<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
<TABLE>
<S> <C> <C> <C>
COMMISSION FILE NO. 333-46607-12 COMMISSION FILE NO. 333-46607
WERNER HOLDING CO. (PA), INC. WERNER HOLDING CO. (DE), INC.
------------------------------------------------- -------------------------------------------------
(EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN ITS (EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN ITS
CHARTER) CHARTER)
PENNSYLVANIA 25-0906875 DELAWARE 25-1581345
------------------------------------------------- -------------------------------------------------
(STATE OR OTHER JURISDICTION (IRS EMPLOYER (STATE OR OTHER JURISDICTION (IRS EMPLOYER
OF IDENTIFICATION NO.) OF IDENTIFICATION NO.)
INCORPORATION OR INCORPORATION OR
ORGANIZATION) ORGANIZATION)
1105 NORTH MARKET ST.,
93 WERNER RD. SUITE 1300
GREENVILLE, PENNSYLVANIA 16125 WILMINGTON, DELAWARE 19899
------------------------------------------------- -------------------------------------------------
(ADDRESS OF PRINCIPAL (ZIP CODE) (ADDRESS OF PRINCIPAL (ZIP CODE)
EXECUTIVE OFFICES) EXECUTIVE OFFICES)
(724) 588-2550 (302) 478-5723
------------------------------------------------- -------------------------------------------------
(CO-REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA (CO-REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA
CODE) CODE)
</TABLE>
Indicate by check mark whether each of the Co-registrants (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 each of the Co-registrants was required to file such reports) and (2) has
been subject to such filing requirements for the past 90 days. Yes |X| No |_|
Indicate the number of shares outstanding of each of the
Co-registrants' classes of common stock, as of September 30, 2000:
Werner Holding Co. (PA), Inc. 1,879.5454 shares of Class A Common Stock
21,774.9346 shares of Class B Common Stock
5,673.7700 shares of Class C Common Stock
1,000 shares of Class D Common Stock
45,000 shares of Class E Common Stock
Werner Holding Co. (DE), Inc. 1,000 shares of Common Stock
<PAGE> 2
INDEX
WERNER HOLDING CO. (PA), INC.
WERNER HOLDING CO. (DE), INC.
FORM 10-Q
PERIOD ENDED SEPTEMBER 30, 2000
<TABLE>
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements of Werner Holding Co. (PA), Inc. and Subsidiaries (Unaudited)
Condensed Consolidated Balance Sheets--September 30, 2000 and
December 31, 1999.................................................................... 1
Condensed Consolidated Statements of Income--Three and Nine Months
Ended September 30, 2000 and 1999.................................................... 2
Condensed Consolidated Statements of Changes in Shareholders'
Equity (Deficit)--Three and Nine Months Ended September 30, 2000 and 1999............. 3
Condensed Consolidated Statements of Cash Flows--Nine Months Ended
September 30, 2000 and 1999.......................................................... 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.......................................................................... 14
Item 3. Quantitative and Qualitative Disclosures about Market Risk............................... 18
PART II OTHER INFORMATION
Item 1. Legal Proceedings........................................................................ 19
Item 6. Exhibits and Reports on Form 8-K......................................................... 20
SIGNATURES ......................................................................................... 21
</TABLE>
The financial statements included herein are that of Werner Holding Co. (PA),
Inc. ("Holding (PA)"). The Co-registrants are Holding (PA) and Werner Holding
Co. (DE), Inc. (the "Issuer"), which is a wholly-owned subsidiary of Holding
(PA). Holding (PA) has no substantial operations or assets other than its
investment in the Issuer. The consolidated financial condition and results of
operations of Holding (PA) 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 (PA), 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)
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents ...................... $ 1,142 $ 866
Undivided interest in accounts receivable ...... 69,288 68,393
Allowance for doubtful accounts ................ (2,000) (1,900)
Refundable income taxes ........................ -- 697
Inventories .................................... 61,255 58,348
Deferred income taxes .......................... 1,807 2,420
Other .......................................... 1,912 1,907
--------- ---------
Total current assets ......................... 133,404 130,731
Property, plant and equipment, net ............... 99,126 83,507
Other assets:
Deferred income taxes .......................... 14,382 10,972
Deferred financing fees, net ................... 9,757 11,474
Other .......................................... 18,581 18,756
--------- ---------
42,720 41,202
--------- ---------
TOTAL ASSETS ................................. $ 275,250 $ 255,440
========= =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable ............................... $ 26,624 $ 31,065
Accrued liabilities ............................ 37,801 36,679
Income taxes payable ........................... 3,292 --
Current maturities of long-term debt ........... 1,450 1,450
--------- ---------
Total current liabilities .................... 69,167 69,194
Long-term obligations:
Long-term debt ................................. 276,648 277,434
Reserve for product liability and workers'
compensation claims .......................... 38,064 29,247
Other long-term obligations .................... 26,264 23,441
--------- ---------
Total liabilities ............................ 410,143 399,316
Shareholders' deficit:
Common stock ................................... 1 1
Additional paid-in-capital ..................... 201,272 198,786
Accumulated deficit ............................ (333,439) (341,718)
Accumulated other non-owner changes in equity .. (260) (260)
Notes receivable arising from stock loan plan .. (2,467) (685)
--------- ---------
Total shareholders' deficit .................. (134,893) (143,876)
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT .. $ 275,250 $ 255,440
========= =========
See notes to unaudited condensed consolidated financial statements.
1
<PAGE> 4
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- -----------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales ..................................... $ 129,520 $ 122,563 $ 399,053 $ 352,798
Cost of sales ................................. 93,610 86,622 293,702 249,794
--------- --------- --------- ---------
Gross profit .................................. 35,910 35,941 105,351 103,004
General and administrative expenses ........... 6,091 7,439 20,815 22,810
Selling and distribution expenses ............. 16,474 14,913 47,313 43,580
Plant shutdown costs .......................... -- -- 1,400 --
--------- --------- --------- ---------
Operating profit .............................. 13,345 13,589 35,823 36,614
Other income (expense), net ................... (243) (510) (191) (681)
--------- --------- --------- ---------
Income before interest and taxes .............. 13,102 13,079 35,632 35,933
Interest expense .............................. 7,020 6,581 20,899 19,978
--------- --------- --------- ---------
Income before income taxes .................... 6,082 6,498 14,733 15,955
Income taxes .................................. 2,460 2,624 5,843 6,422
--------- --------- --------- ---------
NET INCOME .................................... $ 3,622 $ 3,874 $ 8,890 $ 9,533
========= ========= ========= =========
</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, 2000 ................. $ 1 $ 198,786 $(341,718) $(260) $ (685) $(143,876)
Non-owner equity changes:
Net income ............................... 1,645 1,645
---------
Total non-owner equity changes ......... 1,645
Notes receivable arising from stock
loan plan, net ........................... (1,624) (1,624)
Repurchase of common stock ................. (611) (611)
Issuance of common stock ................... 2,172 2,172
------- --------- --------- ----- ------- ---------
Balance at March 31, 2000 .................. $ 1 $ 200,958 $(340,684) $(260) $(2,309) $(142,294)
======= ========= ========= ===== ======= =========
Non-owner equity changes:
Net income ............................... 3,623 3,623
---------
Total non-owner equity changes ......... 3,623
Notes receivable arising from stock
loan plan ................................ (635) (635)
Issuance of common stock ................... 847 847
------- --------- --------- ----- ------- ---------
Balance at June 30, 2000 ................... $ 1 $ 201,805 $(337,061) $(260) $(2,944) $(138,459)
======= ========= ========= ===== ======= =========
Non-owner equity changes:
Net income ............................... 3,622 3,622
---------
Total non-owner equity changes ......... 3,622
Reduction in notes receivable arising
from stock loan plan ..................... 477 477
Repurchase of common stock ................. (533) (533)
------- --------- --------- ----- ------- ---------
Balance at September 30, 2000 .............. $ 1 $ 201,272 $(333,439) $(260) $(2,467) $(134,893)
======= ========= ========= ===== ======= =========
</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, 1999 .................... $ 1 $ 198,847 $(351,607) $(1,638) $ -- $(154,397)
Non-owner equity changes:
Net income .................................. 1,151 1,151
Other non-owner equity changes:
Unrealized gains on investments
(net of deferred taxes of $19) .......... 35 35
Less: reclassification adjustment
for gains realized included in net
income (net of tax) ..................... (18) (18)
---------
Total non-owner equity changes .......... 1,168
Notes receivable arising from stock
loan plan ................................... (580) (580)
------- --------- --------- ------- ----- ---------
Balance at March 31, 1999 ..................... $ 1 $ 198,847 $(350,456) $(1,621) $(580) $(153,809)
======= ========= ========= ======= ===== =========
Non-owner equity changes:
Net income .................................. 4,508 4,508
Other non-owner equity changes:
Unrealized gains on investments
(net of deferred taxes of $27) .......... 49 49
Less: reclassification adjustment
for gains realized included in net
income (net of tax) ..................... (26) (26)
---------
Total non-owner equity changes .......... 4,531
Notes receivable arising from stock
loan plan ................................... (80) (80)
Repurchase of common stock .................... (1,429) (1,429)
------- --------- --------- ------- ----- ---------
Balance at June 30, 1999 ...................... $ 1 $ 198,847 $(347,377) $(1,598) $(660) $(150,787)
======= ========= ========= ======= ===== =========
Non-owner equity changes:
Net income .................................. 3,874 3,874
---------
Total non-owner equity changes .......... 3,874
Notes receivable arising from stock
loan plan ................................... 30 30
Repurchase of common stock .................... (61) (61)
------- --------- --------- ------- ----- ---------
Balance at September 30, 1999 ................. $ 1 $ 198,786 $(343,503) $(1,598) $(630) $(146,944)
======= ========= ========= ======= ===== =========
Non-owner equity changes:
Net income .................................. 1,785 1,785
Other non-owner equity changes:
Adjustment to minimum pension
liability ............................... 1,338 1,338
---------
Total non-owner equity changes .......... 3,123
Notes receivable arising from stock loan plan . (55) (55)
------- --------- --------- ------- ----- ---------
Balance at December 31, 1999 .................. $ 1 $ 198,786 $(341,718) $ (260) $(685) $(143,876)
======= ========= ========= ======= ===== =========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
4
<PAGE> 7
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
2000 1999
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income ................................................................................. $ 8,890 $ 9,533
Reconciliation of net income to net cash provided by operating activities:
Depreciation ............................................................................. 6,555 6,077
Amortization of deferred financing fees and original issue discount ...................... 2,019 1,979
Amortization of recapitalization and other deferred costs ................................ 2,709 2,915
Provision for plant shutdown costs ....................................................... 1,400 --
Provision for losses on accounts receivable .............................................. 100 499
Provision for product liability and workers' compensation claims ......................... 11,344 12,472
Payment of product liability and workers' compensation claims ............................ (2,527) (1,431)
Deferred income taxes .................................................................... (2,797) (5,689)
Changes in operating assets and liabilities:
Undivided interest in accounts receivable .............................................. (895) (21,996)
Refundable income taxes ................................................................ 697 490
Inventories ............................................................................ (2,907) (9,528)
Accounts payable ....................................................................... (2,518) 4,015
Accrued liabilities .................................................................... (271) 10,934
Income taxes payable ................................................................... 3,292 250
Other, net ............................................................................. 30 264
-------- --------
Net cash provided by operating activities .................................................. 25,121 10,784
INVESTING ACTIVITIES
Capital expenditures ....................................................................... (22,059) (13,455)
Other, net ................................................................................. 131 200
-------- --------
Net cash used in investing activities ...................................................... (21,928) (13,255)
FINANCING ACTIVITIES
Issuance of notes receivable arising from stock loan plan .................................. -- (630)
Repayment of notes receivable arising from stock loan plan ................................. 137 --
Issuance of common stock ................................................................... 704 --
Repurchase of common stock ................................................................. (748) (1,490)
Decrease in cash overdrafts ................................................................ (1,923) --
Repayments of long-term debt ............................................................... (1,087) (1,087)
-------- --------
Net cash used in financing activities ...................................................... (2,917) (3,207)
-------- --------
Net increase (decrease) in cash and cash equivalents ....................................... 276 (5,678)
Cash and cash equivalents at beginning of period ........................................... 866 9,387
-------- --------
Cash and cash equivalents at end of period ................................................. $ 1,142 $ 3,709
======== ========
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Issuance of common stock in exchange for notes receivable
arising from stock loan plan ............................................................. $ 2,315 $ --
======== ========
Cancellation of notes receivable arising from stock loan plan
in connection with repurchase of common stock ............................................ $ (396) $ --
======== ========
</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, RECENTLY ISSUED ACCOUNTING STANDARDS AND
RECAPITALIZATION
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
of Werner Holding Co. (PA), Inc., ("Holding (PA)") include its accounts and the
accounts of its wholly-owned subsidiary, Werner Holding Co. (DE), Inc.
("Issuer") and the Issuer's wholly-owned subsidiaries (collectively the
"Company"). Holding (PA) has no substantial operations or assets, other than its
investment in the Issuer. The consolidated financial condition and results of
operations of Holding (PA) are substantially the same as those of the Issuer.
Intercompany accounts and transactions have been eliminated. The unaudited
condensed consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting only of normal recurring accruals)
considered necessary for a fair financial presentation have been included.
Operating results for the three and nine months ended September 30, 2000 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2000. For further information, refer to the consolidated financial
statements and notes thereto included in the Company's most recent Annual Report
on Form 10-K.
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 1999 have been reclassified to conform to the 2000
interim period presentation.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement No. 133 (SFAS No. 133), Accounting for Derivative Instruments and
Hedging Activities, which was originally required to be adopted by the Company
in 2000. In September 1999, the FASB issued Statement No. 137 (SFAS No. 137),
Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of SFAS No. 133. SFAS No. 137 deferred the date by which the
Company is required to adopt SFAS No. 133 to 2001. In June 2000, the FASB issued
Statement No. 138, Accounting for Certain Derivative Instruments and Certain
Hedging Activities, which amends SFAS No. 133 relating to a limited number of
issues causing implementation difficulties. SFAS No. 133, as amended, requires
that the Company recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If the derivative is a hedge, depending on the nature of the hedge, changes in
the fair value of such derivatives will either be offset against the change in
fair value of the hedged assets, liabilities, or firm commitments through
earnings or recognized in accumulated other non-owner equity changes until the
hedged item is recognized in earnings. The portion of a derivative's change in
fair value, if unrelated to a hedge, will be immediately recognized in earnings.
Management is currently completing a plan of implementation, but has not yet
determined what effect SFAS No. 133, as amended, will have on the Company's
results of operations, financial position, or cash flows.
In September 2000, the FASB issued Statement No. 140 (SFAS No. 140), a
replacement of Statement 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities. SFAS No. 140 is not
expected to have a significant impact on the Company's results of operations,
financial position, or cash flows.
6
<PAGE> 9
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
(DOLLARS IN THOUSANDS)
A. BASIS OF PRESENTATION, RECENTLY ISSUED ACCOUNTING STANDARDS AND
RECAPITALIZATION - CONTINUED
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. INVENTORIES
Components of inventories are as follows:
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
Finished products ............................ $36,856 $30,470
Work-in-process .............................. 14,473 15,267
Raw materials and supplies ................... 19,500 22,296
------- -------
70,829 68,033
Less excess of cost over LIFO stated values .. 9,574 9,685
------- -------
NET INVENTORIES .............................. $61,255 $58,348
======= =======
C. COMMITMENTS AND CONTINGENCIES
The Company is involved from time to time in various legal proceedings
and claims incident to the normal conduct of its business. Although it is
impossible to predict the outcome of any pending legal proceeding, the Company
believes that such legal proceedings and claims individually and in the
aggregate are either without merit, covered by insurance or adequately reserved
for, and will not have a material adverse effect on its results of operations,
financial position, or cash flows.
The Company participates in a group credit arrangement related to
certain employee insurance coverage whereby the group collectively provides the
insurer with credit assurance through letters of credit issued by the
participants. The Company is contingently liable up to the amount of letters of
credit, totaling approximately $1.4 million, which have been issued by the
Company under this credit arrangement.
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 (PA) 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 (PA) 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 (PA)'s Board of Directors referred the matter to
7
<PAGE> 10
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
(DOLLARS IN THOUSANDS)
C. COMMITMENTS AND CONTINGENCIES - CONTINUED
a special committee of disinterested directors to investigate the merits of the
claim and to take appropriate actions on behalf of Holding (PA). After a
detailed investigation, the special committee recommended that the derivative
claims not be pursued by or on behalf of Holding (PA). Accordingly, all the
defendants made motions to dismiss the derivative claims. Pursuant to an
amendment to the complaint filed by plaintiffs on March 29, 1999, the only
remaining corporate defendant in this action is Holding (PA). Pursuant to the
same amendment, the only remaining derivative claim asserted by the plaintiffs
is a claim for excessive compensation, not relating to the restricted stock
issuances. The aspect of the case purportedly brought on behalf of plaintiffs
individually against the Company appears to arise out of the 1992 and 1993
restricted stock issuances as well as certain alleged misrepresentations by
representatives of the Company. The plaintiffs seek monetary damages in an
unspecified amount. In May 1999, the magistrate judge issued a report and
recommendation ruling that all of the Plaintiffs' claims be dismissed. The
District Court issued a Memorandum Order on August 4, 1999 granting the motion
to dismiss all remaining claims against all defendants without prejudice and
adopted the magistrate judge's report as the opinion of the District Court. The
plaintiffs filed an appeal on September 2, 1999, which continues to be pending
before the Court of Appeals for the Third Circuit. Management believes that the
ultimate resolution of this lawsuit will not have a material adverse effect on
the Company's results of operations, financial position, or cash flows.
D. 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 composition of segments and measure of segment
profitability are consistent with that used by the Company's management. 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
most recent Annual Report on Form 10-K. Net sales and operating profit (loss) of
the Company's segments for the three and nine months ended September 30, 2000
and 1999 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET SALES
Climbing Products .............................. $ 105,013 $ 96,635 $ 321,255 $ 275,529
Extruded Products .............................. 24,507 25,928 77,798 77,269
--------- --------- --------- ---------
$ 129,520 $ 122,563 $ 399,053 $ 352,798
========= ========= ========= =========
OPERATING PROFIT (LOSS)
Climbing Products .............................. $ 11,851 $ 12,666 $ 32,604 $ 33,940
Extruded Products .............................. 2,056 1,815 4,941 6,952
Corporate & Other .............................. (562) (892) (1,722) (4,278)
--------- --------- --------- ---------
$ 13,345 $ 13,589 $ 35,823 $ 36,614
========= ========= ========= =========
</TABLE>
Corporate and Other includes various corporate expenses and
eliminations. Operating profit for the Climbing Products segment for the nine
month period ended September 30, 2000 includes the impact of a $1,400 charge
related to plant shutdown costs - see Note F.
8
<PAGE> 11
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
(DOLLARS IN THOUSANDS)
E. 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. As of September 30, 2000 and December 31, 1999, the Company had sold
$89,288 and $88,393 of accounts receivable in exchange for $20,000 in cash and
an undivided interest in the accounts receivable of $69,288 and $68,393,
respectively. The ongoing cost associated with the receivables purchase
agreement, which represents a return to investors in the purchased interests, is
reported in the accompanying condensed consolidated statements of operations in
"Other income (expense), net".
F. PLANT SHUTDOWN COSTS
During the quarter ended September 30, 2000, the Company began
implementing a plan to improve efficiency and reduce overall manufacturing and
distribution costs by closing its Goshen, Indiana and Swainsboro, Georgia
facilities. The production at these facilities, which were leased as part of the
Keller acquisition in the fourth quarter of 1999, is being absorbed by the
Company's other manufacturing facilities. Plant shutdown costs of $1,400 to
cover the estimated costs associated with closing these facilities were recorded
in the quarter ended June 30, 2000 when the plan was adopted. The plan reflects
the elimination of approximately 240 jobs primarily in manufacturing functions.
The affected employees are entitled to receive severance, vacation and other
benefits totaling approximately $372 of which $220 was recorded in the third
quarter upon notification of employees. As of September 30, 2000, $350 of such
costs was paid. As of September 30, 2000, the charge includes other estimated
exit costs of $1,028 which include continuing lease payments, security and other
costs applicable to the leased facilities through the end of the respective
non-cancelable lease periods. Other exit costs of $110 were paid as of September
30, 2000. The payment of the remaining costs is expected to extend through
December 31, 2001.
G. SUPPLEMENTAL GUARANTOR INFORMATION
In connection with the Recapitalization in 1997, the Company refinanced
substantially all of its outstanding debt through borrowings under the Senior
Credit Facility and the Notes. The issuer of the refinanced debt is Werner
Holding Co. (DE), Inc. (the "Issuer"). Holding (PA) 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 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 (PA) (the
"Parent Company"), the Issuer, the Guarantor Subsidiaries, and Werner Funding
Corporation (the "Non-Guarantor Subsidiary"). Separate financial statements of
the Guarantor Subsidiaries are not presented because management has determined
that they would not provide additional information that is material to
investors. Therefore, each of the Guarantor Subsidiaries is combined in the
presentation below. Further, separate financial statements of the Issuer have
not been provided as management has determined that they would not provide
information that is material to investors, as the Issuer has no substantial
operations or assets, other than its investment in its subsidiaries.
Investments in subsidiaries are accounted for on the equity method of
accounting. Earnings of subsidiaries are, therefore, reflected in the respective
investment accounts of the Parent Company and the Issuer. The investments in
subsidiaries and intercompany balances and transactions have been eliminated.
Income taxes are allocated generally on a separate return basis with
reimbursement for losses utilized on a consolidated basis in accordance with a
tax sharing agreement between the Company and each of its subsidiaries.
9
<PAGE> 12
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
(DOLLARS IN THOUSANDS)
G. SUPPLEMENTAL GUARANTOR INFORMATION - CONTINUED
<TABLE>
<CAPTION>
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEETS
------------------------------------------------------------------------------------
COMBINED NON-
PARENT GUARANTOR GUARANTOR
COMPANY ISSUER SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
--------- --------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
SEPTEMBER 30, 2000
ASSETS
Current Assets:
Undivided interest in accounts
receivable ...................... $ - $ - $ - $ 69,288 $ - $ 69,288
Inventories, net ................... - - 61,255 - - 61,255
Other current assets ............... 127 17 2,716 1 - 2,861
--------- --------- --------- --------- --------- ---------
Total current assets ............ 127 17 63,971 69,289 - 133,404
Property, plant and equipment, net ...... - 2 99,124 - - 99,126
Investment in subsidiaries .............. (146,296) (124,612) 6,735 - 264,173 -
Other assets ............................ 5 6,839 35,776 100 - 42,720
--------- --------- --------- --------- --------- ---------
TOTAL ASSETS .................... $(146,164) $(117,754) $ 205,606 $ 69,389 $ 264,173 $ 275,250
========= ========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Other current liabilities .......... $ (508) $ 12,239 $ 57,333 $ 103 $ - $ 69,167
Intercompany payable (receivable) .. (10,763) (255,345) 203,557 62,551 - -
--------- --------- --------- --------- --------- ---------
Total current liabilities ....... (11,271) (243,106) 260,890 62,654 - 69,167
Long-term debt .......................... - 271,648 5,000 - - 276,648
Other long-term liabilities ............. - - 64,328 - - 64,328
Total equity (deficit) .......... (134,893) (146,296) (124,612) 6,735 264,173 (134,893)
--------- --------- --------- --------- --------- ---------
TOTAL LIABILITIES AND EQUITY
(DEFICIT) .................... $(146,164) $(117,754) $ 205,606 $ 69,389 $ 264,173 $ 275,250
========= ========= ========= ========= ========= =========
DECEMBER 31, 1999
ASSETS
Current assets:
Undivided interest in accounts
receivable ...................... $ - $ - $ - $ 68,393 $ - $ 68,393
Inventories, net ................... - - 58,348 - - 58,348
Other current assets ............... 37 473 3,468 12 - 3,990
--------- --------- --------- --------- --------- ---------
Total current assets ............ 37 473 61,816 68,405 - 130,731
Property, plant and equipment, net ...... - 2 83,505 - - 83,507
Investment in subsidiaries .............. (154,535) (135,033) 5,686 - 283,882 -
Other assets ............................ 5 10,961 30,136 100 - 41,202
--------- --------- --------- --------- --------- ---------
TOTAL ASSETS .................... $(154,493) $(123,597) $ 181,143 $ 68,505 $ 283,882 $ 255,440
========= ========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Other current liabilities .......... $ 421 $ 9,034 $ 59,577 $ 162 $ - $ 69,194
Intercompany payable (receivable) .. (11,038) (250,530) 198,911 62,657 - -
--------- --------- --------- --------- --------- ---------
Total current liabilities ....... (10,617) (241,496) 258,488 62,819 - 69,194
Long-term debt .......................... - 272,434 5,000 - - 277,434
Other long-term liabilities ............. - - 52,688 - - 52,688
Total equity (deficit) .......... (143,876) (154,535) (135,033) 5,686 283,882 (143,876)
--------- --------- --------- --------- --------- ---------
TOTAL LIABILITIES AND EQUITY
(DEFICIT) .................... $(154,493) $(123,597) $ 181,143 $ 68,505 $ 283,882 $ 255,440
========= ========= ========= ========= ========= =========
</TABLE>
10
<PAGE> 13
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
(DOLLARS IN THOUSANDS)
G. SUPPLEMENTAL GUARANTOR INFORMATION - CONTINUED
<TABLE>
<CAPTION>
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF INCOME
--------------------------------------------------------------------------------------
COMBINED NON-
PARENT GUARANTOR GUARANTOR
COMPANY ISSUER SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
--------- --------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2000
Net sales ......................... $ - $ - $ 399,053 $ - $ - $ 399,053
Cost of sales ..................... - - 293,702 - - 293,702
--------- --------- --------- --------- --------- ---------
Gross profit ...................... - - 105,351 - - 105,351
Selling, general and administrative
expenses ....................... 20 24 68,084 - - 68,128
Plant shutdown costs .............. - - 1,400 - - 1,400
--------- --------- --------- --------- --------- ---------
Operating (loss) profit ........... (20) (24) 35,867 - - 35,823
Other income (expense), net ....... 8,603 9,853 (3,881) 4,945 (19,711) (191)
Interest income (expense) ......... 769 (2,764) (15,573) (3,331) - (20,899)
--------- --------- --------- --------- --------- ---------
Income (loss) before income taxes
(benefit) ...................... 9,352 7,065 16,413 1,614 (19,711) 14,733
Income taxes (benefit) ............ 462 (1,175) 5,991 565 - 5,843
--------- --------- --------- --------- --------- ---------
NET INCOME (LOSS) .............. $ 8,890 $ 8,240 $ 10,422 $ 1,049 $ (19,711) $ 8,890
========= ========= ========= ========= ========= =========
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2000
Net sales ......................... $ - $ - $ 129,520 $ - $ - $ 129,520
Cost of sales ..................... - - 93,610 - - 93,610
--------- --------- --------- --------- --------- ---------
Gross profit ...................... - - 35,910 - - 35,910
Selling, general and administrative
expenses ....................... 9 10 22,546 - - 22,565
Plant shutdown costs .............. - - - - - -
--------- --------- --------- --------- --------- ---------
Operating (loss) profit ........... (9) (10) 13,364 - - 13,345
Other income (expense), net ....... 3,531 4,094 (1,542) 1,800 (8,126) (243)
Interest income (expense) ......... 263 (927) (5,188) (1,168) - (7,020)
--------- --------- --------- --------- --------- ---------
Income (loss) before income taxes
(benefit) ...................... 3,785 3,157 6,634 632 (8,126) 6,082
Income taxes (benefit) ............ 163 (325) 2,420 202 - 2,460
--------- --------- --------- --------- --------- ---------
NET INCOME (LOSS) .............. $ 3,622 $ 3,482 $ 4,214 $ 430 $ (8,126) $ 3,622
========= ========= ========= ========= ========= =========
</TABLE>
11
<PAGE> 14
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
(DOLLARS IN THOUSANDS)
G. SUPPLEMENTAL GUARANTOR INFORMATION - CONTINUED
<TABLE>
<CAPTION>
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF INCOME
-------------------------------------------------------------------------------------
COMBINED NON-
PARENT GUARANTOR GUARANTOR
COMPANY ISSUER SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
--------- --------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999
Net sales ......................... $ - $ - $ 352,798 $ - $ - $ 352,798
Cost of sales ..................... - - 249,794 - - 249,794
--------- --------- --------- --------- --------- ---------
Gross profit ...................... - - 103,004 - - 103,004
Selling, general and administrative
expenses ....................... - 9 66,381 - - 66,390
--------- --------- --------- --------- --------- ---------
Operating (loss) profit ........... - (9) 36,623 - - 36,614
Other income (expense), net ....... 9,066 10,280 (4,007) 3,300 (19,320) (681)
Interest income (expense) ......... 772 (1,512) (16,155) (3,083) - (19,978)
--------- --------- --------- --------- --------- ---------
Income (loss) before income taxes
(benefit) ...................... 9,838 8,759 16,461 217 (19,320) 15,955
Income taxes (benefit) ............ 305 (281) 6,308 90 - 6,422
--------- --------- --------- --------- --------- ---------
NET INCOME (LOSS) .............. $ 9,533 $ 9,040 $ 10,153 $ 127 $ (19,320) $ 9,533
========= ========= ========= ========= ========= =========
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1999
Net sales ......................... $ - $ - $ 122,563 $ - $ - $ 122,563
Cost of sales ..................... - - 86,622 - - 86,622
--------- --------- --------- --------- --------- ---------
Gross profit ...................... - - 35,941 - - 35,941
Selling, general and administrative
expenses ....................... - - 22,352 - - 22,352
--------- --------- --------- --------- --------- ---------
Operating (loss) profit ........... - - 13,589 - - 13,589
Other income (expense), net ....... 3,728 4,127 (1,484) 1,246 (8,127) (510)
Interest income (expense) ......... 243 (467) (5,719) (638) - (6,581)
--------- --------- --------- --------- --------- ---------
Income (loss) before income taxes
(benefit) ...................... 3,971 3,660 6,386 608 (8,127) 6,498
Income taxes (benefit) ............ 97 (58) 2,354 231 - 2,624
--------- --------- --------- --------- --------- ---------
NET INCOME (LOSS) .............. $ 3,874 $ 3,718 $ 4,032 $ 377 $ (8,127) $ 3,874
========= ========= ========= ========= ========= =========
</TABLE>
12
<PAGE> 15
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
(DOLLARS IN THOUSANDS)
G. SUPPLEMENTAL GUARANTOR INFORMATION - CONTINUED
<TABLE>
<CAPTION>
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
------------------------------------------------------------------
COMBINED NON-
PARENT GUARANTOR GUARANTOR
COMPANY ISSUER SUBSIDIARIES SUBSIDIARY CONSOLIDATED
-------- -------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2000
Net cash from operating activities $ (368) $ 5,521 $ 19,974 $ (6) $ 25,121
Net cash from investing activities 275 (4,815) (17,388) - (21,928)
Net cash from financing activities 93 (1,087) (1,923) - (2,917)
-------- -------- -------- -------- --------
Net increase (decrease) in cash
and cash equivalents .......... - (381) 663 (6) 276
Cash and cash equivalents at
beginning of period ........... - 417 442 7 866
-------- -------- -------- -------- --------
Cash and cash equivalents at
end of period ................. $ - $ 36 $ 1,105 $ 1 $ 1,142
======== ======== ======== ======== ========
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999
Net cash from operating activities $ 602 $ (4,887) $ 15,069 $ - $ 10,784
Net cash from investing activities 1,517 3,772 (18,544) - (13,255)
Net cash from financing activities (2,120) (1,087) - - (3,207)
-------- -------- -------- -------- --------
Net increase (decrease) in cash
and cash equivalents .......... (1) (2,202) (3,475) - (5,678)
Cash and cash equivalents at
beginning of period ........... 1 2,618 6,768 - 9,387
-------- -------- -------- -------- --------
Cash and cash equivalents at
end of period ................. $ - $ 416 $ 3,293 $ - $ 3,709
======== ======== ======== ======== ========
</TABLE>
13
<PAGE> 16
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 most recent
Annual Report on Form 10-K as filed with the Securities and Exchange Commission.
This document contains, in addition to historical information, forward-looking
statements that are subject to risks and other uncertainties. The Company's
actual results may differ materially from those anticipated in these
forward-looking statements. In the text below, financial statement amounts have
been rounded and the percentage changes are based on the financial statements.
RESULTS OF OPERATIONS - QUARTER ENDED SEPTEMBER 30, 2000 AS COMPARED TO QUARTER
ENDED SEPTEMBER 30, 1999
Net Sales. Net sales increased $7.0 million or 5.7% to $129.5 million
for the quarter ended September 30, 2000 from $122.5 million for the quarter
ended September 30, 1999. Net sales of climbing products increased $8.4 million
or 8.7% to $105.0 million for the quarter ended September 30, 2000 from $96.6
million for the quarter ended September 30, 1999. Approximately $7.5 million of
the increase in net sales of climbing products was attributable to Keller brand
ladder sales arising from the acquisition of certain assets of Keller Ladders,
Inc. in the fourth quarter of 1999 (the "Keller acquisition") and $0.9 million
of the increase reflects the net impact of other factors. Net sales of extruded
products of $24.5 million for the quarter ended September 30, 2000 declined by
$1.4 million or 5.5% compared to the quarter ended September 30, 1999 due
primarily to lower unit sales volumes.
Gross Profit. Gross profit was $35.9 million in both of the quarters
ended September 30, 2000 and 1999. Gross profit as a percentage of net sales in
the quarter ended September 30, 2000 decreased to 27.7% from 29.3% for the
quarter ended September 30, 1999. The decrease in the gross profit margin
percentage resulted principally from the impact of sales of Keller brand ladders
manufactured at the facilities included in the Keller acquisition and higher raw
material costs.
General and Administrative Expenses. General and administrative
expenses were $6.1 million for the quarter ended September 30, 2000 compared to
$7.4 million for the quarter ended September 30, 1999, a decline of $1.3 million
or 18.1%. The decline is primarily due to lower net bad debt expense, lower
compensation expenses and reduced consulting expenses which more than offset
increases due to the Keller acquisition.
Selling and Distribution Expenses. Selling and distribution expenses
increased $1.6 million or 10.5% to $16.5 million for the quarter ended September
30, 2000 from $14.9 million for the quarter ended September 30, 1999. The
increase was primarily due to higher sales volumes attributable to the Keller
acquisition and increased distribution expenses resulting from higher freight
rates on inventory transfers and the start-up of a new distribution facility.
Operating Profit. Operating profit declined $0.3 million to $13.3
million for the quarter ended September 30, 2000 from $13.6 million for the
quarter ended September 30, 1999. Operating profit of the Climbing Products
segment declined $0.8 million to $11.9 million in the third quarter of 2000 from
$12.7 million in the third quarter of 1999. Operating profit of the Climbing
Products segment decreased primarily due to increases in the cost of raw
materials and higher distribution costs. Operating profit of the Extruded
Products segment of $2.1 million for the quarter ended September 30, 2000
increased by $0.3 million over operating profit for the quarter ended September
30, 1999 primarily due to lower net bad debt expense. Corporate and Other
expenses declined $0.3 million for the quarter ended September 30, 2000 compared
to the quarter ended September 30, 1999 primarily due to lower consulting
expenses.
14
<PAGE> 17
Other Income (Expense), Net. Other (expense), net was $(0.2) million
for the quarter ended September 30, 2000 compared to other (expense), net of
$(0.5) million for the quarter ended September 30, 1999. The decline in expense
was primarily attributable to the absence of certain non-recurring employee
related expenses that were recorded in the third quarter of the prior year
partially offset by increased costs associated with the receivables purchase
agreement due to higher interest rates and greater utilization during the
current quarter.
Interest Expense. Interest expense increased $0.4 million to $7.0
million for the quarter ended September 30, 2000 from $6.6 million for the
quarter ended September 30, 1999 primarily due to higher interest rates.
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 has estimated its annual
effective tax rates as of September 30, 2000 and 1999, and appropriately
adjusted the quarterly periods then ended. The effective tax rate for the
quarter ended September 30, 2000 approximates the effective tax rate of the same
quarter last year.
The difference between the statutory and effective tax rates at both
September 30, 2000 and 1999 was primarily due to state taxes (net of federal
benefit) and estimated income tax accruals.
Net Income. Net income declined by $0.3 million to $3.6 million for the
quarter ended September 30, 2000 from net income of $3.9 million for the quarter
ended September 30, 1999 as a result of all of the above factors.
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 2000 AS COMPARED TO NINE
MONTHS ENDED SEPTEMBER 30, 1999
Net Sales. Net sales increased $46.3 million or 13.1% to $399.1 million
for the nine months ended September 30, 2000 from $352.8 million for the nine
months ended September 30, 1999. Net sales of climbing products increased $45.8
million or 16.6% to $321.3 million for the nine months ended September 30, 2000
from $275.5 million for the nine months ended September 30, 1999. Keller brand
ladder sales represented $26.7 million of the increase in net sales of climbing
products for the nine months ended September 30, 2000 compared to the prior year
period. Excluding the effects of the Keller acquisition, net sales of climbing
products increased $19.1 million or 6.9% which was primarily due to higher unit
sales volumes. Net sales of extruded products of $77.8 million for the nine
months ended September 30, 2000 increased by $0.5 million or 0.7% compared to
the nine months ended September 30, 1999 which primarily reflects the impact of
higher unit sales volumes.
Gross Profit. Gross profit increased $2.4 million or 2.3% to $105.4
million for the nine months ended September 30, 2000 from $103.0 million for the
nine months ended September 30, 1999 primarily due to higher sales of climbing
products. Gross profit as a percentage of net sales in the nine months ended
September 30, 2000 decreased to 26.4% from 29.2% for the nine months ended
September 30, 1999. The decrease in the gross profit margin percentage resulted
principally from the impact of sales of Keller brand ladders manufactured at the
facilities included in the Keller acquisition and higher raw material costs.
General and Administrative Expenses. General and administrative
expenses were $20.8 million for the nine months ended September 30, 2000
compared to $22.8 million for the nine months ended September 30, 1999, a
decline of $2.0 million or 8.8%. The decline is primarily due to reduced
consulting and compensation expenses which partially offset increases due to the
Keller acquisition.
Selling and Distribution Expenses. Selling and distribution expenses
increased $3.7 million or 8.6% to $47.3 million for the nine months ended
15
<PAGE> 18
September 30, 2000 from $43.6 million for the nine months ended September 30,
1999. The increase was primarily due to higher sales volumes partially
attributable to the Keller acquisition and increased distribution expenses
resulting from higher freight rates on inventory transfers and the start-up of a
new distribution facility.
Plant Shutdown Costs. During the quarter ended September 30, 2000, the
Company began implementing a plan to improve efficiency and reduce overall
manufacturing and distribution costs by closing its Goshen, Indiana and
Swainsboro, Georgia facilities. The production at these facilities, which were
leased as part of the Keller acquisition in the fourth quarter of 1999, is being
absorbed by the Company's other manufacturing facilities. Plant shutdown costs
of $1.4 million to cover the estimated costs associated with closing these
facilities were recorded in the quarter ended June 30, 2000 when the plan was
adopted. The plan reflects the elimination of approximately 240 jobs primarily
in manufacturing functions.
Operating Profit. Operating profit declined by $0.8 million to $35.8
million for the nine months ended September 30, 2000 from $36.6 million for the
nine months ended September 30, 1999. Operating profit of the Climbing Products
segment declined by $1.3 million to $32.6 million in the first nine months of
2000 from $33.9 million in the prior year period. Excluding the effects of the
charge of $1.4 million related to plant shutdown costs, operating profit of
climbing products increased $0.1 million to $34.0 million which reflects the
impact of increased sales volumes almost totally offset by increased raw
materials, manufacturing and distribution costs. Operating profit of the
Extruded Products segment decreased $2.1 million to $4.9 million for the nine
months ended September 30, 2000 from $7.0 million for the nine months ended
September 30, 1999 which primarily was caused by greater volumes of lower margin
products during the first half of 2000. Corporate and Other expenses declined
$2.6 million for the nine months ended September 30, 2000 compared to the nine
months ended September 30, 1999 primarily due to lower consulting expenses in
the current period.
Other Income (Expense), Net. Other (expense), net was $(0.2) million
for the nine months ended September 30, 2000 compared to other (expense), net of
$(0.7) million for the nine months ended September 30, 1999. The decline in
expense was primarily attributable to the absence of certain non-recurring
employee related expenses that were recorded in the third quarter of the prior
year and higher royalty and other income in the current period. The decline in
expense was partially offset by the increased costs associated with the
receivables purchase agreement due to higher interest rates and greater
utilization during the current period.
Interest Expense. Interest expense increased $0.9 million to $20.9
million for the nine months ended September 30, 2000 from $20.0 million for the
nine months ended September 30, 1999 primarily due to higher interest rates.
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 has estimated its annual
effective tax rates for the nine months ended September 30, 2000 and 1999. The
effective tax rate for the nine months ended September 30, 2000 approximates the
effective tax rate of the same period last year.
The difference between the statutory and effective tax rates at both
September 30, 2000 and 1999 was primarily due to state taxes (net of federal
benefit) and estimated income tax accruals.
Net Income. Net income declined by $0.6 million to $8.9 million for the
nine months ended September 30, 2000 from net income of $9.5 million for the
nine months ended September 30, 1999 as a result of all of the above factors.
LIQUIDITY AND CAPITAL RESOURCES
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
16
<PAGE> 19
under a receivables purchase agreement with a financial institution (the
"Receivables Purchase Agreement"). The Company believes it has sufficient funds
available in the upcoming year to support debt service requirements, projected
capital expenditures and working capital needs based on projected results of
operations, availability under the Senior Credit Facility, and the Receivables
Purchase Agreement.
Net cash flows provided by operating activities were $25.1 million for
the nine months ended September 30, 2000 compared to $10.8 million for the nine
months ended September 30, 1999. The increase is primarily attributable to a
reduction in cash used for accounts receivable, an increase in cash provided by
the Receivables Purchase Agreement and a decrease in inventories. The increase
in cash flows from operating activities in the current period was partially
offset by increases in cash used for accounts payable and accrued liabilities.
Net cash used in investing activities was $21.9 million for the nine months
ended September 30, 2000 compared to net cash used of $13.3 million for the nine
months ended September 30, 1999 which primarily reflects an increase in capital
expenditures for information systems. Net cash flows used in financing
activities were $2.9 million for the nine months ended September 30, 2000
compared to net cash used of $3.2 million for the nine months ended September
30, 1999 which primarily reflects a decrease in the net cash used for common
stock transactions and a decrease in cash overdrafts in the current period
compared to the first nine months of the prior year.
SEASONALITY, WORKING CAPITAL AND CYCLICALITY
Sales of certain products of the Company are subject to seasonal
variation. Demand for the Company's climbing 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 climbing
products and working capital requirements are typically higher during the second
and third quarters than at other times of the year. The Company expects to use
the Senior Credit Facility and the Receivables Purchase Agreement to meet any
seasonal variations in its working capital requirements.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement No. 133 (SFAS No. 133), Accounting for Derivative Instruments and
Hedging Activities, which was originally required to be adopted by the Company
in 2000. In September 1999, the FASB issued Statement No. 137 (SFAS No. 137),
Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of SFAS No. 133. SFAS No. 137 deferred the date by which the
Company is required to adopt SFAS No. 133 to 2001. In June 2000, the FASB issued
Statement No. 138, Accounting for Certain Derivative Instruments and Certain
Hedging Activities, which amends SFAS No. 133 relating to a limited number of
issues causing implementation difficulties. SFAS No. 133, as amended, requires
that the Company recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If the derivative is a hedge, depending on the nature of the hedge, changes in
the fair value of such derivatives will either be offset against the change in
fair value of the hedged assets, liabilities, or firm commitments through
earnings or recognized in accumulated other non-owner equity changes until the
hedged item is recognized in earnings. The portion of a derivative's change in
fair value, if unrelated to a hedge, will be immediately recognized in earnings.
Management is currently completing a plan of implementation, but has not yet
determined what effect SFAS No. 133, as amended, will have on the Company's
results of operations, financial position, or cash flows.
In September 2000, the FASB issued Statement No. 140 (SFAS No. 140), a
replacement of Statement 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities. SFAS No. 140 is not
expected to have a significant impact on the Company's results of operations,
financial position, or cash flows.
17
<PAGE> 20
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 most recent Annual Report on Form 10-K.
The Company does not have material operations in foreign countries.
International sales were not material to the Company's operations for the nine
months ended September 30, 2000. Accordingly, the Company is not subject to
material foreign currency exchange risk. To date, the Company has not entered
into any foreign currency forward exchange contracts or other derivative
financial instruments relative to foreign currency exchange rates.
The Company is also exposed to market risk from changes in the price of
aluminum. The Company manages such risk through the use of aluminum futures and
options contracts. There have been no material changes in market risk from
changes in the price of aluminum from that disclosed in the Company's most
recent Annual Report on Form 10-K.
18
<PAGE> 21
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 results of
operations, financial position or cash flows.
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 (PA) 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 (PA) 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 (PA)'s Board of Directors referred the matter to a special committee of
disinterested directors to investigate the merits of the claim and to take
appropriate actions on behalf of Holding (PA). After a detailed investigation,
the special committee recommended that the derivative claims not be pursued by
or on behalf of Holding (PA). Accordingly, all the defendants made motions to
dismiss the derivative claims. Pursuant to an amendment to the complaint filed
by plaintiffs on March 29, 1999, the only remaining corporate defendant in this
action is Holding (PA). Pursuant to the same amendment, the only remaining
derivative claim asserted by the plaintiffs is a claim for excessive
compensation, not relating to the restricted stock issuances. The aspect of the
case purportedly brought on behalf of plaintiffs individually against the
Company appears to arise out of the 1992 and 1993 restricted stock issuances as
well as certain alleged misrepresentations by representatives of the Company.
The plaintiffs seek monetary damages in an unspecified amount. In May 1999, the
magistrate judge issued a report and recommendation ruling that all of the
Plaintiffs' claims be dismissed. The District Court issued a Memorandum Order on
August 4, 1999 granting the motion to dismiss all remaining claims against all
defendants without prejudice and adopted the magistrate judge's report as the
opinion of the District Court. The plaintiffs filed an appeal on September 2,
1999, which continues to be pending before the Court of Appeals for the Third
Circuit. Management believes that the ultimate resolution of this lawsuit will
not have a material adverse effect on the Company's results of operations,
financial position, or cash flows.
19
<PAGE> 22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
3.1 Certificate of Incorporation of Werner Holding Co. (DE), Inc.
(filed as Exhibit 3.1 to Issuer's Form S-4 Registration
Statement No. 333-46607 and incorporated herein by reference).
3.2 By-laws of Werner Holding Co. (DE), Inc. (filed as Exhibit 3.2
to Issuer's Form S-4 Registration Statement No. 333-46607 and
incorporated herein by reference).
3.3 Amended and Restated Articles of Incorporation of Werner
Holding Co. (PA), Inc. (filed as Exhibit 3.3 to Issuer's
Quarterly Report on Form 10-Q for the quarter ended June 30,
2000 and incorporated herein by reference).
3.4 Amended and Restated By-laws of Werner Holding Co. (PA), Inc.
(filed as Exhibit 3.1 to Issuer's Quarterly Report on Form
10-Q for the quarter ended March 31, 1999 and incorporated
herein by reference).
10.1 Amendment No. 2 to Employment Agreement, dated as of September
1, 2000, between Werner Co. and Eric J. Werner.
10.2 Amendment No. 2 to Employment Agreement, dated as of September
1, 2000, between Werner Co. and Michael E. Werner.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K:
None.
20
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Co-registrants have duly caused this report to be signed on their behalf by
the undersigned thereunto duly authorized.
WERNER HOLDING CO. (PA), INC.
Date: November 10, 2000 /s/ R. P. Tamburrino
--------------------
R. P. Tamburrino
Vice President, Chief Financial Officer and
Treasurer (Principal Financial Officer and
Principal Accounting Officer)
WERNER HOLDING CO. (DE), INC.
Date: November 10, 2000 /s/ R. P. Tamburrino
--------------------
R. P. Tamburrino
Vice President, Chief Financial Officer and
Treasurer (Principal Financial Officer and
Principal Accounting Officer)
21
