<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 June 30, 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 JUNE 30, 1997 AND DECEMBER 31, 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- ------------
ASSETS (Unaudited)
- ------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 426 $ 1,716
Accounts receivable, net 11,735 10,687
Inventories 9,070 9,086
Prepaid income taxes and other current assets 2,715 1,695
Deferred income tax benefits 3,162 3,027
------- -------
Total Current Assets $27,108 $26,211
------- -------
PLANT AND EQUIPMENT, AT COST:
Land $ 521 $ 521
Buildings and improvements 6,466 6,509
Machinery and equipment 23,794 23,149
Equipment leased to others 6,787 6,040
------- -------
$37,568 $36,219
Less: Accumulated depreciation 12,862 11,346
------- -------
Net Plant and Equipment $24,706 $24,873
------- -------
OTHER ASSETS:
Goodwill, net $34,237 $34,679
Intangible assets, net 326 377
Deferred charges, net 12,004 12,213
Investment in affiliate - 900
Other assets 68 78
------- -------
Total Other Assets $46,635 $48,247
------- -------
TOTAL ASSETS $98,449 $99,331
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt $ 5,404 $ 6,647
Accounts payable 3,919 3,655
Accrued liabilities 6,685 8,547
Accrued income taxes 236 -
------- -------
Total Current Liabilities $16,244 $18,849
------- -------
NON-CURRENT LIABILITIES:
Long-term debt, less current maturities $32,432 $34,548
Other non-current liabilities 11,473 11,050
Deferred income taxes 2,937 2,766
------- -------
Total Non-Current Liabilities $46,842 $48,364
------- -------
STOCKHOLDER'S EQUITY:
Common stock ($.01 par value; 100 shares
authorized, issued and outstanding) $ - $ -
Additional paid-in capital 16,723 16,723
Retained earnings 19,112 15,395
Additional minimum pension liability (324) (324)
Cumulative translation adjustment (148) 324
------- -------
Total Stockholder's Equity $35,363 $32,118
------- -------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $98,449 $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 JUNE 30, 1997 AND JUNE 30, 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
April 1, 1997 April 1, 1996
to to
June 30, 1997 June 30, 1996
------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C>
Net sales $19,832 $19,852
Net rentals 6,749 6,016
------- -------
Net revenues $26,581 $25,868
Cost of sales 12,891 12,819
Cost of rentals 2,360 2,327
Selling, general and administrative expenses 6,486 5,990
------- -------
Income from operations $ 4,844 $ 4,732
Interest expense 969 1,427
Interest income (2) (5)
Other expense (income), net 72 54
------- -------
Income before income taxes and extraordinary item $ 3,805 $ 3,256
Provision for income taxes 1,626 1,396
------- -------
Income before extraordinary item $ 2,179 $ 1,860
Extraordinary item:
Loss on early extinguishment of debt,
net of income taxes of $479 and $410,
respectively (See Note 3) $ 772 $ 614
------- -------
Net income $ 1,407 $ 1,246
======= =======
</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 SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
January 1, 1997 January 1, 1996
to to
June 30, 1997 June 30, 1996
---------------- ---------------
(Unaudited) (Unaudited)
<S> <C> <C>
Net sales $38,476 $42,609
Net rentals 13,232 11,880
------- -------
Net revenues $51,708 $54,489
Cost of sales 24,685 27,929
Cost of rentals 4,696 4,670
Selling, general and administrative expenses 12,843 12,695
------- -------
Income from operations $ 9,484 $ 9,195
Interest expense 2,029 2,870
Interest income (14) (23)
Other expense (income), net (395) 82
------- -------
Income before income taxes and extraordinary item $ 7,864 $ 6,266
Provision for income taxes 3,375 2,697
------- -------
Income before extraordinary item $ 4,489 $ 3,569
Extraordinary item:
Loss on early extinguishment of debt,
net of income taxes of $479 and $410,
respectively (See Note 3) 772 614
------- -------
Net income $ 3,717 $ 2,955
======= =======
</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 JUNE 30, 1997 AND JUNE 30, 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 - - 2,955 - -
Cumulative translation adjustment - - - - (229)
------- ------- ------- ------- -------
BALANCE, JUNE 30, 1996 (unaudited) $ - $16,723 $11,488 $ (54) $ 397
======= ======= ======= ======= =======
BALANCE, DECEMBER 31, 1996 $ - $16,723 $15,395 $ (324) $ 324
Net income - - 3,717 - -
Cumulative translation adjustment - - - - (472)
------- ------- ------- ------- -------
BALANCE, JUNE 30, 1997 (unaudited) $ - $16,723 $19,112 $ (324) $ (148)
======= ======= ======= ======= =======
</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 SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
January 1, 1997 January 1, 1996
to to
June 30, 1997 June 30, 1996
--------------- ---------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,717 $ 2,955
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation and amortization 2,486 3,392
Extraordinary item - writeoff of capitalized financing costs 826 1,024
Deferred income tax provision (benefit) 36 341
Loss (gain) on disposal of fixed assets 79 (15)
Gain on sale of investment (500) -
Provision for losses on accounts receivable 1,187 541
Provision for obsolescence of inventories (85) 59
Loss (gain) on pension expense 20 (137)
Changes in assets and liabilities:
Accounts receivable (2,499) (219)
Inventories (128) (30)
Accounts payable 330 183
Accrued liabilities (1,789) (630)
Other current assets (96) 294
Income taxes payable (690) (734)
Other non-current assets (279) 86
Other non-current liabilities 423 48
-------- --------
Net Cash Provided by Operating Activities $ 3,038 $ 7,158
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash used for capital expenditures $ (1,699) $ (2,029)
Proceeds from sale of fixed assets 8 13
Proceeds from sale of investment 1,400 -
-------- --------
Net Cash (Used in) Investing Activities $ (291) $ (2,016)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in Revolving Credit Loan $ 9,200 $ 2,900
Payments of other long-term debt (13,165) (31,612)
Proceeds from other long-term debt - 25,000
Payments of deferred financing costs - (478)
Other equity transactions (16) 4
-------- --------
Net Cash (Used in) Financing Activities $ (3,981) $ (4,186)
EFFECT OF EXCHANGE RATE CHANGES ON CASH $ (56) $ (39)
-------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS $ (1,290) $ 917
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,716 45
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 426 $ 962
======== ========
</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
JUNE 30, 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 June 30, 1997 and December 31, 1996,
results of operations for the three month and six month periods ended June 30,
1997 and June 30, 1996, and cash flows for the six month periods ended June 30,
1997 and June 30, 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>
June 30, 1997 December 31, 1996
------------- -----------------
<S> <C> <C>
Raw materials $4,342 $4,653
Work in process 1,043 854
Finished goods 3,685 3,579
------ ------
Total inventories $9,070 $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>
June 30, 1997 December 31, 1996
------------- -----------------
<S> <C> <C>
11.00% Senior Subordinated Notes $ 9,699 $18,343
Term Loan 18,356 22,222
Revolving Credit Loan 9,200 -
Other 581 630
------- -------
Total Debt $37,836 $41,195
Less Current Maturities (5,404) (6,647)
------- -------
Total Long-Term Debt $32,432 $34,548
======= =======
</TABLE>
The Senior Subordinated Notes above are stated net of unamortized discounts
of $551,000 and $1,157,000 at June 30, 1997, and December 31, 1996,
respectively.
6
<PAGE>
Current maturities of long-term debt as of June 30, 1997 consists of the
following (in thousands):
<TABLE>
<CAPTION>
Scheduled Payment
Date Amount
------------------ ------
<S> <C> <C>
Term Loan September 30, 1997 1,312
Term Loan December 31, 1997 1,312
Term Loan March 31, 1998 1,312
Term Loan June 30, 1998 1,312
Other Various 156
------
Total Current Maturities $5,404
======
</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 June 30, 1997 was 7.34%. 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.
As a result of the refinancing of its bank debt in June 1996, the Company
recorded an extraordinary charge for the early extinguishment of debt of
$614,000, net of income taxes, as shown on the accompanying Consolidated
Statements of Income for the three month and six month periods ended June 30,
1996.
11.00% Senior Subordinated Notes
The $10,250,000 outstanding of 11.00% Senior Subordinated Notes were issued
as part of a $21,000,000 offering 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.
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.
In May 1997, the Company exercised its option to redeem and extinguish
$9,250,000 of its Senior Subordinated Notes. The Company recorded an
extraordinary charge for the early extinguishment of debt of $772,000,
7
<PAGE>
net of income taxes, as shown on the accompanying Consolidated Statements of
Income for the three month and six month periods ended June 30, 1997. The charge
included the aforementioned redemption premium, the writeoff of capitalized
financing costs associated with the original issuance of the notes, the
applicable original issue discount, and legal expenses, agent fees, and other
costs of the transaction.
Restrictive Loan Covenants
The Bank Credit Agreement and the Indenture contain certain covenants
which, among other things and 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 June 30, 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 Axia Holdings
Corporation.
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. 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
8
<PAGE>
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
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 JUNE 30, 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 $ (455) $ 638 $ 304 $ (61) $ 426
Accounts receivable, net 4,666 4,762 2,731 (424) 11,735
Inventories 6,322 1,296 1,877 (425) 9,070
Prepaid income taxes and other current assets 2,439 156 120 - 2,715
Deferred income tax benefits 3,162 - - - 3,162
------- ------- ------ -------- -------
Total Current Assets $16,134 $ 6,852 $5,032 $ (910) $27,108
------- ------- ------ -------- -------
PLANT AND EQUIPMENT, AT COST:
Land $ 521 $ - $ - $ - $ 521
Buildings and improvements 6,244 18 204 - 6,466
Machinery and equipment 23,069 558 167 - 23,794
Equipment leased to others 6,775 - 12 - 6,787
------- ------- ------ -------- -------
$36,609 $ 576 $ 383 $ - $37,568
Less: Accumulated depreciation 12,436 347 79 - 12,862
------- ------- ------ -------- -------
Net Plant and Equipment $24,173 $ 229 $ 304 $ - $24,706
------- ------- ------ -------- -------
OTHER ASSETS:
Goodwill, net $31,631 $ 2,606 $ - $ - $34,237
Intangible assets, net 290 36 - - 326
Deferred charges, net 11,063 925 16 - 12,004
Investment in wholly-owned subsidiaries 14,806 - - (14,806) -
Investment in affiliates - - - - -
Other assets 68 - - - 68
------- ------- ------ -------- -------
Total Other Assets $57,858 $ 3,567 $ 16 $(14,806) $46,635
------- ------- ------ -------- -------
TOTAL ASSETS $98,165 $10,648 $5,352 $(15,716) $98,449
======= ======= ====== ======== =======
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt $ 5,360 $ 44 $ - $ - $ 5,404
Accounts payable 3,159 485 760 (485) 3,919
Accrued liabilities 5,912 482 532 (241) 6,685
Accrued income taxes 69 - 167 - 236
Advance account 955 (179) (776) - -
------- ------- ------ -------- -------
Total Current Liabilities $15,455 $ 832 $ 683 $ (726) $16,244
------- ------- ------ -------- -------
NON-CURRENT LIABILITIES:
Long-term debt, less current maturities $32,394 $ 38 $ - $ - $32,432
Other non-current liabilities 11,473 - - - 11,473
Deferred income taxes 2,937 - - - 2,937
------- ------- ------ -------- -------
Total Non-Current Liabilities $46,804 $ 38 $ - $ - $46,842
------- ------- ------ -------- -------
STOCKHOLDER'S EQUITY:
Common stock and
additional paid-in capital $16,723 $ 5,098 $2,000 $ (7,098) $16,723
Retained earnings 19,507 4,680 2,817 (7,892) 19,112
Additional minimum pension liability (324) - - - (324)
Cumulative translation adjustment - - (148) - (148)
------- ------- ------ -------- -------
Total Stockholder's Equity $35,906 $ 9,778 $4,669 $(14,990) $35,363
------- ------- ------ -------- -------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $98,165 $10,648 $5,352 $(15,716) $98,449
======= ======= ====== ======== =======
</TABLE>
10
<PAGE>
CONSOLIDATING STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 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 $28,534 $ 7,453 $5,571 $ (3,082) $38,476
Net rentals 7,283 12,747 472 (7,270) 13,232
------- ------- ------ -------- -------
Net revenues $35,817 $20,200 $6,043 $(10,352) $51,708
Cost of sales $19,943 $ 4,475 $3,421 $ (3,154) $24,685
Cost of rentals 1,478 10,187 301 (7,270) 4,696
Selling, general and administrative expenses 7,373 4,021 1,449 - 12,843
------- ------- ------ -------- -------
Income (loss) from operations $ 7,023 $ 1,517 $ 872 $ 72 $ 9,484
Interest expense $ 2,018 $ 5 $ 6 $ - $ 2,029
Intercompany interest expense (income) (26) 26 - - -
Other expense (income), net (1,748) 24 102 1,213 (409)
------- ------- ------ -------- -------
Income (loss) before income taxes $ 6,779 $ 1,462 $ 764 $ (1,141) $ 7,864
and extraordinary item
Provision for income taxes 2,362 651 362 - 3,375
------- ------- ------ -------- -------
Income (loss) before extraordinary item $ 4,417 $ 811 $ 402 $ (1,141) $ 4,489
======= ======= ====== ======== =======
</TABLE>
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 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 $ 2,094 $ 791 $ 153 $ - $ 3,038
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash used for capital expenditures (1,640) (29) (30) - (1,699)
Proceeds from sale of fixed assets 8 - - - 8
Proceeds from sale of investment 1,400 - - - 1,400
-------- ----- ----- ------------ --------
Net Cash (Used In) Investing Activities $ (232) $ (29) $ (30) $ - $ (291)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in Revolving Credit $ 9,200 $ - $ - $ - $ 9,200
Payments of other long-term debt (13,162) (3) - - (13,165)
Net increase (decrease) in advance account 700 (628) (72) - -
Intercompany dividends 477 - (477) - -
Other equity transactions - - (16) - (16)
-------- ----- ----- ------------ --------
Net Cash (Used In) Financing Activities $ (2,785) $(631) $(565) $ - $ (3,981)
EFFECT OF EXCHANGE RATE
CHANGES ON CASH - - (56) - (56)
-------- ----- ----- ------------ --------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $ (923) $ 131 $(498) $ - $ (1,290)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 407 507 802 - 1,716
-------- ----- ----- ------------ --------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ (516) $ 638 $ 304 $ - $ 426
======== ===== ===== ============ ========
</TABLE>
11
<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>
12
<PAGE>
CONSOLIDATING STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 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 $32,837 $ 6,239 $6,302 $(2,769) $42,609
Net rentals 6,538 11,414 456 (6,528) 11,880
------- ------- ------ ------- -------
Net revenues $39,375 $17,653 $6,758 $(9,297) $54,489
Cost of sales $22,946 $ 3,780 $3,915 $(2,712) $27,929
Cost of rentals 1,479 9,423 296 (6,528) 4,670
Selling, general and administrative expenses 7,662 3,299 1,734 - 12,695
------- ------- ------ ------- -------
Income (loss) from operations $ 7,288 $ 1,151 $ 813 $ (57) $ 9,195
Interest expense $ 2,857 $ 5 $ 8 $ - $ 2,870
Intercompany interest expense (income) (47) 47 - - -
Other expense (income), net (951) 21 82 907 59
------- ------- ------ ------- -------
Income (loss) before income taxes $ 5,429 $ 1,078 $ 723 $ (964) $ 6,266
and extraordinary item
Provision for income taxes 1,803 473 421 - 2,697
------- ------- ------ ------- -------
Income (loss) before extraordinary item $ 3,626 $ 605 $ 302 $ (964) $ 3,569
======= ======= ====== ======= =======
</TABLE>
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 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 $ 6,596 $454 $ 108 $ - $ 7,158
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash used for capital expenditures (1,978) (45) (6) - (2,029)
Proceeds from sale of fixed assets 13 - - - 13
-------- ---- ----- --- --------
Net Cash (Used In) Investing Activities $ (1,965) $(45) $ (6) $ - $ (2,016)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in Revolving Credit Loan 2,900 - - - 2,900
Payments of other long-term debt (31,612) - - - (31,612)
Proceeds from other long-term debt 25,000 - - - 25,000
Payments of deferred financing costs (478) - - - (478)
Net increase (decrease) in advance account (11) (8) 19 - -
Intercompany dividends 196 - (196) - -
Other equity transactions 3 - 1 - 4
-------- ---- ----- --- --------
Net Cash (Used In) Financing Activities $ (4,002) $ (8) $(176) $ - $ (4,186)
EFFECT OF EXCHANGE RATE
CHANGES ON CASH - - (39) - (39)
-------- ---- ----- --- --------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $ 629 $401 $(113) $ - $ 917
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD (990) 254 781 - 45
-------- ---- ----- --- --------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ (361) $655 $ 668 $ - $ 962
======== ==== ===== === ========
</TABLE>
13
<PAGE>
CONSOLIDATING STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 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 $14,465 $ 3,801 $3,003 $(1,437) $19,832
Net rentals 3,713 6,506 239 (3,709) 6,749
------- ------- ------ ------- -------
Net revenues $18,178 $10,307 $3,242 $(5,146) $26,581
Cost of sales $10,249 $ 2,244 $1,871 $(1,473) $12,891
Cost of rentals 756 5,161 152 (3,709) 2,360
Selling, general and administrative expenses 3,629 2,094 763 - 6,486
------- ------- ------ ------- -------
Income (loss) from operations $ 3,544 $ 808 $ 456 $ 36 $ 4,844
Interest expense 960 3 6 - 969
Intercompany interest expense (income) (8) 8 - - -
Other expense (income), net (630) 16 103 581 70
------- ------- ------ ------- -------
Income (loss) before income taxes and $ 3,222 $ 781 $ 347 $ (545) $ 3,805
extraordinary item
Provision for income taxes 1,079 346 201 - 1,626
------- ------- ------ ------- -------
Income (loss) before extraordinary item $ 2,143 $ 435 $ 146 $ (545) $ 2,179
======= ======= ====== ======= =======
</TABLE>
CONSOLIDATING STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED JUNE 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 $15,053 $3,287 $2,997 $(1,485) $19,852
Net rentals 3,281 5,791 221 (3,277) 6,016
------- ------ ------ ------- -------
Net revenues $18,334 $9,078 $3,218 $(4,762) $25,868
Cost of sales $10,413 $2,003 $1,888 $(1,485) $12,819
Cost of rentals 765 4,695 144 (3,277) 2,327
Selling, general and administrative expenses 3,554 1,525 911 - 5,990
------- ------ ------ ------- -------
Income (loss) from operations $ 3,602 $ 855 $ 275 $ - $ 4,732
Interest expense 1,423 3 1 - 1,427
Intercompany interest expense (income) (21) 21 - - -
Other expense (income), net (520) 15 33 521 49
------- ------ ------ ------- -------
Income (loss) before income taxes and $ 2,720 $ 816 $ 241 $ (521) $ 3,256
extraordinary item
Provision for income taxes 860 355 181 - 1,396
------- ------ ------ ------- -------
Income (loss) before extraordinary item $ 1,860 $ 461 $ 60 $ (521) $ 1,860
======= ====== ====== ======= =======
</TABLE>
14
<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, excluding extraordinary items related to the early extinguishment of
debt as discussed in Note 3 in the accompanying financial statements, for the
three and six-month periods ended June 30, 1997 and June 30, 1996 (in
thousands):
Table 1
<TABLE>
<CAPTION>
Summary of Income Statement
---------------------------
Three Months Ended Six Months Ended
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net revenues $26,581 $25,868 $51,708 $54,489
Cost of revenues 15,251 15,146 29,381 32,599
Selling, general and administrative
expenses 6,486 5,990 12,843 12,695
------- ------- ------- -------
Income from operations $ 4,844 $ 4,732 $ 9,484 $ 9,195
Interest expense 969 1,427 2,029 2,870
Other expense (income), net 70 49 (409) 59
------- ------- ------- -------
Income before income taxes and
extraordinary item $ 3,805 $ 3,256 $ 7,864 $ 6,266
Provision for income taxes 1,626 1,396 3,375 2,697
------- ------- ------- -------
Income before extraordinary item $ 2,179 $ 1,860 $ 4,489 $ 3,569
======= ======= ======= =======
</TABLE>
15
<PAGE>
The following Table 2 presents, for the periods indicated, certain items in
the Company's Consolidated Statements of Income, excluding extraordinary charges
for the early extinguishment of debt, as a percentage of total net revenues for
the three and six-month periods ended June 30, 1997 and June 30, 1996:
Table 2
<TABLE>
<CAPTION>
Percentage of Total Net Revenues
--------------------------------
Three Months Ended Six Months Ended
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net Revenues......................................................... 100.0% 100.0% 100.0% 100.0%
Costs and expenses
Cost of revenues................................................ 57.4 58.6 56.8 59.8
Selling, general and
administrative expenses........................................ 24.4 23.2 24.8 23.3
Interest expense................................................ 3.6 5.5 3.9 5.3
Other expense (income), net..................................... .3 .2 (.7) .2
Provision for income taxes...................................... 6.1 5.3 6.5 4.9
----- ----- ----- -----
Income before extraordinary item..................................... 8.2% 7.2% 8.7% 6.5%
</TABLE>
Results of Operations - Year-to-Date June 30, 1997
Consolidated net revenues for the six-month period ended June 30, 1997,
decreased 5.1% to $51,708,000 from $54,489,000 in the comparable period in 1996.
The decline was primarily attributable to the reduction in sales of dishracks
within the Metal Products Segment due to the loss of a dishrack customer which
had accounted for revenues of $4,127,000 in the first half of 1996. The
Packaging Products Segment also recorded lower revenues due primarily to weaker
sales of bag closing equipment in North America and Asia. Material handling
equipment revenues remained at the levels recorded in 1996. Currency translation
rate changes also reduced revenues $649,000 within this business segment in
comparison to the first half of 1996. The Construction Tool Segment revenue
increased 14.1% from improved drywall taping tool rentals and sales and
increased merchandise sales through Company-operated stores.
Consolidated cost of revenues for the six month period ended June 30, 1997,
decreased 9.9% to $29,381,000 from $32,599,000 in the comparable period in 1996.
The decline in cost of revenues was primarily attributable to the revenue
decrease. However, profit margins improved 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
six month period ended June 30, 1997, increased 1.2% to $12,843,000 from
$12,695,000 in the comparable period in 1996. Bad debt expense increased
$608,000 as a result of revenue growth within the Construction Tool Segment. As
the Company rents to drywall contractors within this business segment, higher
instances of bad debt is typical in the industry. Revenue growth, therefore, is
often accompanied by comparable increases in bad debt reserves. This increase
was partially offset by reduced expenditures in advertising, professional
services, employee relocation, and office rentals.
Interest expense for the six month period ended June 30, 1997, decreased
29.3% to $2,029,000 from $2,870,000 in the comparable period in 1996. The
decrease was the result of both a reduction in outstanding
16
<PAGE>
debt and lower interest rates on the Company's variable rate bank debt as a
result of the June 1996 refinancing.
Other income was $409,000 for the six month period ended June 30, 1997,
compared to other expense of $59,000 in the comparable period 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), and extraordinary charges due to the
early extinguishment of debt, for the six month period ended June 30, 1997,
increased 25.5% to $7,864,000 from $6,266,000 in the comparable period in 1996.
As discussed in the preceding paragraphs, this improvement was primarily the
result of improved operating margins, lower interest expense, and the sale of an
investment.
Income taxes for the period ended June 30, 1997, were 42.9% of IBT compared
to 43.0% in the comparable period in 1996.
Results of Operations - Quarter Ended June 30, 1997
Consolidated net revenues for the three month period ended June 30, 1997,
increased 2.8% to $26,581,000 from $25,868,000 in the comparable period in 1996.
The increase was primarily attributable to the revenue growth in the
Construction Tool Segment that offset a reduction in sales of dishracks within
the Metal Products Segment as a result of the loss of a dishrack customer which
had accounted for revenues of $1,302,000 in the second quarter of 1996. The
Packaging Products Segment also recorded lower revenues due primarily to weaker
sales of sewing equipment in North America and Asia. Currency changes reduced
revenues $366,000 in comparison to the second quarter of 1996. The Construction
Tool Segment revenue increased 13.3% from improved drywall taping tool rentals
and sales and increased merchandise sales through Company-operated stores.
Consolidated cost of revenues for the three month period ended June 30,
1997, increased 0.7% to $15,251,000 from $15,146,000 in the comparable period in
1996. The increase in cost of revenues was primarily attributable to the revenue
increase. The Company's profit margins 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 June 30, 1997, increased 8.3% to $6,486,000 from
$5,990,000 in the comparable period in 1996. Bad debt expense increased $391,000
in conjunction with revenue growth within the Construction Tool Segment. The
Company also recorded increases in employee compensation over the second quarter
of 1996.
Interest expense for the three month period ended June 30, 1997, decreased
32.1% to $969,000 from $1,427,000 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 as a result of the June 1996
refinancing.
Other expense was $70,000 for the three month period ended June 30, 1997,
compared to other expense of $49,000 in 1996. The Company recorded a $30,000
charge for a previously closed workers' compensation claim from a discontinued
operation.
Income before income taxes (IBT), and extraordinary charges due to the
early extinguishment of debt, for the three month period ended June 30, 1997,
increased 16.9% to $3,805,000 from $3,256,000 in the comparable period in 1996.
As discussed in the preceding paragraphs, this improvement was primarily the
result of improved operating margins, lower interest expense, and the sale of an
investment.
Income taxes for the period ended June 30, 1997, were 42.7% of IBT compared
to 42.9% in the comparable period in 1996.
17
<PAGE>
Liquidity and Capital Resources
The Company generated cash from operations of $3,038,000 for the six month
period ended June 30, 1997, compared to $7,158,000 for the six month period
ended June 30, 1996, and had cash on hand of $426,000. The reduction in cash
generated from operations from the comparable prior year period was primarily
due to the increase in accounts receivable.
At June 30, 1997, the Company had working capital of $10,864,000 compared to
working capital of $7,362,000 at December 31, 1996. Receivables have increased
$1,048,000 from December 31, 1996, principally as a result of revenue growth
from the level recorded in the month of December 1996. Inventories have declined
$16,000 from December 31, 1996. At June 30, 1997, current liabilities decreased
$2,605,000 from December 31, 1996, due to a decline of $1,243,000 in current
maturities of long-term debt and a reduction of accrued expenses.
Capital expenditures for the six month period ended June 30, 1997, were
$1,699,000. 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 $9,200,000 outstanding under the Revolving Credit Loan at June
30, 1997 as a result of a note repurchase discussed in the following paragraph.
In May 1997, the Company exercised its option to redeem and extinguish
$9,250,000 in principal of its Senior Subordinated Notes. The Company recorded
an extraordinary charge for the early extinguishment of debt of $772,000, net of
income taxes, as shown on the accompanying Company's Consolidated Statements of
Income for the three month and six month periods ended June 30, 1997. The charge
included a redemption premium of 4.4%, the writeoff of capitalized financing
costs associated with the issuance of the notes, the applicable original issue
discount, and legal expenses, agent fees, and other costs of the transaction.
The Company has entered into negotiations with a potential purchaser of one
of its divisions. The likelihood of a transaction and the financial impact is
not estimable at this time. All or a portion of the proceeds of such sale, if
such sale occurs, will be used to extinguish outstanding debt of the Company.
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 June 30, 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.
18
<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.
19
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
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)/
20
<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.
21
<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: August 11, 1997 /s/ Lyle J. Feye
----------------------------------
Lyle J. Feye
Vice President Finance, Treasurer,
Chief Financial Officer
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 426
<SECURITIES> 0
<RECEIVABLES> 13,711
<ALLOWANCES> 1,976
<INVENTORY> 9,070
<CURRENT-ASSETS> 27,108
<PP&E> 37,568
<DEPRECIATION> 12,862
<TOTAL-ASSETS> 98,449
<CURRENT-LIABILITIES> 16,244
<BONDS> 9,699
0
0
<COMMON> 16,723
<OTHER-SE> 18,640
<TOTAL-LIABILITY-AND-EQUITY> 98,449
<SALES> 38,476
<TOTAL-REVENUES> 51,708
<CGS> 24,685
<TOTAL-COSTS> 42,224
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,029
<INCOME-PRETAX> 7,864
<INCOME-TAX> 3,375
<INCOME-CONTINUING> 4,489
<DISCONTINUED> 0
<EXTRAORDINARY> 772
<CHANGES> 0
<NET-INCOME> 3,717
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
