<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1999
COMMISSION FILE NUMBER 333-46607
WERNER HOLDING CO. (DE), INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
1105 NORTH MARKET STREET, SUITE 1300
WILMINGTON, DELAWARE
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
25-1581345
(I.R.S. EMPLOYER IDENTIFICATION NO.)
19899
(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, 1999 there were 1,000 shares of common stock
outstanding.
<PAGE> 2
INDEX
WERNER HOLDING CO. (DE), INC.
FORM 10-Q
PERIOD ENDED SEPTEMBER 30, 1999
<TABLE>
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements of Werner Holding Co. (PA), Inc. and
Subsidiaries (Unaudited)
Condensed Consolidated Balance Sheets -- September 30, 1999
and December 31, 1998..................................... 1
Condensed Consolidated Statements of Operations -- Three and
Nine Months Ended September 30, 1999 and 1998............. 2
Condensed Consolidated Statements of Changes in
Shareholders' Equity (Deficit) -- Three and Nine Months
Ended September 30, 1999 and 1998......................... 3
Condensed Consolidated Statements of Cash Flows -- Nine
Months Ended September 30, 1999 and 1998.................. 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.
and Subsidiaries.......................................... 15
Item 3. Quantitative and Qualitative Disclosures about Market
Risk...................................................... 19
PART II OTHER INFORMATION
Item 1. Legal Proceedings........................................... 20
Item 6. Exhibits and Reports on Form 8-K............................ 20
SIGNATURE.................................................................. 21
</TABLE>
The financial statements included herein are those of Werner Holding Co.
(PA), Inc. ("Holding"). The registrant is Werner Holding Co. (DE), Inc. (the
"Issuer"), which is a direct 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,
1999 1998
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 3,709 $ 9,387
Undivided interest in accounts receivable................. 68,294 46,298
Allowance for doubtful accounts........................... (2,100) (1,600)
Refundable income taxes................................... -- 490
Inventories............................................... 56,305 46,777
Deferred income taxes..................................... 2,845 2,830
Other..................................................... 3,304 2,559
-------- --------
Total current assets................................. 132,357 106,741
Property, plant and equipment, net.......................... 73,159 65,693
Other assets:
Deferred income taxes..................................... 11,647 5,997
Deferred financing fees, net.............................. 12,042 13,745
Other..................................................... 17,340 20,603
-------- --------
41,029 40,345
-------- --------
TOTAL ASSETS......................................... $246,545 $212,779
======== ========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 26,756 $ 22,742
Accrued liabilities....................................... 39,402 28,583
Income taxes payable...................................... 250 --
Current maturities of long-term debt...................... 1,450 1,450
-------- --------
Total current liabilities............................ 67,858 52,775
Long-term obligations:
Long-term debt............................................ 277,672 278,483
Reserve for product liability and workers' compensation
claims................................................. 24,680 13,639
Accrued employee retirement benefits...................... 23,279 22,279
-------- --------
Total liabilities.................................... 393,489 367,176
Shareholders' deficit:
Common stock.............................................. 1 1
Additional paid-in-capital................................ 198,786 198,847
Accumulated deficit....................................... (343,503) (351,607)
Accumulated other non-owner changes in equity............. (1,598) (1,638)
Notes receivable arising from stock loan plan............. (630) --
-------- --------
Total shareholders' deficit.......................... (146,944) (154,397)
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT.......... $246,545 $212,779
======== ========
</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,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales........................................... $122,563 $112,534 $352,798 $326,199
Cost of sales....................................... 86,622 79,966 249,794 239,508
-------- -------- -------- --------
Gross profit........................................ 35,941 32,568 103,004 86,691
General and administrative expenses................. 7,439 8,109 22,810 24,124
Selling and distribution expenses................... 14,913 13,422 43,580 39,411
-------- -------- -------- --------
Operating profit.................................... 13,589 11,037 36,614 23,156
Other (expense) income, net......................... (510) 360 (681) 533
-------- -------- -------- --------
Income before interest and taxes.................... 13,079 11,397 35,933 23,689
Interest expense.................................... 6,581 8,328 19,978 23,802
-------- -------- -------- --------
Income (loss) before income taxes................... 6,498 3,069 15,955 (113)
Income tax (benefit)................................ 2,624 1,901 6,422 (11)
-------- -------- -------- --------
NET INCOME (LOSS)................................... $ 3,874 $ 1,168 $ 9,533 $ (102)
======== ======== ======== ========
</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>
ACCUMULATED
OTHER
ADDITIONAL NON-OWNER TOTAL
COMMON PAID-IN ACCUMULATED EQUITY SHAREHOLDERS'
STOCK CAPITAL DEFICIT CHANGES OTHER EQUITY (DEFICIT)
------ ---------- ----------- ----------- ----- ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1999........ $1 $198,847 $(351,607) $(1,638) $ -- $(154,397)
Non-owner equity changes:
Net income...................... 1,151 1,151
Other non-owner equity changes:
Unrealized gains on
investments (net of deferred
taxes of $19)............... 35 35
Less: reclassification
adjustment for gains
realized included in net
income (net of tax)......... (18) (18)
---------
Total non-owner equity
changes................ 1,168
Notes receivable arising from
stock loan plan................. (580) (580)
-- -------- --------- ------- ----- ---------
Balance at March 31, 1999......... $1 $198,847 $(350,456) $(1,621) $(580) $(153,809)
== ======== ========= ======= ===== =========
Non-owner equity changes:
Net income...................... 4,508 4,508
Other non-owner equity changes:
Unrealized gains on
investments (net of deferred
taxes of $27)............... 49 49
Less: reclassification
adjustment for gains
realized included in net
income (net of tax)......... (26) (26)
---------
Total non-owner equity
changes................ 4,531
Notes receivable arising from
stock loan plan................. (80) (80)
Repurchase of common stock........ (1,429) (1,429)
-- -------- --------- ------- ----- ---------
Balance at June 30, 1999.......... $1 $198,847 $(347,377) $(1,598) $(660) $(150,787)
== ======== ========= ======= ===== =========
Non-owner equity changes:
Net income...................... 3,874 3,874
Notes receivable arising from
stock loan plan................. 30 30
Repurchase of common stock........ (61) (61)
-- -------- --------- ------- ----- ---------
Balance at September 30, 1999..... $1 $198,786 $(343,503) $(1,598) $(630) $(146,944)
== ======== ========= ======= ===== =========
</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>
ACCUMULATED
OTHER
ADDITIONAL NON-OWNER TOTAL
COMMON PAID-IN ACCUMULATED EQUITY SHAREHOLDERS'
STOCK CAPITAL DEFICIT CHANGES OTHER EQUITY (DEFICIT)
------ ---------- ----------- ----------- ----- ----------------
<S> <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 tax 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)
== ======== ========= ======= ===== =========
Non-owner equity changes:
Net income............................ 248 248
Other non-owner equity changes:
Unrealized gains on investments (net
of deferred taxes of $8).......... 22 22
Less: reclassification adjustment
for gains realized included in net
income (net of tax)............... (20) (20)
Adjustment to minimum pension
liability......................... 623 623
---------
Total non-owner equity
changes...................... 873
-- -------- --------- ------- ----- ---------
Balance at December 31, 1998............ $1 $198,847 $(351,607) $(1,638) $ -- $(154,397)
== ======== ========= ======= ===== =========
</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,
-------------------
1999 1998
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................... $ 9,533 $ (102)
Reconciliation of net income (loss) to net cash provided by
operating activities:
Net gain on transfer of loss reserves and
discontinuance of MIICA............................... -- (4,506)
Depreciation........................................... 6,077 6,592
Amortization of deferred financing fees and original
issue discount........................................ 1,979 2,179
Amortization of recapitalization and other deferred
costs................................................. 2,915 7,436
Provision for losses on accounts receivable............ 499 630
Impairment of property, plant and equipment............ -- 711
Provision for product liability and workers'
compensation claims................................... 12,472 12,104
Payment of product liability and workers' compensation
claims................................................ (1,431) (3,746)
Deferred income taxes.................................. (5,689) 6,647
Realized net losses on disposition and impairment of
investments........................................... -- 2,678
Changes in operating assets and liabilities:
Accounts receivable.................................. -- 40,458
Undivided interest in accounts receivable............ (21,996) (20,976)
Refundable income taxes.............................. 490 (4,294)
Inventories.......................................... (9,528) (7,023)
Accounts payable..................................... 4,015 1,833
Accrued liabilities.................................. 10,934 7,287
Income taxes payable................................. 250 --
Other, net........................................... 264 1,465
-------- --------
Net cash provided by operating activities................... 10,784 49,373
INVESTING ACTIVITIES
Capital expenditures........................................ (13,455) (4,931)
Insurance fund securities available-for-sale:
Purchases of debt and equity securities................ -- (572)
Net sales of other investments.............................. 200 7,358
-------- --------
Net cash (used in) provided by investing activities......... (13,255) 1,855
FINANCING ACTIVITIES
Issuance of notes receivable arising from stock loan plan,
net....................................................... (630) --
Repurchase of common stock.................................. (1,490) --
Repayment of receivables facility........................... -- (41,500)
Repayments of long-term debt................................ (1,087) (1,087)
-------- --------
Net cash used in financing activities....................... (3,207) (42,587)
-------- --------
Net (decrease) increase in cash and cash equivalents........ (5,678) 8,641
Cash and cash equivalents at beginning of period............ 9,387 3,107
-------- --------
Cash and Cash Equivalents at End of Period.................. $ 3,709 $ 11,748
======== ========
</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 direct wholly-owned subsidiary, Werner Holding Co. (DE), Inc. ("Issuer")
and the Issuer's 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
only of normal recurring accruals) considered necessary for a fair financial
presentation have been included. Operating results for the three and nine months
ended September 30, 1999 are not necessarily indicative of the results that may
be expected for the year ending December 31, 1999. For further information,
refer to the consolidated financial statements and notes thereto included in the
Company's Annual Report for 1998 on Form 10-K (File No. 333-46607) as filed with
the Securities and Exchange Commission.
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.
Certain amounts for 1998 have been reclassified to conform to the 1999
interim period presentation.
The Recapitalization
In 1997, the Company entered into a recapitalization agreement (the
"Agreement") with certain affiliates of INVESTCORP S.A. ("Investcorp") and
certain other international investors organized by Investcorp (collectively, the
"Investors"). Pursuant to the Agreement, the Company's common stock was
reclassified and the Company redeemed certain shares of its reclassified stock
for $330,700 and a market participation right, and sold to the Investors newly
created common shares for $122,700 representing 67% of the outstanding voting
equity of the Company (all of which actions together constituted the
"Recapitalization"). The transaction was accounted for as a recapitalization and
as such the historical basis of the Company's assets and liabilities was not
affected. The Recapitalization was funded through borrowings under a senior
credit facility with a syndicate of banks (the "Senior Credit Facility"), the
issuance of Senior Subordinated Notes (the "Notes"), and the proceeds from the
sale of stock to the Investors.
B. CHANGE IN ACCOUNTING METHOD-DEPRECIATION
The straight-line method of depreciation was adopted for all property,
plant and equipment placed into service after January 1, 1999. For property,
plant and equipment placed into service prior to January 1, 1999, depreciation
is computed using accelerated methods. The Company believes the new method will
more appropriately reflect its financial results by better allocating costs of
new property over the useful lives of these assets. In addition, the new method
more closely conforms with that prevalent in the industries in which the Company
operates. The effect of this change was not material to the earnings or
financial position of the Company for the three and nine month periods ended
September 30, 1999.
6
<PAGE> 9
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
(DOLLARS IN THOUSANDS)
C. INVENTORIES
Components of inventories are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
Finished products.......................................... $30,475 $26,887
Work-in-process............................................ 16,071 12,339
Raw materials and supplies................................. 19,649 17,808
------- -------
66,195 57,034
Less excess of cost over LIFO stated values................ 9,890 10,257
------- -------
NET INVENTORIES............................................ $56,305 $46,777
======= =======
</TABLE>
D. COMMITMENTS AND CONTINGENCIES
In March 1998, an action was filed in the United States District Court for
the Western District of Pennsylvania entitled Elizabeth Werner, et al v. Eric J.
Werner, et al (Civil Action No. 98-503). The action purports, in part, to be
brought derivatively on behalf of Holding and, in part, to be brought on behalf
of plaintiffs individually against the Company and certain current and former
officers and directors of the Company. The aspect of the case purportedly
brought on behalf of Holding alleges breaches of fiduciary duty by various
members of the Company's management arising out of, among other things, the
issuance of restricted stock to management of the Company in 1992 and 1993.
Holding's Board of Directors referred the matter to a special committee of
disinterested directors to investigate the merits of the claim and to take
appropriate actions on behalf of Holding. After a detailed investigation, the
special committee recommended that the derivative claims not be pursued by or on
behalf of Holding. Accordingly, all the defendants made motions to dismiss the
derivative claims. Pursuant to an amendment to the complaint filed by plaintiffs
on March 29, 1999, the only remaining corporate defendant in this action is
Holding. Pursuant to the same amendment, the only remaining derivative claim
asserted by the plaintiffs is a claim for excessive compensation, not relating
to the restricted stock issuances. The aspect of the case purportedly brought on
behalf of plaintiffs individually against the Company appears to arise out of
the 1992 and 1993 restricted stock issuances as well as certain alleged
misrepresentations by representatives of the Company. The plaintiffs seek
monetary damages in an unspecified amount. In May 1999, the magistrate judge
issued a report and recommendation ruling that all of the Plaintiffs' claims be
dismissed. The District Court issued a Memorandum Order on August 4, 1999
granting the motion to dismiss all remaining claims against all defendants
without prejudice and adopted the magistrate judge's report as the opinion of
the District Court. The plaintiffs have appealed such decision.
E. RESERVE FOR PRODUCT LIABILITY AND WORKERS' COMPENSATION CLAIMS AND INSURANCE
FUND INVESTMENTS
On March 31, 1998, the Company obtained third party commercial insurance
coverage for its product liability and workers' compensation claims. Previously,
the Company provided insurance for such claims through MIICA, the Company's
captive insurance subsidiary. Under the terms of the commercial insurance
coverage, the commercial insurance provider agreed to assume losses which
occurred on or before March 31, 1998, capped such losses at a maximum of
$75,000, and extinguished the Company's liability in regard to such losses (the
"MIICA Insurance Transfer"). The Company paid approximately $42,400 for the
commercial insurance coverage from the proceeds of the liquidation of certain of
MIICA's insurance fund investments. As of the date of the MIICA Insurance
Transfer, the Company had a reserve for such losses of approximately $47,500. As
a result of the MIICA Insurance Transfer, the Company recognized a gain as of
March 31, 1998 of approximately $4,500, which is net of costs to discontinue the
operations of MIICA, which was dissolved in the third quarter of 1998.
7
<PAGE> 10
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
(DOLLARS IN THOUSANDS)
E. RESERVE FOR PRODUCT LIABILITY AND WORKERS' COMPENSATION CLAIMS AND INSURANCE
FUND INVESTMENTS -- CONTINUED
The Company has obtained third party commercial insurance coverage for product
liability and workers' compensation claims occurring on or after April 1, 1998,
subject to certain deductible provisions, for which the Company has established
reserves.
In 1998, MIICA recorded pre-tax losses of $4,661, which are included in
other (expense) income, net relating to available-for-sale equity securities
deemed by management to be other-than-temporarily impaired.
F. SEGMENT INFORMATION
The Company classifies its business in two segments: Climbing Products,
which includes aluminum, fiberglass and wood ladders, scaffolding, stages and
planks; and Extruded Products, which includes aluminum extrusions and fabricated
components. The Company's reportable segments are based on the characteristics
of the product and the markets and distribution channels through which the
products are sold. The Company evaluates segment performance based on operating
profit. There has not been a material change in total assets, the basis of
segmentation or the basis of measurement of segment profit or loss from that
disclosed in the Company's 1998 Annual Report on Form 10-K. Net sales and
operating profit (loss) of the Company's segments for the three and nine months
ended September 30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales
Climbing Products........................... $ 96,635 $ 86,067 $275,529 $246,373
Extruded Products........................... 25,928 26,467 77,269 79,826
-------- -------- -------- --------
$122,563 $112,534 $352,798 $326,199
======== ======== ======== ========
Operating Profit (Loss)
Climbing Products........................... $ 12,666 $ 7,749 $ 33,940 $ 26,529
Extruded Products........................... 1,815 2,391 6,952 5,491
Corporate & Other........................... (892) 897 (4,278) (8,864)
-------- -------- -------- --------
$ 13,589 $ 11,037 $ 36,614 $ 23,156
======== ======== ======== ========
</TABLE>
Corporate & Other includes various corporate expenses and eliminations.
G. SALES OF ACCOUNTS RECEIVABLE
The undivided interest in accounts receivable is the net residual interest
associated with accounts receivable sold under a receivables purchase agreement
of $77,294 and $66,298 as of September 30, 1999 and December 31, 1998,
respectively. The net cash provided under the receivables purchase agreement was
$9,000 and $20,000 as of September 30, 1999 and December 31, 1998, respectively.
The expense incurred on the sale of accounts receivable under the agreement is
reported in the accompanying condensed consolidated statements of operations in
"Other (expense) income, net".
8
<PAGE> 11
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
(DOLLARS IN THOUSANDS)
H. INCOME TAXES
In accordance with APB 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, 1999 and 1998 to include 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, 1999 is primarily due to state taxes (net of federal benefit). The
difference between the statutory and the annual effective tax rate at September
30, 1998 was primarily from a valuation allowance for capital losses.
I. SUBSEQUENT EVENT
On October 29, 1999, the Company acquired certain assets of Keller Ladders,
Inc. in a business combination that will be accounted for as a purchase. No
liabilities were assumed in connection with this asset acquisition. The results
of operations will be included in the results of operations of the Company from
October 29, 1999.
J. SUPPLEMENTAL GUARANTOR INFORMATION
In connection with the Recapitalization in 1997, 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 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.
Following is condensed consolidated information for Holding (the "Parent
Company"), the Issuer, the Guarantor Subsidiaries, and MIICA (through July 8,
1998, the date of its dissolution) 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 is 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 investments in
subsidiaries and intercompany balances and transactions have been eliminated.
For presentation purposes, all current and deferred taxes have been combined in
the financial statements of the Guarantor Subsidiaries.
9
<PAGE> 12
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
(DOLLARS IN THOUSANDS)
J. SUPPLEMENTAL GUARANTOR INFORMATION -- CONTINUED
<TABLE>
<CAPTION>
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEETS
-------------------------------------------------------------------------------
COMBINED NON-
PARENT GUARANTOR GUARANTOR
COMPANY ISSUER SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
--------- --------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
SEPTEMBER 30, 1999
ASSETS
Current assets:
Undivided interest in
accounts receivable.... $ $ $ $68,294 $ $ 68,294
Inventories, net.......... 56,305 56,305
Other current assets...... 25 433 7,294 6 -- 7,758
--------- --------- --------- ------- -------- ---------
Total current
assets............ 25 433 63,599 68,300 -- 132,357
Property, plant and
equipment, net............ -- 2 73,157 -- -- 73,159
Investment in
subsidiaries.............. (157,872) (159,887) 5,612 -- 312,147 --
Other assets................ -- 5,948 35,081 -- -- 41,029
--------- --------- --------- ------- -------- ---------
TOTAL ASSETS......... $(157,847) $(153,504) $ 177,449 $68,300 $312,147 $ 246,545
========= ========= ========= ======= ======== =========
LIABILITIES AND
SHAREHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Other current
liabilities............ $ -- $ 7,440 $ 60,385 $ 33 $ -- $ 67,858
Intercompany payable
(receivable)........... (10,903) (275,744) 223,992 62,655 -- --
--------- --------- --------- ------- -------- ---------
Total current
liabilities....... (10,903) (268,304) 284,377 62,688 -- 67,858
Long-term debt.............. -- 272,672 5,000 -- -- 277,672
Other long-term
liabilities............... -- -- 47,959 -- -- 47,959
Total equity
(deficit)......... (146,944) (157,872) (159,887) 5,612 312,147 (146,944)
--------- --------- --------- ------- -------- ---------
TOTAL LIABILITIES AND
EQUITY
(DEFICIT)......... $(157,847) $(153,504) $ 177,449 $68,300 $312,147 $ 246,545
========= ========= ========= ======= ======== =========
</TABLE>
10
<PAGE> 13
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
(DOLLARS IN THOUSANDS)
J. SUPPLEMENTAL GUARANTOR INFORMATION -- CONTINUED
<TABLE>
<CAPTION>
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEETS
-------------------------------------------------------------------------------
COMBINED NON-
PARENT GUARANTOR GUARANTOR
COMPANY ISSUER SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
--------- --------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1998
ASSETS
Current assets:
Undivided interest in
accounts receivable.... $ $ $ $46,298 $ $ 46,298
Inventories, net.......... 46,777 46,777
Other current assets...... 1 2,743 10,922 -- -- 13,666
--------- --------- --------- ------- -------- ---------
Total current
assets............ 1 2,743 57,699 46,298 -- 106,741
Property, plant and
equipment, net............ 65,693 65,693
Investment in
subsidiaries.............. (166,607) (154,397) 5,343 -- 315,661 --
Other assets................ -- 5,688 34,657 -- -- 40,345
--------- --------- --------- ------- -------- ---------
TOTAL ASSETS......... $(166,606) $(145,966) $ 163,392 $46,298 $315,661 $ 212,779
========= ========= ========= ======= ======== =========
LIABILITIES AND
SHAREHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Other current
liabilities............ $ -- $ 4,837 $ 47,893 $ 45 $ -- $ 52,775
Intercompany payable
(receivable)........... (12,209) (257,679) 228,978 40,910 -- --
--------- --------- --------- ------- -------- ---------
Total current
liabilities....... (12,209) (252,842) 276,871 40,955 -- 52,775
Long-term debt.............. -- 273,483 5,000 -- -- 278,483
Other long-term
liabilities............... 35,918 35,918
Total equity
(deficit)......... (154,397) (166,607) (154,397) 5,343 315,661 (154,397)
--------- --------- --------- ------- -------- ---------
TOTAL LIABILITIES AND
EQUITY
(DEFICIT)......... $(166,606) $(145,966) $ 163,392 $46,298 $315,661 $ 212,779
========= ========= ========= ======= ======== =========
</TABLE>
11
<PAGE> 14
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
(DOLLARS IN THOUSANDS)
J. SUPPLEMENTAL GUARANTOR INFORMATION -- CONTINUED
<TABLE>
<CAPTION>
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
-----------------------------------------------------------------------------
COMBINED NON-
PARENT GUARANTOR GUARANTOR
COMPANY ISSUER SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1999
Net sales................ $ -- $ -- $122,563 $ -- $ -- $122,563
Cost of sales............ 86,622 86,622
------ ------- -------- ------- -------- --------
Gross profit............. 35,941 35,941
Selling, general and
administrative
expenses............... (8) 22,360 22,352
------ ------- -------- ------- -------- --------
Operating profit......... -- 8 13,581 -- -- 13,589
Other income (expense),
net.................... 3,367 (1,157) (1,305) 1,246 (2,661) (510)
Interest income
(expense).............. 507 4,506 (10,961) (633) -- (6,581)
------ ------- -------- ------- -------- --------
Income (loss) before
income taxes........... 3,874 3,357 1,315 613 (2,661) 6,498
Income taxes............. 2,392 232 -- 2,624
------ ------- -------- ------- -------- --------
NET INCOME (LOSS)... $3,874 $ 3,357 $ (1,077) $ 381 $ (2,661) $ 3,874
====== ======= ======== ======= ======== ========
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1998
Net sales................ $ $ $111,924 $ $ 610 $112,534
Cost of sales............ 79,966 79,966
------ ------- -------- ------- -------- --------
Gross profit............. 31,958 610 32,568
Selling, general and
administrative
expenses............... -- 13 21,290 -- 228 21,531
------ ------- -------- ------- -------- --------
Operating (loss)
profit................. -- (13) 10,668 -- 382 11,037
Other income (expense),
net.................... 899 (1,940) (2,537) 1,977 1,961 360
Interest income
(expense).............. 269 2,852 (11,231) (218) -- (8,328)
------ ------- -------- ------- -------- --------
Income (loss) before
income taxes
(benefit).............. 1,168 899 (3,100) 1,759 2,343 3,069
Income taxes (benefit)... -- -- (6,539) 8,440 -- 1,901
------ ------- -------- ------- -------- --------
NET INCOME (LOSS)... $1,168 $ 899 $ 3,439 $(6,681) $ 2,343 $ 1,168
====== ======= ======== ======= ======== ========
</TABLE>
12
<PAGE> 15
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
(DOLLARS IN THOUSANDS)
J. SUPPLEMENTAL GUARANTOR INFORMATION -- CONTINUED
<TABLE>
<CAPTION>
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
-----------------------------------------------------------------------------
COMBINED NON-
PARENT GUARANTOR GUARANTOR
COMPANY ISSUER SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999
Net sales................ $ -- $ -- $352,798 $ -- $ -- $352,798
Cost of sales............ 249,794 249,794
------ ------- -------- ------- -------- --------
Gross profit............. 103,004 103,004
Selling, general and
administrative
expenses............... 1 66,389 66,390
------ ------- -------- ------- -------- --------
Operating (loss)
profit................. -- (1) 36,615 -- -- 36,614
Other income (expense),
net.................... 8,721 (5,539) (3,704) 3,300 (3,459) (681)
Interest income
(expense).............. 812 14,235 (32,134) (2,891) -- (19,978)
------ ------- -------- ------- -------- --------
Income (loss) before
income taxes........... 9,533 8,695 777 409 (3,459) 15,955
Income taxes............. -- -- 6,267 155 -- 6,422
------ ------- -------- ------- -------- --------
NET INCOME (LOSS)... $9,533 $ 8,695 $ (5,490) $ 254 $ (3,459) $ 9,533
====== ======= ======== ======= ======== ========
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998
Net sales................ $ -- $ -- $325,589 $ 610 $ $326,199
Cost of sales............ 239,508 239,508
------ ------- -------- ------- -------- --------
Gross profit............. 86,081 610 86,691
Selling, general and
administrative
expenses............... -- 21 62,856 658 63,535
------ ------- -------- ------- -------- --------
Operating (loss)
profit................. -- (21) 23,225 (48) 23,156
Other income (expense),
net.................... (893) (11,466) (5,451) 5,000 13,343 533
Interest income
(expense).............. 791 10,594 (34,973) (214) -- (23,802)
------ ------- -------- ------- -------- --------
Income (loss) before
income taxes
(benefit).............. (102) (893) (17,199) 4,738 13,343 (113)
Income taxes (benefit)... -- -- (9,464) 9,453 -- (11)
------ ------- -------- ------- -------- --------
NET INCOME (LOSS)... $ (102) $ (893) $ (7,735) $(4,715) $ 13,343 $ (102)
====== ======= ======== ======= ======== ========
</TABLE>
13
<PAGE> 16
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
(DOLLARS IN THOUSANDS)
J. SUPPLEMENTAL GUARANTOR INFORMATION -- CONTINUED
<TABLE>
<CAPTION>
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
---------------------------------------------------------------
COMBINED NON-
PARENT GUARANTOR GUARANTOR
COMPANY ISSUER SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1999
Net cash from operating activities...... $ -- $ -- $ 10,783 $ 1 $ 10,784
Net cash from investing activities...... 2,119 (1,115) (14,259) -- (13,255)
Net cash from financing activities...... (2,120) (1,087) -- -- (3,207)
------- -------- -------- ------- --------
Net increase (decrease) in cash and cash
equivalents........................... (1) (2,202) (3,476) 1 (5,678)
Cash and cash equivalents at beginning
of period............................. 1 2,618 6,768 -- 9,387
------- -------- -------- ------- --------
Cash and cash equivalents at end of
period................................ $ -- $ 416 $ 3,292 $ 1 $ 3,709
======= ======== ======== ======= ========
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1998
Net cash from operating activities...... $ -- $ -- $ 33,157 $(6,784) $ 26,373
Net cash from investing activities...... (12) 21,935 (26,854) 6,786 1,855
Net cash from financing activities...... -- (19,587) -- -- (19,587)
------- -------- -------- ------- --------
Net increase (decrease) in cash and cash
equivalents........................... (12) 2,348 6,303 2 8,641
Cash and cash 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>
14
<PAGE> 17
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 Annual Report for 1998 on
Form 10-K as filed with the Securities and Exchange Commission. 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 amounts have been rounded and the percentage
changes are based on the financial statements.
RESULTS OF OPERATIONS -- QUARTER ENDED SEPTEMBER 30, 1999 AS COMPARED TO QUARTER
ENDED SEPTEMBER 30, 1998
Net Sales. Net sales increased $10.1 million, or 8.9%, to $122.6 million
for the quarter ended September 30, 1999 from $112.5 million for the quarter
ended September 30, 1998. Net sales of climbing products increased $10.5
million, or 12.3%, to $96.6 million for the quarter ended September 30, 1999
from $86.1 million for the quarter ended September 30, 1998. The increase in net
sales of climbing products was primarily due to increases in the sales volume of
fiberglass and aluminum step and extension ladders, attic ladders, and stages
and planks. Net sales of extruded products of $25.9 million for the quarter
ended September 30, 1999 declined by $0.5 million, or 2.0%, compared to the
quarter ended September 30, 1998.
Gross Profit. Gross profit increased $3.3 million, or 10.4%, to $35.9
million for the quarter ended September 30, 1999 from $32.6 million for the
quarter ended September 30, 1998. The increase was primarily due to greater
sales of higher margin climbing products and the benefits of spreading fixed
costs over higher production volumes.
General and Administrative Expenses. General and administrative expenses
decreased $0.7 million, or 8.3%, to $7.4 million for the quarter ended September
30, 1999 from $8.1 million for the quarter ended September 30, 1998. The
decrease was principally due to certain non-recurring expenses in 1998
associated with the Recapitalization.
Selling and Distribution Expenses. Selling and distribution expenses
increased $1.5 million, or 11.1%, to $14.9 million for the quarter ended
September 30, 1999 from $13.4 million for the quarter ended September 30, 1998.
The increase was primarily due to increases in advertising and distribution
expenses.
Operating Profit (Loss). Operating profit increased $2.6 million to $13.6
million for the quarter ended September 30, 1999 from $11.0 million for the
quarter ended September 30, 1998. Operating profit of the Climbing Products
segment increased $5.0 million to $12.7 million in the third quarter of 1999
from $7.7 million in the third quarter of 1998. The third quarter 1998 operating
profit of the Climbing Products segment included expense of $2.8 million
attributable to the reallocation of certain costs previously classified as
Corporate and Other expenses. The balance of the increase in Climbing Products
operating profit was primarily due to the increased sale of higher margin
climbing products partially offset by related increases in advertising, and
distribution expenses. Operating profit of the Extruded Products segment
decreased $0.6 million to $1.8 million for the quarter ended September 30, 1999
from $2.4 million for the quarter ended September 30, 1998. The decrease is
primarily attributable to changes in product mix. Corporate and Other expenses
increased $1.8 million for the quarter ended September 30, 1999 compared to the
quarter ended September 30, 1998. The increase was primarily due to the
reallocation of certain costs from Corporate and Other expenses to the Climbing
Products segment in 1998 as described above, partially offset by certain
non-recurring expenses in 1998 associated with the Recapitalization.
Other (Expense) Income, Net. Other (expense), net was $(0.5) million for
the quarter ended September 30, 1999 compared to other income, net of $0.4
million for the quarter ended September 30, 1998. The difference
15
<PAGE> 18
was primarily attributable to lower costs associated with the accounts
receivable sales program in the third quarter of 1998 and an increase in certain
non-recurring employee related expenses in the third quarter of 1999.
Interest Expense. Interest expense decreased $1.7 million to $6.6 million
for the quarter ended September 30, 1999 from $8.3 million for the quarter ended
September 30, 1998. The decrease was primarily due to lower interest rates.
Income Tax (Benefit). During the third quarters of 1999 and 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 included 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.
Net Income (Loss). Net income increased $2.7 million to $3.9 million for
the quarter ended September 30, 1999 from net income of $1.2 million for the
quarter ended September 30, 1998 as a result of all of the above factors.
RESULTS OF OPERATIONS -- NINE MONTHS ENDED SEPTEMBER 30, 1999 AS COMPARED TO
NINE MONTHS ENDED SEPTEMBER 30, 1998
Net Sales. Net sales increased $26.6 million, or 8.2%, to $352.8 million
for the nine months ended September 30, 1999 from $326.2 million for the nine
months ended September 30, 1998. Net sales of climbing products increased $29.1
million, or 11.8%, to $275.5 million for the nine months ended September 30,
1999 from $246.4 million for the nine months ended September 30, 1998. The
increase in net sales of climbing products was primarily due to increases in the
volume of fiberglass and aluminum step and extension ladders sold, partially
offset by volume decreases in sales of attic ladders. Net sales of extruded
products decreased $2.5 million, or 3.2%, to $77.3 million for the nine months
ended September 30, 1999 from $79.8 million for the nine months ended September
30, 1998. The decrease is due to volume decreases in extrusions sold to
customers in the building products sector and the impact of lower aluminum
prices for the nine months ended September 30, 1999.
Gross Profit. Gross profit increased $16.3 million, or 18.8%, to $103.0
million for the nine months ended September 30, 1999 from $86.7 million for the
nine months ended September 30, 1998. The increase was primarily due to more
sales of higher margin climbing products and the effects of higher production
volumes.
General and Administrative Expenses. General and administrative expenses
decreased $1.3 million, or 5.4%, to $22.8 million for the nine months ended
September 30, 1999 from $24.1 million for the nine months ended September 30,
1998. The decrease was principally due to certain non-recurring expenses in 1998
associated with the Recapitalization.
Selling and Distribution Expenses. Selling and distribution expenses
increased $4.2 million, or 10.6%, to $43.6 million for the nine months ended
September 30, 1999 from $39.4 million for the nine months ended September 30,
1998. The increase was primarily due to increases in advertising and
distribution expenses.
Operating Profit (Loss). Operating profit increased $13.4 million to $36.6
million for the nine months ended September 30, 1999 from $23.2 million for the
nine months ended September 30, 1998. Operating profit of the Climbing Products
segment increased $7.4 million to $33.9 million for the nine months ended
September 30, 1999 from $26.5 million for the nine months ended September 30,
1998. This increase was primarily due to the increased sale of higher margin
climbing products partially offset by related increases in advertising and
distribution expenses. Operating profit of the Extruded Products segment
increased $1.5 million to $7.0 million for the nine months ended September 30,
1999 from $5.5 million for the nine months ended September 30, 1998. The
increase is primarily attributable to improvements in profitability of the
product mix over the entire period. Corporate and Other expenses decreased $4.6
million for the nine months ended September 30, 1999 compared to the nine months
ended September 30, 1998. The decrease was primarily due to certain
non-recurring expenses in 1998 associated with the Recapitalization and the
operating losses of MIICA prior to the MIICA Insurance Transfer.
16
<PAGE> 19
Other (Expense) Income, Net. Other (expense), net was $(0.7) million for
the nine months ended September 30, 1999 compared to other income, net of $0.5
million for the nine months ended September 30, 1998. The difference was
primarily attributable to the income on MIICA insurance fund investments in the
first quarter of 1998 and an increase in certain non-recurring employee related
expenses in the third quarter of 1999.
Interest Expense. Interest expense decreased $3.8 million to $20.0 million
for the nine months ended September 30, 1999 from $23.8 million for the nine
months ended September 30, 1998. The decrease was primarily due to a decrease in
short-term bank debt and lower interest rates.
Income Tax (Benefit). During the third quarters of 1999 and 1998, the
Company revised its full year projection of income subject to income tax and
re-computed its estimated effective tax rate. 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 valuation allowance for
capital losses.
Net Income (Loss). Net income increased $9.6 million to $9.5 million for
the nine months ended September 30, 1999 from a loss of $(0.1) million for the
nine months ended September 30, 1998 as a result of all of the above factors.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flows provided by operating activities were $10.8 million for the
nine months ended September 30, 1999 compared to $49.4 million for the nine
months ended September 30, 1998. The decrease is primarily attributable to an
increase in operating working capital (accounts receivable, including the
undivided interest in accounts receivable, inventory, accounts payable and
accrued expenses). Net cash used in investing activities was $13.3 million for
the nine months ended September 30, 1999 compared to net cash provided from
investing activities of $1.9 million for the nine months ended September 30,
1998. The increase was primarily due to an increase in capital expenditures and
a decrease in sales of MIICA investments in the nine months ended September 30,
1999. Net cash flows used in financing activities were $3.2 million for the nine
months ended September 30, 1999 compared to $42.6 million for the nine months
ended September 30, 1998. The decrease is due to the repayment of the
receivables facility in the nine months ended September 30, 1998 offset by the
repurchase of common stock and the issuance of notes receivable arising from the
stock loan plan in the nine months ended September 30, 1999.
The Company satisfies its working capital needs and capital expenditure
requirements primarily through a combination of operating cash flow, borrowings
under the Senior Credit Facility and sales of accounts receivable under a
receivables purchase agreement with a financial institution (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 the
Senior Credit Facility, and the Receivables Purchase Agreement.
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. The residential and commercial construction
markets are sensitive to cyclical changes in the economy. 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. The Company expects to use the Senior Credit
Facility and the Receivables Purchase Agreement to meet seasonal variations in
its working capital requirements.
YEAR 2000 READINESS PROGRAM
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
17
<PAGE> 20
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 Company's Year 2000 Readiness Program
contains numerous forward-looking statements based upon inherently uncertain
information. Although management believes it has been able to make the necessary
internal modifications in advance, there can be no guarantee that these
modifications will prevent the occurrence of any material adverse effect on the
Company's operations or financial condition.
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 Remediation
Phase has been substantially completed. The Company's Remediation Phase
consisted of numerous individual projects that varied in size, materiality and
importance. All information technology systems have been remediated and tested.
With respect to those projects involving embedded systems (non-information
technology processes), the appropriate end-users have tested and remediated
these systems. In addition, the certification of third parties' Year 2000
readiness efforts by the Company has been substantially completed. All of the
Company's critical suppliers and business partners have been assessed by the
Company and the Company is taking appropriate measures to minimize its risk with
these critical suppliers and business partners. However, there can be no
assurance that these measures will prevent any material adverse effect on the
operations and business of the Company if such suppliers and business partners
fail to convert their systems before December 31, 1999.
Costs. The Company primarily utilizes 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 $1.6 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, 1999,
approximately $1.4 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.
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 has made
the necessary modifications and conversions in advance of the Year 2000. With
respect to risks associated with 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.
18
<PAGE> 21
Contingency Plans. The Company has developed business resumption
contingency plans specific to the Year 2000. These plans 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. The Company will refine its contingency plans throughout the fourth
quarter of 1999 in the event that circumstances should so warrant.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about the Company's market risk disclosures
involves forward-looking statements. Actual results could differ materially from
those projected in the forward-looking statements. The Company is exposed to
market risk related to changes in interest rates, foreign currency exchange
rates and commodity prices. The Company does not use derivative financial
instruments for speculative or trading purposes.
The Company is exposed to market risk from changes in interest rates on
long-term debt obligations. The Company manages such risk through the use of a
combination of fixed and variable rate debt. Currently, the Company does not use
derivative financial instruments to manage its interest rate risk. There have
been no material changes in market risk from changes in interest rates from that
disclosed in the Company's Annual Report for 1998 on Form 10-K.
The Company has no operations in foreign countries. International sales
were not material to the Company's operations for the nine months ended
September 30, 1999. Accordingly, the Company is not subject to material foreign
currency exchange risk. To date, the Company has not entered into any foreign
currency forward exchange contracts or other derivative financial instruments
relative to foreign currency exchange rates.
The Company is also exposed to market risk from changes in the price of
aluminum. The Company manages such risk through the use of aluminum futures and
options contracts. There have been no material changes in market risk from
changes in the price of aluminum from that disclosed in the Company's Annual
Report for 1998 on Form 10-K.
19
<PAGE> 22
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.
In addition, in March 1998, an action was filed in the United States
District Court for the Western District of Pennsylvania entitled Elizabeth
Werner, et al v. Eric J. Werner, et al (Civil Action No. 98-503). The action
purports, in part, to be brought derivatively on behalf of Holding and, in part,
to be brought on behalf of plaintiffs individually against the Company and
certain current and former officers and directors of the Company. The aspect of
the case purportedly brought on behalf of Holding alleges breaches of fiduciary
duty by various members of the Company's management arising out of, among other
things, the issuance of restricted stock to management of the Company in 1992
and 1993. Holding's Board of Directors referred the matter to a special
committee of disinterested directors to investigate the merits of the claim and
to take appropriate actions on behalf of Holding. After a detailed
investigation, the special committee recommended that the derivative claims not
be pursued by or on behalf of Holding. Accordingly, all the defendants made
motions to dismiss the derivative claims. Pursuant to an amendment to the
complaint filed by plaintiffs on March 29, 1999, the only remaining corporate
defendant in this action is Holding. Pursuant to the same amendment, the only
remaining derivative claim asserted by the plaintiffs is a claim for excessive
compensation, not relating to the restricted stock issuances. The aspect of the
case purportedly brought on behalf of plaintiffs individually against the
Company appears to arise out of the 1992 and 1993 restricted stock issuances as
well as certain alleged misrepresentations by representatives of the Company.
The plaintiffs seek monetary damages in an unspecified amount. In May 1999, the
magistrate judge issued a report and recommendation ruling that all of the
Plaintiffs' claims be dismissed. The District Court issued a Memorandum Order on
August 4, 1999 granting the motion to dismiss all remaining claims against all
defendants without prejudice and adopted the magistrate judge's report as the
opinion of the District Court. The plaintiffs have appealed such decision.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
3.1 Certificate of Incorporation of Werner Holding Co. (DE), Inc. (filed
as Exhibit 3.2 to registrant's Form S-4 Registration Statement No.
333-46607 and incorporated herein by reference).
3.2 By-laws of Werner Holding Co. (DE), Inc. (filed as Exhibit 3.2 to
registrant's Form S-4 Registration Statement No. 333-46607 and
incorporated herein by reference).
3.3 Amended and Restated Articles of Incorporation of Werner Holding Co.
(PA), Inc. (filed as Exhibit 3.2.1 to registrant's Annual Report on
Form 10-K for the year ended December 31, 1998 and incorporated
herein by reference).
10.1 Fourth Amendment to Werner Holding Co. (DE), Inc. Employee Savings
Plan
10.2 Fourth Amendment to the Retirement Plan for Salaried Employees of
Werner Holding Co. (DE), Inc.
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
Registrant filed a Current Report on Form 8-K on September 7, 1999
pertaining to the change in the registrant's independent accountant.
20
<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: November 15, 1999
/s/ R. P. Tamburrino
--------------------------------------
R. P. Tamburrino
Vice President, Chief Financial
Officer and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
21
<PAGE> 1
EXHIBIT 10.1
FOURTH 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, 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:
1. ACCELERATION OF PARTICIPATION FOR 401(k) PURPOSES. Effective
October 1, 1999, including with respect to all eligible employees who have not
yet become eligible to make Salary Reduction Contributions (as defined in the
Plan), subsections 2.02(a), (b) and (c) (as re-numbered by the Third Amendment)
are amended by replacing the phrase "the Entry Date coincident with or next
following completion of Six (6) Months of Service after his Date of Employment
or Reemployment, if applicable" with the phrase "the first of the month
following his Date of Employment or Reemployment, if applicable (if the Date of
Employment or Reemployment falls before the 15th of the month) or the first of
the second month following his Date of Employment or Reemployment, if applicable
(if the Date of Employment or Reemployment falls on or after the 15th of the
month)."
2. ACCELERATION OF FORFEITURES. Effective upon adoption of this
amendment, including with respect to all amounts not yet forfeited at the time
of adoption of this amendment by participants whose employment terminated before
the adoption of this amendment, the first sentence of section 6.02(b) is amended
in its entirety to read as follows:
The portion of the Participant's Company Contribution Account in which
he is not vested at his termination of employment shall be declared a
Forfeiture upon such termination of employment.
<PAGE> 1
EXHIBIT 10.2
FOURTH AMENDMENT TO THE RETIREMENT PLAN FOR SALARIED
EMPLOYEES OF WERNER HOLDING CO. (DE), INC.
WHEREAS, Werner Holding Co. (DE), Inc., (the "Company") has adopted the
Retirement Plan for Salaried Employees of Werner Holding Co. (DE), Inc. (the
"Plan") for the benefit of its eligible employees; and
WHEREAS, the Company has reserved the right to amend the Plan and has
amended it from time to time; and
WHEREAS, the company deems it appropriate further to amend the Plan.
NOW, THEREFORE, the Company hereby amends the Plan as follows,
effective as of January 1, 1999:
1. SECTION 1.19, the definition of "Hours of Service" is amended by
adding the following subsection at the end thereof:
(d) Solely for purposes of determining whether a Break in Service
has occurred, an Employee who is absent from work for
maternity or paternity reasons shall receive credit for the
Hours of Service that would otherwise have been credited to
him but for such absence or, in any case in which such Hours
of Service cannot be determined, eight (8) Hours of Service
per day of such absence. For purposes of this paragraph (d) an
absence from work for maternity or paternity reasons means an
absence:
(1) By reason of the pregnancy of the Employee;
(2) By reason of a birth of a child of the Employee;
(3) By reason of the placement of a child with the Employee
in connection with the adoption of such child by the
Employee; or
<PAGE> 2
(4) For purposes of caring for such child for a period
beginning immediately following such birth or placement.
Any hour under this paragraph (d) which is considered an Hour
of Service under paragraph (b) shall not be considered under
this paragraph (d). The Hours of Service credited under this
paragraph (d) shall be credited in the computation period in
which the absence begins if the crediting is necessary to
prevent a Break in Service in that period or, in all other
cases, in the immediately following computation period.
Notwithstanding the foregoing, no credit shall be given for
Hours of Service under this paragraph (d) unless the Employee
furnishes the Plan Administrator such timely information as
the Plan Administrator may reasonably require to establish
that the absence from work is because of maternity or
paternity leave and the number of days for which there was
such an absence.
2. A new SECTION 1.05A is added to read as follows:
1.05A BREAK IN SERVICE means a twelve consecutive month
period beginning on an Employee's Date of Employment (or Date
of Reemployment, if applicable) or any anniversary of that
date during which an Employee completes five hundred (500) or
fewer Hours of Service.
3. A new SECTION 1.41 is added to read as follows:
1.41 YEAR OF SERVICE means a twelve consecutive month period
beginning on an Employee's Date of Employment (or Date of
Reemployment, if applicable) or any anniversary of that date
during
<PAGE> 3
which an Employee completes at least one thousand (1000)
Hours of Service.
4. SECTION 2.01 (b) is amended to read as ibilows:
(b) Each full-time Employee will become a Participant in the
Plan on the later of (i) the January 1 coincident with or next
following his Date of Employment, provided he is employed by
an Employer on that January 1, or (ii) the date the
Employee's Employer becomes an Employer under the Plan. Each
other Employee of an Employer will become a Participant in
the Plan on the first day of the month coincident with or
next following his completion of one (1) Year of Service.
5. The following language is added at the end of SECTION 2.02 to read as
follows:
Notwithstanding the foregoing provisions of this SECTION
2.02, the following provisions will apply in the case of an
Employee who is other than a full-time Employee. An Employee
who terminates employment before becoming a Participant and
is reemployed without incurring a Break in Service shall
become a Participant when he meets the eligibility
requirements of SECTION 2.01, based on his Date of
Employment. An Employee who terminates employment before
becoming a Participant and is reemployed after incurring a
Break in Service shall become a Participant when he meets the
eligibility requirements of SECTION 2.01, based on his Date
of Reemployment.
6. SECTION 1.11, the definition of "Disability Retirement Age" is amended
to read as follows:
<PAGE> 4
1.11 DISABILITY RETIREMENT AGE means the age at which a
Participant terminates his active employment on or after
attaining the age of forty (40), after completing at least
fifteen (15) years of Vesting Service, and by reason of a
Total and Permanent Disability.
7. The first sentence of SECTION 4.05 is amended to read as follows:
A Participant who terminates active employment upon
attainment of his Disability Retirement Age shall be entitled
to a disability retirement pension which shall commence on
his Disability Retirement Date.
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