<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 March 31, 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 incorporation or (I.R.S. Employer
organization) Identification No.)
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 No x
--- ---
As of March 31, 1998 there were 75,179 shares of common stock outstanding.
<PAGE> 2
Part I--Financial Information
Item 1
Werner Holding Co. (PA), Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Dollars in Thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
---------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,319 $ 3,107
Accounts receivable, net 67,406 62,913
Refundable income taxes 10,483 820
Inventories 49,757 44,670
Deferred income taxes 4,451 4,451
Other 4,751 6,936
---------------------------
Total current assets 139,167 122,897
Investments and other assets:
Insurance fund investments 14,066 58,579
Deferred income taxes 3,674 11,586
Deferred financing fees, net 14,781 15,098
Other 13,670 14,196
Property, plant and equipment, net 64,751 65,829
---------------------------
TOTAL ASSETS $ 250,109 $ 288,185
===========================
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Short-term bank debt $ 41,500 $ 41,500
Accounts payable 29,326 24,904
Accrued liabilities 31,380 24,896
Current maturities of long-term debt 1,450 1,450
---------------------------
Total current liabilities 103,656 92,750
Long-term obligations:
Long-term debt 279,280 279,541
Reserve for losses and loss adjustment expenses 2,800 49,644
Other 20,593 19,922
---------------------------
Total liabilities 406,329 441,857
Shareholders' deficit:
Common stock 1 1
Additional paid-in-capital 198,847 198,847
Retained deficit (354,597) (351,753)
Accumulated non-owner changes in equity (471) (767)
---------------------------
Total shareholders' deficit (156,220) (153,672)
---------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 250,109 $ 288,185
===========================
</TABLE>
See notes to unaudited condensed consolidated financial statements.
1
<PAGE> 3
Werner Holding Co. (PA), Inc. and Subsidiaries
Condensed Consolidated Statements of Operations--(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1998 1997
--------------------------
<S> <C> <C>
Net sales $ 98,311 $ 90,876
Cost of sales 74,096 65,806
--------------------------
Gross profit 24,215 25,070
General and administrative expense 9,012 7,688
Selling and distribution expense 12,636 11,982
--------------------------
Operating profit 2,567 5,400
Other income (expense), net 1,220 (7,981)
--------------------------
Income (loss) before interest and taxes 3,787 (2,581)
Interest expense 8,431 1,524
--------------------------
Loss before income taxes (4,644) (4,105)
Income tax benefit (1,800) (1,642)
--------------------------
NET LOSS $ (2,844) $ (2,463)
==========================
</TABLE>
See notes to unaudited condensed consolidated financial statements.
2
<PAGE> 4
Werner Holding Co. (PA), Inc. and Subsidiaries
Condensed Consolidated Statements of Shareholders' Equity (Deficit) (Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Pre- Accumulated Total
Recapitalization Post Additional Retained Other Non- Shareholders'
Common Recapitalization Paid-In Earnings Owner Equity Equity
Stock Common Stock Capital (Deficit) Changes Other (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 218 218
loss (net of benefit)
--------------
Total non-owner equity changes (2,548)
---------------------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 1998 $ - $ 1 $ 198,847 $ (354,597) $ (471) $ - $ (156,220)
===================================================================================================
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 (11,484) (11,484)
$6,184)
Add: reclassification
adjustment for losses
realized included in 5,769 5,769
net loss (net of benefit)
--------------
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
===================================================================================================
</TABLE>
See notes to unaudited condensed consolidated financial statements.
3
<PAGE> 5
Werner Holding Co. (PA), Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1998 1997
-----------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (2,844) $ (2,463)
Reconciliation of net loss to net cash used in operating activities:
Liquidation of reserve for losses and loss adjustment expense (41,508) -
Net gain on transfer of loss reserves and discontinuance of MIICA (4,506) -
Depreciation and amortization 5,615 2,116
Provision for losses on accounts receivable 210 225
Provision for insurance claims 3,973 3,530
Payment of insurance claims (3,333) (2,594)
Deferred income taxes 7,753 -
Realized net losses on disposition and impairment of
insurance fund investments 4,294 661
Net purchases of trading securities - (5,307)
Changes in operating assets and liabilities:
Accounts receivable (4,703) (13,296)
Refundable income taxes (9,663) (468)
Inventories (5,087) (7,102)
Accounts payable 4,422 5,701
Accrued liabilities 5,622 (4,907)
Other, (net) - (19)
-----------------------------
Net cash used in operating activities (39,755) (23,923)
INVESTING ACTIVITIES
Capital expenditures (1,278) (3,803)
Insurance fund securities available-for-sale:
Purchases of debt and equity securities (572) (31,881)
Sale of debt and equity securities 41,508 32,364
Net (purchases) sales of other insurance fund investments (329) 24,607
-----------------------------
Net cash provided by investing activities 39,329 21,287
FINANCING ACTIVITIES
Borrowings under revolving credit facility - 6,500
Repayments of long-term debt (362) (1,000)
Repurchase of common stock - (732)
Dividends paid - (326)
-----------------------------
Net cash (used in) provided by financing activities (362) 4,442
-----------------------------
Net (decrease) increase in cash and cash equivalents (788) 1,806
Cash and cash equivalents at beginning of period 3,107 986
-----------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,319 $ 2,792
=============================
</TABLE>
See notes to unaudited condensed consolidated financial statements.
4
<PAGE> 6
Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 1998
(Dollars in Thousands)
A. BASIS OF PRESENTATION AND RECAPITALIZATION
Basic 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
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 month period ended March 31, 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 effect amounts reported in the consolidated financial
statements and notes. Actual results could differ from those estimates.
5
<PAGE> 7
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 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 the Company's Consolidated
Statements of Operations.
6
<PAGE> 8
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>
MARCH 31, DECEMBER 31,
1998 1997
----------------------------------
<S> <C> <C>
Finished products $ 31,956 $ 26,512
Work-in-process 12,812 11,953
Raw materials and supplies 16,934 18,075
----------------------------------
61,702 56,540
LIFO reserve (11,945) (11,870)
----------------------------------
NET INVENTORIES $ 49,757 $ 44,670
==================================
</TABLE>
C. COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
No. 130, "Reporting Comprehensive Income," (SFAS 130). The pronouncement
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 130 on January 1, 1998.
Certain reclassifications have been made to the March 31, 1997 and December 31,
1997 financial statements to conform to the requirements of this pronouncement.
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 in 1998.
7
<PAGE> 9
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 fiscal years beginning after December
15, 1997.
E. PRODUCT LIABILITY AND WORKERS COMPENSATION CLAIMS AND INSURANCE FUND
INVESTMENTS
In the first quarter of 1998, the Company made a decision to obtain 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. Accordingly, on March 31, 1998 the Company entered into an
arrangement with a commercial insurance provider under which the risk associated
with the Company's product liability and workers' compensation claims was
transferred to the commercial insurance provider and 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 and
has recorded a charge of $1,500, which is included in other income (expense),
net at March 31, 1998 relating primarily to legal fees, employee separation and
severance costs, the write-off of certain of its fixed assets, and other related
expenses.
8
<PAGE> 10
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 impairment losses of $6,439 and $7,864
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. SUPPLEMENTAL GUARANTOR INFORMATION
The Company refinanced substantially all of its outstanding debt through
borrowings under the Senior Credit Facility and the Notes. The Issuer's
wholly-owned subsidiaries, except for MIICA (the "Guarantor Subsidiaries"),
along with Holding, its parent, have provided full, unconditional, joint and
several guarantees of the Senior Credit Facility and the Notes and will provide
the same guarantee for obligations of any registered notes exchanged for the
Notes.
Following is condensed consolidated financial information for Holding (the
"Parent Company"), the Issuer, the Guarantor Subsidiaries and MIICA (the
"Non-Guarantor Subsidiary"). 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, 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 at subsidiaries are, therefore, reflected in the Company's
investment account. The investment in subsidiaries and intercompany balances and
transactions have been eliminated.
9
<PAGE> 11
Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)--Continued
(Dollars in Thousands)
F. SUPPLEMENTAL GUARANTOR INFORMATION--CONTINUED
<TABLE>
<CAPTION>
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
MARCH 31, 1998
--------------------------------------------------------------------------------------
COMBINED
PARENT GUARANTOR NON-GUARANTOR
COMPANY ISSUER SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ - $ 1 $ 2,318 $ - $ - $ 2,319
Accounts receivable, net 67,396 10 67,406
Refundable income taxes 11,563 (1,080) 10,483
Inventories 49,757 49,757
Deferred income taxes 2,623 1,828 4,451
Other 4,751 4,751
--------------------------------------------------------------------------------------
Total current assets 1 138,408 758 139,167
Investments and other assets:
Insurance fund investments 14,066 14,066
Deferred income taxes (1,307) 4,981 3,674
Deferred financing fees, net 14,781 14,781
Investment in subsidiaries (156,218) 146,230 9,988
Other 13,119 551 13,670
Property, plant and equipment, net 64,709 42 64,751
--------------------------------------------------------------------------------------
TOTAL ASSETS $ (156,218) $ 161,012 $ 214,929 $ 20,398 $ 9,988 $ 250,109
======================================================================================
</TABLE>
10
<PAGE> 12
Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)--Continued
(Dollars in Thousands)
F. SUPPLEMENTAL GUARANTOR INFORMATION--CONTINUED
<TABLE>
<CAPTION>
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
MARCH 31, 1998
--------------------------------------------------------------------------------------
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 29,326 29,326
Intercompany payable (receivable) 467 (467)
Accrued liabilities 30,321 1,059 31,380
Current maturities of long-term debt 1,450 1,450
--------------------------------------------------------------------------------------
Total current liabilities 42,950 60,114 592 103,656
Long-term obligations:
Long-term debt 274,280 5,000 279,280
Reserve for losses and loss adjustment
expenses 2,800 2,800
Other 20,593 20,593
--------------------------------------------------------------------------------------
274,280 28,393 302,673
Shareholders' equity (deficit) (156,218) (156,218) 126,422 19,806 9,988 (156,220)
--------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT) $ (156,218) $ 161,012 $ 214,929 $ 20,398 $ 9,988 $ 250,109
======================================================================================
</TABLE>
11
<PAGE> 13
Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)--Continued
(Dollars in Thousands)
F. SUPPLEMENTAL GUARANTOR INFORMATION
<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>
ASSETS
Current assets:
Cash and cash equivalents $ 17 $ 6 $ 3,084 $ - $ - $ 3,107
Accounts receivable, net 62,548 6,502 (6,137) 62,913
Refundable income taxes 664 156 820
Inventories 44,670 44,670
Deferred income taxes 2,623 1,828 4,451
Other 6,636 300 6,936
--------------------------------------------------------------------------------------
Total current assets 17 6 120,225 8,786 (6,137) 122,897
Investments and other assets:
Insurance fund investments 58,579 58,579
Deferred income taxes 6,445 5,141 11,586
Deferred financing fees, net 15,098 15,098
Investment in subsidiaries (153,689) 148,698 4,991
Other 13,447 749 14,196
Property, plant and equipment, net 65,783 46 65,829
--------------------------------------------------------------------------------------
TOTAL ASSETS $ (153,672) $ 163,802 $ 205,900 $ 73,301 $ (1,146) $ 288,185
======================================================================================
</TABLE>
12
<PAGE> 14
Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)--Continued
(Dollars in Thousands)
F. 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 losses and loss adjustment
expenses 49,644 49,644
Other 19,922 19,922
-----------------------------------------------------------------------------------
274,541 24,922 49,644 349,107
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>
13
<PAGE> 15
Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)--Continued
(Dollars in Thousands)
F. SUPPLEMENTAL GUARANTOR INFORMATION--CONTINUED
<TABLE>
<CAPTION>
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
----------------------------------------------------------------------------------------
COMBINED
PARENT GUARANTOR NON-GUARANTOR
COMPANY ISSUER SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ - $ - $ 98,311 $ 630 $ (630) $ 98,311
Cost of sales 74,096 74,096
----------------------------------------------------------------------------------------
Gross profit 24,215 630 (630) 24,215
General and administrative expense 8,694 546 (228) 9,012
Selling and distribution expense 12,636 12,636
----------------------------------------------------------------------------------------
Operating profit 2,885 84 (402) 2,567
Loss from equity investees (2,844) (2,844) 5,688
Other income (expense), net (1,807) 3,027 1,220
----------------------------------------------------------------------------------------
(Loss) income before interest and taxes (2,844) (2,844) 1,078 3,111 5,286 3,787
Interest expense 8,431 8,431
----------------------------------------------------------------------------------------
(Loss) income before income taxes
(benefit) (2,844) (2,844) (7,353) 3,111 5,286 (4,644)
Income taxes (benefit) (2,889) 1,089 (1,800)
----------------------------------------------------------------------------------------
NET (LOSS) INCOME $ (2,844) $ (2,844) $ (4,464) $ 2,022 $ 5,286 $ (2,844)
========================================================================================
</TABLE>
14
<PAGE> 16
Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)--Continued
(Dollars in Thousands)
F. SUPPLEMENTAL GUARANTOR INFORMATION--CONTINUED
<TABLE>
<CAPTION>
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
------------------------------------------------------------------------------------------
COMBINED
PARENT GUARANTOR NON-GUARANTOR
COMPANY ISSUER SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ - $ - $ 90,876 $ 543 $ (543) $ 90,876
Cost of sales 65,806 65,806
------------------------------------------------------------------------------------------
Gross profit 25,070 543 (543) 25,070
General and administrative expense 7,348 706 (366) 7,688
Selling and distribution expense 11,982 11,982
------------------------------------------------------------------------------------------
Operating profit 5,740 (163) (177) 5,400
Loss from equity investees (2,463) (2,463) 4,926
Other income (expense), net 29 (8,010) (7,981)
------------------------------------------------------------------------------------------
(Loss) income before interest and taxes (2,463) (2,463) 5,769 (8,173) 4,749 (2,581)
Interest expense 1,524 1,524
------------------------------------------------------------------------------------------
(Loss) income before income taxes
(benefit) (2,463) (2,463) 4,245 (8,173) 4,749 (4,105)
Income taxes (benefit) 1,219 (2,861) (1,642)
------------------------------------------------------------------------------------------
NET (LOSS) INCOME $ (2,463) $ (2,463) $ 3,026 $ (5,312) $ 4,749 $ (2,463)
==========================================================================================
</TABLE>
15
<PAGE> 17
Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)--Continued
(Dollars in Thousands)
F. SUPPLEMENTAL GUARANTOR INFORMATION--CONTINUED
<TABLE>
<CAPTION>
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
-----------------------------------------------------------------
COMBINED NON-
PARENT GUARANTOR GUARANTOR
COMPANY ISSUER SUBSIDIARIES SUBSIDIARY CONSOLIDATED
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING $ - $ - $ 852 $ (40,607) $ (39,755)
ACTIVITIES
INVESTING ACTIVITIES
Capital expenditures (1,278) (1,278)
Insurance fund securities available-for-sale:
Purchases of debt and equity securities (572) (572)
Sales of debt and equity securities 41,508 41,508
Net purchases of other insurance fund investments (329) (329)
Intercompany transactions (17) 357 (340)
-----------------------------------------------------------------
Net cash (used in) provided by investing (17) 357 (1,618) 40,607 39,329
activities
FINANCING ACTIVITIES
Repayments of long-term debt (362) (362)
-----------------------------------------------------------------
Net cash used in financing activities (362) (362)
-----------------------------------------------------------------
Net decrease in cash and cash equivalents (17) (5) (766) (788)
Cash and equivalents at beginning of period 17 6 3,084 3,107
-----------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ - $ 1 $ 2,318 $ - $ 2,319
=================================================================
</TABLE>
16
<PAGE> 18
Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)--Continued
(Dollars in Thousands)
F. SUPPLEMENTAL GUARANTOR INFORMATION--CONTINUED
<TABLE>
<CAPTION>
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
-----------------------------------------------------------------
COMBINED NON-
PARENT GUARANTOR GUARANTOR
COMPANY ISSUER SUBSIDIARIES SUBSIDIARY CONSOLIDATED
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING $ - $ - $ 1,167 $ (25,090) $ (23,923)
ACTIVITIES
INVESTING ACTIVITIES
Capital expenditures (3,803) (3,803)
Insurance fund securities available-for-sale:
Purchases of debt and equity securities (31,881) (31,881)
Sales of debt and equity securities 32,364 32,364
Net sales of other insurance fund investments 24,607 24,607
Intercompany transactions 1,605 (2) (1,603)
-----------------------------------------------------------------
Net cash provided by (used in) investing 1,605 (2) (5,406) 25,090 21,287
activities
FINANCING ACTIVITIES
Net borrowings under revolving credit agreements 6,500 6,500
Repayments of long-term debt (1,000) (1,000)
Repurchase of common stock (732) (732)
Dividends paid (326) (326)
-----------------------------------------------------------------
Net cash (used in) provided by financing (1,058) 5,500 4,442
activities
-----------------------------------------------------------------
Net increase (decrease) in cash and cash 547 (2) 1,261 1,806
equivalents
Cash and equivalents at beginning of period 344 13 629 986
-----------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 891 $ 11 $ 1,890 $ - $ 2,792
=================================================================
</TABLE>
17
<PAGE> 19
Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)--Continued
(Dollars in Thousands)
G. SUBSEQUENT EVENT--ACCOUNTS RECEIVABLE SECURITIZATION
On May 28, 1998, the Company, through a newly formed Delaware special purpose
subsidiary, entered into receivable sale agreements with a financial institution
and its affiliate, whereby the Company sold, and during the term of the
agreement will continue to sell, with limited recourse, an undivided interest in
all of its trade accounts receivable for cash and a residual interest in the
form of a note. Under these agreements, which expire in 2003, the maximum amount
of sale proceeds which may be accessed by the Company at any one time is
$50,000, subject to change based upon the level of its eligible receivables. The
proceeds of the sale were used to repay the outstanding amounts borrowed under
the receivables portion of the Senior Credit Facility.
18
<PAGE> 20
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 MARCH 31, 1998 AS COMPARED TO QUARTER ENDED
MARCH 31, 1997
Net Sales. Net sales increased $7.4 million or 8.2% to $98.3 million for the
quarter ended March 31, 1998 from $90.9 million for the quarter ended March 31,
1997. Net sales of climbing products increased $5.0 million, or 7.5% to $7.21
million for the quarter ended March 31, 1998 from $67.1 million for the quarter
ended March 31, 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 $2.4 million, or
10.3% to $26.3 million for the quarter ended March 31, 1998 from $23.9 million
for the quarter ended March 31, 1997. The increase is due to growth in
extrusions sold to customers in the building products and transportation
sectors.
Gross Profit. Gross profit decreased $0.9 million or 3.4% to $24.2
million for the quarter ended March 31, 1998 from $25.1 million for the quarter
ended March 31, 1997. The decrease was primarily due to the increased sale of
lower margin units.
General and Administrative Expense. General and administrative expense
increased $1.3 million or 17.2% to $9.0 million for the quarter ended March 31,
1998 from $7.7 million for the quarter ended March 31, 1997. The increase was
due to the amortization of certain costs associated with the Recapitalization.
Other Income (Expense), Net. Other income (expense), net increased $9.2
million to $1.2 million for the quarter ended March 31, 1998 from $(8.0) million
for the quarter ended March 31, 1997. The increase was primarily attributable to
the net gain incurred on the MIICA Insurance Transfer. The Company recorded
impairment losses on certain insurance fund investments in both the first
quarter of 1998 and 1997.
19
<PAGE> 21
Interest Expense. Interest expense increased $6.9 million or 453.2% to $8.4
million for the quarter ended March 31, 1998 from $1.5 million for the quarter
ended March 31, 1997. The increase was primarily due to increased debt resulting
from the Recapitalization.
Net Loss. Net loss increased $0.4 million or 15.5% to $2.8 million for
the quarter ended March 31, 1998 from $2.5 million for the quarter ended March
31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flows used in operating activities increased $15.9 million to
$(39.8) for the quarter ended March 31, 1998 from $(23.9) million for the
quarter ended March 31, 1997. The increase is primarily attributable to the net
effect of the liquidation of reserves for losses and loss adjustment expense
pursuant to the MIICA Insurance Transfer somewhat offset by decreased operating
working capital (receivables, 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 its Senior Credit Facility. 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 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.
20
<PAGE> 22
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:
3.1* Certificate of Incorporation of Werner Holding Co. (DE),
Inc.
3.2* By-Laws of Werner Holding Co. (DE), Inc.
10.1* Reinsurance Agreement, dated March 31, 1998, among
Manufacturer's Indemnity and Insurance Company of
America and National Union Fire Insurance Company of
Pittsburgh, PA
10.2* Agreement, dated March 31, 1998, amount National Union
Fire Insurance Company of Pittsburgh, PA, Manufacturer's
Indemnity and Insurance Company of America and Werner
Holding Co. PA, Inc.
10.3* Novation and Assumption Agreement, dated March 31, 1998,
among Insurance Company of North America, National Union
Fire Insurance Company of Pittsburgh, PA and Werner
Holding Co. (PA), Inc.
10.4* Commutation Agreement, dated March 31, 1998, between
Insurance Company of North America, Pacifica Employers
Insurance Company and CIGNA Insurance Company of
Illinois, and Manufacturer's Indemnity and Insurance
Company of America.
10.5* Indemnity Agreement, dated March 31, 1998, between
National Union Fire Insurance Company of Pittsburgh, PA
and Werner Holding Co. (PA), Inc.
10.6* Novation Agreement, dated March 31, 1998, among The
Travelers Indemnity Company of Hartford, Connecticut,
certain of its subsidiaries and affiliates, Werner
Holding Co. (PA), Inc. and certain of its subsidiaries,
and National Union Fire Insurance Company of Pittsburgh,
PA.
27.1 Financial Data Schedule
(b) Reports on Form 8-K: None.
-------------------------------------------
* Incorporated herein by reference to the Company's
registration statement on Form S-4 (File No.
333-46607).
21
<PAGE> 23
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 _______________ By /s/ D. W. Resnick
------------------
D. W. Resnick
Chief Financial Officer and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
22
<PAGE> 24
INDEX
Werner Holding Co. (DE), Inc.
Form 10-Q
Period Ended March 31, 1998
PART I FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements of Werner Holding Co. (PA), Inc. (Unaudited)
Condensed Consolidated Balance Sheets--March 31, 1998 and
December 31, 1997.............................................. 1
Condensed Consolidated Statements of Operations--Three Months
Ended March 31, 1998 and 1997.................................. 2
Condensed Consolidated Statements of Consolidated Stockholders'
Equity (Deficit)--Three Months Ended March 31, 1998 and 1997... 3
Condensed Consolidated Statements of Cash Flows--Three Months
Ended March 31, 1998 and 1997................................. 4
Notes to Condensed Consolidated Financial Statements.............. 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations of Werner Holding Co. (PA), Inc. .................. 19
Item 3. Quantitative and Qualitative Disclosures about Market Risk......... 21
PART II OTHER INFORMATION
- ------------------------------
Item 1. Legal Proceedings.................................................. 21
Item 6. Exhibits and Reports on Form 8-K................................... 21
SIGNATURES.................................................................. 22
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 conditions 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.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001056112
<NAME> WERNER HOLDING CO.(PA), INC.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,319
<SECURITIES> 0
<RECEIVABLES> 68,843
<ALLOWANCES> 1,437
<INVENTORY> 49,757
<CURRENT-ASSETS> 139,167
<PP&E> 144,007
<DEPRECIATION> 79,256
<TOTAL-ASSETS> 250,109
<CURRENT-LIABILITIES> 103,656
<BONDS> 279,280
0
0
<COMMON> 1
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<TOTAL-LIABILITY-AND-EQUITY> 250,109
<SALES> 98,311
<TOTAL-REVENUES> 98,311
<CGS> 74,096
<TOTAL-COSTS> 95,744
<OTHER-EXPENSES> (1,220)
<LOSS-PROVISION> 210
<INTEREST-EXPENSE> 8,431
<INCOME-PRETAX> (4,644)
<INCOME-TAX> (1,800)
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