<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 QUARTERLY PERIOD ENDED JUNE 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 June 30, 2000:
<TABLE>
<S> <C>
Werner Holding Co. (PA), Inc. 1,879.5454 shares of Class A Common Stock
21,774.9346 shares of Class B Common Stock
5,893.7790 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
</TABLE>
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<PAGE> 2
INDEX
WERNER HOLDING CO. (PA), INC.
WERNER HOLDING CO. (DE), INC.
FORM 10-Q
PERIOD ENDED JUNE 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 -- June 30, 2000 and
December 31, 1999...................................... 1
Condensed Consolidated Statements of Income -- Three and Six
Months Ended June 30, 2000 and 1999.................... 2
Condensed Consolidated Statements of Changes in
Shareholders' Equity (Deficit) -- Three and Six Months
Ended June 30, 2000 and 1999........................... 3
Condensed Consolidated Statements of Cash Flows -- Six
Months Ended June 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 4. Submission of Matters to a Vote of Security Holders......... 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)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,295 $ 866
Undivided interest in accounts receivable................. 62,863 68,393
Allowance for doubtful accounts........................... (2,300) (1,900)
Refundable income taxes................................... -- 697
Inventories............................................... 60,610 58,348
Deferred income taxes..................................... 1,464 2,420
Other..................................................... 2,101 1,907
-------- --------
Total current assets.............................. 126,033 130,731
Property, plant and equipment, net.......................... 95,402 83,507
Other assets:
Deferred income taxes..................................... 13,360 10,972
Deferred financing fees, net.............................. 10,330 11,474
Other..................................................... 18,528 18,756
-------- --------
42,218 41,202
-------- --------
TOTAL ASSETS...................................... $263,653 $255,440
======== ========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 27,334 $ 31,065
Accrued liabilities....................................... 34,143 36,679
Income taxes payable...................................... 2,102 --
Current maturities of long-term debt...................... 1,450 1,450
-------- --------
Total current liabilities......................... 65,029 69,194
Long-term obligations:
Long-term debt............................................ 276,910 277,434
Reserve for product liability and workers' compensation
claims................................................. 35,015 29,247
Other long-term obligations............................... 25,158 23,441
-------- --------
Total liabilities................................. 402,112 399,316
Shareholders' deficit:
Common stock.............................................. 1 1
Additional paid-in-capital................................ 201,805 198,786
Accumulated deficit....................................... (337,061) (341,718)
Accumulated other non-owner changes in equity............. (260) (260)
Notes receivable arising from stock loan plan............. (2,944) (685)
-------- --------
Total shareholders' deficit....................... (138,459) (143,876)
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT....... $263,653 $255,440
======== ========
</TABLE>
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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales...................................... $140,511 $124,776 $269,533 $230,235
Cost of sales.................................. 103,251 88,024 200,092 163,172
-------- -------- -------- --------
Gross profit................................... 37,260 36,752 69,441 67,063
General and administrative expenses............ 7,032 7,599 14,724 15,371
Selling and distribution expenses.............. 15,763 14,888 30,839 28,667
Plant shutdown costs........................... 1,400 -- 1,400 --
-------- -------- -------- --------
Operating profit............................... 13,065 14,265 22,478 23,025
Other income (expense), net.................... (238) (120) 52 (171)
-------- -------- -------- --------
Income before interest and taxes............... 12,827 14,145 22,530 22,854
Interest expense............................... 6,934 6,665 13,879 13,397
-------- -------- -------- --------
Income before income taxes..................... 5,893 7,480 8,651 9,457
Income taxes................................... 2,270 2,972 3,383 3,798
-------- -------- -------- --------
NET INCOME..................................... $ 3,623 $ 4,508 $ 5,268 $ 5,659
======== ======== ======== ========
</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)
== ======== ========= ===== ======= =========
</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>
SIX MONTHS ENDED
JUNE 30,
--------------------
2000 1999
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 5,268 $ 5,659
Reconciliation of net income to net cash provided by
operating activities:
Depreciation.............................................. 4,239 3,971
Amortization of deferred financing fees and original issue
discount............................................... 1,345 1,320
Amortization of recapitalization and other deferred
costs.................................................. 1,769 2,123
Provision for plant shutdown costs........................ 1,400 --
Provision for losses on accounts receivable............... 400 260
Provision for product liability and workers' compensation
claims................................................. 7,424 8,314
Payment of product liability and workers' compensation
claims................................................. (1,656) (786)
Deferred income taxes..................................... (1,432) (4,125)
Changes in operating assets and liabilities:
Undivided interest in accounts receivable.............. 5,530 (10,899)
Refundable income taxes................................ 697 490
Inventories............................................ (2,262) (9,205)
Accounts payable....................................... (2,828) 3,464
Accrued liabilities.................................... (4,210) 6,059
Income taxes payable................................... 2,101 926
Other, net............................................. 99 346
-------- --------
Net cash provided by operating activities................... 17,884 7,917
INVESTING ACTIVITIES
Capital expenditures........................................ (16,073) (10,381)
Other, net.................................................. 97 138
-------- --------
Net cash used in investing activities....................... (15,976) (10,243)
FINANCING ACTIVITIES
Issuance of notes receivable arising from stock loan plan... -- (660)
Repayment of notes receivable arising from stock loan
plan...................................................... 56 --
Issuance of common stock.................................... 704 --
Repurchase of common stock.................................. (611) (1,429)
Decrease in cash overdrafts................................. (903) --
Repayments of long-term debt................................ (725) (725)
-------- --------
Net cash used in financing activities....................... (1,479) (2,814)
-------- --------
Net increase (decrease) in cash and cash equivalents........ 429 (5,140)
Cash and cash equivalents at beginning of period............ 866 9,387
-------- --------
Cash and cash equivalents at end of period.................. $ 1,295 $ 4,247
======== ========
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Issuance of common stock in exchange for notes receivable
arising from stock loan plan.............................. $ 2,315 $ --
======== ========
</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 six months ended June 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.
The Company 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.
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
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
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:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
-------- ------------
<S> <C> <C>
Finished products........................................... $34,964 $30,470
Work-in-process............................................. 13,827 15,267
Raw materials and supplies.................................. 21,393 22,296
------- -------
70,184 68,033
Less excess of cost over LIFO stated values................. 9,574 9,685
------- -------
NET INVENTORIES............................................. $60,610 $58,348
======= =======
</TABLE>
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.
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 have filed an appeal, which is
currently 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.
7
<PAGE> 10
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
(DOLLARS IN THOUSANDS)
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 six months ended June 30, 2000 and 1999
are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales
Climbing Products.................... $112,761 $ 98,066 $216,242 $178,894
Extruded Products.................... 27,750 26,710 53,291 51,341
-------- -------- -------- --------
$140,511 $124,776 $269,533 $230,235
======== ======== ======== ========
Operating Profit (Loss)
Climbing Products.................... $ 11,504 $ 13,901 $ 20,753 $ 21,274
Extruded Products.................... 2,182 1,834 2,885 5,137
Corporate & Other.................... (621) (1,470) (1,160) (3,386)
-------- -------- -------- --------
$ 13,065 $ 14,265 $ 22,478 $ 23,025
======== ======== ======== ========
</TABLE>
Corporate and Other includes various corporate expenses and eliminations.
Operating profit for the Climbing Products segment for the three and six month
periods ended June 30, 2000 includes the impact of a $1,400 charge related to
plant shutdown costs -- see Note F.
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 June 30, 2000 and December 31, 1999, the Company had sold $95,863 and
$88,393 of accounts receivable in exchange for $33,000 and $20,000 in cash and
an undivided interest in the accounts receivable of $62,863 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".
8
<PAGE> 11
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
(DOLLARS IN THOUSANDS)
F. PLANT SHUTDOWN COSTS
During the quarter ended June 30, 2000, the Company adopted a plan to close
its Goshen, Indiana and Swainsboro, Georgia facilities. The facilities, which
were leased as part of the Keller acquisition in the fourth quarter of 1999,
are being closed to improve efficiency and reduce the Company's overall
manufacturing and distribution costs. Production at these facilities will be
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. 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 $152 has been recorded in the
second quarter. The remainder will be recorded in the third quarter upon
notification of employees. The charge includes other estimated exit costs of
$1,248 which include continuing lease payments, security and other costs
applicable to the leased facilities through the end of the respective
non-cancelable lease periods. The payment of these costs is expected to extend
through December 31, 2001. No plant shutdown costs were paid as of June 30,
2000.
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>
JUNE 30, 2000
ASSETS
Current assets:
Undivided interest in
accounts receivable........ $ -- $ -- $ -- $62,863 $ -- $ 62,863
Inventories, net............. -- -- 60,610 -- -- 60,610
Other current assets......... 82 425 2,048 5 -- 2,560
--------- --------- -------- ------- -------- --------
Total current assets..... 82 425 62,658 62,868 -- 126,033
Property, plant and equipment,
net.......................... -- 2 95,400 -- -- 95,402
Investment in subsidiaries..... (149,778) (128,826) 6,304 -- 272,300 --
Other assets................... 5 10,404 31,709 100 -- 42,218
--------- --------- -------- ------- -------- --------
TOTAL ASSETS............. $(149,691) $(117,995) $196,071 $62,968 $272,300 $263,653
========= ========= ======== ======= ======== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Other current liabilities.... $ (489) $ 4,947 $ 60,728 $ (157) $ -- $ 65,029
Intercompany payable
(receivable)............... (10,743) (245,074) 198,996 56,821 -- --
--------- --------- -------- ------- -------- --------
Total current
liabilities.............. (11,232) (240,127) 259,724 56,664 -- 65,029
Long-term debt................. -- 271,910 5,000 -- -- 276,910
Other long-term liabilities.... -- -- 60,173 -- -- 60,173
Total equity (deficit)... (138,459) (149,778) (128,826) 6,304 272,300 (138,459)
--------- --------- -------- ------- -------- --------
TOTAL LIABILITIES AND
EQUITY (DEFICIT)...... $(149,691) $(117,995) $196,071 $62,968 $272,300 $263,653
========= ========= ======== ======= ======== ========
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 OPERATIONS
---------------------------------------------------------------------------
COMBINED NON-
PARENT GUARANTOR GUARANTOR
COMPANY ISSUER SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
------- ------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED
JUNE 30, 2000
Net sales....................... $ -- $ -- $269,533 $ -- $ -- $269,533
Cost of sales................... -- -- 200,092 -- -- 200,092
------ ------- -------- ------- -------- --------
Gross profit.................... -- -- 69,441 -- -- 69,441
Selling, general and
administrative expenses....... 11 14 45,538 -- -- 45,563
Plant shutdown costs............ -- -- 1,400 -- -- 1,400
------ ------- -------- ------- -------- --------
Operating (loss) profit......... (11) (14) 22,503 -- -- 22,478
Other income (expense), net..... 5,072 5,759 (2,339) 3,145 (11,585) 52
Interest income (expense)....... 506 (1,837) (10,385) (2,163) -- (13,879)
------ ------- -------- ------- -------- --------
Income (loss) before income
taxes (benefit)............... 5,567 3,908 9,779 982 (11,585) 8,651
Income taxes (benefit).......... 299 (850) 3,571 363 -- 3,383
------ ------- -------- ------- -------- --------
NET INCOME (LOSS)........... $5,268 $ 4,758 $ 6,208 $ 619 $(11,585) $ 5,268
====== ======= ======== ======= ======== ========
FOR THE THREE MONTHS ENDED
JUNE 30, 2000
Net sales....................... $ -- $ -- $140,511 $ -- $ -- $140,511
Cost of sales................... -- -- 103,251 -- -- 103,251
------ ------- -------- ------- -------- --------
Gross profit.................... -- -- 37,260 -- -- 37,260
Selling, general and
administrative expenses....... -- 9 22,786 -- -- 22,795
Plant shutdown costs............ -- -- 1,400 -- -- 1,400
------ ------- -------- ------- -------- --------
Operating (loss) profit......... -- (9) 13,074 -- -- 13,065
Other income (expense), net..... 3,570 3,745 (1,741) 1,649 (7,461) (238)
Interest income (expense)....... 251 (1,069) (4,492) (1,624) -- (6,934)
------ ------- -------- ------- -------- --------
Income (loss) before income
taxes (benefit)............... 3,821 2,667 6,841 25 (7,461) 5,893
Income taxes (benefit).......... 198 (617) 2,680 9 -- 2,270
------ ------- -------- ------- -------- --------
NET INCOME (LOSS)........... $3,623 $ 3,284 $ 4,161 $ 16 $ (7,461) $ 3,623
====== ======= ======== ======= ======== ========
</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 OPERATIONS
---------------------------------------------------------------------------
COMBINED NON-
PARENT GUARANTOR GUARANTOR
COMPANY ISSUER SUBSIDIARIES SUBSIDIARY 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
Selling, general and
administrative expenses....... -- 9 44,029 -- -- 44,038
------ ------- -------- ------- -------- --------
Operating (loss) profit......... -- (9) 23,034 -- -- 23,025
Other income (expense), net..... 5,338 6,153 (2,523) 2,054 (11,193) (171)
Interest income (expense)....... 529 (1,045) (10,436) (2,445) -- (13,397)
------ ------- -------- ------- -------- --------
Income (loss) before income
taxes (benefit)............... 5,867 5,099 10,075 (391) (11,193) 9,457
Income taxes (benefit).......... 208 (223) 3,954 (141) -- 3,798
------ ------- -------- ------- -------- --------
NET INCOME (LOSS)........... $5,659 $ 5,322 $ 6,121 $ (250) $(11,193) $ 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
Selling, general and
administrative expenses....... -- 6 22,481 -- -- 22,487
------ ------- -------- ------- -------- --------
Operating (loss) profit......... -- (6) 14,271 -- -- 14,265
Other income (expense), net..... 4,352 4,744 (1,234) 1,084 (9,066) (120)
Interest income (expense)....... 257 (489) (5,349) (1,084) -- (6,665)
------ ------- -------- ------- -------- --------
Income (loss) before income
taxes (benefit)............... 4,609 4,249 7,688 -- (9,066) 7,480
Income taxes (benefit).......... 101 (94) 2,965 -- -- 2,972
------ ------- -------- ------- -------- --------
NET INCOME (LOSS)........... $4,508 $ 4,343 $ 4,723 $ -- $ (9,066) $ 4,508
====== ======= ======== ======= ======== ========
</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 SIX MONTHS ENDED
JUNE 30, 2000
Net cash from operating
activities .................... $ (444) $(4,728) $23,059 $(3) $17,884
Net cash from investing
activities..................... 295 5,456 (21,727) -- (15,976)
Net cash from financing
activities..................... 149 (725) (903) -- (1,479)
------ ------- ------- --- -------
Net increase (decrease) in cash
and cash equivalents........... -- 3 429 (3) 429
Cash and cash equivalents at
beginning of period............ -- 417 442 7 866
------ ------- ------- --- -------
Cash and cash equivalents at end
of period...................... $ -- $ 420 $ 871 $ 4 $ 1,295
====== ======= ======= === =======
FOR THE SIX MONTHS ENDED
JUNE 30, 1999
Net cash from operating
activities ................... $ 381 $(4,355) $11,881 $10 $ 7,917
Net cash from investing
activities..................... 1,707 2,876 (14,826) -- (10,243)
Net cash from financing
activities..................... (2,089) (725) -- -- (2,814)
------ ------- ------- --- -------
Net increase (decrease) in cash
and cash equivalents........... (1) (2,204) (2,945) 10 (5,140)
Cash and cash 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>
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 JUNE 30, 2000 AS COMPARED TO QUARTER
ENDED JUNE 30, 1999
Net Sales. Net sales increased $15.7 million or 12.6% to $140.5 million for
the quarter ended June 30, 2000 from $124.8 million for the quarter ended June
30, 1999. Net sales of climbing products increased $14.7 million or 15.0% to
$112.8 million for the quarter ended June 30, 2000 from $98.1 million for the
quarter ended June 30, 1999. Approximately half of the increase in net sales of
climbing products was attributable to Keller brand ladder sales arising from the
Keller business acquired in the fourth quarter of 1999 (the "Keller
acquisition"). Excluding the effects of the Keller acquisition, net sales of
climbing products increased $7.2 million or 7.3% which was primarily due to
higher unit sales volumes. Net sales of extruded products of $27.8 million for
the quarter ended June 30, 2000 increased by $1.0 million or 3.9% compared to
the quarter ended June 30, 1999. The increase in net sales of extruded products
was due primarily to the impact of higher unit sales volumes during the quarter
ended June 30, 2000.
Gross Profit. Gross profit increased $0.5 million or 1.4% to $37.3 million
for the quarter ended June 30, 2000 from $36.8 million for the quarter ended
June 30, 1999. The increase was primarily due to higher sales of climbing
products. Gross profit as a percentage of net sales in the quarter ended June
30, 2000 decreased to 26.5% from 29.5% for the quarter ended June 30, 1999. This
decrease in the gross profit margin percentage principally resulted from sales
of Keller brand ladders manufactured at the facilities included in the Keller
acquisition, a change in product mix to a higher volume of lower priced products
and higher raw material prices.
General and Administrative Expenses. General and administrative expenses
were $7.0 million for the quarter ended June 30, 2000 compared to $7.6 million
for the quarter ended June 30, 1999, a decline of $0.6 million or 7.5%. The
decline is primarily due to reduced consulting and compensation expenses which
more than offset increases due to the Keller acquisition.
Selling and Distribution Expenses. Selling and distribution expenses
increased $0.9 million or 5.9% to $15.8 million for the quarter ended June 30,
2000 from $14.9 million for the quarter ended June 30, 1999. The increase was
primarily due to higher sales volumes partially attributable to the Keller
acquisition as well as increased distribution expenses resulting from higher
freight rates on inventory transfers and the start-up of a new warehouse
facility.
Plant Shutdown Costs. During the quarter ended June 30, 2000, the Company
adopted a plan to close its Goshen, Indiana and Swainsboro, Georgia facilities
and recorded plant shutdown costs of $1.4 million to cover the estimated costs
associated with closing these facilities. The facilities, which were leased as
part of the Keller acquisition in the fourth quarter of 1999, are being closed
to improve efficiency and reduce the Company's overall manufacturing and
distribution costs. Production at these facilities will be absorbed by the
Company's other manufacturing facilities. The plan reflects the elimination of
approximately 240 jobs primarily in manufacturing functions. Payments to
affected employees will approximate $0.4 million, $0.2 million of which was
recorded in the
14
<PAGE> 17
current quarter. Other exit costs recorded in the current quarter total $1.2
million. The payment of these costs is expected to extend through December 31,
2001. No plant shutdown costs were paid as of June 30, 2000.
Operating Profit. Operating profit declined $1.2 million to $13.1 million
for the quarter ended June 30, 2000 from $14.3 million for the quarter ended
June 30, 1999. Operating profit of the Climbing Products segment declined $2.4
million, including $1.4 million related to plant shutdown costs, to $11.5
million in the second quarter of 2000 from $13.9 million in the second quarter
of 1999. The remainder of the decrease is primarily due to increases in the cost
of raw materials and higher manufacturing and distribution costs. Operating
profit of the Extruded Products segment of $2.2 million for the quarter ended
June 30, 2000 increased by $0.4 million over operating profit for the quarter
ended June 30, 1999 primarily due to higher sales volumes. Corporate and Other
expenses decreased $0.8 million for the quarter ended June 30, 2000 compared to
the quarter ended June 30, 1999 primarily due to lower consulting expenses in
the current quarter.
Other Income (Expense), Net. Other (expense), net was $(0.2) million for
the quarter ended June 30, 2000 compared to other (expense), net of $(0.1)
million for the quarter ended June 30, 1999. The difference was primarily
attributable to 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 $0.2 million to $6.9 million
for the quarter ended June 30, 2000 from $6.7 million for the quarter ended June
30, 1999. The increase was 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 June 30, 2000 and 1999, and appropriately adjusted the quarterly periods then
ended. The effective tax rate for the quarter ended June 30, 2000 approximates
the effective tax rate of the same quarter last year.
The difference between the statutory and effective tax rates at both June
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 $0.9 million to $3.6 million for the
quarter ended June 30, 2000 from net income of $4.5 million for the quarter
ended June 30, 1999 as a result of all of the above factors.
RESULTS OF OPERATIONS -- SIX MONTHS ENDED JUNE 30, 2000 AS COMPARED TO SIX
MONTHS ENDED JUNE 30, 1999
Net Sales. Net sales increased $39.3 million or 17.1% to $269.5 million for
the six months ended June 30, 2000 from $230.2 million for the six months ended
June 30, 1999. Net sales of climbing products increased $37.3 million or 20.9%
to $216.2 million for the six months ended June 30, 2000 from $178.9 million for
the six months ended June 30, 1999. Approximately half of the increase in net
sales of climbing products was attributable to Keller brand ladder sales.
Excluding the effects of the Keller acquisition, net sales of climbing products
increased $18.2 million or 10.2% which was primarily due to higher unit sales
volumes. Net sales of extruded products of $53.3 million for the six months
ended June 30, 2000 increased by $2.0 million or 3.8% compared to the six months
ended June 30, 1999. The increase in net sales of extruded products was due
primarily to the impact of higher unit sales volumes during the six months ended
June 30, 2000.
Gross Profit. Gross profit increased $2.3 million or 3.5% to $69.4 million
for the six months ended June 30, 2000 from $67.1 million for the six months
ended June 30, 1999. The increase was primarily due to higher sales of climbing
products. Gross profit as a percentage of net sales in the six months ended June
30, 2000 decreased to 25.8% from 29.1% for the six months ended June 30, 1999.
This decrease in the gross profit margin percentage principally resulted from
sales of Keller brand ladders manufactured at the facilities included in the
15
<PAGE> 18
Keller acquisition, a change in product mix to a higher volume of lower priced
products and higher raw material prices.
General and Administrative Expenses. General and administrative expenses
were $14.7 million for the six months ended June 30, 2000 compared to $15.4
million for the six months ended June 30, 1999, a decline of $0.7 million or
4.2%. The decline is primarily due to reduced consulting and compensation
expenses which more than offset increases due to the Keller acquisition.
Selling and Distribution Expenses. Selling and distribution expenses
increased $2.1 million or 7.6% to $30.8 million for the six months ended June
30, 2000 from $28.7 million for the six months ended June 30, 1999. The increase
was primarily due to higher sales volumes partially attributable to the Keller
acquisition as well as increased distribution expenses resulting from higher
freight rates on inventory transfers and the start-up of a new warehouse
facility.
Plant Shutdown Costs. During the quarter ended June 30, 2000, the Company
adopted a plan to close its Goshen, Indiana and Swainsboro, Georgia facilities
and recorded plant shutdown costs of $1.4 million to cover the estimated costs
associated with closing these facilities. The facilities, which were leased as
part of the Keller acquisition in the fourth quarter of 1999, are being closed
to improve efficiency and reduce the Company's overall manufacturing and
distribution costs. Production at these facilities will be absorbed by the
Company's other manufacturing facilities. The plan reflects the elimination of
approximately 240 jobs primarily in manufacturing functions. Payments to
affected employees will approximate $0.4 million, $0.2 million of which was
recorded in the current quarter. Other exit costs recorded in the current
quarter total $1.2 million. The payment of these costs is expected to extend
through December 31, 2001. No plant shutdown costs were paid as of June 30,
2000.
Operating Profit. Operating profit declined by $0.5 million to $22.5
million for the six months ended June 30, 2000 from $23.0 million for the six
months ended June 30, 1999. Operating profit of the Climbing Products segment
declined by $0.5 million to $20.8 million in the first six months of 2000 from
$21.3 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 $0.9 million to $22.2 million. The increase is primarily due
to increased sales volumes partially offset by increases in the cost of raw
materials and higher manufacturing and distribution costs. Operating profit of
the Extruded Products segment decreased $2.2 million to $2.9 million for the six
months ended June 30, 2000 from $5.1 million for the six months ended June 30,
1999. The decrease in Extruded Products operating profit was caused by greater
volumes of lower margin products. Corporate and Other expenses decreased $2.2
million for the six months ended June 30, 2000 compared to the six months ended
June 30, 1999 primarily due to lower consulting expenses in the current period.
Other Income (Expense), Net. Other income, net was $0.1 million for the six
months ended June 30, 2000 compared to other (expense), net of $(0.2) million
for the six months ended June 30, 1999. The difference was primarily
attributable to higher royalty and other income 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 $0.5 million to $13.9 million
for the six months ended June 30, 2000 from $13.4 million for the six months
ended June 30, 1999. The increase was 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 six months ended June 30, 2000 and 1999. The effective tax rate for the six
months ended June 30, 2000 approximates the effective tax rate of the same
period last year.
16
<PAGE> 19
The difference between the statutory and effective tax rates at both June
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 $0.4 million to $5.3 million for the six
months ended June 30, 2000 from net income of $5.7 million for the six months
ended June 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 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 $17.9 million for the
six months ended June 30, 2000 compared to $7.9 million for the six months ended
June 30, 1999. The increase is primarily attributable to 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 declines in accounts payable and accrued liabilities. Net
cash used in investing activities was $16.0 million for the six months ended
June 30, 2000 compared to net cash used of $10.2 million for the six months
ended June 30, 1999. The increase was primarily due to an increase in capital
expenditures for various capital projects, including information systems and
increased capacity. Net cash flows used in financing activities were $1.5
million for the six months ended June 30, 2000 compared to net cash used of $2.8
million for the six months ended June 30, 1999 which partially reflects a
decrease in the net cash used for common stock transactions and a decrease in
cash overdrafts.
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.
The Company 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.
17
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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 six
months ended June 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.
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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 have filed an appeal, which is
currently 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of shareholders was held on May 10, 2000. The
size of the Board of Directors of Holding (PA) was increased to eight (8)
persons and the following eight (8) persons were elected as directors: James O.
Egan, Dennis G. Heiner, Charles K. Marquis, Charles J. Philippin, Howard L.
Solot, Christopher J. Stadler, Thomas J. Sullivan and Donald M. Werner. Of the
total shares of stock voted, all were cast for these eight (8) persons with the
exception that 799.9995 shares of voting stock were withheld for Howard L.
Solot and Donald M. Werner, respectively, and 1,091.0304 shares of voting stock
were withheld for all directors. In addition, at the meeting the Amended and
Restated Articles of Incorporation of Holding (PA) were adopted and approved. Of
the total shares of stock voted, 66,431.7723 were cast for, 799.9995 were cast
against and 2,916.4320 shares were withheld with respect to the Amended and
Restated Articles of Incorporation of Holding (PA). Finally, at the meeting,
PricewaterhouseCoopers LLP was approved as the Company's independent auditors
for the upcoming year. Of the total shares of stock voted, 69,280.7734 were cast
for, 0 were cast against and 867.4304 shares were withheld, with respect to the
selection of PricewaterhouseCoopers LLP as the Company's independent auditors.
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<PAGE> 22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<C> <S>
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.
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 Form of Second Stock Option Modification Agreement.
10.2 Werner Co. Short Term Variable Pay Bonus Compensation Plan.
27.1 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K:
None.
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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.
<TABLE>
<S> <C>
WERNER HOLDING CO. (PA), INC.
Date: August 11, 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: August 11, 2000 /s/ R. P. Tamburrino
----------------------------------------------
R. P. Tamburrino
Vice President, Chief Financial Officer and
Treasurer (Principal Financial Officer and
Principal Accounting Officer)
</TABLE>
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