<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR QUARTER ENDED SEPTEMBER 30, 1996 COMMISSION FILE NO. 33-78922
--------
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
-------------------------
AXIA INCORPORATED
(Exact name of Registrant as specified in its charter)
DELAWARE 13-3205251
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 WEST 22ND STREET, SUITE 134, LOMBARD, ILLINOIS 60148 (630) 629-3360
-------------------------------------------------------------------------
(Address and telephone number of principal executive offices)
------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No _______
-------
------------------------
Title of each class of Registered Securities
11% SERIES B SENIOR SUBORDINATED NOTES DUE 2001
GUARANTEE OF 11% SERIES B SENIOR SUBORDINATED NOTES DUE 2001
<PAGE>
PART I
Item 1. Financial Statements
AXIA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 578 $ 45
Accounts receivable, net 12,554 12,357
Inventories 9,248 9,314
Prepaid income taxes and other current assets 1,708 1,971
Deferred income tax benefits 2,874 3,325
-------- --------
Total Current Assets $ 26,962 $ 27,012
-------- --------
PLANT AND EQUIPMENT, AT COST:
Land $ 521 $ 521
Buildings and improvements 6,496 6,617
Machinery and equipment 22,658 22,218
Equipment leased to others 6,186 4,174
-------- --------
$ 35,861 $ 33,530
Less: Accumulated depreciation 10,351 7,491
-------- --------
Net Plant and Equipment $ 25,510 $ 26,039
-------- --------
OTHER ASSETS:
Goodwill, net $ 34,909 $ 35,631
Intangible assets, net 417 721
Deferred charges, net 12,126 12,893
Investment in affiliate 900 900
Other assets 80 92
-------- --------
Total Other Assets $ 48,432 $ 50,237
-------- --------
TOTAL ASSETS $100,904 $103,288
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 5,672 $ 6,650
Accounts payable 3,975 4,137
Accrued liabilities 8,186 9,316
Accrued income taxes 394 159
-------- --------
Total Current Liabilities $ 18,227 $ 20,262
-------- --------
NON-CURRENT LIABILITIES:
Long-term debt, less current maturities $ 39,099 $ 43,507
Other non-current liabilities 10,910 11,025
Deferred income taxes 2,612 2,666
-------- --------
Total Non-Current Liabilities $ 52,621 $ 57,198
-------- --------
STOCKHOLDER'S EQUITY:
Common stock ($.01 par value; 100 shares
authorized, issued and outstanding) $ - $ -
Additional paid-in capital 16,723 16,723
Retained earnings 13,038 8,533
Additional minimum pension liability (54) (54)
Cumulative translation adjustment 349 626
-------- --------
Total Stockholder's Equity $ 30,056 $ 25,828
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $100,904 $103,288
======== ========
</TABLE>
The accompanying Notes to the Unaudited Interim Consolidated Financial
Statements are an integral part of these balance sheets.
1
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
July 1, 1996 July 1, 1995
to to
September 30, 1996 September 30, 1995
------------------ ------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Net sales $18,680 $20,343
Net rentals 6,415 5,668
------- -------
NET REVENUES $25,095 $26,011
Cost of sales 12,784 13,891
Cost of rentals 2,381 2,919
Selling, general and administrative expenses 5,842 5,905
------- -------
INCOME FROM OPERATIONS $ 4,088 $ 3,296
Interest expense 1,177 1,615
Other expense, net (8) (123)
-------- -------
INCOME BEFORE INCOME TAXES $ 2,919 $ 1,804
Provision for income taxes 1,369 779
------- -------
NET INCOME $ 1,550 $ 1,025
======= =======
</TABLE>
The accompanying Notes to the Unaudited Interim Consolidated Financial
Statements are an integral part of these statements.
2
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
January 1, 1996 January 1, 1995
to to
September 30, 1996 September 30, 1995
------------------ ------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Net sales $61,289 $60,943
Net rentals 18,295 16,517
------- -------
NET REVENUES $79,584 $77,460
Cost of sales 40,713 41,187
Cost of rentals 7,051 7,355
Selling, general and administrative expenses 18,537 18,273
------- -------
INCOME FROM OPERATIONS $13,283 $10,645
Interest expense 4,047 5,076
Other expense, net 51 (31)
------- -------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM $ 9,185 $ 5,600
Provision for income taxes 4,066 2,532
------- -------
INCOME BEFORE EXTRAORDINARY ITEM 5,119 3,068
EXTRAORDINARY ITEM:
Loss on early extinguishment of debt,
net of income taxes of $410 (See Note 2) 614 -
------- -------
NET INCOME $ 4,505 $ 3,068
======= =======
</TABLE>
The accompanying Notes to the Unaudited Interim Consolidated Financial
Statements are an integral part of these statements.
3
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE PERIODS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
Additional Minimum Cumulative
Common Stock Paid-in Retained Pension Translation
Par Value Capital Earnings Liability Adjustments
------------ ----------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 $ - $16,848 $ 3,644 $ - $ 304
Net income - - 3,068 - -
Cumulative translation adjustment - - - - 471
Other - (124) - - -
------------ ------- ------- ----- -----
BALANCE, SEPTEMBER 30, 1995 (unaudited) $ - $16,724 $ 6,712 $ - $ 775
============ ======= ======= ===== =====
BALANCE, DECEMBER 31, 1995 - $16,723 $ 8,533 $ (54) $ 626
Net income - - 4,505 - -
Cumulative translation adjustment - - - - (277)
------------ ------- ------- ----- -----
BALANCE, SEPTEMBER 30, 1996 (unaudited) - $16,723 $13,038 $ (54) $ 349
============ ======= ======= ===== =====
</TABLE>
The accompanying Notes to the Unaudited Interim Consolidated Financial
Statements are an integral part of these statements.
4
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
January 1, 1996 January 1, 1995
to to
September 30, 1996 September 30, 1995
------------------- -------------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,505 $ 3,068
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 5,115 5,068
Extraordinary item - writeoff of capitalized financing costs 1,024 -
Deferred income tax provision (benefit) 397 488
Loss (gain) on disposal of fixed assets 259 (46)
Provision for losses on accounts receivable 988 710
Provision for obsolescence of inventories 101 (25)
Credit to pension expense (206) (106)
Changes in assets and liabilities:
Accounts receivable (1,357) (2,398)
Inventories (149) (379)
Accounts payable (118) 708
Accrued liabilities (1,072) (1,036)
Other current assets 257 (51)
Income taxes payable 244 (319)
Other non-current assets (42) (104)
Other non-current liabilities (115) ( 91)
-------- -------
Net Cash Provided by Operating Activities $ 9,831 $ 5,487
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash used for capital expenditures $ (3,270) $(2,819)
Proceeds from sale of fixed assets 41 276
-------- -------
Net Cash (Used in) Investing Activities $ (3,229) $(2,543)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in Revolving Credit Loan $ 2,500 $ 2,750
Payments of other long-term debt (33,037) (5,863)
Proceeds from other long-term debt 25,000 -
Payments of deferred financing costs (459) -
Other equity transactions (27) (97)
-------- -------
Net Cash (Used in) Financing Activities $ (6,023) $(3,210)
EFFECT OF EXCHANGE RATE CHANGES ON CASH $ (46) $ 95
-------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 533 $ (171)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 45 872
-------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 578 $ 701
======== =======
</TABLE>
The accompanying Notes to the Unaudited Interim Consolidated Financial
Statements are an integral part of these statements.
5
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
NOTE 1 ORGANIZATION AND PRESENTATION
On March 15, 1994, AXIA Incorporated (the "Predecessor Company") was acquired
as part of a merger with a newly-formed company (the "Transaction"), Axia
Acquisition Corp. ("Acquisition"), a Delaware corporation, with the surviving
corporation continuing under the name AXIA Incorporated (the "Company",
including reference to the Predecessor Company where appropriate). Acquisition
was formed solely for the purpose of merging into the Company. Acquisition was
incorporated on January 13, 1994, and issued 100 shares of its $.01 par value
common stock to AXIA Holdings Corp. ("Holdings") on March 1, 1994. Other than
the stock issuance, Acquisition had no activity until its concurrent
contribution from Holdings and its merger with Predecessor Company on March 15,
1994. Due to the substantial change in controlling interest in the Company, the
Company reflected a complete change in its accounting basis of its assets and
liabilities from Predecessor Company historical cost to estimated fair value as
of March 15, 1994, which resulted in the recognition of $37.4 million in
goodwill at the acquisition date.
Accounting policies used in the preparation of the unaudited interim
consolidated financial statements are consistent with the accounting polices
described in the Notes to the Consolidated Financial Statements for the year
ended December 31, 1995. In the opinion of management, the interim financial
statements reflect all adjustments (consisting only of normal recurring
adjustments) which are necessary for a fair presentation of the Company's
financial position, results of operations, and cash flows for the interim
periods presented. The results for such interim periods are not necessarily
indicative of results for the full year. These financial statements should be
read in conjunction with the consolidated financial statements for the year
ended December 31, 1995 and the accompanying notes thereto in the Company's
Annual Report on Form 10-K filed under the Securities Exchange Act of 1934.
NOTE 2 REFINANCING
On June 27, 1996, the Company and its domestic subsidiaries, Ames Taping Tool
Systems, Inc., ("ATTS"), and TapeTech Tool Co., Inc., ("TapeTech"), entered into
a new bank credit agreement (the "Bank Credit Agreement") which replaced its
then existing bank financing. The Company borrowed $25,000,000 on a new term
loan and $3,500,000 of $15,000,000 available on the revolving credit loan. The
proceeds of this borrowing plus cash on hand paid off the outstanding amounts
owed by the Company under the previous bank financing. The Company recorded a
pre-tax charge of $1,024,000 representing the writeoff of unamortized deferred
loan costs. This charge, net of tax, is reflected as an extraordinary item in
the accompanying Consolidated Statements of Income for the nine month period
ended September 30, 1996.
The Bank Credit Agreement effectively reduced the interest rate of the
Company's bank debt by 1.25% to 1.50% and provided the ability to repurchase and
extinguish Subordinated Notes in an amount equal to $4.0 million plus additional
amounts based on free cash flow as defined. Term loan maturities were extended
to December 31, 2000. (See Note 4.)
6
<PAGE>
NOTE 3 INVENTORIES
Inventories are stated at the lower of first-in, first-out (FIFO) cost or
market. The cost elements included in inventories are material, labor and
factory overhead.
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------ -----------------
<S> <C> <C>
Raw materials $4,852 $5,108
Work in process 1,081 935
Finished goods 3,315 3,271
------ ------
Total inventories $9,248 $9,314
====== ======
</TABLE>
NOTE 4 LONG-TERM DEBT
Long-term debt, inclusive of capital lease obligations which are not material,
consists of the following (in thousands):
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------- ------------------
<S> <C> <C>
11.00% Senior Subordinated Notes $18,301 $18,150
Bank Term Loan 23,611 31,620
Revolving Credit Loan 2,500 -
Other 359 387
------- -------
Total Debt $44,771 $50,157
Less Current Maturities (5,672) (6,650)
------- -------
Total Long-Term Debt $39,099 $43,507
======= =======
</TABLE>
The Senior Subordinated Notes above are stated net of unamortized discounts of
$1,199,000 and $1,350,000 at September 30, 1996, and December 31, 1995,
respectively.
Current maturities of long-term debt as of September 30, 1996 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
Scheduled Payment
Date Amount
------------------ ------
<S> <C> <C>
Term Loan December 31, 1996 1,389
Term Loan March 31, 1996 1,389
Term Loan June 30, 1997 1,389
Term Loan September 30, 1997 1,389
Other Various 116
------
Total Current Maturities $5,672
======
</TABLE>
7
<PAGE>
BANK CREDIT AGREEMENT
On June 27, 1996, as part of a refinancing (see Note 2) of its bank debt, the
Company, ATTS, and TapeTech entered into the Bank Credit Agreement which
included a term loan ("Term Loan") with an original principal amount of
$25,000,000 and a non-amortizing revolving credit loan ("Revolving Credit Loan")
of up to $15,000,000, including up to $1,000,000 of letters of credit.
The proceeds from the Bank Credit Agreement of an initial borrowing of $3.5
million under the Revolving Credit Loan and $25.0 million of the Term Loan, and
$1.4 million in cash on hand, were used to prepay the then existent term loan,
revolving credit loan, interest and other fees outstanding at the refinancing
date. An additional $.5 million in deferred transaction costs were incurred and
will be amortized over the life of the Bank Credit Agreement which terminates
December 31, 2000.
Under the Bank Credit Agreement, the loans may, at the option of the Company,
be either Base Rate borrowings, Eurodollar borrowings or a combination thereof.
Base Rate borrowings bear interest at the prime rate or the Federal Funds rate
plus 1.00%, whichever is higher, and Eurodollar borrowings bear interest at a
rate of LIBOR plus 1.50%. In certain events defined in the agreement, the
Eurodollar borrowing interest rate may be increased to LIBOR plus 1.75%. The
Company pays a fee of .38% per annum on the unused balance of the line of
credit. The Company can repay any borrowings at any time without penalty. The
weighted average interest rates on all amounts outstanding under the Bank Credit
Agreement as of September 30, 1996 was 7.03%. Substantially all of the assets of
the Company, ATTS, and TapeTech act as collateral under the Bank Credit
Agreement.
The Term Loan has scheduled maturities which began on September 30, 1996, of
$1,389,000 quarterly, maturing with a final payment of $1,387,000 on December
31, 2000. The Revolving Credit Loan also terminates on December 31, 2000.
Interest payments are generally due quarterly. The Company is required to prepay
portions of the Term Loan in the event of a major asset sale, as defined in the
Bank Credit Agreement.
11.00% SENIOR SUBORDINATED NOTES
The Senior Subordinated Notes were issued pursuant to a trust indenture (the
"Indenture") between the Company, certain guarantors and a trustee bank and were
sold to a group of private investors as part of the Transaction (see Note 1).
Interest on the notes is payable semi-annually and the notes mature on March 15,
2001. The notes may be redeemed, at the Company's option, in full or in part on
or after March 15, 1997, at a decreasing premium rate beginning at 104.4% on
March 15, 1997. A change of control of the Company, as defined, would require
the Company to offer to redeem all notes at 101% premium.
In July 1994, the Company filed a Registration Statement with the Securities
and Exchange Commission to register the Senior Subordinated Notes under the
Securities Act of 1933. The Notes are guaranteed by the Company's domestic
subsidiaries. (See Note 6 for further information regarding these guarantees.)
RESTRICTIVE LOAN COVENANTS
The Bank Credit Agreement and the Indenture contain certain covenants which
require the Company to maintain certain financial measures as defined in the
agreements. In addition, the company may not create or incur certain types of
additional debt or liens, declare dividends except as specified in the Bank
Credit Agreement, or make capital expenditures or other restricted payments, as
defined, during the term of the agreements in excess of varying amounts. The
Company was in compliance with the covenants contained in the Bank Credit
Agreement and the Indenture as of September 30, 1996.
8
<PAGE>
NOTE 5 CAPITAL STOCK
The Company has 100 shares of common stock, par value $.01 per share,
authorized, issued and outstanding, all of which are owned by Holdings.
NOTE 6 SUBSIDIARY GUARANTEES
The Company's payment obligations under the Senior Subordinated Notes are
fully and unconditionally guaranteed on a joint and several basis (collectively,
the "Subsidiary Guarantees") by Ames Taping Tool Systems, Inc. and TapeTech Tool
Co., Inc., each a wholly-owned subsidiary of the Company and each a "Guarantor."
These subsidiaries, together with the operating divisions of the Company,
represent all of the operations of the Company conducted in the United States.
The remaining subsidiaries of the Company are foreign subsidiaries. Upon the
sale of substantially all of its assets, Mid America Machine Corp. ("MAMCO") was
released as a Guarantor in 1995.
The Company's payment obligations under the Indenture are fully and
unconditionally guaranteed on a joint and several basis by the Company and each
Guarantor; the obligations of each Guarantor under its Subsidiary Guarantee are
subordinated to all senior indebtedness of such Guarantor, including the
Company's borrowings under the Bank Credit Agreement.
With the intent that the Subsidiary Guarantees not constitute fraudulent
transfers or conveyances under applicable state or federal law, the obligation
of each Guarantor under its Subsidiary Guarantee is also limited to the maximum
amount as will, after giving effect to such maximum amount and all other
liabilities (contingent or otherwise) of such Guarantor that are relevant under
such laws, and after giving effect to any rights to contribution of such
Guarantor pursuant to any agreement providing for an equitable contribution
among such Guarantor and other affiliates of the Company of payments made by
guarantees by such parties, result in the obligations of such Guarantor in
respect of such maximum amount not constituting a fraudulent conveyance.
The following consolidating condensed financial data illustrates the
composition of the combined Guarantors. Management believes separate complete
financial statements of the respective Guarantors would not provide additional
material information which would be useful in assessing the financial
composition of the Guarantors. No single Guarantor has any significant legal
restrictions on the ability of investors or creditors to obtain access to its
assets in event of default on the Subsidiary Guarantee other than its
subordination to senior indebtedness described above. Though each Guarantor is a
borrower under the Bank Credit Agreement, the Company's borrowings have not been
allocated to the individual Guarantors as such allocation, in the opinion of
Management, would not be meaningful.
Investments in subsidiaries are accounted for by the parent on the equity
method for purposes of the supplemental consolidating presentation. Earnings of
subsidiaries are therefore reflected in the parent's investment accounts and
earnings. The principal elimination entries eliminate investments in
subsidiaries and intercompany balances and transactions.
9
<PAGE>
CONSOLIDATING BALANCE SHEET
AS OF SEPTEMBER 30, 1996
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Parent
and its Guarantor Non-guarantor Consolidated
Divisions Subsidiaries Subsidiaries Eliminations Totals
---------- ------------ ------------- -------------- -------------
ASSETS
- ------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ (517) $ 602 $ 614 $ (121) $ 578
Accounts receivable, net 5,731 4,401 2,875 (453) 12,554
Inventories 6,368 1,486 1,908 (514) 9,248
Prepaid income taxes and other current assets 1,492 125 91 - 1,708
Deferred income tax benefits 2,874 - - - 2,874
------- ------- ------ -------- --------
Total Current Assets $15,948 $ 6,614 $5,488 $ (1,088) $ 26,962
------- ------- ------ -------- --------
PLANT AND EQUIPMENT, AT COST:
Land $ 521 $ - $ - $ - $ 521
Buildings and improvements 6,186 18 292 - 6,496
Machinery and equipment 22,009 445 204 - 22,658
Equipment leased to others 6,135 38 13 - 6,186
------- ------- ------ -------- --------
$34,851 $ 501 $ 509 $ - $ 35,861
Less: Accumulated depreciation 9,873 297 181 - 10,351
------- ------- ------ -------- --------
Net Plant and Equipment $24,978 $ 204 $ 328 $ - $ 25,510
------- ------- ------ -------- --------
OTHER ASSETS:
Goodwill, net $32,233 $ 2,660 $ 16 $ - $ 34,909
Intangible assets, net 364 53 - - 417
Deferred charges, net 11,205 913 8 - 12,126
Investment in wholly-owned subsidiaries 13,293 - - (13,293) -
Investment in affiliates 900 - - - 900
Other assets 80 - - - 80
------- ------- ------ -------- --------
Total Other Assets $58,075 $ 3,626 $ 24 $(13,293) $ 48,432
------- ------- ------ -------- --------
TOTAL ASSETS $99,001 $10,444 $5,840 $(14,381) $100,904
======= ======= ====== ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt $ 5,636 $ 36 $ - $ - $ 5,672
Accounts payable 3,206 652 691 (574) 3,975
Accrued liabilities 7,029 437 716 4 8,186
Accrued income taxes 238 - 156 - 394
Advance account 90 612 (702) - -
------- ------- ------ -------- --------
Total Current Liabilities $16,199 $ 1,737 $ 861 $ (570) $ 18,227
------- ------- ------ -------- --------
NON-CURRENT LIABILITIES:
Long-term debt, less current maturities $39,060 $ 39 $ - $ - $ 39,099
Other non-current liabilities 10,910 - - - 10,910
Deferred income taxes 2,612 - - - 2,612
------- ------- ------ -------- --------
Total Non-Current Liabilities $52,582 $ 39 $ - $ - $ 52,621
------- ------- ------ -------- --------
STOCKHOLDER'S EQUITY:
Common stock and
additional paid-in capital $16,723 $ 5,098 $2,000 $ (7,098) $ 16,723
Retained earnings 13,551 3,570 2,630 (6,713) 13,038
Additional minimum pension liability (54) - - - (54)
Cumulative translation adjustment - - 349 - 349
------- ------- ------ -------- --------
Total Stockholder's Equity $30,220 $ 8,668 $4,979 $(13,811) $ 30,056
------- ------- ------ -------- --------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $99,001 $10,444 $5,840 $(14,381) $100,904
======= ======= ====== ======== ========
</TABLE>
10
<PAGE>
CONSOLIDATING STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Parent
and its Guarantor Non-guarantor Consolidated
Divisions Subsidiaries Subsidiaries Eliminations Totals
---------- ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Net sales $46,457 $ 9,772 $ 9,453 $ (4,393) $61,289
Net rentals 10,070 17,580 699 (10,054) 18,295
------- ------- ------- -------- -------
Net revenues $56,527 $27,352 $10,152 $(14,447) $79,584
Cost of sales $33,202 $ 5,934 $ 5,890 $ (4,313) $40,713
Cost of rentals 2,304 14,351 450 (10,054) 7,051
Selling, general and administrative expenses 11,040 4,984 2,513 - 18,537
------- ------- ------- -------- -------
Income (loss) from operations $ 9,981 $ 2,083 $ 1,299 $ (80) $13,283
Interest expense $ 4,029 $ 7 $ 11 $ - $ 4,047
Intercompany interest expense (income) (68) 68 - - -
Other expense (income), net (1,814) 32 173 1,660 51
------- ------- ------- -------- -------
Income (loss) before income taxes $ 7,834 $ 1,976 $ 1,115 $ (1,740) $ 9,185
and extraordinary item
Provision for income taxes 2,635 865 566 - 4,066
------- ------- ------- -------- -------
Income (loss) before extraordinary item $ 5,199 $ 1,111 $ 549 $ (1,740) $ 5,119
======= ======= ======= ======== =======
</TABLE>
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Parent
and its Guarantor Non-guarantor Consolidated
Divisions Subsidiaries Subsidiaries Eliminations Totals
---------- ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES $ 8,806 $ 918 $ 107 $ - $ 9,831
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash used for capital expenditures (3,178) (45) (47) - (3,270)
Proceeds from sale of fixed assets 41 - - - 41
------- ------- ------- -------- -------
Net Cash Used In Investing Activities $ (3,137) $ (45) $ (47) $ - $(3,229)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in Revolving Credit Loan 2,500 - - - 2,500
Payments of other long-term debt (33,029) (8) - - (33,037)
Proceeds from other long-term debt 25,000 - - - 25,000
Payments of deferred financing costs (459) - - - (459)
Net increase (decrease) in advance account 508 (517) 9 - -
Intercompany dividends 191 - (191) - -
Other equity transactions (28) - 1 - (27)
------- ------- ------- -------- -------
Net Cash Provided by (Used In)
Financing Activities $ (5,317) $ (525) $ (181) $ - $(6,023)
EFFECT OF EXCHANGE RATE
CHANGES ON CASH - - (46) - (46)
------- ------- ------- -------- -------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $ 352 $ 348 $ (167) $ - $ 533
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD (990) 254 781 - 45
------- ------- ------- -------- -------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ (638) $ 602 $ 614 $ - $ 578
======== ======= ======= ======== =======
</TABLE>
11
<PAGE>
CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
Parent
and its Guarantor Non-guarantor Consolidated
Divisions Subsidiaries Subsidiaries Eliminations Totals
--------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ (990) $ 254 $ 781 $ - $ 45
Accounts receivable, net 6,410 3,973 3,012 (1,038) 12,357
Inventories 6,286 1,347 2,113 (432) 9,314
Prepaid income taxes and other current assets 1,738 131 102 - 1,971
Deferred income tax benefits 3,325 - - - 3,325
-------- ------ ------ -------- --------
Total Current Assets $ 16,769 $5,705 $6,008 $ (1,470) $ 27,012
-------- ------ ------ -------- --------
PLANT AND EQUIPMENT, AT COST:
Land $ 521 $ - $ - $ - $ 521
Buildings and improvements 6,296 18 303 - 6,617
Machinery and equipment 21,591 405 222 - 22,218
Equipment leased to others 4,116 34 24 - 4,174
-------- ------ ------ -------- --------
$ 32,524 $ 457 $ 549 $ - $ 33,530
Less: Accumulated depreciation 7,074 220 197 - 7,491
-------- ------ ------ -------- --------
Net Plant and Equipment $ 25,450 $ 237 $ 352 $ - $ 26,039
-------- ------ ------ -------- --------
OTHER ASSETS:
Goodwill, net $ 32,900 $2,713 $ 18 $ - $ 35,631
Intangible assets, net 586 135 - - 721
Deferred charges, net 12,004 882 7 - 12,893
Investment in wholly-owned subsidiaries 11,801 - - (11,801) -
Investment in affiliates 900 - - - 900
Other assets 92 - - - 92
-------- ------ ------ -------- --------
Total Other Assets $ 58,283 $3,730 $ 25 $(11,801) $ 50,237
-------- ------ ------ -------- --------
TOTAL ASSETS $100,502 $9,672 $6,385 $(13,271) $103,288
======== ====== ====== ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt $ 6,618 $ 32 $ - $ - $ 6,650
Accounts payable 3,323 346 1,062 (594) 4,137
Accrued liabilities 8,197 557 1,006 (444) 9,316
Accrued income taxes 1 - 158 - 159
Advance account (418) 1,129 (711) - -
-------- ------ ------ -------- --------
Total Current Liabilities $ 17,721 $2,064 $1,515 $ (1,038) $ 20,262
-------- ------ ------ -------- --------
NON-CURRENT LIABILITIES:
Long-term debt, less current maturities $ 43,456 $ 51 $ - $ - $ 43,507
Other non-current liabilities 11,025 - - - 11,025
Deferred income taxes 2,666 - - - 2,666
-------- ------ ------ -------- --------
Total Non-Current Liabilities $ 57,147 $ 51 $ - $ - $ 57,198
-------- ------ ------ -------- --------
STOCKHOLDER'S EQUITY:
Common stock and
additional paid-in capital $ 16,723 $5,098 $2,000 $ (7,098) $ 16,723
Retained earnings 8,965 2,459 2,244 (5,135) 8,533
Additional minimum pension liability (54) - - - (54)
Cumulative translation adjustment - - 626 - 626
-------- ------ ------ -------- --------
Total Stockholder's Equity $ 25,634 $7,557 $4,870 $(12,233) $ 25,828
-------- ------ ------ -------- --------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $100,502 $9,672 $6,385 $(13,271) $103,288
======== ====== ====== ======== ========
</TABLE>
12
<PAGE>
CONSOLIDATING STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Parent
and its Guarantor Non-guarantor Consolidated
Divisions Subsidiaries Subsidiaries Eliminations Totals
---------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales $45,785 $ 9,314 $10,350 $ (4,506) $60,943
Net rentals 8,984 15,758 724 (8,949) 16,517
------- ------- ------- -------- -------
Net revenues $54,769 $25,072 $11,074 $(13,455) $77,460
Cost of sales $34,084 $ 5,381 $ 6,242 $ (4,520) $41,187
Cost of rentals 2,905 13,045 354 (8,949) 7,355
Selling, general and administrative expenses 11,026 4,450 2,797 - 18,273
------- ------- ------- -------- -------
Income from operations $ 6,754 $ 2,196 $ 1,681 $ 14 $10,645
Interest expense 5,049 6 21 - 5,076
Intercompany interest expense (income) (115) 115 - - -
Other expense (income), net (2,273) 9 227 2,006 (31)
------- ------- ------- -------- -------
Income before income taxes $ 4,093 $ 2,066 $ 1,433 $ (1,992) $ 5,600
Provision for income taxes 1,039 945 548 - 2,532
------- ------- ------- -------- -------
Net income $ 3,054 $ 1,121 $ 885 $ (1,992) $ 3,068
======= ======= ======= ======== =======
</TABLE>
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Parent
and its Guarantor Non-guarantor Consolidated
Divisions Subsidiaries Subsidiaries Eliminations Totals
---------- ------------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES $ 3,758 $ 371 $ 1,358 $ - $ 5,487
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash used for capital expenditures (2,596) (180) (43) - (2,819)
Proceeds from sale of fixed assets 238 38 - - 276
------- ----- ------- -------- -------
Net Cash Used in Investing Activities $(2,358) $(142) $ (43) $ - $(2,543)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in Revolving Credit Loan 2,750 - - - 2,750
Net proceeds (payments) of other long-term debt (5,953) 90 - - (5,863)
Dividends received from (paid by) subsidiaries 821 - (821) - -
Net increase (decrease) in advance account 526 (403) (123) - -
Other equity transactions (147) 23 27 - (97)
------- ----- ------- -------- -------
Net Cash Provided by (Used in)
Financing Activities $(2,003) $ (290) $ (917) $ - $(3,210)
EFFECT OF EXCHANGE RATE
CHANGES ON CASH - - 95 - 95
------- ----- ------- -------- -------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS $ (603) $ (61) $ 493 $ - $ (171)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 69 481 322 - 872
------- ----- ------- -------- -------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ (534) $ 420 $ 815 $ - $ 701
======= ===== ======= ======== =======
</TABLE>
13
<PAGE>
CONSOLIDATING STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Parent
and its Guarantor Non-guarantor Consolidated
Divisions Subsidiaries Subsidiaries Eliminations Totals
---------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales $13,620 $3,533 $3,151 $(1,624) $18,680
Net rentals 3,532 6,166 243 (3,526) 6,415
------- ------ ------ ------- -------
Net revenues $17,152 $9,699 $3,394 $(5,150) $25,095
Cost of sales $10,256 $2,154 $1,975 $(1,601) $12,784
Cost of rentals 825 4,928 154 (3,526) 2,381
Selling, general and administrative expenses 3,378 1,685 779 -- 5,842
------- ------ ------ ------- -------
Income (loss) from operations $ 2,693 $ 932 $ 486 $ (23) $ 4,088
Interest expense 1,172 2 3 0 1,177
Intercompany interest expense (income) (21) 21 0 0 --
Other expense (income), net (863) 11 91 753 (8)
------- ------ ------ ------- -------
Income (loss) before income taxes and $ 2,405 $ 898 $ 392 $ (776) $ 2,919
extraordinary item
Provision for income taxes 832 392 145 -- 1,369
------- ------ ------ ------- -------
Income (loss) before extraordinary item $ 1,573 $ 506 $ 247 $ (776) $ 1,550
======= ====== ====== ======= =======
</TABLE>
CONSOLIDATING STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Parent
and its Guarantor Non-guarantor Consolidated
Divisions Subsidiaries Subsidiaries Eliminations Totals
---------- ------------ -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales $15,451 $3,191 $3,278 $(1,577) $20,343
Net rentals 3,085 5,407 243 (3,067) 5,668
------- ------ ------ ------- -------
Net revenues $18,536 $8,598 $3,521 $(4,644) $26,011
Cost of sales $11,621 $1,870 $1,989 $(1,589) $13,891
Cost of rentals 1,257 4,612 117 (3,067) 2,919
Selling, general and administrative expenses 3,593 1,463 849 -- 5,905
------- ------ ------ ------- -------
Income from operations $ 2,065 $ 653 $ 566 $ 12 $ 3,296
Interest expense 1,604 2 9 -- 1,615
Intercompany interest expense (income) (31) 31 -- -- --
Other expense (income), net (804) 13 (2) 670 (123)
------- ------ ------ ------- -------
Income before income taxes $ 1,296 $ 607 $ 559 $ (658) $ 1,804
Provision for income taxes 283 283 213 -- 779
------- ------ ------ ------- -------
Net income (loss) $ 1,013 $ 324 $ 346 $ (658) $ 1,025
======= ====== ====== ======= =======
</TABLE>
14
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
AXIA Incorporated (the "Company") is a manufacturer, marketer and
distributor of a wide range of products used by craftsmen in the construction
industry, by dishwasher manufacturers and by the packaging industry. The
Company's operations consist of the Nestaway, Fischbein and Ames business units.
The Nestaway division ("Nestaway") is a major producer of dishwasher racks
primarily serving the premium quality dishwasher market and specializes in the
custom design and manufacture of high volume bare and coated wire products.
Nestaway's customers include several major dishwasher manufacturers in the
United States. In addition, Nestaway manufactures dish drainers for Rubbermaid,
steel basket products for medical applications, and other formed wire products.
The Fischbein division ("Fischbein business unit") manufactures and
distributes a broad line of equipment used for closing bags and for material
storage and handling purposes. The Fischbein business unit is comprised of two
businesses: bag closing equipment, which operates under the name Fischbein
Company ("Fischbein"), and material handling equipment ("Flexible"). Fischbein
is a manufacturer and distributor of sewing equipment for bag closing. Fischbein
also makes equipment for closing bags through gluing and heat transfer.
Fischbein's machines are used worldwide in the food, chemical, agricultural and
mineral industries. Flexible manufactures two product lines: Nestainer, a
nestable, portable storage rack system for warehouse storage and transportation
of goods; and Nestaflex, portable, expanding, flexible conveyors which are sold
primarily to retail chains and distribution centers. The bag making operations
of Mid America Machine Corp. ("MAMCO") were discontinued in 1995 and MAMCO's
assets were sold or licensed. MAMCO accounted for less than 1% of the Company's
revenues in 1995.
The Company's Ames business unit ("Ames") is composed of Ames Taping Tool
Systems, Inc., TapeTech Tool Co., Inc., Ames Taping Tools of Canada Ltd. and the
Ames division. Ames' primary business is the rental of automatic taping and
finishing tool systems ("ATF") under the "Bazooka" (registered trademark) brand
name to drywall finishing contractors primarily through 64 leased retail stores
and 40 franchise locations located throughout the U.S. and Canada. Ames also
sells ATF's through TapeTech. Ames' systems are used by professional tradesmen
to finish drywall joints prior to painting, wallpapering and other forms of
final treatment. Professional tradesmen typically prefer to rent rather than
purchase ATF tool systems because rental includes the service of maintaining the
tools in good working condition and gives tradesmen the option to return the
tools to Ames when they are no longer needed due to the completion of a job.
Ames also sells other merchandise to the professional tradesman, including hand
tools and drywall tape, through its company-operated stores.
As discussed in "Liquidity and Capital Resources," the Company entered into
a new bank credit agreement which lowers its interest rate, reduces interim
scheduled term loan maturity payments and extends the final maturity date of its
term loans. The Company wrote off $1,024,000 in unamortized deferred financing
costs from its prior bank agreement which was recorded, net of tax, as an
extraordinary item in its Consolidated Statements of Income for the nine-month
period ended September 30, 1996. This charge has not been included in the
discussion and summaries included herein.
During the periods discussed below, except as noted, inflation and changing
prices have not had, and are not expected to have, a material impact on the
Company's net revenues or income from operations.
15
<PAGE>
The following Table 1 summarizes the Company's Consolidated Statements of
Income, excluding an extraordinary item discussed previously, for the three and
nine-month periods ended September 30, 1996 and September 30, 1995 (in
thousands):
TABLE 1
<TABLE>
<CAPTION>
Summary of Income Statement
---------------------------
Three Months Ended Nine Months Ended
Sept 30, 1996 Sept 30, 1995 Sept 30, 1996 Sept 30, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net revenues $25,095 $26,011 $79,584 $77,460
Cost of revenues 15,165 16,810 47,764 48,542
Selling, general and administrative
expenses 5,842 5,905 18,537 18,273
------- ------- ------- -------
Income from operations $ 4,088 $ 3,296 $13,283 $10,645
Interest expense 1,177 1,615 4,047 5,076
Other expense (income), net (8) (123) 51 (31)
------- ------- ------- -------
Income before income taxes and
extraordinary item $ 2,919 $ 1,804 $ 9,185 $ 5,600
Provision for income taxes 1,369 779 4,066 2,532
------- ------- ------- -------
Income before extraordinary item $ 1,550 $ 1,025 $ 5,119 $ 3,068
======= ======= ======= =======
</TABLE>
The following Table 2 presents, for the periods indicated, certain items in
the Company's Consolidated Statements of Income, excluding an extraordinary
item, as a percentage of total net revenues for the three and nine-month periods
ended September 30, 1996 and September 30, 1995:
TABLE 2
<TABLE>
<CAPTION>
Percentage of Total Net Revenues
--------------------------------
Three Months Ended Nine Months Ended
Sept 30, 1996 Sept 30, 1995 Sept 30, 1996 Sept 30, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net Revenues 100.0% 100.0% 100.0% 100.0%
Costs and expenses
Cost of revenues 60.4 64.6 60.0 62.7
Selling, general and
administrative expenses 23.3 22.7 23.3 23.6
Interest expense 4.7 6.2 5.1 6.5
Other expense (income), net - (.4) .1 (.1)
Provision for income taxes 5.4 3.0 5.1 3.3
----- ----- ----- -----
Income before extraordinary item 6.2% 3.9% 6.4% 4.0%
</TABLE>
16
<PAGE>
The following discussion contains certain forward-looking statements,
within the meaning of the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the attainment of which involve various risks and
uncertainties. Forward-looking statements may be identified by the use of
forward-looking terminology such as "may", "will", "expect", "believe",
"estimate", "anticipate", "continue", or similar terms, variations of those
terms or the negative of those terms. The Company's actual results may differ
materially from those described in these forward-looking statements due to,
among other factors, the final negotiated settlements of environmental
litigation, Nestaway's reliance on a limited number of customers, and general
economic conditions including housing starts.
RESULTS OF OPERATIONS - YEAR-TO-DATE SEPTEMBER 30, 1996
Consolidated net revenues for the nine-month period ended September 30,
1996, increased 2.7% to $79,584,000 from $77,460,000 in the comparable period in
1995. The revenue growth was primarily attributable to improvements in the
rentals of automatic taping tools and increased merchandise sales at Ames'
company operated stores. Revenues also improved due to continued growth in
revenues of dishdrainers and other wire products. Nestaway's dishrack revenues
declined as supply contracts to Frigidaire and Kitchen Aid ended in the second
quarter.
Consolidated cost of revenues for the nine-month period ended September 30,
1996, decreased 1.6% to $47,764,000 from $48,542,000 in the comparable period in
1995. The Company's profit margin improved due to the business mix. Rental
revenue growth of automatic taping tools offset the loss of lower margin
dishrack revenues. The Company had also incurred the added expense in 1995 of
instituting the coating of dishdrainers and the introduction of a new style
dishdrainer.
Consolidated selling, general and administrative expenses ("SG&A") for the
nine-month period ended September 30, 1996, increased 1.4% to $18,537,000 from
$18,273,000 in the comparable period in 1995. This was primarily attributable to
expenses incurred to generate revenue growth including advertising and increased
bad debt expense.
Interest expense for the nine-month period ended September 30, 1996,
decreased 20.3% to $4,047,000 from $5,076,000 in the comparable period in 1995.
The decrease was the result of both a reduction in outstanding debt and lower
interest rates on the Company's variable rate debt.
Other expense was $51,000 for the nine-month period ended September 30,
1996, compared to other income of $31,000 in the comparable period in 1995.
Income before income taxes (IBT) for the nine-month period ended September
30, 1996, increased 64.0% to $9,185,000 from $5,600,000 in the comparable period
in 1995. As discussed in the preceding paragraphs, this improvement was
primarily the result of increased revenues and product mix.
Income taxes for the period ended September 30, 1996, were 44.3% of IBT
compared to 45.2% in the comparable period in 1995. The Company's effective tax
rate decreased as a result of lower estimated state income taxes and the
lessened impact on the effective tax rate of non-deductible expenses, primarily
goodwill amortization.
17
<PAGE>
RESULTS OF OPERATIONS - QUARTER ENDED SEPTEMBER 30, 1996
Consolidated net revenues for the three-month period ended September 30,
1996, decreased 3.5% to $25,095,000 from $26,011,000 in the comparable period in
1995. The decrease was primarily the result of the discontinuance of supply
contracts for KitchenAid and Frigidaire dishracks which accounted for revenues
of $2,825,000 in the third quarter of 1995. The decrease was partially offset by
an increase in Ames' revenues as a result of increased merchandise sales and
rental revenue growth due to increased tools on rent and a rental price
increase.
Consolidated cost of revenues for the three-month period ended September
30, 1996, decreased 9.8% to $15,165,000 from $16,810,000 in the comparable
period in 1995. This was primarily due to the reduction in revenues and change
in business mix discussed above.
Consolidated selling, general and administrative expenses ("SG&A") for the
three-month period ended September 30, 1996, decreased 1.1% to $5,842,000 from
$5,905,000 in the comparable period in 1995. Expenditures for commissions,
advertising, and promotions, and travel were reduced from levels incurred in
1995.
Interest expense for the three-month period ended September 30, 1996,
decreased 27.1% to $1,177,000 from $1,615,000 in the comparable period in 1995.
The decrease was the result of both a reduction in outstanding debt and lower
interest rates on the Company's variable rate debt.
Other income was $8,000 for the three-month period ended September 30,
1996, compared to other income of $123,000 in the comparable period in 1995. The
Company recorded a gain on the sale of a former production facility and a
recovery of a previously receivable chargeoff in 1995.
Income before income taxes (IBT) for the three-month period ended September
30, 1996, increased 61.8% to $2,919,000 from $1,804,000 in the comparable period
in 1995. As discussed in the preceding paragraphs, this improvement was
primarily the result of increased revenues and product mix.
Income taxes for the period ended September 30, 1996, were 46.9% of IBT
compared to 43.2% in the comparable period in 1995. The Company increased its
effective tax rate in the quarter to adjust on a year to date basis the
estimated impact of non-deductible business expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company entered into a new bank credit agreement on June 27, 1996,
which reduced the interest rate on its variable rate bank loans by 1.25% to
1.50%, depending on the maintaining of certain ratios and Subordinated Note
repurchases. The agreement provides the Company with the ability to repurchase
and extinguish Subordinated Notes equal to $4.0 million plus additional amounts
based on free cash flow as defined. The new loan agreement consists of a
$25,000,000 term loan and up to $15,000,000 in available funds under a revolving
credit loan. Less amounts outstanding on September 30, 1996, the Company had
additional revolving credit availability of $12,449,000. The term loan matures
in 18 equal quarterly installments of $1,389,000 beginning September 30, 1996,
with the final payment due on December 31, 2000. Management believes that, in
addition to reducing its interest costs, this financing provides better
financial flexibility and will be sufficient to meet the Company's current
expectations through the period of the agreement.
The Company generated cash from operations of $9,831,000 for the nine-month
period ended September 30, 1996, compared to $5,487,000 for the nine-month
period ended September 30, 1995, and had cash on hand of $578,000. Cash
generation from operations increased due to improved operating earnings and
lower working capital growth than the prior year.
18
<PAGE>
At September 30, 1996, the Company had working capital of $8,735,000
compared to working capital of $6,750,000 at December 31, 1995. Working capital
increased due to an increase in cash of $513,000 and a reduction in current
maturities of long-term debt of $978,000. The reduction in the current
maturities of long term debt was due to the refinancing of the bank credit
facility which resulted in a reduction of scheduled term note payments.
Receivables increased $197,000 and inventories declined $66,000 from December
31, 1995.
Capital expenditures for the nine-month period ended September 30, 1996,
were $3,270,000. Management believes its cash flow from operations, together
with its revolving loan facility, will be sufficient to meet its capital
expenditure requirements for the remainder of 1996 and 1997.
In the past two years, Nestaway has realigned its manufacturing capacity to
accommodate changes in customer orders. Nestaway's dishrack supply contracts
with General Electric and KitchenAid, who have dishrack manufacturing
capability, were not renewed in 1995 and 1996, respectively. Nestaway's
production of dishracks for Frigidaire was also discontinued in 1996 due to
their decision to reenter the dishrack manufacturing business. As a result,
Nestaway negotiated a termination of its lease of a manufacturing facility in
Canal Winchester, Ohio, and exited that facility in August 1996. The Clinton,
North Carolina plant ceased production operations in May 1996 and the Company is
seeking new business for this facility. Nestaway has resumed manufacturing
operations at its Beaver Dam, Kentucky, plant and is consolidating its
production of lower volume racks and dishrack components for Whirlpool,
KitchenAid and General Electric into this facility. Nestaway has added
significant production capacity, including a new coating line, at its Cleveland,
Ohio, facility to accommodate increased dish drainer orders. The Company has
remaining reserves of $1,100,000 for realignment of its production capacity.
The only material environmental remedial obligation known to management is
related to a Buffalo facility formerly operated by the Company's predecessor,
Bliss & Laughlin Steel Co. The Company became aware of this environmental
contingency in 1991. Prior to a preliminary remedial investigation of the site
in 1993, management could not assess the potential remedial costs or the extent
of the Company's liability. Consequently, in 1991 and 1992, the Company recorded
special charges for the continuing legal and consulting expenses estimated to be
necessary to determine the Company's potential liability. The initial remedial
investigation report estimated the total cost to restore the site to be within a
range of $1,101,000 to $4,928,000, plus or minus 50% of those costs.
Accordingly, in 1993, the Company recorded an additional charge of $1,798,000
necessary to bring the recorded reserve up to the low end of the estimated
range. A feasibility study completed in 1994 established a range of estimated
total costs of $686,000 to $2,887,000, plus or minus 30% of those costs. The
Company has established a reserve of $3,900,000 for remediation of this site.
Remediation is not likely to commence prior to 1997 and the Company believes
other entities may also be liable for a portion of these costs. In addition, the
Company has notified the insurance companies it has identified as having
provided coverage during the time period of the Company's ownership of the
property. The initial response of those insurance companies was to deny coverage
for the liability costs. The Company is negotiating with its insurance carriers.
As another property adjoining the site has also been in the process of
addressing concerns raised by NYSDEC, the Company has entered into discussions
with parties responsible for that property in efforts to negotiate a joint
remediation plan which would prove a more economical solution of both matters.
In a more recent communication with parties responsible for the adjacent site,
NYSDEC has expressed concern about the possible contamination of other
properties in the vicinity of both properties. As this issue had not been
previously raised, the extent to which such alleged pollution may, or may not,
have occurred has not been investigated or characterized. The Company expects to
utilize its revolving loan capacity, which the Company expects to maintain
through new or amended credit agreements for the foreseeable future, to
remediate the site. In the event that remediation costs are at the high end or
exceed the current cost estimates and the Company is unable to recoup costs from
other parties, the Company's payment of such remediation costs may have a
material adverse effect on the Company's financial position. (See also PART II
Item 1. Legal Proceedings.)
19
<PAGE>
As discussed in Note 4 in the accompanying financial statements, the Bank
Credit Agreement and the Indenture of AXIA Incorporated, issuer, governing the
Notes, restrict the Company's ability to incur additional indebtedness.
Management, based upon the budgets prepared by its business units, believes that
its cash flow from operations and its revolving loan capacity will be sufficient
to meet its operational requirements, loan maturities, and capital needs for
1996 and 1997.
The Company was in compliance with all terms and restrictive covenants of
the Bank Credit Agreement and the Indenture as of September 30, 1996.
20
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is subject to various federal, state and local laws and
regulations governing the use, discharge and disposal of hazardous materials.
Except as discussed below, compliance with current laws and regulations has not
had, and is not expected to have, a material adverse effect on the Company's
financial condition or operating results.
On February 25, 1991, the New York State Department of Environmental
Conservation (the "NYSDEC") sent a notice letter to the Company alleging that it
had documented the release and/or threatened release of "hazardous substances"
and/or the presence of "hazardous wastes" at a property located in Buffalo, New
York, formerly owned by Bliss and Laughlin Steel Company, a predecessor of the
Company. The NYSDEC has determined that the Company, among others, may be a
responsible party through its past ownership of the property. In the notice
letter, the NYSDEC requested that the Company agree to enter into negotiations
with the NYSDEC to execute a consent decree with respect to the financing by the
Company of a remedial investigation, as well as a feasibility study for remedial
action.
The notice letter listed four other potentially responsible parties, each of
whom received a similar letter from the NYSDEC. In addition, the Company has
notified the insurance companies it has identified as having provided coverage
during the period of the Company's ownership of the property. The initial
response of those insurance companies was to deny coverage for the liability
costs. The Company is in negotiation with its insurance carriers.
In 1994, a feasibility study prepared by environmental consultants engaged by
the Company, estimated the costs of the most probable manner to remediate the
site, exclusive of any possible remediation for adjacent properties referred to
below, at $2.9 million, plus or minus 30%. The Company has established an
accrual of $3.9 million for the costs of remediation. Remediation of the site is
not expected to begin before 1997 and is dependent upon an agreement with the
NYSDEC concerning the extent and method of remediation. As another property
immediately adjoining the site has also been in the process of addressing
concerns raised by NYSDEC, the Company has entered into discussions with parties
responsible for said property in efforts to negotiate a joint remediation plan
which would prove to be a more economical solution for both matters. In a more
recent communication with parties responsible for the adjoining site, NYSDEC has
expressed concern about the possible contamination of other properties in the
vicinity of both properties. As this issue had not been previously raised, the
extent to which such alleged pollution may, or may not, have occurred has not
been investigated or characterized. In the event that remediation costs are at
the high end or exceed the current cost estimates and the Company is unable to
recoup costs from other parties, the Company's payment of such remediation costs
may have a material adverse effect on the Company's financial position.
The Company and certain of its subsidiaries are currently involved in civil
litigation relating to the conduct of their business. Except for the
environmental matter discussed above, though the outcome of any particular
lawsuit cannot be predicted with certainty, the Company believes that these
matters, individually or in the aggregate, will not have a material adverse
effect on its results of operations or financial condition.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
21
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
In the past two years, Nestaway has realigned its manufacturing capacity to
accommodate changes in customer orders. Nestaway's dishrack supply contracts
with General Electric and KitchenAid, who have dishrack manufacturing
capability, were not renewed in 1995 and 1996, respectively. Nestaway's
production of dishracks for Frigidaire was also discontinued in 1996 due to
their decision to reenter the dishrack manufacturing business. As a result,
Nestaway negotiated a termination of its lease of a manufacturing facility in
Canal Winchester, Ohio, and exited that facility in August 1996. The Clinton,
North Carolina plant ceased production operations in May 1996 and the Company is
seeking new business for this facility. Nestaway has resumed manufacturing
operations at its Beaver Dam, Kentucky, plant and is consolidating its
production of lower volume racks and dishrack components for Whirlpool,
KitchenAid and General Electric into this facility. Nestaway has added
significant production capacity, including a new coating line, at its Cleveland,
Ohio, facility to accommodate increased dish drainer orders. The Company has
remaining reserves of $1,100,000 for realignment of its production capacity.
On June 21, 1996, the corporate office of the Company relocated to 100 West
22nd Street, Suite 134, Lombard, Illinois 60148. The telephone and fax numbers
are (630) 629-3360 and (630) 629-3361, respectively.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit
No. Description
- ------- -----------
3.1 Restated Certificate of Incorporation of AXIA Incorporated./(1)/
3.2 By-Laws of AXIA Incorporated./(1)/
3.3 Certificate of Incorporation of Ames Taping Tool Systems, Inc./(1)/
3.4 By-Laws of Ames Taping Tool Systems, Inc./(1)/
3.5 Articles of Incorporation of Mid America Machine Corp./(1)/
3.6 By-Laws of Mid America Machine Corp./(1)/
3.7 Certificate of Incorporation of TapeTech Tool Co., Inc./(1)/
3.8 By-Laws of TapeTech Tool Co., Inc./(1)/
22
<PAGE>
Item 6(a) continued
4.1 AXIA Incorporated, Issuer, Ames Taping Tool Systems Inc., TapeTech
Tool Co., Inc., Mid America Machine Corp., Guarantors, Series A and
Series B 11% Series Subordinated Notes Due 2001, Indenture, dated as
of March 15, 1994./(1)/
4.2 Purchase Agreement 21,000 Units Consisting of $21,000,000 Principal
Amount of 11% Subordinated Notes due 2001 of AXIA Incorporated and
63,000 Shares of Class A Common Stock of Axia Holdings Corp., March
15, 1994./(1)/
4.3 A/B Exchange Registration Rights Agreement, dated as of March 15, 1994
by, and among, AXIA Incorporated, Ames Taping Tool Systems, Inc.,
TapeTech Tool Co., Inc., Mid America Machine Corp., and Each of the
Purchasers Listed on the Signature Pages of the Purchasers
Agreement./(1)/
4.6 Guarantee of Existing Notes./(1)/
4.7 Guarantee of Exchange Notes./(1)/
4.7.1 Release of Guarantee Mid America Machine Corp./(4)/
10.1 AXIA Management Agreement, dated as of March 15, 1994 by, and among,
AXIA Incorporated and Cortec Capital Corporation./(2)/
10.3 Industrial Lease and Sublease between Harold Stebelton, Robert
Stebelton, and Rita Stebelton, as Landlord, and Canal Metal Products
Company as Sublandlord, and AXIA Incorporated, as Tenant, dated as of
March 12, 1987./(2)/
10.4 Lease Agreement between G.L. Building Company and AXIA Incorporated
executed as of January 8, 1993./(2)/
10.5 Form of Employee Bonus Agreement./(2)/
10.6 Form of Stock Option Agreement./(2)/
10.7 Form of the Stock Purchase Agreement./(2)/
10.8 Form of Employment and Non-competition Agreement./(2)/
10.9 Agreement between Nestaway Division of AXIA Incorporated and Maytag
Corporation dated November 1, 1990 and First Amendment to Agreement
dated April 6, 1993./(2)/
10.10 Exec-U-Care Medical Reimbursement Insurance./(2)/
10.11 Key Employee Posthumous Salary Continuation Plan./(2)/
10.12 AXIA Incorporated Management Incentive Compensation Plan/(2)/
10.15 Purchasing Partnering Agreement between Maytag-Jackson Dishwash
Products and Nestaway, Division of AXIA Incorporated, dated November
15, 1995./(4)/
10.16 Loan agreement dated as of June 27, 1996 among AXIA Incorporated, Ames
Taping Tool Systems, Inc., TapeTech Tool Co., Inc., as Borrower, the
Lenders named herein as Lenders and American National Bank and Trust
Company of Chicago as Agent and Lender.
23
<PAGE>
Item 6(a) continued
23.1 Consent of Kaye, Scholer, Fierman, Hays & Handler (included in Exhibit
5.1)./(3)/
23.2 Consent of Arthur Andersen LLP/(4)/
99.1 Form of Letter of Transmittal./(2)/
99.2 Form of Notice of Guaranteed Delivery./(2)/
(b) Reports on Form 8-K.
None.
/(1)/ Previously filed as an exhibit to Registration Statement No. 33-78922
filed with the Securities and Exchange Commission on May 13, 1994.
/(2)/ Previously filed as an exhibit to Amendment No. 1 to Registration
Statement No. 33-78922 filed with the Securities and Exchange Commission
on May 24, 1994.
/(3)/ Previously filed as an exhibit to Amendment No. 2 to Registration
Statement No. 33-78922 filed with the Securities and Exchange Commission
on June 30, 1994.
/(4)/ Previously filed as an exhibit to the Company's Form 10-K for the period
ended December 31, 1995 filed with the Securities and Exchange Commission
on March 29, 1996.
24
<PAGE>
SIGNATURES
Pursuant to requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AXIA INCORPORATED
Date: November 12, 1996 /s/ Lyle J. Feye
----------------------------------
Lyle J. Feye
Vice President Finance, Treasurer,
Chief Financial Officer
25
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