<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 March 31, 1997 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 MARCH 31, 1997 AND DECEMBER 31, 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------- ------------
(Unaudited)
ASSETS
- ------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 995 $ 1,716
Accounts receivable, net 11,778 10,687
Inventories, net 9,138 9,086
Prepaid income taxes and other current assets 1,925 1,695
Deferred income tax benefits 3,159 3,027
------- -------
Total Current Assets $26,995 $26,211
------- -------
PLANT AND EQUIPMENT, AT COST:
Land $ 521 $ 521
Buildings and improvements 6,506 6,509
Machinery and equipment 23,569 23,149
Equipment leased to others 6,318 6,040
------- -------
$36,914 $36,219
Less: Accumulated depreciation 12,104 11,346
------- -------
Net Plant and Equipment $24,810 $24,873
------- -------
OTHER ASSETS:
Goodwill, net $34,463 $34,679
Intangible assets, net 348 377
Deferred charges, net 12,216 12,213
Investment in affiliate - 900
Other assets 70 78
------- -------
Total Other Assets $47,097 $48,247
------- -------
TOTAL ASSETS $98,902 $99,331
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt $ 5,406 $ 6,647
Accounts payable 3,717 3,655
Accrued liabilities 7,132 8,547
Accrued income taxes 1,255 -
------- -------
Total Current Liabilities $17,510 $18,849
------- -------
NON-CURRENT LIABILITIES:
Long-term debt, less current maturities $33,277 $34,548
Other non-current liabilities 11,147 11,050
Deferred income taxes 2,834 2,766
------- -------
Total Non-Current Liabilities $47,258 $48,364
------- -------
STOCKHOLDER'S EQUITY:
Common stock ($.01 par value; 100 shares
authorized, issued and outstanding) $ - $ -
Additional paid-in capital 16,723 16,723
Retained earnings 17,705 15,395
Additional minimum pension liability (324) (324)
Cumulative translation adjustment 30 324
------- -------
Total Stockholder's Equity $34,134 $32,118
------- -------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $98,902 $99,331
======= =======
</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 MARCH 31, 1997 AND MARCH 31, 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
January 1, 1997 January 1, 1996
to to
March 31, 1997 March 31, 1996
--------------- ---------------
(Unaudited) (Unaudited)
<S> <C> <C>
Net sales $18,644 $22,757
Net rentals 6,483 5,864
------- -------
Net revenues $25,127 $28,621
Cost of sales 11,794 15,110
Cost of rentals 2,336 2,343
Selling, general and
administrative expenses 6,357 6,705
------- -------
Income from operations $ 4,640 $ 4,463
Interest expense 1,060 1,443
Interest income (12) (18)
Other expense (income), net (467) 28
------- -------
Income before income taxes $ 4,059 $ 3,010
Provision for income taxes 1,749 1,301
------- -------
Net income $ 2,310 $ 1,709
======= =======
</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 STOCKHOLDER'S EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND MARCH 31, 1996
(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, 1995 $ - $16,723 $ 8,533 $ (54) $ 626
Net income - - 1,709 - -
Cumulative translation adjustment - - - - (109)
------------ ------- ------- --------- -----
BALANCE, MARCH 31, 1996 (unaudited) $ - $16,723 $10,242 $ (54) $ 517
============ ======= ======= ========= =====
BALANCE, DECEMBER 31, 1996 $ - $16,723 $15,395 $(324) $ 324
Net income - - 2,310 - -
Cumulative translation adjustment - - - - (294)
------------ ------- ------- --------- -----
BALANCE, MARCH 31, 1997 (unaudited) $ - $16,723 $17,705 $(324) $ 30
============ ======= ======= ========= =====
</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 CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND MARCH 31, 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
January 1, 1997 January 1, 1996
to to
March 31, 1997 March 31, 1996
-------------- ---------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,310 $ 1,709
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation and amortization 1,249 1,695
Deferred income tax provision (benefit) (64) (20)
Loss (gain) on disposal of fixed assets 35 2
Gain on sale of investment (500) -
Provision for losses on accounts receivable 567 309
Provision for obsolescence of inventories (21) 44
Changes in assets and liabilities:
Accounts receivable (1,805) (2,287)
Inventories (170) 388
Accounts payable 96 281
Accrued liabilities (1,369) (1,145)
Other current assets (233) (60)
Income taxes payable 1,255 612
Other non-current assets (83) 71
Other non-current liabilities 97 (85)
------- -------
Net Cash Provided by Operating Activities $ 1,364 $ 1,514
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash used for capital expenditures $ (863) $ (615)
Proceeds from sale of fixed assets 6 -
Proceeds from sale of investment 1,400 -
------- -------
Net Cash Provided by (Used in) Investing Activities $ 543 $ (615)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in Revolving Credit Loan $ - $ 600
Payments of other long-term debt (2,568) (1,296)
Other equity transactions (16) 4
------- -------
Net Cash (Used in) Financing Activities $(2,584) $ (692)
EFFECT OF EXCHANGE RATE CHANGES ON CASH $ (44) $ (17)
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ (721) $ 190
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,716 45
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 995 $ 235
======= =======
</TABLE>
The accompanying Notes to the Unaudited Interim Consolidated Financial
Statements are an integral part of these statements.
4
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 1997
NOTE 1 FINANCIAL STATEMENTS
The condensed financial statements included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading. These financial
statements should be read in conjunction with the financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996. In the opinion of management, these statements contain all
adjustments, consisting of only normal recurring adjustments, necessary to
present fairly the financial position as of March 31, 1997 and December 31,
1996, results of operations for the three month periods ended March 31, 1997 and
March 31, 1996, and cash flows for the three month periods ended March 31, 1997
and March 31, 1996. The 1997 interim results reported herein may not necessarily
be indicative of the results of operations for the full year 1997.
NOTE 2 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>
March 31, 1997 December 31, 1996
-------------- -----------------
<S> <C> <C>
Raw materials $4,503 $4,653
Work in process 940 854
Finished goods 3,695 3,579
------ ------
Total inventories $9,138 $9,086
====== ======
</TABLE>
NOTE 3 LONG-TERM DEBT
Long-term debt, inclusive of capital lease obligations which are not
material, consists of the following (in thousands):
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
<S> <C> <C>
11.00% Senior Subordinated Notes $18,399 $18,343
Term Loan 19,668 22,222
Revolving Credit Loan - -
Other 616 630
------- -------
Total Debt $38,683 $41,195
Less Current Maturities (5,406) (6,647)
------- -------
Total Long-Term Debt $33,277 $34,548
======= =======
</TABLE>
The Senior Subordinated Notes above are stated net of unamortized discounts
of $1,101,000 and $1,157,000 at March 31, 1997, and December 31, 1996,
respectively.
5
<PAGE>
Current maturities of long-term debt as of March 31, 1997 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
Scheduled Payment
Date Amount
------------------ ------
<S> <C> <C>
Term Loan June 30, 1997 1,312
Term Loan September 30, 1997 1,312
Term Loan December 31, 1997 1,312
Term Loan March 31, 1998 1,312
Other Various 158
------
Total Current Maturities $5,406
======
</TABLE>
Bank Credit Agreement
As a result of a refinancing of its bank debt in June 1996, the Company and
its domestic subsidiaries, entered into a new credit agreement (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 Bank Credit Agreement was amended in March 1997 to increase the
Revolving Credit Loan availability to $20,000,000.
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 March 31, 1997 was 7.03%. Substantially all of
the assets of the Company act as collateral under the Bank Credit Agreement.
The Term Loan has scheduled maturities, subject to adjustment for any
prepayments, of $1,312,000 quarterly, maturing with a final payment of
$1,300,000 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 $19,500,000 outstanding of 11.00% Senior Subordinated Notes were issued
in March 1994 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. 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 a 101%
premium. The Company has notified the trustee of its intention to redeem
$9,250,000 in principal of the Senior Subordinated Notes on May 15, 1997.
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 all of 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, among other things and
6
<PAGE>
all as defined in the applicable agreement, require the Company to maintain a
minimum net worth, current ratio, interest coverage ratio, and fixed charge
coverage ratio, and maximum leverage ratio of indebtedness to net worth. In
addition, the Company may not create or incur certain types of additional debt
or liens, declare dividends except as defined, or make capital expenditures or
other restricted payments, as defined, during the term of the agreements in
excess of varying amounts, as defined. The Company was in compliance with its
loan covenants as of March 31, 1997.
NOTE 4 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 5 SALE OF INVESTMENT
In February 1997, the Company sold its investment in Andamios Atlas, S.A.
de C.V. ("Andamios"), a Mexican company, for gross proceeds of $1,500,000. The
Company had accounted for its investment in Andamios utilizing the cost method.
The pretax gain on the sale of Andamios stock of $500,000 is included as other
income in the Consolidated Statements of Income.
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. Pursuant to
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 Bank Credit Agreement 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
guarantee by such Guarantor of 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.
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.
7
<PAGE>
CONSOLIDATING BALANCE SHEET
AS OF MARCH 31, 1997
(Dollars in thousands)
(Unaudited)
<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 $ (130) $ 610 $ 566 $ (51) $ 995
Accounts receivable, net 4,379 5,100 2,430 (131) 11,778
Inventories, net 6,010 1,383 2,206 (461) 9,138
Prepaid income taxes and other current assets 1,649 169 107 - 1,925
Deferred income tax benefits 3,159 - - - 3,159
------- ------- ------ -------- -------
Total Current Assets $15,067 $ 7,262 $5,309 $ (643) $26,995
------- ------- ------ -------- -------
PLANT AND EQUIPMENT, AT COST:
Land $ 521 $ - $ - $ - $ 521
Buildings and improvements 6,236 18 252 - 6,506
Machinery and equipment 22,853 529 187 - 23,569
Equipment leased to others 6,305 - 13 - 6,318
------- ------- ------ -------- -------
$35,915 $ 547 $ 452 $ - $ 36,914
Less: Accumulated depreciation 11,642 324 138 - 12,104
------- ------- ------ -------- -------
Net Plant and Equipment $24,273 $ 223 $ 314 $ - $24,810
------- ------- ------ -------- -------
OTHER ASSETS:
Goodwill, net $31,839 $ 2,624 $ - $ - $34,463
Intangible assets, net 307 41 - - 348
Deferred charges, net 11,276 923 17 - 12,216
Investment in wholly-owned subsidiaries 14,461 - - (14,461) -
Other assets 70 - - - 70
------- ------- ------ -------- -------
Total Other Assets $57,953 $ 3,588 $ 17 $(14,461) $47,097
------- ------- ------ -------- -------
TOTAL ASSETS $97,293 $11,073 $5,640 $(15,104) $98,902
======= ======= ====== ======== =======
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt $ 5,365 $ 41 $ - $ - $ 5,406
Accounts payable 2,886 521 492 (182) 3,717
Accrued liabilities 6,141 442 549 - 7,132
Accrued income taxes 1,103 - 152 - 1,255
Advance account 39 692 (731) - -
------- ------- ------ -------- -------
Total Current Liabilities $15,534 $ 1,696 $ 462 $ (182) $17,510
------- ------- ------ -------- -------
NON-CURRENT LIABILITIES:
Long-term debt, less current maturities $33,243 $ 34 $ - $ - $33,277
Other non-current liabilities 11,147 - - - 11,147
Deferred income taxes 2,834 - - - 2,834
------- ------- ------ -------- -------
Total Non-Current Liabilities $47,224 $ 34 $ - $ - $47,258
------- ------- ------ -------- -------
STOCKHOLDER'S EQUITY:
Common stock and
additional paid-in capital $16,723 $ 5,098 $2,000 $ (7,098) $16,723
Retained earnings 18,136 4,245 3,148 (7,824) 17,705
Additional minimum pension liability (324) - - - (324)
Cumulative translation adjustment - - 30 - 30
------- ------- ------ -------- -------
Total Stockholder's Equity $34,535 $ 9,343 $5,178 $(14,922) $34,134
------- ------- ------ -------- -------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $97,293 $11,073 $5,640 $(15,104) $98,902
======= ======= ====== ======== =======
</TABLE>
8
<PAGE>
CONSOLIDATING STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(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 $14,069 $3,652 $2,568 $(1,645) $18,644
Net rentals 3,570 6,241 233 (3,561) 6,483
------- ------ ------ ------- -------
Net revenues $17,639 $9,893 $2,801 $(5,206) $25,127
Cost of sales $ 9,694 $2,231 $1,550 $(1,681) $11,794
Cost of rentals 722 5,026 149 (3,561) 2,336
Selling, general and administrative expenses 3,744 1,927 686 - 6,357
------- ------ ------ ------- -------
Income from operations $ 3,479 $ 709 $ 416 $ 36 $ 4,640
Interest expense $ 1,058 $ 2 $ - $ - $ 1,060
Intercompany interest expense (income) (18) 18 - - -
Other expense (income), net (1,118) 8 (1) 632 (479)
------- ------ ------ ------- -------
Income before income taxes $ 3,557 $ 681 $ 417 $ (596) $ 4,059
Provision for income taxes 1,283 305 161 - 1,749
------- ------ ------ ------- -------
Net income $ 2,274 $ 376 $ 256 $ (596) $ 2,310
======= ====== ====== ======= =======
</TABLE>
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(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 $ 1,604 $(101) $(139) $ - $ 1,364
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash used for capital expenditures (826) (29) (8) - (863)
Proceeds from sale of fixed assets 6 - - - 6
Proceeds from sale of investment 1,400 - - - 1,400
------- ----- ----- ------- -------
Net Cash Provided by (Used In) Investing Activities $ 580 $ (29) $ (8) $ - $ 543
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in Revolving Credit Loan - - - - -
Payments of other long-term debt (2,558) (10) - - (2,568)
Net increase (decrease) in advance account (216) 243 (27) - -
Other equity transactions 2 - (18) - (16)
------- ----- ----- ------- -------
Net Cash Provided by (Used In)
Financing Activities $(2,772) $ 233 $ (45) $ - $(2,584)
EFFECT OF EXCHANGE RATE
CHANGES ON CASH - - (44) - (44)
------- ----- ----- ------- -------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $ (588) $ 103 $(236) $ - $ (721)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 407 507 802 - 1,716
------- ----- ----- ------- -------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ (181) $ 610 $ 566 $ - 995
======= ===== ===== ======= =======
</TABLE>
9
<PAGE>
CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1996
(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 $ 407 $ 507 $ 802 $ - $ 1,716
Accounts receivable, net 3,681 4,673 2,472 (139) 10,687
Inventories, net 5,892 1,422 2,268 (496) 9,086
Prepaid income taxes and other current assets 1,513 127 55 - 1,695
Deferred income tax benefits 3,027 - - - 3,027
------- ------- ------ -------- -------
Total Current Assets $14,520 $ 6,729 $5,597 $ (635) $26,211
------- ------- ------ -------- -------
PLANT AND EQUIPMENT, AT COST:
Land $ 521 $ - $ - $ - $ 521
Buildings and improvements 6,200 18 291 - 6,509
Machinery and equipment 22,419 500 230 - 23,149
Equipment leased to others 6,026 - 14 - 6,040
------- ------- ------ -------- -------
$35,166 $ 518 $ 535 $ - $36,219
Less: Accumulated depreciation 10,860 305 181 - 11,346
------- ------- ------ -------- -------
Net Plant and Equipment $24,306 $ 213 $ 354 $ - $24,873
------- ------- ------ -------- -------
OTHER ASSETS:
Goodwill, net $32,037 $ 2,642 $ - $ - $34,679
Intangible assets, net 330 47 - - 377
Deferred charges, net 11,271 924 18 - 12,213
Investment in wholly-owned subsidiaries 13,829 - - (13,829) -
Investment in affiliates 900 - - - 900
Other assets 78 - - - 78
------- ------- ------ -------- -------
Total Other Assets $58,445 $ 3,613 $ 18 $(13,829) $48,247
------- ------- ------ -------- -------
TOTAL ASSETS $97,271 $10,555 $5,969 $(14,464) $99,331
======= ======= ====== ======== =======
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt $ 6,606 $ 41 $ - $ - $ 6,647
Accounts payable 2,610 466 718 (139) 3,655
Accrued liabilities 7,250 588 709 - 8,547
Accrued income taxes (30) - 30 - -
Advance account 255 449 (704) - -
------- ------- ------ -------- -------
Total Current Liabilities $16,691 $ 1,544 $ 753 $ (139) $18,849
------- ------- ------ -------- -------
NON-CURRENT LIABILITIES:
Long-term debt, less current maturities $34,504 $ 44 $ - $ - $34,548
Other non-current liabilities 11,050 - - - 11,050
Deferred income taxes 2,766 - - - 2,766
------- ------- ------ -------- -------
Total Non-Current Liabilities $48,320 $ 44 $ - $ - $48,364
------- ------- ------ -------- -------
STOCKHOLDER'S EQUITY (DEFICIT):
Common stock and
additional paid-in capital $16,723 $ 5,098 $2,000 $ (7,098) $16,723
Retained earnings 15,861 3,869 2,892 (7,227) 15,395
Additional minimum pension liability (324) - - - (324)
Cumulative translation adjustment - - 324 - 324
------- ------- ------ -------- -------
Total Stockholder's Equity (Deficit) $32,260 $ 8,967 $5,216 $(14,325) $32,118
------- ------- ------ -------- -------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY (DEFICIT) $97,271 $10,555 $5,969 $(14,464) $99,331
======= ======= ====== ======== =======
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATING STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(Dollars in thousands)
(Unaudited)
Parent
and its Guarantor Non-guarantor Consolidated
Divisions Subsidiaries Subsidiaries Eliminations Totals
--------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $17,784 $2,952 $3,305 $(1,284) $22,757
Net rentals 3,257 5,623 235 (3,251) 5,864
------- ------ ------ ------- -------
Net revenues $21,041 $8,575 $3,540 $(4,535) $28,621
Cost of sales $12,533 $1,777 $2,027 $(1,227) $15,110
Cost of rentals 714 4,728 152 (3,251) 2,343
Selling, general and administrative expenses 4,108 1,774 823 - 6,705
------- ------ ------ ------- -------
Income from operations $ 3,686 $ 296 $ 538 $ (57) $ 4,463
Interest expense $ 1,434 $ 2 $ 7 $ - $ 1,443
Intercompany interest expense (income) (26) 26 - - -
Other expense (income), net (431) 6 49 386 10
------- ------ ------ ------- -------
Income before income taxes $ 2,709 $ 262 $ 482 $ (443) $ 3,010
Provision for income taxes 943 118 240 - 1,301
------- ------ ------ ------- -------
Net income $ 1,766 $ 144 $ 242 $ (443) $ 1,709
======= ====== ====== ======= =======
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(Dollars in thousands)
(Unaudited)
Parent
and its Guarantor Non-guarantor Consolidated
Divisions Subsidiaries Subsidiaries Eliminations Totals
--------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES $ 1,399 $ 215 $(100) $ - $ 1,514
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash used for capital expenditures (613) (2) - - (615)
Proceeds from sale of fixed assets - - - - -
------- ----- ----- ---- -------
Net Cash (Used In) Investing Activities $ (613) $ (2) $ - $ - $ (615)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in Revolving Credit Loan 600 - - - 600
Payments of other long-term debt (1,289) (7) - - (1,296)
Net increase (decrease) in advance account (7) (9) 16 - -
Other equity transactions 3 - 1 - 4
------- ----- ----- ---- -------
Net Cash Provided by (Used In)
Financing Activities $ (693) $ (16) $ 17 $ - $ (692)
EFFECT OF EXCHANGE RATE
CHANGES ON CASH - - (17) - (17)
------- ----- ----- ---- -------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $ 93 $ 197 $(100) $ - $ 190
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD (990) 254 781 $ - 45
------- ----- ----- ---- -------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ (897) $ 451 $ 681 $ - $ 235
======= ====== ===== ==== =======
</TABLE>
11
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
AXIA Incorporated, the "Company," is a diversified manufacturer and marketer
of (i) formed and coated wire products and material handling and storage
equipment (Metal Products Segment), (ii) specialized packaging machinery
(Packaging Products Segment), and (iii) tools and other products for finishing
drywall in new and renovated housing and commercial construction (Construction
Tool Segment).
During the periods discussed below, except as may be noted, inflation and
changing prices have not had, and are not expected to have, a material impact on
the Company's net revenues or its income from operations.
The following Table 1 summarizes the Company's Consolidated Statements of
Income for the three-month periods ended March 31, 1997 and March 31, 1996 (in
thousands):
<TABLE>
<CAPTION>
Table 1
Summary Income Statement
-------------------------------
Three Months Ended
March 31, 1997 March 31, 1996
--------------- --------------
<S> <C> <C>
Net revenues $25,127 $28,621
Cost of revenues 14,130 17,453
Selling, general and administrative expenses 6,357 6,705
------- -------
Income from operations $ 4,640 $ 4,463
Interest expense 1,060 1,443
Other expense (income), net (479) 10
------- -------
Income before income taxes $ 4,059 $ 3,010
Provision for income taxes 1,749 1,301
------- -------
Net income $ 2,310 $ 1,709
======= =======
</TABLE>
The following Table 2 presents, for the periods indicated, certain items in
the Company's Consolidated Statements of Income as a percentage of total net
revenues for the three-month periods ended March 31, 1997 and March 31, 1996:
<TABLE>
<CAPTION>
Table 2
Percentage of Total Net Revenues
----------------------------------
Three Months Ended
March 31, 1997 March 31, 1996
---------------- ----------------
<S> <C> <C>
Net Revenues...................................... 100.0% 100.0%
Costs and expenses
Cost of revenues.............................. 56.2 61.0
Selling, general and administrative expenses.. 25.3 23.4
Interest expense.............................. 4.2 5.1
Other expense (income), net................... (1.9) -
Provision for income taxes.................... 7.0 4.5
----- -----
Net income........................................ 9.2% 6.0%
</TABLE>
12
<PAGE>
Results of Operations
AXIA Consolidated net revenues for the three-month period ended March 31, 1997,
decreased 12.2% to $25,127,000 from $28,621,000 in the comparable period in
1996. The decline was primarily attributable to the reduction in sales of
dishracks within the Metal Products Segment. This includes the impact of a loss
of a dishrack customer which had accounted for revenues of $2,825,000 in the
first quarter of 1996. The Packaging Products Segment also recorded lower
revenues due primarily to weaker sales of sewing equipment in North America and
Europe. Currency changes reduced revenues $283,000 in comparison to the first
quarter of 1996. The Construction Tool Segment revenue increased 14.9% from
improved drywall taping tool rentals and sales and merchandise sales through
Company-operated stores.
Consolidated cost of revenues for the three-month period ended March 31,
1997, decreased 19.0% to $14,130,000 from $17,453,000 in the comparable period
in 1996. The decline in cost of revenues was primarily attributable to the
revenue decrease. However, profit margins improved in all three business
segments due to cost reductions generated by the acquisition of new, more
efficient, production equipment, lower costs for outsourced parts, and improved
production efficiency. The Company's margins also improved due to revenue growth
in higher margin products and product mix.
Consolidated selling, general and administrative expenses ("SG&A") for the
three-month period ended March 31, 1997, decreased 5.2% to $6,357,000 from
$6,705,000 in the comparable period in 1996. This was primarily attributable to
reduced expenditures for professional services, advertising, and employee
benefit costs. The Company also recorded lower expenses due to the relocation of
its corporate executive office in June 1996. Bad debt expense increased with
revenue growth within the Construction Tool Segment.
Interest expense for the three-month period ended March 31, 1997, decreased
26.5% to $1,060,000 from $1,443,000 in the comparable period in 1996. The
decrease was the result of both a reduction in outstanding debt and lower
interest rates on the Company's variable rate bank debt.
Other income was $479,000 for the three-month period ended March 31, 1997,
compared to other expense of $10,000 in 1996. In February 1997, the Company sold
its investment in Andamios Atlas, S.A. d C.V. which resulted in a gain of
approximately $500,000.
Income before income taxes (IBT) for the three-month period ended March 31,
1997, increased 34.9% to $4,059,000 from $3,010,000 in the comparable period in
1996. As discussed in the preceding paragraphs, this improvement was primarily
the result of lower interest expense, the sale of an investment, and improved
margins.
Income taxes for the period ended March 31, 1997, were 43.1% of IBT
compared to 43.2% in the comparable period in 1996.
Liquidity and Capital Resources
The Company generated cash from operations of $1,364,000 for the three-
month period ended March 31, 1997, compared to $1,514,000 for the three-month
period ended March 31, 1996, and had cash on hand of $995,000.
At March 31, 1997, the Company had working capital of $9,485,000 compared
to working capital of $7,362,000 at December 31, 1996. Receivables have
increased $1,091,000 from December 31, 1996, principally as a result of revenue
growth from the level recorded in the month of December 1996. Inventories have
increased $52,000 from December 31, 1996. At March 31, 1997, current liabilities
decreased $1,339,000 from December 31, 1996, due to a reduction of $1,241,000 in
current maturities of long-term debt due to a bank term loan prepayment made as
a result of a sale of an investment.
13
<PAGE>
Capital expenditures for the three-month period ended March 31, 1997, were
$863,000. Management believes its cash flow from operations, together with its
revolving loan capacity, will be sufficient to meet its capital expenditure
requirements for the remainder of 1997 and 1998.
The Company entered into a new bank credit agreement in June 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. The bank loan agreement
originally consisted of a $25,000,000 Term Loan and up to $15,000,000 in
available funds under a Revolving Credit Loan. In March 1997, the Company
negotiated an amendment to the agreement to increase the Revolving Credit Loan
to $20,000,000. The Term Loan matures in equal quarterly installments with the
final payment due on the expiration date of the agreement, December 31, 2000.
The Company had no outstanding borrowings under the Revolving Credit Loan at
March 31, 1997.
The Company has notified the trustee of its Subordinated Notes of its
intent to repurchase and extinguish $9,250,000 in principal amount of the notes
on May 15, 1997. The notes may be redeemed at the option of the Company at a
premium rate of 104.4%. The amount of the repurchase, including the principal,
premium, and accrued interest, will be financed by the Revolving Credit Loan of
the Bank Credit Agreement. As discussed above, the Company has a $20,000,000
credit line available and had no amounts outstanding on March 31, 1997.
The Company has engaged an investment banking firm to seek potential
purchasers of one of its divisions. The likelihood of a transaction and the
financial impact is not estimable at present. A sale, if such occurs, is not
likely to be consummated prior to the third quarter. All or a portion of the
proceeds of such sale, if such sale occurs, will be used to extinguish
outstanding debt of the Company. The division had revenues of $8,773,000 and
operating income of $1,824,000 in the three months ending March 31, 1997.
As a result of dishrack sourcing decisions made by its customers, in 1996,
the Company shut down a leased production facility in Canal Winchester, Ohio,
and temporarily idled a second plant in Clinton, North Carolina. The Clinton
facility resumed operations in the first quarter of 1997. The Beaver Dam,
Kentucky, plant, shut down in 1994 due to a customer's decision to utilize an
alternative source of supply, was reopened in 1996 to produce dishrack
components, lower volume dishracks, and other formed and coated wire products.
During 1996 and for the three months ended March 31, 1997, the Company charged
$980,000 and $204,000, respectively, of costs incurred against a facility
realignment reserve established in prior periods. The Company had $420,000
accrued at March 31, 1997, for estimated future facility realignment costs.
As discussed in Note 3 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 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 1997 and 1998.
The Company was in compliance with all terms and restrictive covenants of
its credit agreements as of March 31, 1997.
This report contains various forward-looking statements, including
financial, operating and other projections. There are many factors that could
cause actual results to differ materially, such as: adoption of new
environmental laws and regulations and changes in the way such laws and
regulations are interpreted and enforced; general business conditions, such as
the level of competition, changes in demand for the Company's services and the
strength of the economy in general. These and other factors are discussed in
this report and other documents the Company has filed with the Securities and
Exchange Commission.
14
<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.
Including the item 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, is 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.
In 1994, a feasibility study prepared by environmental consultants engaged
by the Company established a range of estimated remediation costs of $.7 million
to $2.9 million, plus or minus 30% of those costs, with the most probable method
of remediation being at the high end of the range. The Company established an
accrual of $3.9 million for the costs of remediation. Remediation of the site is
not expected to begin before 1998 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 the
event that this can be negotiated, the estimated costs to remediate the property
would be at the lower end of the range discussed above. NYSDEC has recently
expressed concern about the possible contamination of other properties adjacent
to the site. The extent to which such alleged pollution may, or may not, have
occurred, and the responsibility, has not been investigated or characterized.
It is the Company's current intention to pursue its claims against other
potentially responsible parties and the insurance companies that provided
coverage when Bliss & Laughlin Steel Co. owned the Buffalo site and continue
negotiations with the parties responsible for the adjoining property as
discussed above.
The Company and certain of its subsidiaries are currently involved in civil
litigation relating to the conduct of their business. Although 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.
15
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
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)/
3.7 Certificate of Incorporation of TapeTech Tool Co., Inc./(1)/
3.8 By-Laws of TapeTech Tool Co., Inc./(1)/
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)/
10.4 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)/
16
<PAGE>
Item 6(a) continued
10.7 Form of the Stock Purchase Agreement./(2)/
10.8 Form of Employment and Non-competition Agreement./(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./(5)/
10.16 Loan Agreement dated as of June 27, 1996 among AXIA Incorporated, Ames
Taping Tool Systems, Inc., TapeTech Tool Co., Inc., as Borrowers, and
the Lenders named herein as Lenders, and American National Bank &
Trust Co. of Chicago, as Agent and Lender./(5)/
10.17 First Amendment to Loan Agreement dated as of March 10, 1997 among
AXIA Incorporated, Ames Taping Tool Systems, Inc., TapeTech Tool Co.,
Inc., and the Lenders named in the Loan Agreement.
21.1 Subsidiaries of the Registrant./(1)/
23.1 Consent of Kaye, Scholer, Fierman, Hays & Handler (included in Exhibit
5.1)./(3)/
23.2 Consent of Arthur Andersen LLP/(6)/
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.
/(5)/ Previously filed as an exhibit to the Company's Form 10-Q for the period
ended June 30, 1996 filed with the Securities and Exchange Commission on
August 12, 1996.
/(6)/ Previously filed as an exhibit to the Company's Form 10-K for the period
ended December 31, 1996 filed with the Securities and Exchange Commission
on March 31, 1997.
17
<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: May 12, 1997 /s/ Lyle J. Feye
---------------------------------------
Lyle J. Feye
Vice President Finance, Treasurer,
Chief Financial Officer
18
<PAGE>
Exhibit 10.17
FIRST AMENDMENT TO LOAN AGREEMENT
---------------------------------
THIS FIRST AMENDMENT TO LOAN AGREEMENT, dated as of March 10, 1997 (the
"Amendment"), is entered into among AXIA INCORPORATED, a Delaware corporation
("AXIA"), and its direct subsidiaries, AMES TAPING TOOL SYSTEMS, INC., a
Delaware corporation ("ATTS"), TAPETECH TOOL CO., INC., a Delaware corporation
("TapeTech") (AXIA, ATTS and TapeTech, individually, "Borrower" and
collectively, "Borrowers"), the lenders ("Lenders") named in the Loan Agreement
referred to below, and AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO, a
national banking association ("ANB"), as agent for Lenders under the Loan
Agreement (ANB, in such capacity, being "Agent").
R E C I T A L S:
- - - - - - - -
A. Borrowers, Lenders and Agent entered into that certain Loan Agreement,
dated as of June 27, 1996 (the "Loan Agreement").
B. Borrowers have requested that Agent and Lenders enter into this
Amendment in order to provide for an increase in the Revolving Credit Loan and
to amend certain other provisions of the Loan Agreement.
C. Capitalized terms used herein and not otherwise defined shall have the
meanings provided for in the Loan Agreement.
1. AMENDMENT
---------
1.1 The definition of Applicable Margin contained in Section 1 of the Loan
Agreement is hereby amended by deleting the text appearing after the table in
such definition and inserting the following in its stead:
"For purposes of the foregoing, the Applicable Margin shall be determined
by reference to the Actual Ratio as of the measurement date set forth above
and any change in the Applicable Margin shall become effective for all
purposes on and after the date of delivery to Agent of the certificate and
applicable financial statements required by Sections 5.1(c) and 5.1(d)
relating to the Fiscal Quarter or Fiscal Year ended as of the applicable
measurement date; provided, however, that until the first such certificate
and financial statements have been delivered to Agent, the Applicable
Margin shall be 1.75%, unless AXIA shall have delivered to Agent on the
initial Closing Date an officer's certificate certifying that the
Applicable Margin, determined by AXIA in accordance with the first part of
this sentence based upon its good faith estimates, should be 1.50% in which
case the
19
<PAGE>
Applicable Margin shall be set at 1.50% for all purposes hereunder until
delivery of the first certificate and financial statements pursuant to
Section 5.1(c) hereof and if, upon delivery of such first financial
statements and certificate pursuant to Section 5.1(c), the certificate
delivered on the initial Closing Date proves to have been inaccurate and
shall have resulted in an understatement of the Applicable Margin, then
such understatement shall be corrected retroactively to the Closing Date
and the Borrowers shall immediately pay to Agent the amount of the
shortfall. Notwithstanding the foregoing, at any time during which AXIA has
failed to deliver the certificate and applicable financial statements
described in Sections 5.1(c) and 5.1(d) with respect to the Fiscal Quarter
or Fiscal Year ending as of the applicable measurement date in accordance
with the provisions of such Sections, for more than five Business Days
after such certificate and applicable financial statements are due, the
Actual Ratio shall be deemed, solely for purposes of this definition, to
exceed the Required Ratio until such certificate and applicable financial
statements are delivered."
1.2 Section 2.1(a) of the Loan Agreement is hereby deleted and the
following is inserted in its stead:
(a) The aggregate amount of the Revolving Credit Loan to be made by
each Lender (such Lender's "Revolving Credit Loan Commitment") shall be the
amount set below such Lender's name on the signature pages hereof. The aggregate
principal amount of the Revolving Credit Loan Commitments is $20,000,000. The
percentage equal to the quotient of (x) each Lender's Revolving Credit Loan
Commitment, divided by (y) the aggregate of all Revolving Credit Loan
Commitments, is that Lender's "Revolving Credit Percentage". Upon and subject to
the terms and conditions hereof, each Lender, severally and for itself alone,
agrees to make available, from time to time, on and after the initial Closing
Date and until the Commitment Termination Date, for Borrowers' use and upon the
request of AXIA on behalf of Borrowers therefor, advances (each, a "Revolving
Credit Advance") in an aggregate amount outstanding which, together with that
Lender's Revolving Credit Percentage of all outstanding Letter of Credit
Obligations, whether or not due and payable, shall not at any given time exceed
the product of (A) that Lender's Revolving Credit Percentage multiplied by (B)
the Maximum Revolving Credit Loan. Subject to the provisions of Section 2.4 and
Section 9.2 hereof and until all amounts outstanding in respect of the Revolving
Credit Loan shall become due and payable on the Commitment Termination Date,
AXIA on behalf of Borrowers may from time to time borrow, repay and reborrow
under this Section 2.1(a). Each Revolving Credit Advance shall be made on notice
(i) in the case of a Revolving Credit LIBOR Borrowing, given not later than
11:00 A.M. (Chicago time) three Business Days prior to the proposed Revolving
Credit Advance, and (ii) in the case of a Revolving Credit Alternate Base Rate
Borrowing, given not later than
<PAGE>
11:00 A.M. (Chicago time) on the Business Day of the proposed Revolving Credit
Advance, by AXIA to Agent, which shall give to each Lender prompt written notice
thereof by telecopy, telex or cable. Each such notice (a "Notice of Revolving
Credit Advance") shall be in writing or by telephone to the Loan Administrator
of Agent at (312) 661-6451, confirmed immediately in writing, in substantially
the form of Exhibit B hereto, specifying therein (i) the requested date (which
shall be a Business Day) and amount of the Revolving Credit Advance, (ii)
whether the Revolving Credit Advance is to be an Alternate Base Rate Borrowing
or a LIBOR Rate Borrowing, and (iii) if such Revolving Credit Advance is to be a
LIBOR Rate Borrowing, the LIBOR Rate Interest Period with respect thereto. If no
election as to the Type of Revolving Credit Advance is specified in any such
notice, than the requested Revolving Credit Advance shall be an Alternate Base
Rate Borrowing. If no LIBOR Rate Interest Period with respect to any LIBOR Rate
Borrowing is specified in such notice, then AXIA shall be deemed to have
selected a LIBOR Rate Interest Period of one month's duration. Each Lender
shall, not later than 2:00 P.M. (Chicago time) on each requested date, wire to a
bank designated by Agent the amount of that Lender's Revolving Credit Percentage
of the requested Revolving Credit Advance. Agent shall, before 2:00 P.M.
(Chicago time) on the date of the proposed Revolving Credit Advance, upon
fulfillment of the applicable conditions set forth in Section 3 and to the
extent received from the Lenders, wire to a bank designated by AXIA and
reasonably acceptable to Agent, the amount of such Revolving Credit Advance. The
failure of any Lender to make the Revolving Credit Advance to be made by it
shall not relieve any other Lender of its obligation hereunder to make its
Revolving Credit Advance. No Lender shall be responsible for the failure of any
other Lender to make the Revolving Credit Advance to be made by such other
Lender. Unless Agent shall have received notice from a Lender prior to the date
of any Revolving Credit Advance that such Lender will not make available to
Agent an amount equal to such Lender's Revolving Credit Percentage of such
Revolving Credit Advance, Agent may assume that such Lender has made such amount
available to Agent on the date of such Revolving Credit Advance in accordance
with this Section 2.1 and Agent may, in reliance upon such assumption, make
available to Borrowers on such date a corresponding amount. If and to the extent
that such Lender shall not have made such portion available to Agent, such
Lender and Borrowers severally agree to repay to Agent forthwith on demand such
corresponding amount together with interest thereon, for each day, from the date
such amount is made available to Borrowers until the date such amount is repaid
to Agent at (i) in the case of Borrowers, the interest rate applicable at the
time to the Revolving Loan comprising such Revolving Credit Advance and (ii) in
the case of such Lender, the Federal Funds Effective Rate. If such Lender shall
repay to Agent such corresponding amount, such amount shall constitute such
Lender's Revolving Credit Percentage of such Revolving Credit Advance for
purposes of this Agreement."
21
<PAGE>
1.3 Section 2.7(a) of the Loan Agreement is hereby deleted and the
following is inserted in its stead:
(a) Borrowers shall apply the proceeds of the Term Loan to the
payment of their outstanding indebtedness and the proceeds of the
Revolving Credit Loan for working capital and general corporate
purposes and to the payment of outstanding indebtedness; provided,
however, that not more than $5,000,000 of the proceeds of the
Revolving Credit Loan may be utilized for the repayment of
indebtedness of AXIA under the Credit Agreement, dated as of March 15,
1994, among AXIA, Banque Indosuez, as agent, and the lenders named
therein. In addition to the foregoing, AXIA may apply proceeds of
Revolving Credit Advances to the payment of the purchase price of
Subordinated Notes or Subordinated Note Units; provided, however, that
the maximum amount of proceeds of Revolving Credit Advances which may
be utilized for such purpose shall not exceed in the aggregate at any
date of determination $10,000,000.
1.4 Section 5.1(a) of the Loan Agreement is hereby deleted and the
following is inserted in its stead:
(a) Within 15 Business Days after the end of each Fiscal Quarter, a
Borrowing Base Certificate in the form attached hereto as Exhibit A
and with content satisfactory to Agent which provides the following
information: (1) total Accounts Receivable/Inventory and Eligible
Domestic Accounts Receivable/Eligible Foreign Accounts
Receivable/Eligible Inventory, and (2) the current loan balance.
1.5 Section 6.3(b) of the Loan Agreement is hereby deleted and the
following is inserted in its stead:
(b) Consolidated Funded Debt to Consolidated EBITDA Ratio. As at the
end of each Fiscal Year listed below and as at the end of each of the
first three Fiscal Quarters of the immediately succeeding Fiscal Year,
a Consolidated Funded Debt to Consolidated EBITDA Ratio for the
immediately preceding four Fiscal Quarters not greater than the ratios
set forth opposite such Fiscal Year:
22
<PAGE>
<TABLE>
<CAPTION>
Consolidated Funded
Debt to Consolidated
Fiscal Year EBITDA Ratio
----------- --------------------
<S> <C> <C>
1995 3.00 to 1.0
1996 2.80 to 1.0
1997 2.65 to 1.0
1998 2.25 to 1.0
1999 1.90 to 1.0"
</TABLE>
1.6 The Revolving Credit Loan Commitments of each Lender are amended to be
in the amounts set below each Lender's name on the signature pages to this
Amendment.
2. CONDITIONS PRECEDENT
--------------------
This Amendment shall be effective upon the receipt by Agent of each of the
following, each in form and substance satisfactory to Agent:
(a) Counterparts of this Amendment duly executed on behalf of each of
the Borrowers, Lenders and Agent;
(b) Resolutions of the Board of Directors of each Borrower
authorizing the execution and delivery of this Amendment and the
replacement Revolving Credit Notes certified by the Secretary or Assistant
Secretary of each Borrower;
(c) Replacement Revolving Credit Notes of Borrowers payable to
Lenders;
(d) Payment to Agent, for the ratable benefit of Lenders, of a
facility fee in the amount of $12,500.
3. MISCELLANEOUS
-------------
3.1 Limited Nature of Amendments. The parties hereto acknowledge and agree
that the terms and provisions of this Amendment amend, add to and constitute a
part of the Loan Agreement. Except as expressly modified and amended by the
terms of this Amendment, all of the other terms and conditions of the Loan
Agreement and all documents executed in connection therewith or referred to or
incorporated therein remain in full force and effect and are hereby ratified,
reaffirmed, confirmed and approved.
3.2 Conflict. If there is an express conflict between the terms of this
Amendment and the terms of the Loan Agreement, or any of the other agreements or
documents executed in
23
<PAGE>
connection therewith or referred to or incorporated therein, the terms of this
Amendment shall govern and control.
3.3 Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed to be an original.
3.4 Representations and Warranties. Each Borrower represents and warrants
to Agent and Lenders as follows: (A) such Borrower has all necessary power and
authority to execute and deliver this Amendment and perform its obligations
hereunder; (B) this Amendment and the Loan Agreement, as amended hereby,
constitute the legal, valid and binding obligations of such Borrower and are
enforceable against such Borrower in accordance with their terms; and (C) all
representations and warranties of such Borrower contained in the Loan Agreement
and all other agreements, instruments and other writings relating thereto are
true and complete as of the date hereof.
3.5 Governing Law. This Amendment shall be construed in accordance with
and governed by and the internal laws of the State of Illinois, without giving
effect to choice of law principles.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the date
first written above.
AXIA INCORPORATED AMERICAN NATIONAL BANK AND
TRUST COMPANY OF CHICAGO, as
By: /s/ Lyle J. Feye Agent and as Lender
-----------------------------
Name: Lyle J. Feye
Title: Vice President
By:
-------------------------------
Name: Georgy Ann Peluchiwski
Title: Second Vice President
AMES TAPING TOOL SYSTEMS, INC.
Revolving Credit Loan Commitment:
By: /s/ Lyle J. Feye $8,000,000
-----------------------------
Name: Lyle J. Feye
Title: Vice President
THE NORTHERN TRUST COMPANY, as
Lender
TAPETECH TOOL CO., INC.
By:
-----------------------------
By:/s/ Lyle J. Feye Name:
----------------------------- ------------------------
Name: Lyle J. Feye Title:
Title: Vice President -----------------------
Address:
50 South LaSalle Street
Chicago, Illinois 60675
Attention: Arthur J. Fogel
Telecopier No.: (312) 444-7028
Revolving Credit Loan Commitment:
$6,000,000
24
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 995
<SECURITIES> 0
<RECEIVABLES> 13,717
<ALLOWANCES> 1,939
<INVENTORY> 9,138
<CURRENT-ASSETS> 26,995
<PP&E> 36,914
<DEPRECIATION> 12,104
<TOTAL-ASSETS> 98,902
<CURRENT-LIABILITIES> 17,510
<BONDS> 18,399
0
0
<COMMON> 16,723
<OTHER-SE> 17,411
<TOTAL-LIABILITY-AND-EQUITY> 98,902
<SALES> 18,644
<TOTAL-REVENUES> 25,127
<CGS> 11,794
<TOTAL-COSTS> 20,487
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,060
<INCOME-PRETAX> 4,059
<INCOME-TAX> 1,749
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,310
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
