 525 (400)
-------- --------- --------
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 3,514 14,354 942
Paydown of debt with proceeds of sale -- (10,018) --
Change in unliquidated net liabilities and assets (8,524) (11,404) (590)
-------- --------- --------
Net cash (used for) provided by discontinued operations (5,010) 32,276 352
-------- --------- --------
Cash flows from investing activities:
Investment in securities (1,203) (31,616) --
Sales of trading securities 12,026 --
-------- --------- --------
Net cash flows used for investing activities (1,203) (19,590) --
-------- --------- --------
Cash flows from financing activities:
Purchase of treasury stock -- (264)
Employee purchases of common stock 360 14 43
-------- --------- --------
Net cash flows provided by (used for) financing activities 360 (250) 43
-------- --------- --------
Net (decrease) increase in cash (5,655) 12,961 (5)
Cash and equivalents at beginning of period 12,981 20 25
-------- --------- --------
Cash and equivalents at end of period $ 7,326 $ 12,981 $ 20
======== ========= ========
Supplemental disclosure of cash flows information:
Cash paid during the period for:
Interest on debt - discontinued operations $ -- $ 196 $ 1,010
Income taxes $ 6,178 $ 11 $ --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
(19)
<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, 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
Net income 4,333 4,333
Exercise of employee stock options
159,000 shares 2 358 360
-------- -------- -------- -------- --------
Balance - December 31, 1999 $ 50 $ (264) $ 20,727 $ 7,545 $ 28,058
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
(20)
<PAGE>
LBP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DISCONTINUED OPERATIONS - PRIME ACQUISITION CORP.
In connection with the 1998 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 had 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, 1999 was approximately $5.3 million, which is invested in liquid
U.S. Treasury money market accounts, and included in cash and equivalents in the
Consolidated Balance Sheet. 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. 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 were originally
convertible into Common Stock of Impac (symbol "IMH") at $4.95 per share, or an
aggregate of 4,040,000 shares. The terms of the acquisition provided for a
downward adjustment of the conversion price if, among other things, certain
earning levels were not attained by Impac through June 30, 1999. Subsequently,
the conversion rate was adjusted to $4.72 per share, or an aggregate
(21)
<PAGE>
of 4,237,288 shares of common stock of IMH, representing approximately 15
percent of IMH common stock. 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. The Company believes that the
book value of this investment does not exceed fair value at December 31, 1999.
At December 31, 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
$368,000. The write-down of such investment has been offset against investment
income in the Consolidated Statements of Operations. The original cost of these
shares, considered to be trading securities, was $1.1 million. These shares were
sold in February 2000 for $590,000.
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.
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.
Cash and Equivalents
The company considers all highly liquid investments with a maturity of
three months or less at the time of purchase to be cash equivalents.
Investments, which consist of government-backed money market funds are recorded
at cost which approximates market value.
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.
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.
Reclassifications
Certain reclassifications have been made to the 1998 Consolidated
Financial Statements in order to conform to the 1999 presentation.
(22)
<PAGE>
(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.
On September 30, 1994, White Metal filed a voluntary petition seeking
liquidation under the provisions of chapter 7 of the United States Bankruptcy
Code. The liabilities of White Metal were all product liability claims, and
related costs, resulting from its discontinued ladder manufacturing business.
While the Company was named as a defendant in certain actions commenced in
connection with these claims, the Company has not been held responsible, and the
Company disclaims 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, will not result in liability. However, the
Company intends to vigorously oppose and defend any White Metal claim asserted
against it.
On May 7, 1996, the Company and its subsidiary, Prime, were served with a
summons and complaint in an adversary proceeding commenced by the chapter 7
trustee of White Metal (the "Adversary Proceeding"). The Company's former parent
company, Drew Industries Incorporated ("Drew") and its subsidiary Kinro, Inc.
("Kinro") were also served in the Adversary Proceeding. The complaint 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. Other than the dismissed tax-related claims, the trustee alleged that
White Metal made certain payments to the defendants which were preferential and
recoverable by White Metal, in the approximate amount of $3.1 million, of which
$2.2 million was sought from the Company and Prime. Pursuant to a Consent Order
Settling and Compromising Claims, dated January 27, 2000 (the "Settlement"), by
and among the trustee, on behalf of White Metal, the Company, Prime, Kinro and
Sears Roebuck & Co., Inc. ("Sears"), White Metal's largest creditor, the parties
agreed to settle the Adversary Proceeding in consideration for payment by the
defendants to White Metal's estate in the aggregate amount of $672,000, of which
$485,500 was paid by Prime. The defendants, the trustee and Sears agreed to
release each other, and their respective affiliates, and the trustee agreed not
to appeal the Bankruptcy Court's dismissal of the tax-related claims. In
connection with the Settlement, the Adversary Proceeding was terminated.
In anticipation of the Settlement, the Company's previously recorded loss
on disposal of White Metal was reduced in 1999, resulting in income from
discontinued operations of $3,270,000. Likewise, imputed interest will no longer
be recorded on the outstanding balance of this reserve.
(5) INCOME TAXES
Income tax provision (benefit) in the Consolidated Statements of
Operations is as follows (in thousands):
Year Ended December 31,
-----------------------------------
1999 1998 1997
- ----------------------------------------------------------------------------
Continuing operations
Current:
Federal $ 704 $ 294 $ --
State -- 65 --
Deferred:
Federal (186) (64) --
State -- -- --
------- -------- ------
$ 518 $ 295 $ --
======= ======== ======
Discontinued operations $ (107) $ 4,996 $ --
======= ======== ======
(23)
<PAGE>
The provision for income taxes for continuing operations 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,
-----------------------------------------
1999 1998 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Continuing operations:
Income tax (benefit) at Federal statutory rate $ 455 $ 228 $ (225)
State income taxes, net of Federal income tax benefit -- 43 --
Change in valuation allowance -- -- 172
Non-deductible expenses 53 53 53
Other 10 (29) --
--------- -------- ------
Provision for income taxes $ 518 $ 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,
1999 and 1998 are as follows (in thousands):
1999 1998
- --------------------------------------------------------------------
Deferred tax assets:
Accruals $ -- $ 64
Allowance for trading securities 252 --
------ -------
Net deferred tax asset $ 252 $ 64
====== =======
At December 31, 1999 and 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 on income from operating activities, therefore no valuation
allowance is required.
Net deferred tax assets of $252,000 and $64,000 are included in prepaid
expenses and other current assets in the Consolidated Balance Sheet at December
31, 1999 and 1998, respectively.
At December 31, 1999, the Company's receivable for income taxes was
$343,000, of which $130,000 is included in discontinued operations and $213,000
is included in prepaid expenses and other current assets 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 4,937,390 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
("the Committee") has been authorized to grant options to purchase up to an
aggregate of 300,000 shares of LBP's Common Stock. The
(24)
<PAGE>
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.
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, 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
Granted 7,500 $ 3.64
Exercised (159,000) $ 1.66-$2.26
Canceled (383) $ 2.31
---------
Outstanding at December 31, 1999 59,000 $ 1.55-$3.64
=========
Exercisable at December 31, 1999 54,700 $ 1.55-$3.64
=========
Options available for grant at December 31, 1999 81,000
=========
</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 6.0%, 5.5% and
5.5%; assumed expected volatilities of 28.0%, 45.2% and 76.9%; and expected
lives of 5, 5, and 5 years; for 1999, 1998 and 1997, respectively. The number of
shares available for granting options were 81,000 shares, 88,117 shares and
91,617 shares at December 31, 1999, 1998 and 1997, respectively.
(25)
<PAGE>
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,
-----------------------------------------
1999 1998 1997
---- ---- ----
Income (loss) from continuing
operations (in thousands):
As reported $ 819 $ 376 $ (663)
Pro forma $ 806 $ 361 $ (677)
Earnings (loss) per share from
continuing operations (basic)
As reported $ .17 $ .08 $ (.14)
Pro forma $ .16 $ .07 $ (.14)
Earnings (loss) per share from
continuing operations (diluted)
As reported $ .17 $ .08 $ (.14)
Pro forma $ .16 $ .07 $ (.14)
The following table summarizes information about stock options outstanding
at December 31, 1999:
Average
Option Remaining Option
Exercise Shares Life Shares
Price Outstanding (Years) Exercisable
----- ----------- ------- -----------
$ 1.55 21,500 2.0 17,200
$ 2.05 7,500 3.0 7,500
$ 2.21 7,500 1.0 7,500
$ 3.18 7,500 4.0 7,500
$ 3.21 7,500 2.0 7,500
$ 3.64 7,500 5.0 7,500
----------- ----------
59,000 54,700
=========== ==========
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, 1999, there were 296,003 shares
available for future purchases under the Plan.
(26)
<PAGE>
Common Stock and Shares Outstanding
The following reconciliation details the denominator used in the
computation of basic and diluted earnings per share:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Weighted average shares outstanding for basic
earnings per share 4,921,313 4,843,010 4,850,905
Common stock equivalents pertaining to stock
options 17,992 51,876 13,588
----------- ----------- -----------
Total for diluted shares 4,939,305 4,894,886 4,864,493
=========== =========== ===========
</TABLE>
(7) SHARED SERVICES AGREEMENT
Pursuant to a Shares Services Agreement with Drew, 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, 1999 $ 144 $ 144
Year ended December 31, 1998 $ 512 $ 146 $ 366
Year ended December 31, 1997 $ 526 $ 112 $ 414
(27)
<PAGE>
(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, 1999
Income from continuing operations $ 328 $ 133 $ 34 $ 324 $ 819
Income from discontinued operations -- -- 165 3,349 3,514
Net income 328 133 199 3,673 4,333
Income per basic common share:
Continuing operations $ .07 $ .03 $ .01 $ .07 $ .17
Discontinued operations -- -- .03 .67 .71
Net income per share .07 .03 .04 .74 .88
Income per diluted common share:
Continuing operations $ .07 $ .03 $ .01 $ .07 $ .17
Discontinued operations -- -- .03 .67 .71
Net income per share .07 .03 .04 .74 .88
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
</TABLE>
(28)
<PAGE>
<TABLE>
<CAPTION>
LBP, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
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, 1999:
Reserve for liquidation losses - $(3,270)(a)
disposal of businesses $ 4,009 156 $ 895
YEAR ENDED DECEMBER 31, 1998:
Allowance for doubtful accounts
receivable, trade $ 627 $ 127(b) $ 265(c)
489(d) $ --
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(b) $ 136(c) $ 627
Reserve for liquidation losses -
disposal of businesses 3,697 156 3,853
</TABLE>
(a) Represents reduction in reserve for losses on disposal of White Metal
Rolling and Stamping Corp., as described in Note 4 of Notes to
Consolidated Financial Statements.
(b) Charged to discontinued operation
(c) Represents accounts written-off, net of recoveries.
(d) 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 21 - Active Subsidiaries of Registrant
State of
Name Incorporation
---- -------------
Prime Acquisition Corp. Delaware
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 report dated March 13,
2000 relating to the consolidated balance sheets of LBP, Inc. and subsidiaries
as of December 31, 1999 and 1998, 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, 1999, and the related financial statement
schedule, which report appears in the December 31, 1999 annual report on Form
10-K of LBP, Inc.
/s/ KPMG LLP
Stamford, Connecticut
March 24, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> DEC-31-1999
<CASH> 7,326
<SECURITIES> 20,525
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 29,106
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 29,106
<CURRENT-LIABILITIES> 1,048
<BONDS> 0
0
0
<COMMON> 50
<OTHER-SE> 28,008
<TOTAL-LIABILITY-AND-EQUITY> 29,106
<SALES> 0
<TOTAL-REVENUES> 1,861
<CGS> 0
<TOTAL-COSTS> 368
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 156
<INCOME-PRETAX> 1,337
<INCOME-TAX> 518
<INCOME-CONTINUING> 819
<DISCONTINUED> 3,514
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,333
<EPS-BASIC> .88
<EPS-DILUTED> .88
</TABLE>
