<PAGE> 1
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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 June 30, 1999
COMMISSION FILE NUMBER 333-46607
WERNER HOLDING CO. (DE), INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 25-1581345
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1105 NORTH MARKET STREET, SUITE 1300
WILMINGTON, DELAWARE 19899
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
(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 June 30, 1999 there were 1,000 shares of common stock outstanding.
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<PAGE> 2
INDEX
WERNER HOLDING CO. (DE), INC.
FORM 10-Q
PERIOD ENDED JUNE 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 -- June 30, 1999 and
December 31, 1998......................................... 1
Condensed Consolidated Statements of Operations -- Three and
Six Months Ended June 30, 1999 and 1998................... 2
Condensed Consolidated Statements of Changes in
Shareholders' Equity (Deficit)-Three and Six Months Ended
June 30, 1999 and 1998.................................... 3
Condensed Consolidated Statements of Cash Flows -- Six
Months Ended June 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.......................................... 18
Item 3. Quantitative and Qualitative Disclosures about Market
Risk...................................................... 22
PART II OTHER INFORMATION
Item 1. Legal Proceedings........................................... 23
Item 4. Submission of Matters to a Vote of Security Holders......... 23
Item 6. Exhibits and Reports on Form 8-K............................ 23
SIGNATURE............................................................. 24
</TABLE>
The financial statements included herein are that of Werner Holding Co. (PA),
Inc. ("Holding"). The registrant is Werner Holding Co. (DE), Inc. (the
"Issuer"), which is a wholly-owned subsidiary of Holding. Holding has no
substantial operations or assets other than its investment in the Issuer. The
consolidated financial condition and results of operations of Holding are
substantially the same as those of the Issuer. As used herein and except as the
context otherwise may require, the "Company" or "Werner" means, collectively,
Holding, the Issuer and all of their consolidated subsidiaries.
<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1.
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 4,247 $ 9,387
Undivided interest in accounts receivable................. 57,197 46,298
Allowance for doubtful accounts........................... (1,861) (1,600)
Refundable income taxes................................... -- 490
Inventories............................................... 55,982 46,777
Deferred income taxes..................................... 2,849 2,830
Other..................................................... 2,696 2,559
-------- --------
Total current assets.............................. 121,110 106,741
Property, plant and equipment, net.......................... 72,161 65,693
Other assets:
Deferred income taxes..................................... 10,079 5,997
Deferred financing fees, net.............................. 12,609 13,745
Other..................................................... 17,752 20,603
-------- --------
40,440 40,345
-------- --------
TOTAL ASSETS...................................... $233,711 $212,779
======== ========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 26,206 $ 22,742
Accrued liabilities....................................... 33,449 28,583
Income taxes payable...................................... 926 --
Current maturities of long-term debt...................... 1,450 1,450
-------- --------
Total current liabilities......................... 62,031 52,775
Long-term obligations:
Long-term debt............................................ 277,942 278,483
Reserve for product liability and workers' compensation
claims................................................. 21,167 13,639
Accrued employee retirement benefits...................... 23,358 22,279
-------- --------
Total liabilities................................. 384,498 367,176
Shareholders' deficit:
Common stock.............................................. 1 1
Additional paid-in-capital................................ 198,847 198,847
Accumulated deficit....................................... (347,377) (351,607)
Accumulated other non-owner changes in equity............. (1,598) (1,638)
Notes receivable arising from stock loan plan............. (660) --
-------- --------
Total shareholders' deficit....................... (150,787) (154,397)
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT....... $233,711 $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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales......................................... $124,776 $115,354 $230,235 $213,665
Cost of sales..................................... 88,024 84,584 163,172 159,542
-------- -------- -------- --------
Gross profit...................................... 36,752 30,770 67,063 54,123
General and administrative expenses............... 7,599 7,949 15,371 16,015
Selling and distribution expenses................. 14,888 13,298 28,667 25,989
-------- -------- -------- --------
Operating profit.................................. 14,265 9,523 23,025 12,119
Other (expense) income, net....................... (120) (1,018) (171) 173
-------- -------- -------- --------
Income before interest and taxes.................. 14,145 8,505 22,854 12,292
Interest expense.................................. 6,665 7,043 13,397 15,474
-------- -------- -------- --------
Income (loss) before income taxes................. 7,480 1,462 9,457 (3,182)
Income tax (benefit).............................. 2,972 (112) 3,798 (1,912)
-------- -------- -------- --------
NET INCOME (LOSS)................................. $ 4,508 $ 1,574 $ 5,659 $ (1,270)
======== ======== ======== ========
</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
ADDITIONAL OTHER NON- TOTAL
COMMON PAID-IN ACCUMULATED OWNER 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)
== ======== ========= ======= ===== =========
</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
ADDITIONAL OTHER NON- TOTAL
COMMON PAID-IN ACCUMULATED OWNER 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 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)
== ======== ========= ======= ======= =========
</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>
SIX MONTHS ENDED
JUNE 30,
--------------------
1999 1998
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................... $ 5,659 $ (1,270)
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.............................................. 3,971 4,180
Amortization of deferred financing fees and original issue
discount............................................... 1,320 565
Amortization of recapitalization and other deferred
costs.................................................. 2,123 5,153
Provision for losses on accounts receivable............... 260 420
Impairment of property, plant and equipment............... -- 711
Provision for product liability and workers' compensation
claims................................................. 8,314 8,039
Payment of product liability and workers' compensation
claims................................................. (786) (3,386)
Deferred income taxes..................................... (4,125) 6,646
Realized net losses on disposition and impairment of
investments............................................ - 2,672
Changes in operating assets and liabilities:
Accounts receivable.................................... -- 23,100
Undivided interest in accounts receivable.............. (10,899) (32,521)
Refundable income taxes................................ 490 (6,373)
Inventories............................................ (9,205) (2,240)
Accounts payable....................................... 3,464 (797)
Accrued liabilities.................................... 6,059 3,100
Income taxes payable................................... 926 -
Other, net............................................. 346 1,465
-------- --------
Net cash provided by operating activities................... 7,917 4,958
INVESTING ACTIVITIES
Capital expenditures........................................ (10,381) (2,709)
Insurance fund securities available-for-sale:
Purchases of debt and equity securities................... -- (572)
Net sales of other investments.............................. 138 6,982
-------- --------
Net cash (used in) provided by investing activities......... (10,243) 3,701
FINANCING ACTIVITIES
Issuance of notes receivable arising from stock loan plan... (660) --
Repurchase of common stock.................................. (1,429) --
Repayment of receivables facility........................... -- (41,500)
Proceeds from sale of accounts receivable................... -- 40,000
Repayments of long-term debt................................ (725) (725)
-------- --------
Net cash used in financing activities....................... (2,814) (2,225)
-------- --------
Net (decrease) increase in cash and cash equivalents........ (5,140) 6,434
Cash and cash equivalents at beginning of period............ 9,387 3,107
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 4,247 $ 9,541
======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
5
<PAGE> 8
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLARS IN THOUSANDS)
A. BASIS OF PRESENTATION AND RECAPITALIZATION
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of
Werner Holding Co. (PA), Inc., ("Holding") include its accounts and the accounts
of its wholly-owned subsidiary, Werner Holding Co. (DE), Inc. ("Issuer") and 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 six months
ended June 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 six month periods ended June
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>
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
<S> <C> <C>
Finished products........................................... $31,633 $26,887
Work-in-process............................................. 15,249 12,339
Raw materials and supplies.................................. 18,990 17,808
------- -------
65,872 57,034
Less excess of cost over LIFO stated values................. 9,890 10,257
------- -------
NET INVENTORIES............................................. $55,982 $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 has 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 have 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 appear 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 Plaintiffs have filed objections to this report. 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 a right to appeal 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 liquidating 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,
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
which is net of costs to discontinue the operations of MIICA. 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.
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 six months
ended June 30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES
Climbing Products....................... $ 98,066 $ 88,322 $178,894 $160,306
Extruded Products....................... 26,710 27,032 51,341 53,359
-------- -------- -------- --------
$124,776 $115,354 $230,235 $213,665
======== ======== ======== ========
OPERATING PROFIT (LOSS)
Climbing Products....................... $ 13,698 $ 13,380 $ 21,274 $ 18,780
Extruded Products....................... 1,757 1,534 5,137 3,100
Corporate & Other....................... (1,190) (5,391) (3,386) (9,761)
-------- -------- -------- --------
$ 14,265 $ 9,523 $ 23,025 $ 12,119
======== ======== ======== ========
Corporate & Other includes various corporate expenses and eliminations.
</TABLE>
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 $82,197 and $66,298 as of June 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".
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
8
<PAGE> 11
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
(DOLLARS IN THOUSANDS)
H. INCOME TAXES -- CONTINUED
revised its annual effective tax rate for the six months ended June 30, 1999 and
1998 which includes an adjustment for the changes in the Company's estimated tax
rate on a year-to-date basis.
The difference between the statutory and the annual effective tax rates at
June 30, 1999 is primarily due to state taxes (net of federal benefit). The
difference between the statutory and the annual effective tax rate at June 30,
1998 was primarily from a valuation allowance for capital losses.
I. SUPPLEMENTAL GUARANTOR INFORMATION
The Company refinanced substantially all of its outstanding debt through
borrowings under the Senior Credit Facility and the Notes. Holding has provided
a full, unconditional, joint and several guaranty of the Issuer's obligations
under the Senior Credit Facility and the Notes. In addition, the Issuer's
wholly-owned subsidiaries, except for MIICA 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 and Werner Funding
Corporation (each a "Non-Guarantor Subsidiary" and collectively the
"Non-Guarantor Subsidiaries"). Separate financial statements of the Guarantor
Subsidiaries are not presented because management has determined that they would
not provide additional information that is material to investors. Therefore,
each of the Guarantor Subsidiaries are combined in the presentation below.
Further, separate financial statements of the Issuer have not been provided as
management has determined that they would not provide information that is
material to investors, as the Issuer has no substantial operations or assets,
other than its investment in its subsidiaries.
Investments in subsidiaries are accounted for on the equity method of
accounting. Earnings of subsidiaries are, therefore, reflected in the respective
investment accounts of the Parent Company and the Issuer. The 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)
I. SUPPLEMENTAL GUARANTOR INFORMATION -- CONTINUED
<TABLE>
<CAPTION>
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
JUNE 30, 1999
----------------------------------------------------------------------------------
COMBINED NON-
PARENT GUARANTOR GUARANTOR
COMPANY ISSUER SUBSIDIARIES SUBSIDIARY(a) ELIMINATIONS CONSOLIDATED
--------- --------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents.......... $ - $ 414 $ 3,823 $ 10 $ - $ 4,247
Undivided interest in accounts
receivable................. 57,197 57,197
Allowance for doubtful
accounts................... (1,861) (1,861)
Inventories................... 55,982 55,982
Deferred income taxes......... 2,849 2,849
Other......................... 16 41 2,639 - - 2,696
--------- --------- -------- ------- -------- --------
Total current
assets.............. 16 455 63,432 57,207 - 121,110
Property, plant and equipment,
net........................... 72,161 72,161
Other assets:
Deferred income taxes......... 10,079 10,079
Deferred financing fees,
net........................ 12,609 12,609
Investment in subsidiaries.... (161,229) (158,810) 5,231 - 314,808 -
Other......................... - 5,556 12,196 - - 17,752
--------- --------- -------- ------- -------- --------
TOTAL ASSETS.......... $(161,213) $(140,190) $163,099 $57,207 $314,808 $233,711
========= ========= ======== ======= ======== ========
</TABLE>
(a) Includes the accounts of Werner Funding Corporation only.
10
<PAGE> 13
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
(DOLLARS IN THOUSANDS)
I. SUPPLEMENTAL GUARANTOR INFORMATION -- CONTINUED
<TABLE>
<CAPTION>
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
JUNE 30, 1999
----------------------------------------------------------------------------------
COMBINED NON-
PARENT GUARANTOR GUARANTOR
COMPANY ISSUER SUBSIDIARIES SUBSIDIARY(a) ELIMINATIONS CONSOLIDATED
--------- --------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Accounts payable............. $ - $ - $ 26,206 $ - $ - $ 26,206
Intercompany payable
(receivable).............. (10,426) (256,213) 214,722 51,917 - -
Accrued liabilities.......... - 2,860 30,530 59 - 33,449
Income taxes payable......... 926 926
Current maturities of
long-term debt............ 1,450 1,450
--------- --------- --------- ------- -------- --------
Total current
liabilities........ (10,426) (251,903) 272,384 51,976 - 62,031
Long-term obligations:
Long-term debt............... - 272,942 5,000 - - 277,942
Reserve for product liability
and workers' compensation
claims.................... 21,167 21,167
Accrued employee retirement
benefits.................. 23,358 23,358
--------- --------- --------- ------- -------- --------
Total liabilities.... (10,426) 21,039 321,909 51,976 - 384,498
Shareholders' equity
(deficit).................... (150,787) (161,229) (158,810) 5,231 314,808 (150,787)
--------- --------- --------- ------- -------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS'
EQUITY (DEFICIT)... $(161,213) $(140,190) $ 163,099 $57,207 $314,808 $233,711
========= ========= ========= ======= ======== ========
</TABLE>
(a) Includes the accounts of Werner Funding Corporation only.
11
<PAGE> 14
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
(DOLLARS IN THOUSANDS)
I. SUPPLEMENTAL GUARANTOR INFORMATION -- CONTINUED
<TABLE>
<CAPTION>
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1998
----------------------------------------------------------------------------------
COMBINED NON-
PARENT GUARANTOR GUARANTOR
COMPANY ISSUER SUBSIDIARIES SUBSIDIARY(a) ELIMINATIONS CONSOLIDATED
--------- --------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..... $ 1 $ 2,618 $ 6,768 $ - $ - $ 9,387
Undivided interest in accounts
receivable................. 46,298 46,298
Allowance for doubtful
accounts................... (1,600) (1,600)
Refundable income taxes....... 490 490
Inventories................... 46,777 46,777
Deferred income taxes......... 2,830 2,830
Other......................... - 125 2,434 - - 2,559
--------- --------- -------- ------- -------- --------
Total current
assets.............. 1 2,743 57,699 46,298 106,741
Property, plant and equipment,
net........................... 65,693 65,693
Investments and other assets:
Deferred income taxes......... 5,997 5,997
Deferred financing fees,
net........................ 13,745 13,745
Investment in subsidiaries.... (166,607) (154,397) 5,343 - 315,661 -
Other......................... - 5,688 14,915 - - 20,603
--------- --------- -------- ------- -------- --------
TOTAL ASSETS.......... $(166,606) $(132,221) $149,647 $46,298 $315,661 $212,779
========= ========= ======== ======= ======== ========
</TABLE>
(a) Includes the accounts of Werner Funding Corporation only.
12
<PAGE> 15
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
(DOLLARS IN THOUSANDS)
I. SUPPLEMENTAL GUARANTOR INFORMATION -- CONTINUED
<TABLE>
<CAPTION>
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1998
----------------------------------------------------------------------------------
COMBINED NON-
PARENT GUARANTOR GUARANTOR
COMPANY ISSUER SUBSIDIARIES SUBSIDIARY(a) ELIMINATIONS CONSOLIDATED
--------- --------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Accounts payable........... $ -- $ -- $ 22,742 $ -- $ -- $ 22,742
Intercompany payable
(receivable)............ (12,209) (243,934) 215,233 40,910 -- --
Accrued liabilities........ -- 3,387 25,151 45 -- 28,583
Current maturities of
long-term debt.......... 1,450 1,450
--------- --------- --------- ------- -------- ---------
Total current
liabilities...... (12,209) (239,097) 263,126 40,955 -- 52,775
Long-term obligations:
Long-term debt............. -- 273,483 5,000 -- -- 278,483
Reserve for product
liability and workers'
compensation claims..... 13,639 13,639
Accrued employee retirement
benefits................ 22,279 22,279
--------- --------- --------- ------- -------- ---------
Total
liabilities...... (12,209) 34,386 304,044 40,955 -- 367,176
Shareholders' equity
(deficit).................. (154,397) (166,607) (154,397) 5,343 315,661 (154,397)
--------- --------- --------- ------- -------- ---------
TOTAL LIABILITIES
AND SHAREHOLDERS'
EQUITY
(DEFICIT)........ $(166,606) $(132,221) $ 149,647 $46,298 $315,661 $ 212,779
========= ========= ========= ======= ======== =========
</TABLE>
(a) Includes the accounts of Werner Funding Corporation only.
13
<PAGE> 16
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
(DOLLARS IN THOUSANDS)
I. SUPPLEMENTAL GUARANTOR INFORMATION -- CONTINUED
<TABLE>
<CAPTION>
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
-----------------------------------------------------------------------------
COMBINED NON-
PARENT GUARANTOR GUARANTOR
COMPANY ISSUER SUBSIDIARIES SUBSIDIARY(a) ELIMINATIONS CONSOLIDATED
------- ------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED JUNE 30,
1999
Net sales....................... $ -- $ -- $230,235 $ -- $ -- $230,235
Cost of sales................... 163,172 163,172
------ ------ -------- ------ ------- --------
Gross profit.................... 67,063 67,063
General and administrative
expense...................... -- 9 15,362 -- -- 15,371
Selling and distribution
expense...................... 28,667 28,667
------ ------ -------- ------ ------- --------
Operating (loss) profit......... -- (9) 23,034 -- -- 23,025
Income (loss) from equity
investees.................... 5,338 (4,413) (127) -- (798) --
Other income (expense), net..... 16 31 (2,272) 2,054 -- (171)
------ ------ -------- ------ ------- --------
Income (loss) before interest
and taxes (benefit).......... 5,354 (4,391) 20,635 2,054 (798) 22,854
Interest income (expense)....... 305 9,729 (21,173) (2,258) -- (13,397)
------ ------ -------- ------ ------- --------
Income (loss) before income
taxes (benefit).............. 5,659 5,338 (538) (204) (798) 9,457
Income taxes (benefit).......... -- -- 3,875 (77) -- 3,798
------ ------ -------- ------ ------- --------
NET INCOME (LOSS)....... $5,659 $5,338 $ (4,413) $ (127) $ (798) $ 5,659
====== ====== ======== ====== ======= ========
FOR THE THREE MONTHS ENDED JUNE
30, 1999
Net sales....................... $ -- $ -- $124,776 $ -- $ -- $124,776
Cost of sales................... 88,024 88,024
------ ------ -------- ------ ------- --------
Gross profit.................... 36,752 36,752
General and administrative
expense...................... -- 6 7,593 -- -- 7,599
Selling and distribution
expense...................... 14,888 14,888
------ ------ -------- ------ ------- --------
Operating (loss) profit......... -- (6) 14,271 -- -- 14,265
Income (loss) from equity
investees.................... 4,476 (4,656) (34) -- 214 --
Other income (expense), net..... 9 21 (1,234) 1,084 -- (120)
------ ------ -------- ------ ------- --------
Income (loss) before interest
and taxes (benefit).......... 4,485 (4,641) 13,003 1,084 214 14,145
Interest income (expense)....... 23 9,117 (14,667) (1,138) -- (6,665)
------ ------ -------- ------ ------- --------
Income (loss) before income
taxes (benefit).............. 4,508 4,476 (1,664) (54) 214 7,480
Income taxes (benefit).......... -- -- 2,992 (20) -- 2,972
------ ------ -------- ------ ------- --------
NET INCOME (LOSS)....... $4,508 $4,476 $ (4,656) $ (34) $ 214 $ 4,508
====== ====== ======== ====== ======= ========
</TABLE>
(a) Includes the accounts of Werner Funding Corporation only.
14
<PAGE> 17
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
(DOLLARS IN THOUSANDS)
I. SUPPLEMENTAL GUARANTOR INFORMATION -- CONTINUED
<TABLE>
<CAPTION>
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
------------------------------------------------------------------------------
COMBINED COMBINED
PARENT GUARANTOR NON-GUARANTOR
COMPANY ISSUER SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED JUNE
30, 1998
Net sales.................... $ -- $ -- $213,665 $ 610 $ (610) $213,665
Cost of sales................ 159,542 159,542
------- ------- -------- ------ ------- --------
Gross profit................. 54,123 610 (610) 54,123
General and administrative
expense................... - 8 15,577 658 (228) 16,015
Selling and distribution
expense................... 25,989 25,989
------- ------- -------- ------ ------- --------
Operating (loss) profit...... -- (8) 12,557 (48) (382) 12,119
(Loss) income from equity
investees................. (1,792) (9,457) (133) -- 11,382 --
Other (expense) income,
net....................... -- (69) (2,781) 3,023 -- 173
------- ------- -------- ------ ------- --------
(Loss) income before interest
and taxes (benefit)....... (1,792) (9,534) 9,643 2,975 11,000 12,292
Interest income (expense).... 522 7,742 (23,742) 4 -- (15,474)
------- ------- -------- ------ ------- --------
(Loss) income before income
taxes (benefit)........... (1,270) (1,792) (14,099) 2,979 11,000 (3,182)
Income (benefit) taxes....... -- -- (2,925) 1,013 -- (1,912)
------- ------- -------- ------ ------- --------
NET (LOSS) INCOME.... $(1,270) $(1,792) $(11,174) $1,966 $11,000 $ (1,270)
======= ======= ======== ====== ======= ========
FOR THE THREE MONTHS ENDED JUNE
30, 1998
Net sales.................... $ -- $ -- $115,354 $ (20) $ 20 $115,354
Cost of sales................ 84,584 84,584
------- ------- -------- ------ ------- --------
Gross profit................. 30,770 (20) 20 30,770
General and administrative
expense................... -- 4 7,904 41 -- 7,949
Selling and distribution
expense................... 13,298 13,298
------- ------- -------- ------ ------- --------
Operating (loss) profit...... (4) 9,568 (61) 20 9,523
Income (loss) from equity
investees................. 1,310 (3,453) (133) -- 2,276 --
Other (expense) income,
net....................... -- (37) (948) (33) -- (1,018)
------- ------- -------- ------ ------- --------
Income (loss) before interest
and taxes (benefit)....... 1,310 (3,494) 8,487 (94) 2,296 8,505
Interest income (expense).... 264 4,804 (12,104) (7) -- (7,043)
------- ------- -------- ------ ------- --------
Income (loss) before income
taxes (benefit)........... 1,574 1,310 (3,617) (101) 2,296 1,462
Income tax benefit........... -- -- (78) (34) -- (112)
------- ------- -------- ------ ------- --------
NET INCOME (LOSS).... $1,574 $ 1,310 $ (3,539) $ (67) $ 2,296 $ 1,574
======= ======= ======== ====== ======= ========
</TABLE>
15
<PAGE> 18
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
(DOLLARS IN THOUSANDS)
I. SUPPLEMENTAL GUARANTOR INFORMATION -- CONTINUED
<TABLE>
<CAPTION>
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
------------------------------------------------------------------
COMBINED NON-
PARENT GUARANTOR GUARANTOR
COMPANY ISSUER SUBSIDIARIES SUBSIDIARY(a) CONSOLIDATED
-------- ------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES.... $ -- $ - $ 7,907 $10 $ 7,917
INVESTING ACTIVITIES
Capital expenditures......................... (10,381) (10,381)
Net sales of other investments............... 138 138
Intercompany transactions.................... 2,088 (1,617) (471) - -
------ ------ ------- --- -------
Net cash provided by (used in)
investing activities....................... 2,088 (1,479) (10,852) -- (10,243)
FINANCING ACTIVITIES
Issuance of notes receivable arising from
stock loan plan............................ (660) (660)
Repurchase of common stock................... (1,429) (1,429)
Repayments of long-term debt................. (725) (725)
------ ------ ------- --- -------
Net cash used in financing activities........ (2,089) (725) -- -- (2,814)
------ ------ ------- --- -------
Net (decrease) increase in cash and cash
equivalents................................ (1) (2,204) (2,945) 10 (5,140)
Cash and equivalents at beginning of
period..................................... 1 2,618 6,768 -- 9,387
------ ------ ------- --- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD... $ -- $ 414 $ 3,823 $10 $ 4,247
====== ====== ======= === =======
</TABLE>
(a) Includes the accounts of Werner Funding Corporation only.
16
<PAGE> 19
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
(DOLLARS IN THOUSANDS)
I. SUPPLEMENTAL GUARANTOR INFORMATION -- CONTINUED
<TABLE>
<CAPTION>
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
---------------------------------------------------------------
COMBINED
COMBINED NON-
PARENT GUARANTOR GUARANTOR
COMPANY ISSUER SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES.............................. $ -- $ -- $ 51,368 $(46,410) $ 4,958
INVESTING ACTIVITIES
Capital expenditures...................... (2,709) (2,709)
Insurance fund securities
available-for-sale:
Purchases of debt and equity
securities........................... (572) (572)
Net sales of other insurance fund
investments............................. 6,982 6,982
Intercompany transactions................. (12) 43,198 (43,186) -- --
---- -------- -------- -------- --------
Net cash (used in) provided by investing
activities.............................. (12) 43,198 (45,895) 6,410 3,701
FINANCING ACTIVITIES
Repayment of receivables facility......... (41,500) (41,500)
Proceeds from sale of accounts
receivable.............................. 40,000 40,000
Repayments of long-term debt.............. (725) (725)
---- -------- -------- -------- --------
Net cash (used in) provided by financing
activities.............................. -- (42,225) -- 40,000 (2,225)
---- -------- -------- -------- --------
Net (decrease) increase in cash and cash
equivalents............................. (12) 973 5,473 -- 6,434
Cash and equivalents at beginning of
period.................................. 17 6 3,084 -- 3,107
---- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD.................................. $ 5 $ 979 $ 8,557 $ -- $ 9,541
==== ======== ======== ======== ========
</TABLE>
17
<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 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 JUNE 30, 1999 AS COMPARED TO QUARTER
ENDED JUNE 30, 1998
Net Sales. Net sales increased $9.4 million or 8.2% to $124.8 million for
the quarter ended June 30, 1999 from $115.4 million for the quarter ended June
30, 1998. Net sales of climbing products increased $9.8 million, or 11.0% to
$98.1 million for the quarter ended June 30, 1999 from $88.3 million for the
quarter ended June 30, 1998. The increase in net sales of climbing products was
primarily due to increases in the volume of fiberglass and aluminum step, and
aluminum and fiberglass extension ladders sold, partially offset by volume
decreases in sales of attic ladders. Net sales of extruded products of $26.7
million for the quarter ended June 30, 1999 declined by $0.3 million compared to
the quarter ended June 30, 1998.
Gross Profit. Gross profit increased $6.0 million or 19.4% to $36.8 million
for the quarter ended June 30, 1999 from $30.8 million for the quarter ended
June 30, 1998. The increase was primarily due to more sales of higher margin
climbing products and lower costs of sales due primarily to the effects of
higher production volumes.
General and Administrative Expenses. General and administrative expenses
decreased $0.3 million or 4.4% to $7.6 million for the quarter ended June 30,
1999 from $7.9 million for the quarter ended June 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 $1.6 million or 12.0% to $14.9 million for the quarter ended June 30,
1999 from $13.3 million for the quarter ended June 30, 1998. The increase was
primarily due to increases in advertising and distribution expenses.
Operating Profit (Loss). Operating profit increased $4.8 million to $14.3
million for the quarter ended June 30, 1999 from $9.5 million for the quarter
ended June 30, 1998. Operating profit of the Climbing Products segment increased
$0.3 million to $13.7 million in the second quarter of 1999 from $13.4 million
in the second quarter of 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 $0.3 million to $1.8 million for the quarter ended
June 30, 1999 from $1.5 million for the quarter ended June 30, 1998. The
increase is primarily attributable to improvements in profitability of the
product mix. Corporate and Other expenses decreased $4.2 million for the quarter
ended June 30, 1999 compared to the quarter ended June 30, 1998. The decrease
was primarily due to certain non-recurring expenses in 1998 associated with the
Recapitalization.
Other (Expense) Income, Net. Other income (expense), net was $(0.1) million
for the quarter ended June 30, 1999 compared to other income (expense), net of
$(1.0) million for the quarter ended June 30, 1998. The difference was primarily
attributable to lower costs associated with the accounts receivable sales
program in the second quarter of 1999.
18
<PAGE> 21
Interest Expense. Interest expense decreased $0.3 million to $6.7 million
for the quarter ended June 30, 1999 from $7.0 million for the quarter ended June
30, 1998. The decrease was primarily due to lower interest rates.
Income Tax (Benefit). During the second 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 benefit
for the quarter ended June 30, 1998 included an adjustment to reflect the
re-computed estimated effective rate on a year-to-date basis. The difference
between the statutory and effective tax rate at June 30, 1998 was primarily from
a valuation allowance for capital losses.
Net Income (Loss). Net income increased $2.9 million to $4.5 million for
the quarter ended June 30, 1999 from net income of $1.6 million for the quarter
ended June 30, 1998 as a result of all of the above factors.
RESULTS OF OPERATIONS -- SIX MONTHS ENDED JUNE 30, 1999 AS COMPARED TO SIX
MONTHS ENDED JUNE 30, 1998
Net Sales. Net sales increased $16.5 million or 7.8% to $230.2 million for
the six months ended June 30, 1999 from $213.7 million for the six months ended
June 30, 1998. Net sales of climbing products increased $18.6 million, or 11.6%
to $178.9 million for the six months ended June 30, 1999 from $160.3 million for
the six months ended June 30, 1998. The increase in net sales of climbing
products was primarily due to increases in the volume of fiberglass and aluminum
step, and aluminum and fiberglass extension ladders sold, partially offset by
volume decreases in sales of attic ladders. Net sales of extruded products
decreased $2.0 million, or 3.8% to $51.3 million for the six months ended June
30, 1999 from $53.4 million for the six months ended June 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 six months ended
June 30, 1999.
Gross Profit. Gross profit increased $13.0 million or 23.9% to $67.1
million for the six months ended June 30, 1999 from $54.1 million for the six
months ended June 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 $0.6 million or 4.0% to $15.4 million for the six months ended June
30, 1999 from $16.0 million for the six months ended June 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 $2.7 million or 10.3% to $28.7 million for the six months ended June
30, 1999 from $26.0 million for the six months ended June 30, 1998. The increase
was primarily due to increases in advertising and distribution expenses.
Operating Profit (Loss). Operating profit increased $10.9 million to $23.0
million for the six months ended June 30, 1999 from $12.1 million for the six
months ended June 30, 1998. Operating profit of the Climbing Products segment
increased $2.5 million to $21.3 million for the six months ended June 30, 1999
from $18.8 million for the six months ended June 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 $2.0 million to $5.1 million
for the six months ended June 30, 1999 from $3.1 million for the six months
ended June 30, 1998. The increase is primarily attributable to improvements in
profitability of the product mix. Corporate and Other expenses decreased $6.4
million for the six months ended June 30, 1999 compared to the six months ended
June 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.
Other (Expense) Income, Net. Other (expense), net was $(0.2) million for
the six months ended June 30, 1999 compared to other income, net of $0.2 million
for the six months ended June 30, 1998. The difference was primarily
attributable to the income on MIICA insurance fund investments in the first
quarter of 1998 and lower costs associated with the accounts receivable sales
program in the second quarter of 1999.
19
<PAGE> 22
Interest Expense. Interest expense decreased $2.1 million to $13.4 million
for the six months ended June 30, 1999 from $15.5 million for the six months
ended June 30, 1998. The decrease was primarily due to a decrease in short-term
bank debt and lower interest rates.
Income Tax (Benefit). During the second 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 benefit
for the quarter ended June 30, 1998 included an adjustment to reflect the
re-computed estimated effective rate on a year-to-date basis. The difference
between the statutory and effective tax rate at June 30, 1998 was primarily from
a valuation allowance for capital losses.
Net Income (Loss). Net income increased $7.0 million to $5.7 million for
the six months ended June 30, 1999 from a loss of $(1.3) million for the six
months ended June 30, 1998 as a result of all of the above factors.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flows provided by operating activities were $7.9 million for the
six months ended June 30, 1999 compared to $5.0 million for the six months ended
June 30, 1998. The increase is primarily attributable to a decrease in operating
working capital (accounts receivable, including the undivided interest in
accounts receivable, inventory, accounts payable and accrued expenses),
reductions in product liability and workers' compensation claim payments and the
effects of other non-cash items. The net cash flows provided by operating
activities for the six months ended June 30, 1998 were primarily attributable to
decreased operating working capital. Net cash used in investing activities was
$10.2 million for the six months ended June 30, 1999 compared to net cash
provided of $3.7 million for the six months ended June 30, 1998. The increase
was primarily due to an increase in capital expenditures in the six months ended
June 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 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 its
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 its 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 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.
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<PAGE> 23
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 June 30, 1999 approximately
$1.2 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.
Contingency Plans. The Company is in the process of developing business
resumption contingency plans specific to the Year 2000. These plans will address
the actions that would be taken if critical business functions cannot be carried
out in the normal manner upon entering the next century due to system or third
party failure. Management estimates that these contingency plans will be
developed by the end of the third quarter of 1999.
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<PAGE> 24
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 six months ended June 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
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.
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<PAGE> 25
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of shareholders was held on May 12, 1999. The
size of the Board of Directors of Holding was increased to six (6) persons and
the following six (6) persons were elected as directors: James O. Egan, Charles
K. Marquis, Charles J. Philippin, Howard L. Solot, Christopher J. Stadler, and
Donald M. Werner. All shares of voting stock were cast for these six (6) persons
with the exception that 799.9995 and 1,077.2704 shares of voting stock were
withheld for Howard L. Solot and Donald M. Werner, respectively. In addition, at
the meeting, Ernst & Young LLP was approved as the Company's independent
auditors for the upcoming year. Of the total shares of voting stock, 71,935.2128
were cast for, 799.9995 were cast against, and 1,123.3664 shares were withheld,
with respect to the selection of Ernst & Young LLP as the Company's independent
auditors.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
<C> <S>
10.1 Second Amendment to the Supplemental Pension Plan B
applicable to Elected Salaried Corporate Officers of Werner
Holding Co. (DE), Inc., its Parent and its Subsidiaries
10.2 Employment Agreement, dated as of May 26, 1999, between
Werner Co. and Dennis G. Heiner
27.1 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K:
Registrant filed a Current Report on Form 8-K on June 17, 1999
pertaining to the election of Dennis G. Heiner as President and Chief
Executive Officer.
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<PAGE> 26
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: August 16, 1999 /s/ R. P. Tamburrino
--------------------------------------
R. P. Tamburrino
Vice President, Chief Financial
Officer
and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
24
<PAGE> 1
Exhibit 10.1
SECOND AMENDMENT
TO THE
SUPPLEMENTAL PENSION PLAN B APPLICABLE TO
ELECTED SALARIED CORPORATE OFFICERS OF
WERNER HOLDING CO. (DE), INC., ITS PARENT AND ITS SUBSIDIARIES
WHEREAS, Werner Holding Co. (DE), Inc. (the "Company") maintains Supplemental
Pension Plan B Applicable to Elected Salaried Corporate Officers of Werner
Holding Co. (DE), Inc., its Parent and its Subsidiaries ("Supplemental Plan B");
and
WHEREAS, Section 10 of Supplemental Plan B reserves to the Company the authority
to amend Supplemental Plan B; and
WHEREAS, the Company deems it appropriate to amend Supplemental Plan B to
clarify certain provisions of Section 5.
NOW, THEREFORE, Supplemental Plan B is hereby amended as follows, effective
January 1, 1999:
The first paragraph of Section 5, the definition of "C" is amended to read as
follows:
C - Average annual compensation for years while an elected salaried
Corporate officer, based on the same method as used in the Retirement
Plan for Salaried Employees which is equal to the three (3) consecutive
full calender years out of the last ten (10) full calender years prior
to termination of employment that provide the highest average. For
these purposes compensation shall be determined using Company payroll
records and shall include salary, including salary paid in lieu of
holiday or vacation, bonuses and any other regular compensation
payment, but shall not include Employee Protection Pay, lump sum
payments for consulting services or any other taxable income from the
Company which is required to be reported on the annual W-2 forms to the
U.S. Government for Federal Income Tax purposes, such as, by way of
illustration and not limitation, the currently taxable portion of any
fringe benefit or coverage by a fringe benefit program.
IN WITNESS WHEREOF, this Second Amendment to Supplemental Plan B has been
executed this ____ day of February, 1999, by the appropriate officer of the
Company pursuant to resolution of the board of directors authorizing the same.
_________________________________
_________________________________
Title
<PAGE> 1
Exhibit 10.2
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made and entered into
as of May 26, 1999 by and between Werner Co., a Pennsylvania corporation (the
"Company"), and Dennis G. Heiner ("Executive").
The Company hereby agrees to employ Executive, and Executive hereby
accepts such employment, on the terms and conditions hereinafter set forth.
1. POSITION.
From the Commencement Date (as hereinafter defined) until the
termination of Executive's employment hereunder (the "Period of Employment"),
Executive shall serve in the capacity indicated on Schedule 1 hereto, and shall
have the normal duties and responsibilities commensurate with such position.
During the Period of Employment, Executive will (a) during normal business
hours, devote his full time efforts to advancing the business and welfare of the
Company, and (b) not engage in any other employment activities for any direct or
indirect remuneration, provided, however, Executive may manage his passive
investments and serve on corporate, charitable and community boards so long as
such activities do not unreasonably interfere with the performance of his duties
under this Agreement and provided that any such activities are approved in
advance by the Board. The corporate, charitable and community boards on which
Executive currently serves have been identified by Executive in a written notice
to the Company and will be considered approved unless otherwise specified by the
Company prior to the Commencement Date.
2. PLACE AND TERM OF EMPLOYMENT.
Executive's Period of Employment shall commence on June 15, 1999 unless
the parties mutually agree upon an earlier date (the date on which Executive
actually starts working for the Company pursuant hereto is referred to herein as
"Commencement Date"). Subject to Section 8 hereunder, the term of this Agreement
shall be through January 31, 2003 with automatic annual renewals for one (1)
year through January 2005 unless, in the case of the automatic annual one (1)
year renewals, either party gives three (3) months notice to the other party
prior to the next scheduled expiration.
<PAGE> 2
3. COMPENSATION.
3.1 Base Salary. Effective as of the Commencement Date, the Company
shall pay Executive the per annum Base Salary indicated on Schedule 1 attached
hereto during the Period of Employment payable in accordance with the standard
policies of the Company and subject to payroll deductions as may be necessary or
customary in respect of the Company's salaried employees in general. Thereafter
Executive's Base Salary hereunder shall be subject to annual review by the Board
for such increases as the Board may determine. Executive's base salary shall not
be decreased unless there are proportionate across the board executive salary
reductions approved by the Board of Directors.
3.2 Performance Based Compensation. In addition to the Base Salary
provided for in Section 3.1 hereof, Executive shall be eligible to receive an
annual cash bonus payable prior to May 1 of the following year, based upon the
extent to which Werner Holding Co. (PA), Inc.'s ("Holdings") consolidated
Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA"), as
defined in Exhibit 1 hereto, equals or exceeds the percentages of target annual
EBITDA for the applicable year in accordance with the chart set forth below:
<TABLE>
<CAPTION>
Range in Which Target Bonus May be
Percentage of Target Bonus as % of Base Salary Adjusted at Discretion of the Board
EBITDA Target Achieved (Subject to Board Adjustment) (% of Base Salary)
---------------------- ----------------------------- -----------------------------------
<S> <C> <C>
Less than 85% 0% 0%
85% or above, but below 90% 20% 10% - 30%
90% or above, but below 95% 50% 40% - 60%
95% or above, but below 100% 75% 65% - 85%
100% 100% 90% - 110%
</TABLE>
2
<PAGE> 3
The EBITDA targets for each year shall be set by the Company's Board of
Directors as part of its annual budgeting process. The 1999 EBITDA target shall
be $66 million.
Executive will be entitled to receive a minimum annual cash bonus of
$250,000 for 1999, payable in April 2000 if (a) Executive is still employed by
the Company on December 31, 1999 or (b) such employment is terminated prior
thereto by the Company without Cause or by Executive for Good Reason. In the
event of Executive's death or Permanent Disability prior to December 31, 1999,
Executive will receive a prorated portion of such amount based on ratio that the
number of days of employment through the date of death or Permanent Disability
bears to the number of days from the Commencement Date through December 31,
1999.
4. BENEFITS.
During the Period of Employment, Executive shall be entitled to
participate in those benefit plans and programs maintained by the Company which
are described in Exhibit 2 or which are subsequently developed for its executive
officers or employees generally provided that, (i) Executive's right to
participate in such plans and programs shall not affect the Company's right to
amend or terminate the general applicability of such plans and programs, and
(ii) Executive acknowledges that he shall have no vested rights under or to
participate in any such plan or program except as expressly provided under the
terms thereof. Executive shall relocate as soon as practical, but in any event
no later than August 31, 1999. The Company will reimburse Executive for his
reasonable actual documented commuting and interim living expenses until
Executive relocates but in any event no later than August 31, 1999. The Company
will also pay up to $25,000 for Executive's reasonable actual documented legal
expenses associated with the review of documents regarding his commencement of
employment with the Company.
3
<PAGE> 4
5. EQUITY OPPORTUNITY
(a) Executive will be entitled, during the period between the
Commencement Date and December 31, 1999, to purchase up to 1,000 shares of Class
C Common Stock of Holdings at a purchase price of $2,421.29 per share. Up to 75%
of the aggregate purchase price of any shares purchased pursuant to this Section
5(a) may be paid in the form of a promissory note secured by a pledge of all
shares so purchased. The balance of the aggregate purchase price will be payable
in cash. The share purchase and any related promissory note and pledge will be
subject to the execution of definitive agreements in form and substance
substantially similar to the documentation previously provided to Executive.
(b) Executive will receive from Holdings, as soon as practicable after
the Commencement Date, 1,033 additional shares of Class C Common Stock of
Holdings in the form of restricted stock which will vest in three (3) equal
installments on the first, second and third anniversaries of the Commencement
Date subject to Executive's continued employment during that period. In the
event that, prior to the third anniversary of the Commencement Date, Executive's
employment hereunder is terminated by the Company without Cause, by Executive
for Good Reason or as a result of Executive's Permanent Disability, 50% of any
then unvested restricted shares shall vest and the remaining unvested restricted
shares will be forfeited. Upon consummation of a Change of Control (as defined
below), all unvested restricted shares then held by Executive will vest. In all
other events, all restricted shares that are unvested at the time of termination
of Executive's employment hereunder shall be forfeited. The additional shares of
restricted stock referred to in this paragraph will be subject to the execution
of definitive agreements in form and substance that are mutually agreeable to
both parties. For purposes of this Agreement, a "Change of Control" shall be
deemed to have occurred if any person other than any of its current stockholders
or their affiliates acquires more than 50% of the voting power or business of
Holdings, whether pursuant to a stock sale, asset sale, merger, consolidation,
recapitalization, reorganization or otherwise.
(c) Executive will be entitled as of the Commencement Date to receive
from Holdings a grant of stock options exercisable for 1,000 shares of Class C
Common Stock of Holdings at an exercise price of $2,421.29 per share. The
options will be subject to vesting and
4
<PAGE> 5
other terms and conditions substantially as set forth in the documentation
previously furnished to Executive. In the event Executive purchases at least 500
shares pursuant to Section 5(a) hereof, Executive shall be entitled to receive
stock options for an additional 250 Class C Common Shares on the same terms and
conditions as those referred to above in this Section 5(c).
(d) Executive will have "piggyback" registration rights exercisable
during the three-year period following the "Initial Public Offering" of Holdings
(as defined in the Articles of Incorporation of Holdings) with respect to the
shares acquired by Executive pursuant to Section 5(a) and (b) hereof, subject to
reasonable and customary terms and conditions and subject to existing
registration rights commitments.
6. RETENTION INCENTIVE COMPENSATION
(a) Prior to the end of the 90-day period beginning on the Commencement
Date, the Company shall establish a special annual incentive compensation
program for Executive that will provide him the opportunity to earn up to
$360,000 on an annual basis but contingent on Executive remaining in the employ
of the Company until the fifth anniversary of the Commencement Date, subject to
Section 6(b) below (each annual award shall be referred to herein as a "Special
Annual Compensation Award"). Each Special Annual Compensation Award shall be
subject to the achievement of specific performance goals. Payment of any Special
Annual Compensation Award shall be made in accordance with a payment schedule to
be mutually agreed upon by the Company and Executive prior to the beginning of
the year with respect to which the Special Annual Compensation Award is earned;
provided, however, that all Special Annual Compensation Awards shall not be paid
until after the fifth anniversary of the Commencement Date.
(b)(i) If, prior to the fifth anniversary of the Commencement Date,
Executive's employment is terminated by the Company without Cause, by the
Executive for Good Reason or as a result of Executive's Permanent Disability,
the Company shall (unless clause (b)(ii) below applies) promptly pay Executive
an amount equal to the earned Special Annual Compensation Awards plus 50% of the
unearned Special Annual Compensation Awards which would otherwise have been
earned through the completion of five (5) years of employment hereunder. (ii)
If,
5
<PAGE> 6
prior to the fifth anniversary of the Commencement Date, a Change of Control
occurs and, within two years after such Change of Control, Executive's
employment hereunder is terminated by the Company without Cause or Executive
terminates his employment hereunder for Good Reason, the Company will promptly
pay Executive an amount equal to all earned but unpaid Special Annual
Compensation Awards and all unearned Special Compensation Awards which would
otherwise have been earned through the completion of five (5) years of
employment hereunder. If Executive's employment is terminated by the Company for
Cause prior to the fifth anniversary of the Commencement Date, Executive shall
forfeit all right, title and interest to payment of any and all Special Annual
Compensation Awards.
(c) On the date that the Company pays each earned Special Annual
Compensation Award (or portion thereof) to Executive, the Company shall pay to
him an additional amount equal to the interest that the Special Annual
Compensation Award (or portion thereof) would have generated had it been
invested on the date it was earned in an interest-bearing account with an
interest rate equal to the average of the "GATT Rate" as of the last day of each
calendar quarter over the applicable calendar year.
7. EXPENSES; TAXES.
Upon presentation of acceptable substantiation therefor, the Company
will pay or reimburse Executive for such reasonable travel, entertainment and
other expenses as he may incur during the Period of Employment in connection
with the performance of his duties hereunder. Federal, state and local income
taxes shall be withheld on all cash and in-kind payments made by the Company to
Executive in accordance with applicable tax laws and regulations.
8. TERMINATION OF EMPLOYMENT.
The provisions of this Section 8 shall apply upon termination of
Executive's employment hereunder. In connection with any termination of
Executive's employment hereunder, Executive or his beneficiaries shall be
entitled to receive, promptly after termination, earned but unpaid Base Salary,
earned but unpaid bonus pursuant to Section 3.2 for any completed fiscal year,
any payments due pursuant to Section 6, unreimbursed amounts pursuant to Section
7, and unpaid
6
<PAGE> 7
and unreimbursed payments and benefits under, and in accordance with the terms
of, applicable benefit plans and programs, said payments being collectively
referred to as Standard Termination Payments.
8.1 For Cause or Not for Good Reason. If the Company terminates
Executive's employment for Cause or if Executive terminates his employment other
than for Good Reason, the Company's obligations to compensate Executive shall in
all respects cease as of the date of such termination, except for Standard
Termination Payments. Termination of Executive's employment for "Cause" shall
mean termination by the Company because Executive:
(i) has been convicted of a felony, or has entered a plea of
guilty or nolo contendere to a felony;
(ii) has committed an act of fraud involving dishonesty for
personal gain which is materially injurious to the Company;
(iii) has willfully and continually refused to substantially
perform his duties with the Company (other than any such refusal resulting from
his incapacity due to mental illness or physical illness or injury), after a
demand for substantial performance has been delivered to the Executive by the
Board, where such demand specifically identifies the manner in which the Board
believes that the Executive has refused to substantially perform his duties and
the passage of a reasonable period of time for Executive to comply with such
demand; or
(iv) has engaged in gross misconduct materially and
demonstrably injurious to the Company or its subsidiaries or has willfully
engaged in conduct which represents a material breach of Company policies on
discrimination or harassment.
With respect to termination for Cause arising out of conduct
described in clause (ii), (iii) or (iv) above, a termination shall not be
considered for Cause for purposes of this Agreement unless there shall have been
delivered to the Executive a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters of the entire Board, at a
meeting of the Board called and held for that purpose (after reasonable notice
to the Executive and an opportunity for the Executive, together with his counsel
or other advisors, to be heard at such meeting),
7
<PAGE> 8
finding that in the good faith opinion of the Board the Executive had engaged in
conduct described in clause (ii), (iii) or (iv) above and specifying the
particulars thereof in detail. Such a finding by the Board of Directors of the
Company is a prerequisite to a termination for Cause pursuant to clauses (ii),
(iii) or (iv) above; provided, however, that such a finding may be challenged,
by appropriate judicial process, on the merits (i.e., that Cause did not exist)
or on the basis that the Board's finding was not made in good faith (provided
that proof that Cause for termination existed shall be a complete defense to any
showing that the Board's findings were not made in good faith).
If the Executive terminates his employment other than for Good Reason,
the Executive must provide the Company with thirty (30) days written notice
prior to such termination.
8.2 Upon Death or Permanent Disability. If Executive's employment is
terminated as a result of death or Permanent Disability, the Company's
obligation to compensate Executive shall in all respects cease as of the date of
such termination, except for Standard Termination Payments including all
applicable disability benefits (provided that, if termination results from
Permanent Disability which occurs on or after January 1, 2000, Executive will
also be entitled to receive prior to May 1 of the year following such
termination a prorated portion of the annual bonus, if any, earned for the year
in which such termination occurs based on the total number of days Executive was
employed by the Company during such year). The Company may terminate Executive's
employment hereunder attributable to the "Permanent Disability" of Executive if
Executive becomes physically or mentally incapacitated or disabled so that he is
unable to perform for the Company substantially the same services as he
performed prior to incurring such incapacity or disability (the Company, at its
option and expense, is entitled to retain a physician reasonably acceptable to
Executive to confirm the existence of such incapacity or disability, and the
determination of such physician shall be binding upon the Company and
Executive), and such incapacity or disability exists for an aggregate of six (6)
calendar months in any twelve (12) calendar month period.
8.3 Not For Cause; For Good Reason; Nonrenewal. If (i) the Company
gives notice to prevent the automatic annual renewal pursuant to Section 2
hereof, or (ii) Executive's
8
<PAGE> 9
employment is terminated by the Company for a reason other than Cause,
Executive's death or Executive's Permanent Disability, or (iii) Executive
terminates his employment for Good Reason (as hereinafter defined), the
Company's obligation to compensate Executive shall in all respects cease as of
the date of such termination, except (a) for Standard Termination Payments, (b)
that the Company will pay to Executive a lump sum amount equal the sum of (1)
$1,050,000 and (2) two (2) times the bonus that the Executive received (or
earned but did not receive) for the fiscal year immediately preceding the fiscal
year in which his employment terminated, and (c) that the Company will, for a
period of twenty-four (24) months following said date of termination, provide
Executive with retirement benefits and welfare (including any life insurance,
hospitalization, medical and disability) benefits, substantially similar to
those provided to Executive as of the date of termination, provided that such
welfare benefits shall be discontinued to the extent Executive receives similar
benefits from subsequent employment. For purposes of this Agreement, "Good
Reason" shall mean (1) any removal of Executive from his title or position as
chief executive officer of the Company; (2) any material diminution of
Executive's role, responsibilities and authority as chief executive officer of
the Company; (3) a reduction by the Company in the Executive's base salary
except as contemplated by Section 3.1 or in the Executive's bonus opportunities
as in effect on the Commencement Date; (4) any material reduction in the
aggregate level of benefits to which the Executive is entitled under Company
employee benefit plans on the Commencement Date, or the taking of any action by
the Company which would adversely affect the Executive's accrued benefits under
any such employee benefit plans, unless a reduction is made consistently for all
executive officers of the Company; (5) a demand by the Company to the Executive
to relocate to any place that exceeds a fifty (50) mile radius beyond the
location at which the Executive performed the Executive's duties on the
Commencement Date; or (6) any material breach by the Company of any provision of
this Agreement. In the event that Executive intends to assert that he has
grounds for terminating his employment for Good Reason, Executive shall give the
Company at least two (2) days notice of such intention in the case of clause (1)
or thirty (30) days notice of such intention in the case of clauses (2) through
(6). The Company shall have the opportunity during the applicable notice period
to cure the cause which Executive asserts constitutes Good Reason (provided the
same or substantially similar cause has not occurred in the prior twelve (12)
months) and, if the Company does so, then Executive shall not be entitled to
terminate his employment for Good Reason.
9
<PAGE> 10
8.4 Release and Satisfaction. At the time of termination of Executive's
employment for any reason other than by the Company for Cause, Executive and the
Company agree to execute mutual releases whereby (a) Executive will release,
relinquish and forever discharge the Company and any director, officer,
employee, shareholder, controlling person or agent of the Company from any and
all claims, damages, losses, costs, expenses, liabilities or obligations,
whether known or unknown (other than any such claims, damages losses, costs,
expenses, liabilities or obligations arising under (i) any indemnification
arrangement of the Company with respect to Executive, (ii) any employee benefit
plan or program (whether or not tax-qualified) covering Executive, (iii) any
stock purchase or stock option plan or agreement to which the Company and
Executive are parties (or any document executed in connection therewith) or (iv)
this Agreement, to the extent the Company or any such person has continuing
obligations pursuant to the express provisions hereof following such
termination), which Executive has incurred or suffered or may incur or suffer as
a result of Executive's employment by the Company or the termination of such
employment, and (b) the Company will release, relinquish and forever discharge
Executive and his heirs, successors and assigns from any and all claims,
damages, losses, costs, expenses, liability or obligations, whether known or
unknown (except as set forth in Section 8.5 hereof and other than any such
claims, damages, losses, costs, expenses, liabilities or obligations arising
under any of the arrangements or agreements referred to in clauses (i) through
(iii) in the preceding clause (a) of this Section 8.4 or under this Agreement to
the extent Executive or any such person has continuing obligations pursuant to
the express provisions hereof following such termination), which the Company has
incurred or suffered or may incur or suffer as a result of the Company's
employment of Executive or the termination of such employment.
8.5 Effect on This Agreement. The termination of Executive's employment
shall not affect the continuing operation and effect of Sections 8.4 and 9
hereof, nor affect any obligation of the Company to make payments pursuant to
Section 8 hereof, which shall continue in full force and effect upon the Company
and Executive, and its and his heirs, successors and assigns. Nothing in Section
8.1 or 8.4 hereof shall be deemed to operate or shall operate as a release,
10
<PAGE> 11
settlement or discharge of any liability of Executive to the Company (a) from
any act or omission by Executive enumerated in Section 8.1 with regard to the
Company which constituted a reason for termination of Executive's employment for
Cause or (b) in connection with any amount Executive owes to the Company
pursuant to a loan or other advance.
8.6 Mitigation. Executive shall not be required to mitigate the amount
of any payment provided for under this Agreement by seeking other employment or
otherwise and the amount of any payment or benefit provided for in this
Agreement shall not be reduced by any compensation earned or benefits received
by Executive as the result of employment by a future employer, by offset against
any amount claimed to be owed by him to the Company (except amounts owed to the
Company pursuant to any loan or other advance that is then due), or otherwise.
9. NON-COMPETITION; NON-DISCLOSURE OF PROPRIETARY INFORMATION, SURRENDER
OF RECORDS; INVENTIONS AND PATENTS.
9.1 Non-Competition
(a) Executive acknowledges that in the course of his
employment with the Company he will become familiar with the trade secrets and
other confidential information of the Company and that his services will be of
special, unique and extraordinary value to the Company. Therefore, Executive
agrees that, during the Period of Employment and for two years thereafter (the
"Noncompete Period"), he shall not directly or indirectly own, manage, control,
participate in, consult with, render services for, or in any manner engage in
any business competing with the businesses of the Company (i) which relates to
(A) the manufacturing or sale of climbing equipment or (B) aluminum extrusion or
(ii) which is commenced by the Company or becomes under development by the
Company after the date hereof and as of the date of termination constitutes, or
is reasonably likely to develop during the Noncompete Period into, a material
portion of the Company's overall business within the United States and any other
geographical area in which the Company or any of its subsidiaries engage in such
businesses. Nothing herein shall prohibit Executive from being a passive owner
of not more than 2% of the outstanding stock or debt of any corporation which is
publicly traded so long as Executive has no
11
<PAGE> 12
active participation in the business of such corporation. The foregoing will not
prevent Executive from being employed by an entity which has an affiliate,
subsidiary or division which competes with the Company provided Executive does
not participate in any way in such competing business.
(b) During the Noncompete Period, Executive shall not directly
or indirectly through another entity (i) induce or attempt to induce any
employee of the Company to leave the employ of such person, or in any way
interfere with the employee relationship between the Company and any employee
thereof, (ii) hire any person who was an employee of the Company at any time
during the Period of Employment (other than individuals who have not been
employed by the Company for a period of at least six (6) months prior to
employment by Executive directly or indirectly through another entity), or (iii)
induce or attempt to induce any customer, supplier, licensee or other person
having a business relationship with the Company (A) which relates to (x) the
manufacturing or sale of climbing equipment or (y) aluminum extrusion or (B)
which is commenced by the Company or becomes under development by the Company
after the date hereof and as of the date of termination constitutes, or is
reasonably likely to develop during the Noncompete Period into, a material
portion of the Company's overall business to cease doing business with the
Company or interfere materially with the relationship between any such customer,
supplier, licensee or other person having a business relationship with the
Company.
9.2 Proprietary Information. Executive agrees that he shall not use for
his own purpose or for the benefit of any person or entity other than the
Company or its shareholders or affiliates, nor otherwise disclose to any
individual or entity at any time while he is employed by the Company or
thereafter any proprietary information of the Company unless such disclosure (a)
has been authorized by the Board, (b) is in the good faith judgment of Executive
required in the course of Executive's employment hereunder, (c) is in the course
of such individual's or entity's employment or retention by the Company, or (d)
is required by law, a court of competent jurisdiction or a governmental or
regulatory agency. For purposes of this Agreement, the term "proprietary
information" shall mean: (a) the name or address of any customer, supplier or
affiliate of the Company or any information concerning the transactions or
relations of any
12
<PAGE> 13
customer, supplier or affiliate of the Company or any of its shareholders; (b)
any information concerning any product, technology or procedure employed by the
Company, but not generally known to its customers, suppliers or competitors, or
under development by or being tested by the Company, but not at the time offered
generally to customers or suppliers; (c) any information relating to the
marketing methods, sales margins, discounts, rebates, supplier incentives, or
the like, the capital structure, or results of any business plan of the Company;
(d) any information contained in the Company's policies and procedures or
employees' manual; (e) any inventions, innovations, trade secrets or other items
covered by Section 9.4 below; and (f) any other information which the Board has
determined by resolution and communicated to Executive to be confidential or
proprietary. However, proprietary information shall not include any information
that is or becomes generally known to the public other than through actions of
Executive in violation of Sections 9.1, 9.2 or 9.3 hereof.
9.3 Confidentiality and Surrender of Records. Executive agrees that,
while he is employed by the Company or at any time thereafter, he shall not
except as required by law give any "confidential records" (as hereinafter
defined) to, or permit any inspection or copying of confidential records by, any
individual or entity other than in the course of such individual's or entity's
employment or retention by the Company or as required by law, a court of
competent jurisdiction, or a governmental or regulatory agency, nor shall he
retain any of the same following termination of this employment, without the
prior approval of the Board. For purposes hereof, "confidential records" means
all correspondence, memoranda, files, manuals, financial, operating or marketing
records, magnetic tape, or electronic or other media of any kind which may be in
Executive's possession or under his control or accessible to him which contain
any proprietary information as defined in Section 9.2 above.
9.4 Inventions and Patents. Executive agrees that all inventions,
innovations, trade secrets, patents and processes in any way relating, directly
or indirectly, to the Company's businesses developed by him alone or in
conjunction with others at any time during his employment by the Company shall
belong to the Company. Executive will use his reasonable best efforts to perform
all actions reasonably requested by the Board to establish and confirm such
ownership by the Company. The Company shall prepare and pay all expenses related
to any documentation to file for intellectual property rights, assignments, or
transfers of title with regard thereto.
13
<PAGE> 14
9.5 Definition of Company. For purposes of this Section 9, the term
"Company" shall include Holdings and all of its subsidiaries, ventures or
affiliates (including the Company and all of its subsidiaries, ventures or
affiliates) whether currently existing or hereafter formed.
9.6 Enforcement. The parties hereto agree that the duration and area
for which the covenants set forth in Section 9 are to be effective are
reasonable. In the event that any court or arbitrator determines that the time
period or the area, or both of them, are unreasonable and that any of the
covenants are to that extent unenforceable, the parties hereto agree that such
covenants will remain in full force and effect, first, for the greatest time
period, and second, in the greatest geographical area that would not render them
unenforceable. The parties intend that this Agreement will be deemed to be a
series of separate covenants, one for each and every county of each and every
state of the United States of America. Executive agrees that damages are an
inadequate remedy for any breach of the covenants in this Section 9 and that the
Company will, whether or not it is pursuing any potential remedies at law, be
entitled to equitable relief in the form of preliminary and permanent
injunctions without bond or other security upon any actual or threatened breach
of this Agreement.
10. MISCELLANEOUS.
10.1 Notice. Any notice required or permitted to be given hereunder
shall be deemed sufficiently given if sent by registered or certified mail,
postage prepaid, addressed to the addressee at his or its address last provided
the sender in writing by the addressee for purposes of receiving notices
hereunder or, unless or until such address shall be so furnished, to the address
indicated opposite his or its signature to this Agreement. Each party may also
provide notice by sending the other party a facsimile at a number provided by
such other party.
10.2 Modification and No Waiver of Breach. No waiver or modification of
this Agreement shall be binding unless it is in writing signed by the parties
hereto. No waiver by a party of a breach hereof by the other party shall be
deemed to constitute a waiver of a future breach, whether of a similar or
dissimilar nature, except to the extent specifically provided in any written
waiver under this Section 10.2.
14
<PAGE> 15
10.3 Governing Law. This Agreement shall be governed by and construed
and interpreted in accordance with the laws of the Commonwealth of Pennsylvania,
and all questions relating to the validity and performance hereof and remedies
hereunder shall be determined in accordance with such law.
10.4 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same Agreement.
10.5 Captions. The captions used herein are for ease of reference only
and shall not define or limit the provisions hereof.
10.6 Entire Agreement. This Agreement together with any agreement,
plans or other documents implementing the terms of this Agreement constitute the
entire agreement between the parties hereto relating to the matters encompassed
hereby and supersede any prior oral or written agreements.
10.7 Assignment. The rights of the Company under this Agreement may,
without the consent of Executive, be assigned by the Company, in its sole and
unfettered discretion, to any person, firm, corporation or other business entity
which at any time, whether by purchase, merger, or otherwise, directly or
indirectly, acquires all or substantially all of the stock, assets or business
of the Company (provided that, if as a result thereof the employer is to be an
entity other than the Company, such entity shall assume the Company's
obligations hereunder in writing delivered to the Executive); except for the
foregoing this Agreement may not be assigned by the Company.
10.8 Non-Transferability of Interest. None of the rights of Executive
to receive any form of compensation payable pursuant to this Agreement shall be
assignable or transferable except through a testamentary disposition or by the
laws of descent and distribution upon the death of Executive. Any attempted
assignment, transfer, conveyance, or other disposition (other than as aforesaid)
of any interest in the rights of Executive to receive any form of compensation
to be made by the Company pursuant to this Agreement shall be void.
15
<PAGE> 16
10.9 Arbitration. Any dispute, claim or controversy arising out of or
relating to this Agreement, or the breach, termination or validity hereof, shall
be finally settled by arbitration in accordance with the then-prevailing
Commercial Arbitration Rules of the American Arbitration Association, as
modified herein ("Rules"). There shall be one arbitrator who shall be jointly
selected by the parties. If the parties have not jointly agreed upon an
arbitrator within twenty days of respondent's receipt of claimant's notice of
intention to arbitrate, either party may request the American Arbitration
Association to furnish the parties with a list of names from which the parties
shall jointly select an arbitrator. If the parties have not agreed upon an
arbitrator within ten days of the transmittal date of the list, then each party
shall have an additional five days in which to strike any names objected to,
number the remaining names in order of preference, and return the list to the
American Arbitration Association, which shall then select an arbitrator in
accordance with Rule 13 of the Rules. The place of arbitration shall be
Pittsburgh, Pennsylvania. By agreeing to arbitration, the parties hereto do not
intend to deprive any court of its jurisdiction to issue a pre-arbitral
injunction, pre-arbitral attachment or other order in aid of arbitration. The
arbitration shall be governed by the Federal Arbitration Act, 9 U.S.C. Sections
1-16. Judgment upon the award of the arbitrator may be entered in any court of
competent jurisdiction. Each party shall bear its or his own costs and expenses
in any such arbitration and one-half of the arbitrator's fees and expenses
provided that the arbitrator may but need not award the prevailing party
reasonable fees and expenses.
10.10 Shareholder Approval. The Company represents and warrants to
Executive that the holders of shares of capital stock of Holdings representing
75% or more of the voting power of all classes of capital stock of Holdings have
approved this Agreement in accordance with the requirements of Section
280G(b)(5) of the Internal Revenue Code of 1986, as amended.
16
<PAGE> 17
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day
and year first written above.
WERNER CO., a Pennsylvania Corporation.
By:
-----------------------
Name: Donald M. Werner
Address for Notices: Title: Chairman
93 Werner Road
Greenville, PA 16125-9499
Attention: Eric J. Werner, Esq.
General Counsel
With a copy to:
Investcorp International Inc.
280 Park Avenue, 37th Floor
New York, NY 10017
Attention: Christopher J. Stadler
and
Gibson, Dunn & Crutcher LLP
200 Park Avenue
New York, NY 10166
Attention: E. Michael Greaney
EXECUTIVE
------------------------------
Address for Notices: Dennis G. Heiner
Dennis G. Heiner
8 Searidge
Laguna Niguel, CA 92677
17
<PAGE> 18
SCHEDULE 1
TARGET BONUS AMOUNT AS A
TITLE BASE SALARY PERCENTAGE OF BASE SALARY
Chief Executive
Officer and President $525,000 100%
18
<PAGE> 19
EXHIBIT 1
EARNINGS BEFORE INTEREST, TAXES,
DEPRECIATION AND AMORTIZATION
Earnings Before Interest, Taxes, Depreciation and Amortization
("EBITDA") is defined as Consolidated Net Income (loss) of the Company and its
subsidiaries as it would appear on a statement of income (loss), which shall (i)
exclude or be adjusted otherwise for all acquisitions and additional equity
contributions to the extent such acquisitions and/or equity contributions
materially change target EBITDA for any particular Fiscal Year, (ii) reflect a
reduction for all management and employment bonuses payable with respect to the
Fiscal Year of the Company prepared in accordance with U.S. GAAP consistently
applied and (iii) be adjusted for any material Board approved amendment to the
capital expenditure plan: plus (minus) the following amounts, to the extent such
amounts are otherwise taken into account in determining EBITDA (prior to
adjustment):
1. Any provision (benefit) for taxes (including franchise taxes)
deducted (added) in calculating such consolidated net income (loss); plus
2. Any interest expense (net of interest income), deducted in
calculating such consolidated net income (loss); plus
3. Amortization expenses deducted in calculating consolidated net
income (loss); plus
4. Depreciation expense deducted in calculating consolidated net income
(loss); plus
5. Management fees paid to Investcorp; plus (minus)
6. Any unusual losses (gains) deducted (added) in calculating
consolidated net income (loss). (Unusual items are intended to include
transactions considered outside the ordinary course of business. EBITDA will be
adjusted to eliminate the effects, if any, of such transactions, the intent
being to calculate EBITDA as if such transactions had not occurred; plus (minus)
19
<PAGE> 20
7. Any compensation expense (income) deducted (added) in
calculating consolidated net income (loss) attributable to transactions
involving equity securities of the Company or its subsidiaries.
The Executive and his representative shall be provided reasonable
opportunity to review the computation of EBITDA and reasonable access to the
data and information supporting much computation, but the Board's determination
shall be conclusive and binding.
20
<PAGE> 21
EXHIBIT 2
List of current Employee Benefits
---------------------------------
Term Life Insurance
Health/Dental Insurance
Long Term Disability Insurance
Accidental Death & Dismemberment Insurance
Travel Insurance
401(k) Savings Plan
Retirement Plan for Salaried Employees of
Werner Holding Co. (DE), Inc.
Relocation Benefits
(with appropriate modifications to the tax gross-up including that any expenses
attributable to relocation that are nondeductible for personal income tax
purposes will be grossed up so as to result in no after tax cost to Executive)
Company Car per Policy
Vacation per Policy
Laptop Computer
Cellular Telephone
Internet E-Mail and Web Surfing Account
Annual Supplemental Physical Reimbursement
21
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<NAME> WERNER HOLDING CO. (PA), INC.
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
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