<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1998 Commission file number 333-46607
WERNER HOLDING CO. (DE), INC.
-----------------------------
(Exact name of Registrant as specified in its charter)
Delaware 25-1581345
- ------------------------------------ -----------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1105 North Market Street, Suite 1300
Wilmington, Delaware 19899
- ----------------------------------------- ------------------------------------
(Address of principal executive offices) (zip code)
(302) 478-5732
- ---------------------------------------------------
Registrant's telephone number, including area code:
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
As of September 30, 1998 there were 75,179 shares of common stock outstanding.
<PAGE> 2
INDEX
Werner Holding Co. (DE), Inc.
Form 10-Q
Period Ended September 30, 1998
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION
- -----------------------------
<S> <C> <C>
Item 1. Financial Statements of Werner Holding Co. (PA), Inc. (Unaudited)
Condensed Consolidated Balance Sheets--September 30, 1998 and
December 31, 1997................................................................... 1
Condensed Consolidated Statements of Operations--Three and Nine
Months Ended September 30, 1998 and 1997............................................ 2
Condensed Consolidated Statements of Changes in Shareholders' Equity
(Deficit)-Three and Nine Months Ended September 30, 1998 and 1997................... 3
Condensed Consolidated Statements of Cash Flows--Nine Months Ended
September 30, 1998 and 1997......................................................... 5
Notes to Condensed Consolidated Financial Statements................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations of Werner Holding Co. (PA), Inc. ............................. 21
Item 3. Quantitative and Qualitative Disclosures about Market Risk.............................. 27
PART II OTHER INFORMATION
- --------------------------
Item 1. Legal Proceedings....................................................................... 27
Item 6. Exhibits and Reports on Form 8-K........................................................ 27
SIGNATURE........................................................................................ 28
</TABLE>
The financial statements included herein are that of Werner Holding Co.(PA),
Inc., ("Holding"). The registrant is Werner Holding Co. (DE), Inc., (the
"Issuer") which is a wholly-owned subsidiary of Holding. Holding has no
substantial operations or assets other than its investment in the Issuer. The
consolidated financial condition and results of operations of Holding are
substantially the same as those of the Issuer. As used herein and except as the
context otherwise may require, the "Company" or "Werner" means, collectively,
Holding, the Issuer and all of their consolidated subsidiaries.
<PAGE> 3
PART I-FINANCIAL INFORMATION
ITEM 1.
Werner Holding Co. (PA), Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Dollars in Thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
---------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 11,748 $ 3,107
Accounts receivable - 63,271
Undivided interest in accounts receivable 43,976 -
Allowance for doubtful accounts (1,673) (1,250)
Refundable income taxes 5,114 820
Inventories 51,693 44,670
Deferred income taxes 4,451 4,451
Other 3,382 7,828
---------------------------------
Total current assets 118,691 122,897
Property, plant and equipment, net 63,415 65,829
Other assets:
Deferred income taxes 5,745 11,586
Deferred financing fees, net 14,075 15,098
Insurance fund investments - 58,579
Other 19,905 14,196
---------------------------------
TOTAL ASSETS $ 221,831 $ 288,185
=================================
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Short-term bank debt $ - $ 41,500
Accounts payable 26,737 24,904
Accrued liabilities 36,004 24,896
Current maturities of long-term debt 1,450 1,450
---------------------------------
Total current liabilities 64,191 92,750
Long-term obligations:
Long-term debt 278,746 279,541
Reserve for product liability and workers' compensation claims 10,518 49,644
Other 23,646 19,922
---------------------------------
Total liabilities 377,101 441,857
Shareholders' deficit:
Common stock 1 1
Additional paid-in-capital 198,847 198,847
Retained deficit (351,855) (351,753)
Accumulated other non-owner changes in equity (2,263) (767)
---------------------------------
Total shareholders' deficit (155,270) (153,672)
---------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 221,831 $ 288,185
=================================
</TABLE>
See notes to unaudited condensed consolidated financial statements.
1
<PAGE> 4
Werner Holding Co. (PA), Inc. and Subsidiaries
Condensed Consolidated Statements of Operations--(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 112,534 $ 110,156 $ 326,199 $ 315,206
Cost of sales 79,273 81,563 237,091 226,871
----------------------------------------------------------------------------
Gross profit 33,261 28,593 89,108 88,335
General and administrative expense 8,878 8,215 26,787 24,129
Selling and distribution expense 13,378 12,084 39,257 36,605
Non-cash compensation charge - 4,182 - 4,182
----------------------------------------------------------------------------
Operating profit 11,005 4,112 23,064 23,419
Other income (expense), net 392 (6,500) 625 (14,341)
----------------------------------------------------------------------------
Income (loss) before interest and taxes (benefit) 11,397 (2,388) 23,689 9,078
Interest expense 8,328 1,397 23,802 4,416
----------------------------------------------------------------------------
Income (loss) before income taxes (benefit) 3,069 (3,785) (113) 4,662
Income tax (benefit) 1,901 (213) (11) 3,166
----------------------------------------------------------------------------
NET INCOME (LOSS) $ 1,168 $ (3,572) $ (102) $ 1,496
============================================================================
</TABLE>
See notes to unaudited condensed consolidated financial statements.
2
<PAGE> 5
Werner Holding Co. (PA), Inc. and Subsidiaries
Condensed Consolidated Statements of Changes
in Shareholders' Equity (Deficit) (Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Pre- Accumulated
Recapitalization Post Additional Retained Other Non- Total
Common Recapitalization Paid-In Earnings Owner Equity Shareholders'
Stock Common Stock Capital (Deficit) Changes Other Equity (Deficit)
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1998 $ - $ 1 $ 198,847 $ (351,753) $ (767) $ - $ (153,672)
Non-owner equity changes:
Net loss (2,844) (2,844)
Other non-owner equity changes:
Unrealized gains on
investments (net of
deferred taxes of $42) 78 78
Add: reclassification
adjustment for losses
realized included in net
loss (net of benefit) 218 218
----------------
Total non-owner equity changes (2,548)
--------------------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 1998 $ - $ 1 $ 198,847 $ (354,597) $ (471) $ - $ (156,220)
Non-owner equity changes:
Net income 1,574 1,574
Other non-owner equity changes:
Unrealized losses on
investments (net of
deferred benefit of $1,270) (2,359) (2,359)
Add: reclassification
adjustment for losses
realized included in net
income (net of tax) 610 610
----------------
Total non-owner equity changes (175)
--------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1998 $ - $ 1 $ 198,847 $ (353,023) $ (2,220) $ - $ (156,395)
Non-owner equity changes:
Net income 1,168 1,168
Other non-owner equity changes:
Unrealized losses on
investments (net of
deferred benefit of $23) (43) (43)
----------------
Total non-owner equity changes 1,125
--------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1998 $ - $ 1 $ 198,847 $ (351,855) $ (2,263) $ - $ (155,270)
==================================================================================================
</TABLE>
See notes to unaudited condensed consolidated financial statements.
3
<PAGE> 6
Werner Holding Co. (PA), Inc. and Subsidiaries
Condensed Consolidated Statements of Changes
in Shareholders' Equity (Deficit) (Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Pre- Accumulated
Recapitalization Post Additional Retained Other Non- Total
Common Recapitalization Paid-In Earnings Owner Equity Shareholders'
Stock Common Stock Capital (Deficit) Changes Other Equity (Deficit)
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 $ 161 $ - $ 1,316 $ 70,402 $ 3,532 $ (332) $ 75,079
Non-owner equity changes:
Net loss (2,463) (2,463)
Other non-owner equity changes:
Unrealized loss on
investments (net of
deferred benefit of $6,184) (11,484) (11,484)
Add: reclassification
adjustment for losses
realized included in net
loss (net of benefit) 5,769 5,769
----------------
Total non-owner equity changes (8,178)
Dividends declared (644) (644)
Repurchase of common stock (732) (732)
Amortization of deferred
compensation 32 32
-------------------------------------------------------------------------------------------------
Balance at March 31, 1997 $ 161 $ - $ 1,316 $ 66,563 $ (2,183) $ (300) $ 65,557
Non-owner equity changes:
Net income 7,531 7,531
Other non-owner equity changes:
Unrealized loss on
investments (net of
deferred benefit of $812) (1,508) (1,508)
Add: reclassification
adjustment for gains
realized included in net
income (net of tax) (206) (206)
----------------
Total non-owner equity changes 5,817
Dividends declared (523) (523)
Amortization of deferred
compensation 31 31
-------------------------------------------------------------------------------------------------
Balance at June 30, 1997 $ 161 $ - $ 1,316 $ 73,571 $ (3,897) $ (269) $ 70,882
Non-owner equity changes:
Net loss (3,572) (3,572)
Other non-owner equity changes:
Unrealized gain on
investments (net of
deferred tax of $1,062) 1,973 1,973
Add: reclassification
adjustment for losses
realized included in net
income (net of tax) 4,474 4,474
----------------
Total non-owner equity changes 2,875
Non-cash compensation charge 4,165 17 4,182
Dividends declared (523) (523)
Amortization of deferred
compensation 31 31
=================================================================================================
Balance at September 30, 1997 $ 161 $ - $ 5,481 $ 69,476 $ 2,550 $ (221) $ 77,447
=================================================================================================
</TABLE>
See notes to unaudited condensed consolidated financial statements.
4
<PAGE> 7
Werner Holding Co. (PA), Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1998 1997
---------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss) income $ (102) $ 1,496
Reconciliation of net (loss) income to net cash provided by operating
activities:
Net gain on transfer of loss reserves and discontinuance of MIICA (4,506) -
Depreciation and amortization 16,207 8,276
Non-cash compensation charge - 4,165
Impairment of property, plant and equipment 711 -
Provision for product liability and workers' compensation claims 12,104 11,328
Payment of product liability and workers' compensation claims (3,746) (7,559)
Deferred income taxes 6,647 (416)
Realized net losses on disposition and impairment of investments 2,678 15,768
Net purchases of trading securities - (1,975)
Changes in operating assets and liabilities:
Accounts receivable 41,088 (19,081)
Undivided interest in accounts receivable (43,976) -
Refundable income taxes (4,294) (3,596)
Inventories (7,023) (379)
Accounts payable 1,833 4,505
Accrued liabilities 7,287 (2,685)
Other, (net) 1,465 (1,346)
----------------------------------
Net cash provided by operating activities 26,373 8,501
INVESTING ACTIVITIES
Capital expenditures (4,931) (8,535)
Securities available-for-sale:
Purchases of debt and equity securities (572) (99,766)
Sale of debt and equity securities - 56,063
Net sales of other investments 7,358 50,247
Other, (net) - (310)
----------------------------------
Net cash provided by (used in) investing activities 1,855 (2,301)
FINANCING ACTIVITIES
Borrowings under revolving credit facility - 2,200
Repayment of receivables facility (41,500) -
Net proceeds from sale of accounts receivable 23,000 -
Repayments of long-term debt (1,087) (6,571)
Repurchase of common stock - (730)
Dividends paid - (1,691)
----------------------------------
Net cash used in financing activities (19,587) (6,792)
----------------------------------
Net increase (decrease) in cash and cash equivalents 8,641 (592)
Cash and cash equivalents at beginning of period 3,107 986
----------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 11,748 $ 394
==================================
</TABLE>
See notes to unaudited condensed consolidated financial statements.
5
<PAGE> 8
Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollars in Thousands)
A. BASIS OF PRESENTATION AND RECAPITALIZATION
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Werner
Holding Co. (PA), Inc., ("Holding") include its accounts and the accounts of its
wholly-owned subsidiary, Werner Holding Co. (DE), Inc. ("Issuer") and its
wholly-owned subsidiaries. Holding has no substantial operations or assets,
other than its investment in the Issuer. The consolidated financial condition
and results of operations of Holding are substantially the same as those of the
Issuer. Intercompany accounts and transactions have been eliminated. The
unaudited condensed consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair financial presentation have been
included. Operating results for the three and nine month periods ended September
30, 1998 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1998. For further information, refer to the
consolidated financial statements and notes thereto included in the Company's
Registration Statement (File No. 333-46607) on Form S-4 as amended and filed
with the Securities and Exchange Commission dated May 14, 1998.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions in
certain circumstances that affect amounts reported in the consolidated financial
statements and notes. Actual results could differ from those estimates.
6
<PAGE> 9
Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
--Continued
(Dollars in Thousands)
A. BASIS OF PRESENTATION AND RECAPITALIZATION--CONTINUED
The Recapitalization
On October 8, 1997, the Company entered into a recapitalization agreement, which
was amended and restated on October 27, 1997 (the "Recapitalization Agreement"),
with certain affiliates of INVESTCORP S.A. ("Investcorp") and certain other
international investors organized by Investcorp (collectively the "Investors").
Pursuant to the Recapitalization Agreement, on November 24, 1997, the Company
(a) amended and restated its Articles of Incorporation pursuant to which the
Company's capital stock was reclassified, (b) redeemed for cash certain shares
of the reclassified stock totaling $330,700 and (c) sold to the Investors shares
of newly created Class C, D and E Common Stock of the Company totaling $122,700
(all of which actions together constituted the "Recapitalization"). Following
the Recapitalization, the Pre-Recapitalizaton shareholders continue to own
approximately 33% of the outstanding voting equity of the Company and the
Investors own approximately 67% of the outstanding voting equity of the Company.
Recapitalization Financing--The Recapitalization was funded by (a) $186,500 of
borrowings under a senior credit facility with a syndicate of banks which
included term loans, a revolving line of credit, and a facility providing for
borrowings collateralized by accounts receivable (collectively the "Senior
Credit Facility") (b) the issuance of $135,000 in principal amount of Senior
Subordinated Notes (the "Notes") and (c) proceeds from the sale of certain
shares of the Company's stock to the Investors.
Recapitalization Accounting--The transaction was accounted for as a
recapitalization and as such, the historical basis of the Company's assets and
liabilities was not affected. Recapitalization related costs were expensed and
reflected as a component of operating income in 1997.
7
<PAGE> 10
Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
--Continued
(Dollars in Thousands)
B. INVENTORIES
Components of inventories are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
---------------------------------------
<S> <C> <C>
Finished products $ 29,231 $ 26,512
Work-in-process 13,794 11,953
Raw materials and supplies 18,880 18,075
---------------------------------------
61,905 56,540
LIFO reserve (10,212) (11,870)
---------------------------------------
NET INVENTORIES $ 51,693 $ 44,670
=======================================
</TABLE>
C. COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(SFAS No. 130), which requires that an enterprise classify items of other
comprehensive income or "non-owner equity changes" as referred to by the
Company, by their nature in a financial statement and display the accumulated
non-owner equity changes separately from retained earnings and additional
paid-in capital in the equity section of the balance sheet. The Company adopted
SFAS No. 130 on January 1, 1998. Certain reclassifications have been made to the
March 31, 1997, June 30, 1997, September 30, 1997 and December 31, 1997
financial statements to conform to the requirements of this statement.
D. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information". This statement establishes standards for
reporting financial and descriptive information about operating segments. Under
SFAS No. 131, information pertaining to the Company's operating segments will be
reported on the basis that is used internally for evaluating segment performance
and making resource allocation determinations. Management is currently studying
the potential effects of adoption of this statement, which is required for the
Company's 1998 annual financial statements.
8
<PAGE> 11
Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
--Continued
(Dollars in Thousands)
D. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS--CONTINUED
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits". This statement does not change the
recognition or measurement of pension and postretirement benefit plans, but
standardizes disclosure requirements for pensions and other postretirement
benefits, eliminates certain disclosures and requires certain additional
information. SFAS No. 132 is effective for the Company's 1998 annual financial
statements.
E. PRODUCT LIABILITY AND WORKERS COMPENSATION CLAIMS AND INSURANCE FUND
INVESTMENTS
In the first quarter of 1998, the Company obtained commercial insurance coverage
for its product liability and workers' compensation claims as opposed to
providing insurance for such claims through Manufacturers Indemnity and
Insurance Company of America ("MIICA"), the Issuer's captive insurance
subsidiary. On March 31, 1998 the Company entered into an arrangement with a
commercial insurance provider under which the commercial insurance provider
agreed to assume losses which occurred on or before March 31, 1998 and
extinguished the Company's liability in regard to such losses (the "MIICA
Insurance Transfer"). The Company paid approximately $41,500 for this insurance
coverage from the proceeds of the liquidation of certain of MIICA's insurance
fund investments. Immediately prior to the MIICA Insurance Transfer, the Company
had a reserve for such losses of approximately $47,500. As a result the Company
recognized a gain of approximately $6,000, which is included in other income
(expense), net. The Company has also obtained third party insurance coverage,
subject to certain deductible provisions, for product liability and workers'
compensation claims which occur on or after April 1, 1998.
Further, the Company made a decision to discontinue the operations of MIICA as
of March 31, 1998 and recorded a charge of $1,500 at that time, which is
included in other income (expense), net. The charge consists primarily of legal
fees, employee separation and severance costs, the write-off of certain fixed
assets, and other related expenses. MIICA was dissolved in the third quarter of
1998.
9
<PAGE> 12
Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
--Continued
(Dollars in Thousands)
E. PRODUCT LIABILITY AND WORKERS COMPENSATION CLAIMS AND INSURANCE FUND
INVESTMENTS--CONTINUED
In 1998 and 1997, MIICA recorded pre-tax losses of $4,661 and $8,340,
respectively, which is included in other income (expense), net relating to
available-for-sale equity securities deemed by management to be
other-than-temporarily impaired.
F. SALE OF ACCOUNTS RECEIVABLE
In May, 1998, the Company entered into a five-year Receivables Purchase
Agreement (the "Receivables Purchase Agreement") with a financial institution
and its affiliate to provide additional financing capacity (maximum availability
$50,000) and repay the outstanding amounts borrowed under the receivables
portion of the Senior Credit Facility. Under the Receivables Purchase Agreement,
the Company established a consolidated wholly-owned subsidiary, Werner Funding
Corporation (Funding), which is a special purpose bankruptcy-remote entity that
acquires, on a daily basis, a variable percentage interest of certain eligible
trade receivables generated by the Company. The purchases by Funding are
financed through the sale of an undivided percentage ownership interest in such
receivables to the affiliate of the financial institution. As of September 30,
1998, the Company had transferred $66,976 of accounts receivable in exchange for
$23,000 in cash and an undivided interest in the accounts receivable of $43,976.
In accordance with the provisions of FASB Statement No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities",
the transactions have been recorded as a sale of receivables to a qualified
special purpose entity. The ongoing cost associated with the Receivables
Purchase Agreement, which represents a return to investors in the purchased
interests, as well as the cost of implementation, is reported in the
accompanying consolidated statements of operations in "Other income (expense),
net". The interest rate on the purchased interests at September 30, 1998 was
5.53%.
The accompanying condensed consolidated balance sheet reflects an allowance for
doubtful accounts at September 30, 1998 that relates, in large part, to accounts
receivable representing the undivided interest in the assets of the financial
institution affiliate.
10
<PAGE> 13
Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
--Continued
(Dollars in Thousands)
G. IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT
A non-cash pre-tax charge of $500 for impairment of property, plant and
equipment was recorded in the quarter ended June 30, 1998. This charge consists
principally of the write-off, and the estimated costs to dispose of, an
extrusion paint and thermal production line which has been discontinued.
H. INCOME TAXES
In accordance with Accounting Principles Board Opinion 28, at the end of each
interim period the Company shall make its best estimate of the annual effective
tax rate expected to be applicable for the full fiscal year. The rate so
determined shall be used in providing for income taxes on a current year-to-date
basis. The effective tax rate shall include the effect of any valuation
allowance expected to be necessary at the end of the year for deferred tax
assets related to originating deductible temporary differences and loss
carryforwards during the year. Accordingly, the Company revised its annual
effective tax rate for the nine months ended September 30, 1998 which includes
an adjustment for the changes in the Company's estimated tax rate on a
year-to-date basis.
The difference between the statutory and the annual effective tax rates at
September 30, 1998 is primarily from a valuation allowance for capital losses.
The difference between the customary relationship of pretax income and income
tax expense for the three and nine months ended September 30, 1997 was due to
the non-cash compensation charge which was not deductible for income tax
purposes.
I. SUPPLEMENTAL GUARANTOR INFORMATION
The Company refinanced substantially all of its outstanding debt through
borrowings under the Senior Credit Facility and the Notes. Holding has provided
a full, unconditional, joint and several guaranty of the Issuer's obligations
under the Senior Credit Facility and the Notes. In addition, the Issuer's
wholly-owned subsidiaries, except for MIICA which was dissolved in the third
quarter of 1998 and Werner Funding Corporation, (collectively referred to as the
"Guarantor Subsidiaries") have provided full, unconditional, joint and several
guarantees of the Senior Credit Facility and the Notes.
11
<PAGE> 14
Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
--Continued
(Dollars in Thousands)
I. SUPPLEMENTAL GUARANTOR INFORMATION--CONTINUED
Following is condensed consolidated information for Holding (the "Parent
Company"), the Issuer, the Guarantor Subsidiaries, and MIICA and Werner Funding
Corporation (each a "Non-Guarantor Subsidiary" and collectively the
"Non-Guarantor Subsidiaries"). Separate financial statements of the Guarantor
Subsidiaries are not presented because management has determined that they would
not provide additional information that is material to investors. Therefore,
each of the Guarantor Subsidiaries are combined in the presentation below.
Further, separate financial statements of the Issuer have not been provided as
management has determined that they would not provide information that is
material to investors, as the Issuer has no substantial operations or assets,
other than its investment in its subsidiaries.
Investments in subsidiaries are accounted for on the equity method of
accounting. Earnings of subsidiaries are, therefore, reflected in the respective
investment accounts of the Parent Company and the Issuer. The investment in
subsidiaries and intercompany balances and transactions have been eliminated.
12
<PAGE> 15
Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
--Continued
(Dollars in Thousands)
I. SUPPLEMENTAL GUARANTOR INFORMATION--CONTINUED
<TABLE>
<CAPTION>
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 1998
---------------------------------------------------------------------------------------
COMBINED
PARENT GUARANTOR NON-GUARANTOR
COMPANY ISSUER SUBSIDIARIES SUBSIDIARY (a) ELIMINATIONS CONSOLIDATED
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 5 $ 2,354 $ 9,387 $ 2 $ - $ 11,748
Accounts receivable -
Undivided interest in accounts receivable 43,976 43,976
Allowance for doubtful accounts (1,673) (1,673)
Refundable income taxes (5,504) 11,220 (602) 5,114
Inventories 51,693 51,693
Deferred income taxes 1,828 2,623 4,451
Other 69 3,313 3,382
---------------------------------------------------------------------------------------
Total current assets 5 (1,253) 76,563 43,376 118,691
Property, plant and equipment, net 2 63,413 63,415
Other assets:
Deferred income taxes 1,809 3,936 5,745
Deferred financing fees, net 14,075 14,075
Investment in subsidiaries (155,270) 107,892 47,378
Other 5,226 14,679 19,905
---------------------------------------------------------------------------------------
TOTAL ASSETS $ (155,265) $ 127,751 $ 158,591 $ 43,376 $47,378 $ 221,831
=======================================================================================
</TABLE>
(a) Includes the accounts of Werner Funding Corporation only as MIICA was
dissolved on July 8, 1998.
13
<PAGE> 16
Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
--Continued
(Dollars in Thousands)
I. SUPPLEMENTAL GUARANTOR INFORMATION--CONTINUED
<TABLE>
<CAPTION>
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 1998
--------------------------------------------------------------------------------------
COMBINED
PARENT GUARANTOR NON-GUARANTOR
COMPANY ISSUER SUBSIDIARIES SUBSIDIARY (a) ELIMINATIONS CONSOLIDATED
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Short-term bank debt $ - $ - $ - $ - $ - $ -
Accounts payable 26,737 26,737
Intercompany payable (receivable) 5 (5)
Accrued liabilities 7,825 28,140 39 36,004
Current maturities of long-term debt 1,450 1,450
--------------------------------------------------------------------------------------
Total current liabilities 5 9,275 54,872 39 64,191
Long-term obligations:
Intercompany payable (receivable) (37,159) 37,159
Long-term debt 273,746 5,000 278,746
Reserve for product liability and workers'
compensation claims 10,518 10,518
Other 23,646 23,646
--------------------------------------------------------------------------------------
Total liabilities 5 283,021 56,877 37,198 377,101
Shareholders' equity (deficit) (155,270) (155,270) 101,714 6,178 47,378 (155,270)
--------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT) $ (155,265) $ 127,751 $ 158,591 $ 43,376 $ 47,378 $221,831
======================================================================================
</TABLE>
(a) Includes the accounts of Werner Funding Corporation only as MIICA was
dissolved on July 8, 1998.
14
<PAGE> 17
Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
--Continued
(Dollars in Thousands)
I. SUPPLEMENTAL GUARANTOR INFORMATION--CONTINUED
<TABLE>
<CAPTION>
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1997
------------------------------------------------------------------------------------------
COMBINED
PARENT GUARANTOR NON-GUARANTOR
COMPANY ISSUER SUBSIDIARIES SUBSIDIARY (a) ELIMINATIONS CONSOLIDATED
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 17 $ 6 $ 3,084 $ - $ - $ 3,107
Accounts receivable 62,906 6,502 (6,137) 63,271
Allowance for doubtful accounts (1,250) (1,250)
Refundable income taxes 664 156 820
Inventories 44,670 44,670
Deferred income taxes 2,623 1,828 4,451
Other 7,528 300 7,828
------------------------------------------------------------------------------------------
Total current assets 17 6 120,225 8,786 (6,137) 122,897
Property, plant and equipment, net 65,783 46 65,829
Investments and other assets:
Deferred income taxes 6,445 5,141 11,586
Deferred financing fees, net 15,098 15,098
Insurance fund investments 58,579 58,579
Investment in subsidiaries (153,689) 148,698 4,991
Other 13,447 749 14,196
------------------------------------------------------------------------------------------
TOTAL ASSETS $ (153,672) $ 163,802 $ 205,900 $ 73,301 $ (1,146) $ 288,185
==========================================================================================
</TABLE>
(a) Includes the accounts of MIICA only.
15
<PAGE> 18
Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
--Continued
(Dollars in Thousands)
I. SUPPLEMENTAL GUARANTOR INFORMATION--CONTINUED
<TABLE>
<CAPTION>
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1997
------------------------------------------------------------------------------------
COMBINED
PARENT GUARANTOR NON-GUARANTOR
COMPANY ISSUER SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Short-term bank debt $ - $ 41,500 $ - $ - $ - $ 41,500
Accounts payable 24,904 24,904
Intercompany payable (receivable) 261 (261)
Accrued liabilities 24,597 6,436 (6,137) 24,896
Current maturities of long-term debt 1,450 1,450
------------------------------------------------------------------------------------
Total current liabilities 42,950 49,762 6,175 (6,137) 92,750
Long-term obligations:
Long-term debt 274,541 5,000 279,541
Reserve for product liability and workers'
compensation claims 49,644 49,644
Other 19,922 19,922
------------------------------------------------------------------------------------
Total liabilities 317,491 74,684 55,819 (6,137) 441,857
Shareholders' equity (deficit) (153,672) (153,689) 131,216 17,482 4,991 (153,672)
------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT) $ (153,672) $ 163,802 $ 205,900 $73,301 $ (1,146) $ 288,185
====================================================================================
</TABLE>
(a) Includes the accounts of MIICA only.
16
<PAGE> 19
Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
--Continued
(Dollars in Thousands)
I. SUPPLEMENTAL GUARANTOR INFORMATION--CONTINUED
<TABLE>
<CAPTION>
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
COMBINED NON-GUARANTOR
PARENT GUARANTOR SUBSIDIARIES/
COMPANY ISSUER SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE NINE MONTHS ENDED SEPT. 30, 1998
Net sales $ - $ - $ 325,589 $ 610 $ $ 326,199
Cost of sales 237,091 237,091
---------------------------------------------------------------------------------
Gross profit 88,498 610 89,108
General and administrative expense 26,129 658 26,787
Selling and distribution expense 39,257 39,257
---------------------------------------------------------------------------------
Operating profit 23,112 (48) 23,064
Loss from equity investees (102) (102) 204
Other (expense) income, net (4,375) 5,000 625
---------------------------------------------------------------------------------
(Loss) income before interest and (benefit) taxes (102) (102) 18,737 4,952 204 23,689
Interest expense 23,802 23,802
---------------------------------------------------------------------------------
(Loss) income before (benefit) income taxes (102) (102) (5,065) 4,952 204 (113)
Income (benefit) taxes (613) 602 (11)
---------------------------------------------------------------------------------
NET (LOSS) INCOME $ (102) $ (102) $ (4,452) $ 4,350 $ 204 $ (102)
=================================================================================
FOR THE THREE MONTHS ENDED SEPT. 30, 1998
Net sales $ - $ - $ 112,534 $ $ $ 112,534
Cost of sales 79,273 79,273
---------------------------------------------------------------------------------
Gross profit 33,261 33,261
General and administrative expense 8,878 8,878
Selling and distribution expense 13,378 13,378
---------------------------------------------------------------------------------
Operating profit 11,005 11,005
Income from equity investee 1,168 1,168 (2,336)
Other (expense) income, net (1,585) 1,977 392
---------------------------------------------------------------------------------
Income before interest and taxes 1,168 1,168 9,420 1,977 (2,336) 11,397
Interest expense 8,328 8,328
---------------------------------------------------------------------------------
Income before income taxes 1,168 1,168 1,092 1,977 (2,336) 3,069
Income taxes 1,229 672 1,901
---------------------------------------------------------------------------------
NET INCOME (LOSS) $ 1,168 $ 1,168 $ (137) $ 1,305 $ (2,336) $ 1,168
=================================================================================
</TABLE>
17
<PAGE> 20
Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
--Continued
(Dollars in Thousands)
I. SUPPLEMENTAL GUARANTOR INFORMATION--CONTINUED
<TABLE>
<CAPTION>
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
COMBINED
PARENT GUARANTOR NON-GUARANTOR
COMPANY ISSUER SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE NINE MONTHS ENDED SEPT. 30, 1997
Net sales $ - $ - $ 315,206 $ 1,774 $ (1,774) $315,206
Cost of sales 226,871 226,871
---------------------------------------------------------------------------------------
Gross profit 88,335 1,774 (1,774) 88,335
General and administrative expense 22,926 1,883 (680) 24,129
Selling and distribution expense 36,605 36,605
Non-cash compensation charge 4,182 4,182
---------------------------------------------------------------------------------------
Operating profit (loss) 24,622 (109) (1,094) 23,419
Income from equity investees 1,496 1,496 (2,992)
Other expense, net (10) (14,331) (14,341)
---------------------------------------------------------------------------------------
Income (loss) before interest and taxes
(benefit) 1,496 1,496 24,612 (14,440) (4,086) 9,078
Interest expense 4,416 4,416
---------------------------------------------------------------------------------------
Income (loss) before income taxes (benefit) 1,496 1,496 20,196 (14,440) (4,086) 4,662
Income taxes (benefit) 8,222 (5,056) 3,166
---------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 1,496 $ 1,496 $ 11,974 $ (9,384) $ (4,086) $ 1,496
=======================================================================================
FOR THE THREE MONTHS ENDED SEPT. 30, 1997
Net sales $ - $ - $ 110,156 $ 630 $ (630) $ 110,156
Cost of sales 81,563 81,563
---------------------------------------------------------------------------------------
Gross profit 28,593 630 (630) 28,593
General and administrative expense 7,772 596 (153) 8,215
Selling and distribution expense 12,084 12,084
Non-cash compensation charge 4,182 4,182
---------------------------------------------------------------------------------------
Operating profit 4,555 34 (477) 4,112
Loss from equity investees (3,572) (3,572) 7,144
Other income (expense), net 609 (7,109) (6,500)
---------------------------------------------------------------------------------------
(Loss) income before interest and taxes
(benefit) (3,572) (3,572) 5,164 (7,075) 6,667 (2,388)
Interest expense 1,397 1,397
---------------------------------------------------------------------------------------
(Loss) income before income taxes (benefit) (3,572) (3,572) 3,767 (7,075) 6,667 (3,785)
Income taxes (benefit) 2,264 (2,477) (213)
---------------------------------------------------------------------------------------
NET (LOSS) INCOME $ (3,572) $ (3,572) $ 1,503 $ (4,598) $ 6,667 $ (3,572)
=======================================================================================
</TABLE>
18
<PAGE> 21
Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
--Continued
(Dollars in Thousands)
I. SUPPLEMENTAL GUARANTOR INFORMATION--CONTINUED
<TABLE>
<CAPTION>
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
-------------------------------------------------------------------
COMBINED NON-
PARENT GUARANTOR GUARANTOR
COMPANY ISSUER SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING $ - $ - $ 56,157 $ (29,784) $ 26,373
ACTIVITIES
INVESTING ACTIVITIES
Capital expenditures (4,931) (4,931)
Securities available-for-sale:
Purchases of debt and equity securities (572) (572)
Sales of debt and equity securities
Net sales of other investments 7,358 7,358
Intercompany transactions (12) 44,935 (44,923)
-------------------------------------------------------------------
Net cash (used in) provided by investing (12) 44,935 (49,854) 6,786 1,855
activities
FINANCING ACTIVITIES
Repayment of receivables facility (41,500) (41,500)
Proceeds from sale of accounts receivable 23,000 23,000
Repayments of long-term debt (1,087) (1,087)
-------------------------------------------------------------------
Net cash (used in) provided by financing (42,587) 23,000 (19,587)
activities
-------------------------------------------------------------------
Net (decrease) increase in cash and cash (12) 2,348 6,303 2 8,641
equivalents
Cash and equivalents at beginning of period 17 6 3,084 3,107
-------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5 $2,354 $ 9,387 $ 2 $ 11,748
===================================================================
</TABLE>
19
<PAGE> 22
Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
--Continued
(Dollars in Thousands)
I. SUPPLEMENTAL GUARANTOR INFORMATION--CONTINUED
<TABLE>
<CAPTION>
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
-------------------------------------------------------------------
COMBINED NON-
PARENT GUARANTOR GUARANTOR
COMPANY ISSUER SUBSIDIARIES SUBSIDIARY CONSOLIDATED
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING $ - $ - $ 15,045 $ (6,544) $ 8,501
ACTIVITIES
INVESTING ACTIVITIES
Capital expenditures (8,535) (8,535)
Insurance fund securities available-for-sale:
Purchases of debt and equity securities (99,766) (99,766)
Sales of debt and equity securities 56,063 56,063
Net sales of other insurance fund investments 50,247 50,247
Other (310) (310)
Intercompany transactions 2,415 (5) (2,410)
-------------------------------------------------------------------
Net cash provided by (used in) investing 2,415 (5) (11,255) 6,544 (2,301)
activities
FINANCING ACTIVITIES
Net borrowings under revolving credit agreements 2,200 2,200
Repayments of long-term debt (6,571) (6,571)
Repurchase of common stock (730) (730)
Dividends paid (1,691) (1,691)
-------------------------------------------------------------------
Net cash used in financing activities (2,421) (4,371) (6,792)
-------------------------------------------------------------------
Net increase in cash and cash equivalents (6) (5) (581) (592)
Cash and equivalents at beginning of period 344 13 629 986
-------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 338 $ 8 $ 48 $ - $ 394
===================================================================
</TABLE>
20
<PAGE> 23
Werner Holding Co. (PA), Inc. and Subsidiaries
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion should be read in conjunction with the Unaudited
Condensed Consolidated Financial Statements of the Company and the notes thereto
included elsewhere in this document and the Company's Registration Statement on
Form S-4 as amended and filed with the Securities and Exchange Commission dated
May 14, 1998. This document contains, in addition to historical information,
forward-looking statements that are subject to risks and other uncertainties.
The Company's actual results may differ materially from those anticipated in
these forward-looking statements. In the text below, financial statement numbers
have been rounded, however, the percentage changes are based on the actual
financial statements.
RESULTS OF OPERATIONS--QUARTER ENDED SEPTEMBER 30, 1998 AS COMPARED TO QUARTER
ENDED SEPTEMBER 30, 1997
Net Sales. Net sales increased $2.3 million or 2.2% to $112.5 million
for the quarter ended September 30, 1998 from $110.2 million for the quarter
ended September 30, 1997. Net sales of climbing products increased $1.9 million,
or 2.2% to $86.0 million for the quarter ended September 30, 1998 from $84.1
million for the quarter ended September 30, 1997. The increase in net sales of
climbing products was primarily due to increases in the volume of fiberglass
step and extension ladders sold, offset by volume decreases in sales of attic
ladders and wood and aluminum step ladders. Net sales of extruded products
increased $0.4 million, or 1.5% to $26.5 million for the quarter ended September
30, 1998 from $26.1 million for the quarter ended September 30, 1997. The
increase is due to growth in extrusions sold to customers in the transportation
sector.
Gross Profit. Gross profit increased $4.7 million or 16.3% to $33.3
million for the quarter ended September 30, 1998 from $28.6 million for the
quarter ended September 30, 1997. The increase was primarily due to the
increased sale of higher margin climbing products.
General and Administrative Expense. General and administrative expense
increased $0.7 million or 8.1% to $8.9 million for the quarter ended September
30, 1998 from $8.2 million for the quarter ended September 30, 1997. The
increase was principally due to the amortization of certain non-recurring costs
associated with the Recapitalization offset by decreases in certain employee
compensation and benefit costs.
Selling and Distribution Expense. Selling and distribution expense
increased $1.3 million or 10.7% to $13.4 million for the quarter ended September
30, 1998 from $12.1 million for the quarter ended September 30, 1997. The
increase was primarily due to
21
<PAGE> 24
sales-based advertising expense due to customer mix offset by reductions in
commission expense resulting from modifications in the Company's sales
commission program.
Non-cash Compensation Charge. The third quarter of 1997 includes a $4.2
million non-cash compensation charge relating to the acceleration of the vesting
of certain restricted stock awards granted to a former management employee upon
separation from the Company.
Other Income (Expense), Net. Other income, net was $0.4 million for the
quarter ended September 30, 1998 compared to other (expense), net of $(6.5)
million for the quarter ended September 30, 1997. The difference was primarily
attributable to $7.1 million of investment losses incurred by MIICA in the third
quarter of 1997.
Interest Expense. Interest expense increased $6.9 million to $8.3
million for the quarter ended September 30, 1998 from $1.4 million for the
quarter ended September 30, 1997. The increase was primarily due to increased
debt resulting from the Recapitalization.
Income Tax. During the third quarter of 1998, the Company revised its
full year projection of income subject to income tax and re-computed its
estimated effective tax rate. The disproportionate tax provision for the quarter
ended September 30, 1998 includes an adjustment to reflect the re-computed
estimated effective rate on a year-to-date basis. The difference between the
customary relationship of pretax income and income tax expense for the third
quarter of 1998 was primarily due to the Company's revision of its full year
projection of income subject to income tax. The difference between the customary
relationship of pretax loss and income tax benefit for the third quarter of 1997
was due to the non-cash compensation charge which was not deductible for income
tax purposes.
Net Income (Loss). Net income (loss) increased $4.8 million to $1.2
million for the quarter ended September 30, 1998 from $(3.6) million for the
quarter ended September 30, 1997 as a result of all of the above factors.
RESULTS OF OPERATIONS--NINE MONTHS ENDED SEPTEMBER 30, 1998 AS COMPARED TO NINE
MONTHS ENDED SEPTEMBER 30, 1997
Net Sales. Net sales increased $11.0 million or 3.5% to $326.2 million
for the nine months ended September 30, 1998 from $315.2 million for the nine
months ended September 30, 1997. Net sales of climbing products increased $6.0
million, or 2.5% to $246.4 million for the nine months ended September 30, 1998
from $240.4 million for the nine months ended September 30, 1997. The increase
in net sales of climbing products was primarily due to continued growth in the
volume of fiberglass and aluminum step and extension ladders sold, particularly
to large do-it-yourself home improvement retailers. Net sales of extruded
products increased $5.0 million, or 6.7% to $79.8 million for the nine months
ended September 30, 1998 from $74.8 million for the nine months ended September
30, 1997. The increase is due to growth in extrusions sold to customers in the
building products and transportation sectors.
22
<PAGE> 25
Gross Profit. Gross profit marginally increased $0.8 million or 0.9% to
$89.1 million for the nine months ended September 30, 1998 from $88.3 million
for the nine months ended September 30, 1997. The increase was primarily due to
the increased sale of higher margin climbing products.
General and Administrative Expense. General and administrative expense
increased $2.7 million or 11.0% to $26.8 million for the nine months ended
September 30, 1998 from $24.1 million for the nine months ended September 30,
1997. The increase was principally due to the amortization of certain
non-recurring costs associated with the Recapitalization offset by decreases in
certain employee compensation and benefit costs.
Selling and Distribution Expense. Selling and distribution expense
increased $2.7 million or 7.2% to $39.3 million for the nine months ended
September 30, 1998 from $36.6 million for the nine months ended September 30,
1997. The increase was primarily the result of increased sales volume as well as
increased sales-based advertising expense offset by decreases in distribution
expense due to the rationalization of certain warehouses and a reduction in
commission expense resulting from modifications in the Company's sales
commission program.
Non-cash Compensation Charge. The third quarter of 1997 non-cash
compensation charge of $4.2 million relates to the acceleration of the vesting
of certain restricted stock awards granted to a former management employee upon
separation from the Company.
Other Income (Expense), Net. Other income, net was $0.6 million for the
nine months ended September 30, 1998 compared to other (expense), net of $(14.3)
million for the nine months ended September 30, 1997. The difference was
primarily attributable to the $4.5 million net gain incurred on the MIICA
Insurance Transfer in the first quarter of 1998; a $3.7 million decrease in the
amount of pre-tax impairment losses recorded by MIICA relating to certain
insurance fund investments; and a $8.4 million decrease in the amount of losses
on securities sold by MIICA. Offsetting the 1998 increase was $1.1 million of
costs associated with the accounts receivable sales program under the
Receivables Purchase Agreement instituted in the second quarter of 1998.
Interest Expense. Interest expense increased $19.4 million to $23.8
million for the nine months ended September 30, 1998 from $4.4 million for the
nine months ended September 30, 1997. The increase was primarily due to
increased debt resulting from the Recapitalization.
Income Tax. During the third quarter of 1998, the Company revised its
full year projection of income subject to income tax and re-computed its
estimated effective tax rate. The disproportionate tax provision for the quarter
ended September 30, 1998 includes an adjustment to reflect the re-computed
estimated effective rate on a year-to-date basis. The difference between the
customary relationship of pretax income and income tax expense for the nine
months ended September 30, 1998 was primarily due to a
23
<PAGE> 26
valuation allowance for capital losses. The difference between the customary
relationship of pretax loss and income tax benefit for the nine months ended
September 30, 1997 was due to the non-cash compensation charge which was not
deductible for income tax purposes.
Net Income (Loss). Net loss was $0.1 million for the nine months ended
September 30, 1998 compared to net income of $1.5 million for the nine months
ended September 30, 1997 as a result of all of the above factors.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flows provided by operating activities were $26.4 million for
the nine months ended September 30, 1998 compared to $8.5 million for the nine
months ended September 30, 1997. The increase is primarily attributable to
decreased operating working capital (accounts receivable, undivided interest in
accounts receivable, refundable income taxes, inventories, accounts payable and
accrued liabilities).
The Company satisfies its working capital needs and capital expenditure
requirements primarily through a combination of operating cash flow and
borrowing under the Senior Credit Facility and the Receivables Purchase
Agreement. The Company believes it has sufficient funds available to support
debt service requirements, projected capital expenditures and working capital
needs based on projected results of operations, availability under its Senior
Credit Facility, the Receivables Purchase Agreement and other available
permitted borrowings.
SEASONALITY, WORKING CAPITAL AND CYCLICALITY
Sales of certain products of the Company are subject to seasonal
variation. Demand for the Company's ladder products is affected by residential
housing starts and existing home sales, commercial construction activity and
overall home improvement expenditures. Due to seasonal factors associated with
the construction industry, sales of products and working capital requirements
are typically higher during the second and third quarters than at other times of
the year.
IMPACT OF THE YEAR 2000
The Year 2000 issue arises because many computer hardware and software
systems use only the last two digits to represent a year. As a result, these
systems may not properly process dates beyond 1999 which could cause errors in
information or system failures. If the Company's computer systems do not
correctly recognize and process date information beyond the year 1999, the Year
2000 issue could have a material adverse impact on the operations of the
Company.
The following discussion of the implications of the Year 2000 issue for
the Company contains numerous forward-looking statements based upon inherently
uncertain information. The cost of the Year 2000 project and the date upon which
the Company
24
<PAGE> 27
plans to complete its internal modifications are based upon management's best
estimates, which were derived utilizing a number of assumptions of future events
including the continued availability of internal and external resources, third
party modifications and other factors. Although management believes it will be
able to make the necessary modifications in advance, there can be no guarantee
that these estimates and timetable will be achieved and actual results could
differ materially from those anticipated.
In addition, the Company relies upon the computer systems of certain
third parties such as customers, suppliers and financial institutions. Although
the Company is assessing the readiness of these third parties and preparing
contingency plans, there can be no guarantee that the failure of these third
parties to modify their systems in advance of December 31, 1999 would not have a
material adverse effect on the Company.
State of Readiness. In 1996, the Company commenced a program intended
to mitigate and prevent the adverse effect of the Year 2000 issue. This program
consists of the following phases:
AWARENESS PHASE-development of a detailed strategic approach
to address the Year 2000 issue;
ASSESSMENT PHASE-an assessment of all computer systems,
software, building infrastructure components and equipment
with embedded technology to identify each item that will
require date code remediation and an assessment and
certification of third parties' Year 2000 compliance;
REMEDIATION PHASE-implementation of code enhancements,
hardware and software upgrades, system replacements, vendor
and customer assurances, contingency planning and other
associated changes; and
VALIDATION PHASE-testing of systems for Year 2000 readiness.
The Awareness and Assessment Phases have been completed. The Company
expects the Remediation Phase to be substantially completed by the end of the
second quarter of 1999. The Company's Remediation Phase consists of numerous
individual projects that vary in size, materiality and importance. Approximately
two thirds of the projects currently identified have been completed while the
remaining one third are in process. With respect to those projects involving
embedded systems (non-information technology processes), the appropriate
end-users are evaluating and modifying those systems as required, in some
instances in conjunction with the vendors of these products. In addition, the
certification of third parties' Year 2000 readiness efforts by the Company is
ongoing with the expectation that this process will also be substantially
complete by the end of the second quarter of 1999. Appropriate measures to
minimize risk with critical suppliers and business partners will attempt to be
undertaken. However, there can be no guarantee that these measures will prevent
any material adverse effect on the
25
<PAGE> 28
operations and business of the Company if such suppliers and business partners
fail to convert their systems before December 31, 1999.
Costs. The Company expects to primarily utilize internal resources to
reprogram, replace and test its computer systems, software, equipment and
building infrastructure components for Year 2000 modifications. The Company
estimates that Year 2000 expenditures will be approximately $1.5 million and
will be funded by normal operating cash flow. All Year 2000 expenditures are
expensed as incurred and are not expected to have a material effect on results
of operations, liquidity or capital resources. As of September 30, 1998
approximately $0.9 million of the estimated project costs have been incurred.
The remaining costs are expected to be incurred evenly over the period up
through January 31, 2000. These cost estimates may change as additional
remediation and testing efforts progress.
Risks. The Year 2000 issue presents a number of risks and uncertainties
that could affect the Company, including failure of utilities, competition for
skilled personnel and disruption of Company operations due to system failures or
operational failures of third parties. With respect to risks associated with the
Company's computer systems and equipment, management believes that it will be
able to make the necessary modifications and conversions in advance of the Year
2000. With respect to risks associated the failure of computer systems or
equipment of third parties, the Company could experience a material adverse
impact on its operations if such third parties fail to make timely conversions
or modifications. The most serious impact on Company operations in this regard
would result if basic services such as telecommunications, electric power and
financial services were disrupted.
Contingency Plans. The Company is in the process of developing business
resumption contingency plans specific to the Year 2000. These plans will address
the actions that would be taken if critical business functions cannot be carried
out in the normal manner upon entering the next century due to system or third
party failure. Management estimates that these contingency plans will be
developed by the end of the second quarter of 1999.
26
<PAGE> 29
Werner Holding Co. (PA), Inc. and Subsidiaries
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Not applicable.
PART II-OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved from time to time in various legal proceedings and
claims incident to the normal conduct of its business. In the opinion of
management, the amount of any ultimate liability with respect to these
proceedings and claims will not have a material adverse effect on its financial
condition or results of operations.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.1 Third Amendment to the Werner Holding Co.
(DE), Inc. Employee Savings Plan
10.2 Third Amendment to the Retirement Plan for
Salaried Employees of Werner Holding Co.
(DE), Inc.
10.3 Second Amendment to the Pension Plan for
Certain Hourly Bargaining Unit Employees of
Werner Co.
27.1 Financial Data Schedule
(b) Reports on Form 8-K: None
27
<PAGE> 30
SIGNATURE
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.
WERNER HOLDING CO. (DE), INC.
Date: November 16, 1998 By: /s/ E. P. Norris
-----------------
E. P. Norris
Chief Financial Officer and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
28
<PAGE> 1
THIRD AMENDMENT
TO THE
WERNER HOLDING CO. (DE), INC.
EMPLOYEE SAVINGS PLAN
WHEREAS, Werner Holding Co. (DE), Inc. (the "Sponsor") sponsors the
Werner Holding Co. (DE), Inc. Employee Savings Plan (the "Plan"); and
WHEREAS, the Sponsor desires to amend the Plan to clarify the operation
of certain provisions as well as update the Plan in other respects; and
WHEREAS, Section 14.02 of the Plan reserves to the Sponsor the
authority to amend the Plan, with limitations not relevant here; and
WHEREAS, this amendment is conditional upon its not adversely affecting
the qualification of the Plan and its accompanying trust under sections 401(a)
and 501(a), respectively, of the Internal Revenue Code of 1986, as amended.
NOW, THEREFORE, the Plan is amended as follows, effective January 1,
1997 except as otherwise specifically stated below:
I. CLARIFICATION OF ELIGIBILITY AND PARTICIPATION. Article II is
amended as follows:
1. Section 2.01 is re-numbered as Section 2.02 and re-titled as
"PARTICIPATION".
2. A new Section 2.01 is added at the beginning of Article II as
follows:
2.01 ELIGIBILITY
In general, each Employee of a Participating Employer is
eligible to participate in the Plan. As an exception,
Employees who are members of a collective bargaining unit are
not eligible to participate in the Plan unless and until, and
then only for as long as, the applicable collective bargaining
agreement provides for participation in the Plan.
The following Sections 2.02 and 2.03 govern the timing of
commencement and re-commencement of participation in the Plan
but in their application are limited at all times to Employees
who are eligible as set forth in this Section 2.01.
3. Section 2.02 is re-numbered as Section 2.03, and the phrase "Section
2.01" is replaced by the phrase "Section 2.02" wherever it appears therein.
II. ELECTIVE CONTRIBUTIONS: AMOUNT, TIMING AND LIMITS. Article IV is
amended as follows:
- 1 -
<PAGE> 2
1. In Section 4.02(a), the first paragraph is replaced with the
following:
(a) Subject to any delayed effective date provided in Section 2.02
and to the limits provided in Sections 4.02(e), 4.02(f) and
5.05, each Participant shall have the option to enter into a
written salary reduction agreement with the Participating
Employer. A salary reduction agreement shall provide that the
Participant agrees to accept a reduction in Compensation from
the Participating Employer equal to any whole percentage from
one percent (1%) to fifteen percent (15%) of his Compensation,
as elected by the Participant, with the following three
exceptions. First, Participants who are members of a
collective bargaining unit may, in accordance with the
applicable collective bargaining agreement or past practice,
elect a reduction equal to a number of cents per hour (rather
than a percentage of Compensation). Second, in the salary
reduction agreement, a Participant may specify that the
reduction shall not apply to that portion of his Compensation
which represents bonuses. Third, in the salary reduction
agreement, a Participant may specify any whole percentage (up
to one hundred percent (100%)) as being applicable to any
gainsharing to which the Participant may become entitled,
after reduction for taxes.
2. In Section 4.02(b), the phrase "received thereafter" is replaced by
the phrase "earned thereafter".
3. In Section 4.02(c), at the end of the second sentence (which begins,
"The discontinuance will become effective . . ."), the following phrase is
added: "and will apply to all Compensation earned thereafter".
4. The first paragraph of Section 4.02(f) is replaced by the following:
(f) Notwithstanding the amount or rate of salary reduction chosen
by the Participant in the salary reduction agreement between
the Participant and the Participating Employer, the Plan
Administrator has authority to reduce the amount or rate of
salary reduction (i) of any Employee to the extent necessary
or appropriate to ensure that the limitations of Section 5.05
are not exceeded and (ii) of any highly compensated Employee
to the extent necessary or appropriate to ensure that one (1)
of the following nondiscrimination tests contained in Section
401(k) of the Code is satisfied for any Plan Year, including
across-the-board limitations based on estimates of the maximum
amount or rate of Salary Reduction Contributions that is
expected to be permissible under those tests:
III. CLARIFICATION THAT PLAN DOES NOT REQUIRE COMPANY CONTRIBUTIONS.
Section 4.04 is amended as follows:
1. Section 4.04(a) is amended to read as follows:
(a) While this Plan does not require contributions on behalf of
any Participant
- 2 -
<PAGE> 3
who is a member of a collective bargaining unit, it is
understood that the Participating Employer will comply with
the terms of any applicable collective bargaining agreement
regarding the time and amount of contributions to the Trust
Fund on behalf of Participants who are Employees and members
of a collective bargaining unit.
2. Section 4.04(b) is amended to read as follows:
(b) While this Plan does not require contributions on behalf of
any Participant who is not a member of any collective
bargaining unit, it is understood that the Participating
Employer will observe the terms of its policies regarding
contributions to the Trust Fund on behalf of Participants who
are Employees but not members of any collective bargaining
unit and not salaried, which policies may vary according to
location.
3. Section 4.04(c) is amended to read as follows:
(c) With regard to Participants who are salaried Employees and not
members of any collective bargaining unit, the Employer may
(but is not required to) contribute to the Trust Fund on
behalf of such Participants in such amounts as it determines
from time to time.
4. Sections 4.04(d) and (e) are deleted, and Sections 4.04(f) and (g)
are re-numbered as Sections 4.04(d) and (e), respectively.
5. Section 5.07(a)(1) is replaced in its entirety with the following:
(1) Company Contributions made pursuant to Section 4.04(a) shall
be allocated among the members of the particular bargaining
unit in accordance with the rates and factors specified in the
applicable collective bargaining agreement. Company
Contributions made pursuant to Section 4.04(b) shall be
allocated among the Participants on whose behalf contributions
are made under that Section in accordance with the rates and
factors specified in the applicable policy of the
Participating Employer. Company Contributions made pursuant to
section 4.04(c) shall be allocated among the Participants
eligible to share in such Company Contribution in the
proportion that each Participant's Compensation bears to the
Compensation of all Participants eligible to share in such
Company Contribution for the Plan Year. All Company
Contributions shall be allocated to the Company Contribution
Accounts of the eligible Participants.
IV. CASH-OUTS. Section 7.01 is amended as follows:
1. The phrase "(determined as of the Valuation Date preceding his
termination of employment)" is replaced with the phrase "(determined as of the
Valuation Date preceding his Annuity Starting Date)" in each place where it
appears.
- 3 -
<PAGE> 4
2. Effective January 1, 1998, the phrase "three thousand five hundred
dollars ($3,500)" is replaced with the phrase "five thousand dollars ($5,000)"
in each place where it appears.
V. MINIMUM REQUIRED DISTRIBUTIONS NOW MERELY PERMISSIVE UNLESS 5%
OWNER. Section 7.03 is amended by adding at the end of the fifth sentence (which
begins, "Notwithstanding the foregoing, effective January 1, 1989 . . .") the
following new clause:
, except that, effective January 1, 1997, such payment shall be merely
permissive (rather than mandatory) until April 1 of the year following
the year in which the Participant attains age seventy and one-half (70
1/2) or retires, whichever is later, as long as the Participant is not
a five percent (5%) owner (within the meaning of section 401(a)(9) of
the Code) with respect to the Plan Year in which he attains age seventy
and one-half (70 1/2).
VI. 30-DAY WAITING PERIOD ON DISTRIBUTIONS AND WAIVER THEREOF. Section
7.03 is amended by adding at the end thereof the following new paragraph:
Payment shall not be made before the Participant receives notification
under section 402(f) of the Code ("Special Tax Notice" regarding direct
rollovers of eligible rollover distributions). In addition, payment
shall not be made less than thirty (30) days after such notification
unless the Participant is notified in writing that he is entitled to
take up to thirty (30) days to consider his choice and, after receiving
such notification, he affirmatively elects to waive the 30-day waiting
period.
VII. IMMEDIATE DISTRIBUTIONS PERMITTED TO ALTERNATE PAYEES UNDER
QDRO'S. Effective upon adoption of this amendment, Article VII is amended by
adding at the end thereof the following new section 7.08:
7.08 IMMEDIATE DISTRIBUTIONS TO ALTERNATE PAYEES
Notwithstanding the fact that a Participant is not entitled to
a distribution under this Article VII prior to termination of
the Participant's employment, distribution to an Alternate
Payee under a Qualified Domestic Relations Order is permitted
prior to termination of the Participant's employment.
VIII. LOANS LIMITED TO ACTIVE EMPLOYEES, WITH REPAYMENT BY PAYROLL
DEDUCTION. Article VIII is amended as follows:
1. The phrases "or a Party-in-Interest," "or Party-in-Interest" and "or
Party-in-Interest's" are deleted wherever they appear in Sections 8.01 and 8.02.
2. The third sentence of Section 8.01(c) (which begins, "For purposes
of this Article VIII, 'Party-in-Interest' shall include . . .") is deleted.
3. In Sections 8.01(a) and (b), the phrase "upon application by a
Participant" is replaced with the phrase "upon application by a Participant who
is currently employed by the Company or an Affiliate".
- 4 -
<PAGE> 5
4. In Section 8.01(e)(2), the third sentence (which begins, "Loans
shall be repayable . . .") is amended by adding at the end thereof the new
phrase "and only by payroll deduction".
IX. ELABORATION OF RULES FOR LOANS. Section 8.01 is amended as follows:
1. Section 8.01(c) is amended by adding a new second sentence as
follows:
The minimum amount of an emergency loan described in Section 8.01(a)
shall be one thousand dollars ($1,000) and of a regular loan described
in Section 8.01(b) five hundred dollars ($500).
2. Section 8.01(e)(2) is amended by adding after the third sentence
(which begins, "Loans shall be repayable . . .") a new fourth sentence as
follows:
The minimum monthly payment shall be five dollars ($5).
3. Section 8.01(e)(3) is replaced in its entirety with the following:
(3) Each loan shall bear interest at a rate equal to the rate
charged by reputable banks in the city where the Plan is
principally administered for secured loans of the same amount
and duration, according to a survey conducted from time to
time, but not less often than annually, by the Plan
Administrator.
4. In Section 8.01(e)(4), the last sentence (which begins, "In the
event of default . . .") is deleted.
5. At the end thereof, new sections 8.01(f), (g), (h) and (i) are added
as follows:
(f) The duty to repay a loan according to the original payment
schedule shall be suspended (but not for more than one year)
if and while the Participant is on a leave of absence without
pay. When the Participant returns from the leave, the
installment payments shall resume in the original amount and
the term of the loan shall be extended by the same number of
payments as were suspended. If such an extension would extend
the term of the loan beyond the period permissible under
Section 8.01(e)(2) above, however, a new installment payment
schedule shall be established instead, under which the new
installment payments are sufficient to pay off the remaining
balance of the loan by the end of the maximum period.
The duty to repay a loan according to the original payment
schedule shall also be suspended if, and for as long as, the
Participant is performing military service within the meaning
of the federal Uniformed Services Employment and Reemployment
Rights Act of 1994. When the Participant ceases to perform
such service, the installment payments shall resume in the
original amount and the term of the loan shall be extended by
the same number of payments as were suspended.
- 5 -
<PAGE> 6
(g) A Participant may repay the outstanding balance of a loan at
any time without penalty for pre-payment.
(h) If a Participant fails to make the full amount of any required
installment payment by payroll deduction, the loan shall be
considered in default, and the entire outstanding balance due
and payable immediately, on the last day of the calendar
quarter following the calendar quarter in which the
installment payment was due. Because repayment must be made by
payroll deduction, termination of employment will ordinarily
trigger a default.
If a loan goes into default and the Participant does not pay
the outstanding balance, the outstanding balance shall be
considered a "deemed distribution" for tax purposes to the
extent provided in regulations of the Internal Revenue
Service. When the Participant becomes entitled to a
distribution from the Plan, the Plan Administrator shall
foreclose on the Participant's vested accrued benefit that was
pledged as security for the loan in order to satisfy the
unpaid balance of the loan, effectively offsetting the unpaid
balance of the loan against the amount otherwise payable from
the Plan.
In addition, all loans will be due and payable immediately
upon distribution of assets in the event of termination of the
Plan.
(i) Application for a loan shall be made to the Plan Administrator
on a form prescribed by the Plan Administrator, who shall
thereupon determine whether the loan is permitted under the
Plan in the amount sought. The Plan Administrator may arrange
for Participants to make first inquiry directly of the entity
maintaining records of the individual accounts of
Participants, which entity may provide Participants with
information on the amount of loan available and with
documentation necessary to make application to the Plan
Administrator. In all events, the Plan Administrator shall
have exclusive authority to grant or deny loans under the
Plan. Denial of an application for a loan, in whole or in
part, shall be considered a denial of benefits, subject to the
ordinary claim and appeal procedures of the Plan.
X. GENERAL RULE AND SAFE HARBOR BOTH AVAILABLE FOR HARDSHIP
WITHDRAWALS. Effective upon adoption of this amendment, Section 8.03(c) is
amended as follows:
1. A new paragraph is begun with the third sentence (which begins,
"Notwithstanding the preceding sentence, a Participant will be deemed . . ."),
of which the portion up through the colon is replaced with the following:
As to the existence of an immediate and heavy financial need, without
derogation of the general rule expressed above, the following
circumstances shall, as a safe harbor, be considered immediate and
heavy financial need:
2. The fourth sentence (which begins, "Further, the distribution will
be deemed necessary . . .") is replaced in its entirety, including the numbered
subsections, with the following:
- 6 -
<PAGE> 7
As to the amount required to satisfy the financial need, as a general
rule, a distribution will not be considered necessary except to the
extent that the Participant has truthfully represented to the Plan
Administrator that the financial need remains unsatisfied after all
reimbursement or compensation by insurance, reasonable liquidation of
the assets of the Participant and those of his spouse and minor
children which are reasonably available to the Participant, cessation
of Salary Reduction Contributions under the Plan and salary reduction
contributions under all other plans of the Company or an Affiliate,
borrowing from commercial sources, and all other distributions or
non-taxable loans from any employer. Without derogation of the general
rule expressed in the preceding sentence, as a safe harbor, a
distribution shall be considered necessary to satisfy the financial
need if all of the following conditions are met:
(1) the amount of the distribution does not exceed the amount of
the financial need;
(2) the Participant has obtained all loans and all other
distributions available under all plans of the Company or an
Affiliate;
(3) the Participant's Salary Reduction Contributions and Voluntary
Employee Contributions under this Plan and salary reduction
contributions and after-tax employee contributions under all
other plans of the Company and any Affiliate are suspended for
at least twelve (12) months following the distribution; and
(4) the Participant's Salary Reduction Contributions under this
Plan and salary reduction contributions under all other plans
of the Company and any Affiliate which are made during the
year of the distribution will count against the dollar limit
on elective deferrals under section 402(g) of the Code for the
calendar year following the calendar year of the distribution.
XI. REMOVAL OF 60-DAY REQUIREMENT FOR INCOMING DIRECT ROLLOVERS.
Section 9.01 is amended by replacing paragraphs (a) and (b) in their entirety
with the following:
(a) all or any portion of any eligible rollover distribution,
within the meaning of section 402(c) of the Code, whether in a
direct trustee-to-trustee transfer pursuant to section
401(a)(31) of the Code or after receipt by the Employee
(recognizing that, in the case of a transfer made after
receipt by the Employee, the amount may not be excludable from
the Employee's taxable income unless the transfer occurs
within sixty (60) days of receipt); and
(b) all or any portion of an individual retirement account or
individual retirement annuity, both within the meaning of
section 402(c) of the Code, which consists entirely of one or
more eligible rollover distributions as described in paragraph
(a) plus investment return thereon.
XII. NOTICE OF EXTENSION TO CONSIDER APPEAL. Section 13.02 is amended
by adding at the end
- 7 -
<PAGE> 8
of the third sentence (which begins, "The Plan Administrator shall furnish a
written decision . . .") the phrase "and the claimant is notified of the
extension by the end of the original 60-day period to consider the appeal".
XIII. UNFETTERED RIGHT TO AMEND OR TERMINATE. Article XIV is amended as
follows:
1. Section 14.01(b) is replaced in its entirety with the following:
(b) This Plan may be terminated by the Company at any time in its
sole discretion. In addition, each Participating Employer may
terminate the Plan with respect to its Employees at any time
in its sole discretion.
2. In Section 14.02, the phrase "by notice thereof in writing delivered
to the Trustee" is deleted.
- 8 -
<PAGE> 1
THIRD AMENDMENT
TO THE
RETIREMENT PLAN FOR SALARIED EMPLOYEES
OF WERNER HOLDING CO., (DE), INC.
WHEREAS, Werner Holding Co. (DE), Inc. (the "Sponsor") sponsors the
Retirement Plan for Salaried Employees of Werner Holding Co. (DE), Inc. (the
"Plan"); and
WHEREAS, the Sponsor desires to amend the Plan to clarify the operation
of certain provisions as well as update the Plan in other respects; and
WHEREAS, Section 9.01 of the Plan reserves to the Sponsor the authority
to amend the Plan, with limitations not relevant here; and
WHEREAS, this amendment is conditional upon its not adversely affecting
the qualification of the Plan and its accompanying trust under sections 401(a)
and 501(a), respectively, of the Internal Revenue Code of 1986, as amended.
NOW, THEREFORE, the Plan is amended as follows, effective January 1,
1997 except as otherwise specifically stated below:
I. SUSPENSION OF BENEFITS. Article IV is amended as follows:
1. Section 4.02 is amended by adding at the end thereof the following
new sentence:
If the Participant is not given notice of suspension of benefits as
described above, then, upon retirement, the Participant shall be
entitled to receive a benefit calculated by actuarially increasing the
benefit payable at Normal Retirement Date to the date of retirement if
such benefit is greater than the benefit otherwise payable under the
Plan.
2. Section 4.10(c) is amended by adding after the sixth sentence (which
begins, "In the event that a reemployed, retired Participant accrues further
periods . . .") the following new sentence:
In the event that, by mistake, suspension occurs without notice as
provided in this subsection, the Participant shall be entitled to
receive a benefit calculated by actuarially increasing the benefit
payable at Normal Retirement Date to the date of subsequent retirement
if such benefit is greater than the benefit described in the preceding
sentence.
II. INCREASE IN CASH-OUT THRESHOLD. Effective January 1, 1998, Article
V is amended as follows:
1. Section 5.05(e) is amended by replacing the phrase "three thousand
five hundred dollars ($3,500)" with the phrase "five thousand dollars ($5,000)".
- 1 -
<PAGE> 2
2. Section 5.06(c) is amended by replacing the phrase "three thousand
five hundred dollars ($3,500)" with the phrase "five thousand dollars ($5,000)".
III. PAYMENT OF EXPENSES. Article VI is amended as follows:
1. Section 6.01 is amended by restating the last sentence in its
entirety to read as follows:
No compensation will be paid the Plan Administrator from the Trust Fund
for service as such, but any reasonable expenses incurred pursuant to
such service will be reimbursed from the Trust Fund, provided that the
Employer may advance payment of such expenses and receive reimbursement
from the Plan pursuant to Prohibited Transaction Class Exemption 80-26.
2. Section 6.05 is amended by replacing the second sentence (which
begins "The employer shall pay, or cause to be paid from the Trust Fund . . .")
with the following:
The compensation of such counsel, accountants, and other agents shall
be considered an expense under Section 6.01.
IV. DISCRETIONARY AUTHORITY OF PLAN ADMINISTRATOR. Section 6.02 is
amended by restating the sentence that reads "All such determinations shall be
final, conclusive and binding" as follows:
In making such determinations, the plan administrator shall have and
shall exercise complete discretionary authority to administer the Plan,
giving controlling weight to the intent of the sponsor of the plan, and
all such determinations shall be final, conclusive, and binding on the
Plan, the sponsor and all Participants and Beneficiaries.
V. NAMED FIDUCIARY. The text of Section 6.08 is replaced in its
entirety by the following:
Those persons or entities named in the Plan or pursuant to a procedure
specified in the Plan to perform functions that are subject to
fiduciary responsibility under applicable law shall constitute the
"named fiduciaries" but only to the extent that they actually perform
(or are responsible for performing) the particular functions that are
subject to fiduciary responsibility.
VI. NOTICE OF EXTENSION TO CONSIDER APPEAL. Section 7.02 is amended by
adding at the end of the third sentence (which begins, "The Plan Administrator
shall furnish a written decision . . .") the phrase "and the claimant is
notified of the extension by the end of the original 60-day period to consider
the appeal".
VII. MERGER OF PLAN. Section 10.02 is amended by adding at the end
thereof the following new sentence: "Notwithstanding the foregoing, compliance
with applicable regulation under section 414(l) of the Code shall be deemed
compliance with this Section."
- 2 -
<PAGE> 1
SECOND AMENDMENT
TO THE PENSION PLAN FOR
CERTAIN HOURLY BARGAINING UNIT EMPLOYEES
OF WERNER CO.
WHEREAS, Werner Co. (the "Sponsor") sponsors the Pension Plan for
Certain Hourly Bargaining Unit Employees of Werner Co. (the "Plan"); and
WHEREAS, the Sponsor desires to amend the Plan to clarify the operation
of certain provisions as well as update the Plan in other respects; and
WHEREAS, Section 9.01 of the Plan reserves to the Sponsor the authority
to amend the Plan, with limitations not relevant here; and
WHEREAS, this amendment is conditional upon its not adversely affecting
the qualification of the Plan and its accompanying trust under sections 401(a)
and 501(a), respectively, of the Internal Revenue Code of 1986, as amended.
NOW, THEREFORE, the Plan is amended as follows, effective January 1,
1997 except as otherwise specifically stated below:
I. RETURN OF CONTRIBUTIONS. Section 3.04 is amended by adding at the
end thereof the following new sentence:
Notwithstanding the foregoing, (a) if a contribution is made by mistake
of fact, then it shall be returned within one (1) year after the
contribution was made and (b) all contributions by the Employer are
made on the condition that they meet the requirements for deductibility
under Section 404 of the Code and, to the extent disallowed as a
deduction, shall be returned to the employer within one (1) year after
disallowance.
II. SUSPENSION OF BENEFITS. Article IV is amended as follows:
1. Section 4.02 is amended by adding at the end thereof the following
new paragraph:
If the Participant is not given notice of suspension of benefits as
described above, then, upon retirement, the Participant shall be
entitled to receive a benefit calculated by actuarially increasing the
benefit payable at Normal Retirement Date to the date of retirement if
such benefit is greater than the benefit otherwise payable under the
Plan.
2. Section 4.10(c) is amended by adding after the sixth sentence (which
begins, "In the event that a reemployed, retired Participant accrues further
periods . . .") the following new sentence:
In the event that, by mistake, suspension occurs without notice as
provided in this subsection, the Participant shall be entitled to
receive a benefit calculated by
- 1 -
<PAGE> 2
actuarially increasing the benefit payable at Normal Retirement Date to
the date of subsequent retirement if such benefit is greater than the
benefit described in the preceding sentence.
IV. INCREASE IN CASH-OUT THRESHOLD. Effective January 1, 1998:
1. Section 5.06(c) is amended by replacing the phrase "three thousand
five hundred dollars ($3,500)" with the phrase "five thousand dollars ($5,000)".
2. Section 9.04 V is amended by replacing the phrase "three thousand
five hundred dollars ($3,500)" with the phrase "five thousand dollars ($5,000)".
V. WAIVER OF 30-DAY WAITING PERIOD. Article V is amended by adding at
the end thereof a new Section 5.12 reading as follows:
Notwithstanding Sections 5.03 and 5.04, a Participant may affirmatively
elect (with any applicable spousal consent) to begin receiving a
pension less than thirty (30) days after receiving the information from
the Retirement Plan Board, as long as the Participant has been are
notified of the right to consider the information for thirty (30) days
and the Participant signs a written form waiving that right, in which
case the pension can start at any time that is more than seven (7) days
after the Participant received the information. In addition, the
Annuity Starting Date may occur before the Participant is provided with
the information, as long as the Participant is notified of the right to
consider the information for thirty (30) days and payment does not
actually begin until more than seven (7) days after the Participant
receives the information, in which case payment will be made
retroactively to the Annuity Starting Date. A Participant may revoke
the election to waive the thirty (30) day period at any time up to the
later of the end of the seven (7) day period referred to in this
paragraph or the Annuity Starting Date.
VI. AMENDMENT TO PRESERVE QUALIFICATION. Section 9.01 is amended by
adding at the end thereof the following new paragraph:
Notwithstanding the foregoing, the Employer shall have the authority to
amend the Plan as necessary or appropriate to preserve the
qualification of the Plan under Section 401(a) of the Code, and its
accompanying trust under Section 501(a) of the Code, which amendments
may be retroactive if necessary or appropriate.
VII. MERGER OF PLAN. Section 10.02 is amended by adding at the end
thereof the following new sentence: "Notwithstanding the foregoing, compliance
with applicable regulation under section 414(l) of the Code shall be deemed
compliance with this Section."
- 2 -
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001056112
<NAME> WERNER HOLDING CO.(PA), INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 11,748
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 1,673
<INVENTORY> 51,693
<CURRENT-ASSETS> 118,691
<PP&E> 146,968
<DEPRECIATION> 83,553
<TOTAL-ASSETS> 221,831
<CURRENT-LIABILITIES> 64,191
<BONDS> 278,746
0
0
<COMMON> 1
<OTHER-SE> (155,271)
<TOTAL-LIABILITY-AND-EQUITY> 221,831
<SALES> 326,199
<TOTAL-REVENUES> 326,199
<CGS> 237,091
<TOTAL-COSTS> 303,135
<OTHER-EXPENSES> (625)
<LOSS-PROVISION> 630
<INTEREST-EXPENSE> 23,802
<INCOME-PRETAX> (113)
<INCOME-TAX> (11)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (102)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
