<PAGE>
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For Quarter Ended September 30, 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 SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
ASSETS (Unaudited)
- ------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 548 $ 1,716
Accounts receivable, net 12,262 10,687
Inventories 9,157 9,086
Prepaid income taxes and other current assets 2,205 1,695
Deferred income tax benefits 2,670 3,027
------- -------
Total Current Assets $26,842 $26,211
------- -------
PLANT AND EQUIPMENT, AT COST:
Land $ 521 $ 521
Buildings and improvements 6,478 6,509
Machinery and equipment 24,525 23,149
Equipment leased to others 7,084 6,040
------- -------
$38,608 $36,219
Less: Accumulated depreciation 13,708 11,346
------- -------
Net Plant and Equipment $24,900 $24,873
------- -------
OTHER ASSETS:
Goodwill, net $34,012 $34,679
Intangible assets, net 298 377
Deferred charges, net 12,005 12,213
Investment in affiliate - 900
Other assets 66 78
------- -------
Total Other Assets $46,381 $48,247
------- -------
TOTAL ASSETS $98,123 $99,331
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt $ 5,398 $ 6,647
Accounts payable 4,330 3,655
Accrued liabilities 7,412 8,547
Accrued income taxes 104 -
------- -------
Total Current Liabilities $17,244 $18,849
------- -------
NON-CURRENT LIABILITIES:
Long-term debt, less current maturities $29,422 $34,548
Other non-current liabilities 11,569 11,050
Deferred income taxes 2,476 2,766
------- -------
Total Non-Current Liabilities $43,467 $48,364
------- -------
STOCKHOLDER'S EQUITY:
Common stock ($.01 par value; 100 shares
authorized, issued and outstanding) $ - $ -
Additional paid-in capital 16,723 16,723
Retained earnings 21,188 15,395
Additional minimum pension liability (324) (324)
Cumulative translation adjustment (175) 324
------- -------
Total Stockholder's Equity $37,412 $32,118
------- -------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $98,123 $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 SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
July 1, 1997 July 1, 1996
to to
September 30, 1997 September 30, 1996
------------------ ------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Net sales $18,982 $18,680
Net rentals 6,984 6,415
------- -------
Net revenues $25,966 $25,095
Cost of sales 12,731 12,784
Cost of rentals 2,409 2,381
Selling, general and administrative
expenses 6,140 5,842
------- -------
Income from operations $ 4,686 $ 4,088
Interest expense 884 1,177
Interest income (9) (8)
Other expense (income), net 342 -
------- -------
Income before income taxes $ 3,469 $ 2,919
Provision for income taxes 1,393 1,369
------- -------
Net income $ 2,076 $ 1,550
======= =======
</TABLE>
The accompanying Notes to the Unaudited Interim Consolidated Financial
Statements are an integral part of these statements.
2
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
January 1, 1997 January 1, 1996
to to
September 30, 1997 September 30, 1996
------------------ ------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Net sales $57,458 $61,289
Net rentals 20,216 18,295
------- -------
Net revenues $77,674 $79,584
Cost of sales 37,416 40,713
Cost of rentals 7,105 7,051
Selling, general and administrative expenses 18,983 18,537
------- -------
Income from operations $14,170 $13,283
Interest expense 2,913 4,047
Interest income (23) (31)
Other expense (income), net (53) 82
------- -------
Income before income taxes and extraordinary item $11,333 $ 9,185
Provision for income taxes 4,768 4,066
------- -------
Income before extraordinary item 6,565 5,119
Extraordinary item:
Loss on early extinguishment of debt,
net of income taxes of $479 and $410, respectively 772 614
(See Note 3)
Net income $ 5,793 $ 4,505
======= =======
</TABLE>
The accompanying Notes to the Unaudited Interim Consolidated Financial
Statements are an integral part of these statements.
3
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE PERIODS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 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 - - 4,505 - -
Cumulative translation adjustment - - - - (277)
----- --------- -------- --------- -----
BALANCE, SEPTEMBER 30, 1996 (unaudited) $ - $ 16,723 $ 13,038 $ (54) $ 349
===== ========= ======== ========= =====
BALANCE, DECEMBER 31, 1996 - $ 16,723 $ 15,395 $ (324) $ 324
Net income - - 5,793 - -
Cumulative translation adjustment - - - - (499)
----- --------- ------- --------- -----
BALANCE, SEPTEMBER 30, 1997 (unaudited) $ - $ 16,723 $ 21,188 $ (324) $(175)
===== ========= ======= ========= =====
</TABLE>
The accompanying Notes to the Unaudited Interim Consolidated Financial
Statements are an integral part of these statements.
4
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
January 1, 1997 January 1, 1996
to to
September 30, 1997 September 30, 1996
------------------- -------------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,793 $ 4,505
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 3,839 5,115
Extraordinary item - writeoff of capitalized financing costs 826 1,024
Deferred income tax provision (benefit) 67 397
Loss (gain) on disposal of fixed assets 6 259
Gain on sale of investment (559) -
Provision for losses on accounts receivable 1,545 988
Provision for obsolescence of inventories (79) 101
Loss (gain) on pension expense 50 (206)
Changes in assets and liabilities:
Accounts receivable (3,386) (1,357)
Inventories (236) (149)
Accounts payable 731 (118)
Accrued liabilities (1,056) (1,072)
Other current assets (402) 257
Income taxes payable (10) 244
Other non-current assets (367) (42)
Other non-current liabilities 519 (115)
-------- --------
Net Cash Provided by Operating Activities $ 7,281 $ 9,831
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash used for capital expenditures $ (2,837) $ (3,270)
Proceeds from sale of fixed assets 8 41
Proceeds from sale of investment 1,459 -
-------- --------
Net Cash (Used in) Investing Activities $ (1,370) $ (3,229)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in Revolving Credit Loan $ 7,500 $ 2,500
Payments of other long-term debt (14,511) (33,037)
Proceeds from other long-term debt - 25,000
Payments of deferred financing costs - (459)
Other equity transactions (32) (27)
-------- --------
Net Cash (Used in) Financing Activities $ (7,043) $ (6,023)
EFFECT OF EXCHANGE RATE CHANGES ON CASH $ (36) $ (46)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ (1,168) $ 533
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,716 45
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 548 $ 578
======== ========
</TABLE>
The accompanying Notes to the Unaudited Interim Consolidated Financial
Statements are an integral part of these statements.
5
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
SEPTEMBER 30, 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 September 30, 1997 and December 31, 1996, results of
operations for the three month and nine month periods ended September 30, 1997
and September 30, 1996, and cash flows for the nine month periods ended
September 30, 1997 and September 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>
September 30, 1997 December 31, 1996
------------------ -----------------
<S> <C> <C>
Raw materials $4,229 $4,653
Work in process 1,019 854
Finished goods 3,909 3,579
------ ------
Total inventories $9,157 $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>
September 30, 1997 December 31, 1996
------------------ ------------------
<S> <C> <C>
11.00% Senior Subordinated Notes $ 9,729 $18,343
Term Loan 17,044 22,222
Revolving Credit Loan 7,500 -
Other 547 630
------- -------
Total Debt $34,820 $41,195
Less Current Maturities (5,398) (6,647)
------- -------
Total Long-Term Debt $29,422 $34,548
======= =======
</TABLE>
The Senior Subordinated Notes above are stated net of unamortized discounts of
$521,000 and $1,157,000 at September 30, 1997, and December 31, 1996,
respectively.
6
<PAGE>
Current maturities of long-term debt as of September 30, 1997 consists of the
following (in thousands):
<TABLE>
<CAPTION>
Scheduled Payment
Date Amount
------------------ ------
<S> <C> <C>
Term Loan December 31, 1997 $1,312
Term Loan March 31, 1998 1,312
Term Loan June 30, 1998 1,312
Term Loan September 30, 1998 1,312
Other Various 150
------
Total Current Maturities $5,398
======
</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 September 30, 1997 was 7.27%. 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 nine month period ended September 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 Subord inated 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 nine month and six month periods ended September 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 September 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 $559,000 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.
The Company's payment obligations under the Indenture are fully and
unconditionally guaranteed on a joint and several basis by the Company and each
Guarantor; the obligations of each Guarantor under its Subsidiary Guarantee are
subordinated to all senior indebtedness of such Guarantor, including the
Company's borrowings under the Bank Credit Agreement.
With the intent that the Subsidiary Guarantees not constitute fraudulent
transfers or conveyances under applicable state or federal law, the obligation
of each Guarantor under its Subsidiary Guarantee is also limited to the maximum
amount as will, after giving effect to such maximum amount and all other
liabilities (contingent or otherwise) of such Guarantor that are relevant under
such laws, and after giving effect to any rights to contribution of such
Guarantor pursuant to any agreement providing for an equitable contribution
among such Guarantor and other affiliates of the Company of payments made by
guarantees by such parties, result in the obligations of such Guarantor in
respect of such maximum amount not constituting a fraudulent conveyance.
The following consolidating condensed financial data illustrates the
composition of the combined Guarantors. Management believes separate complete
financial statements of the respective Guarantors would not provide additional
material information which would be useful in assessing the financial
composition of the Guarantors. No single Guarantor has any significant legal
restrictions on the ability of investors or creditors
8
<PAGE>
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 SEPTEMBER 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 $ (236) $ 822 $ (33) $ (5) $ 548
Accounts receivable, net 4,739 4,917 2,448 158 12,262
Inventories 6,300 1,384 1,889 (416) 9,157
Prepaid income taxes and other current assets 1,944 152 109 - 2,205
Deferred income tax benefits 2,670 - - - 2,670
------- ------- ------ -------- -------
Total Current Assets $15,417 $ 7,275 $4,413 $ (263) $26,842
------- ------- ------ -------- -------
PLANT AND EQUIPMENT, AT COST:
Land $ 521 $ - $ - $ - $ 521
Buildings and improvements 6,244 18 216 - 6,478
Machinery and equipment 23,806 559 160 - 24,525
Equipment leased to others 7,073 - 11 - 7,084
------- ------- ------ -------- -------
$37,644 $ 577 $ 387 $ - $38,608
Less: Accumulated depreciation 13,269 371 68 - 13,708
------- ------- ------ -------- -------
Net Plant and Equipment $24,375 $ 206 $ 319 $ - $24,900
------- ------- ------ -------- -------
OTHER ASSETS:
Goodwill, net $31,424 $ 2,588 $ - $ - $34,012
Intangible assets, net 268 30 - - 298
Deferred charges, net 11,055 934 16 - 12,005
Investment in wholly-owned subsidiaries 15,325 - - (15,325) -
Investment in affiliates - - - - -
Other assets 66 - - - 66
------- ------- ------ -------- -------
Total Other Assets $58,138 $ 3,552 $ 16 $(15,325) $46,381
------- ------- ------ -------- -------
TOTAL ASSETS $97,930 $11,033 $4,748 $(15,588) $98,123
======= ======= ====== ======== =======
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt $ 5,357 $ 41 $ - $ - $ 5,398
Accounts payable 3,411 539 227 153 4,330
Accrued liabilities 6,286 636 490 - 7,412
Accrued income taxes 78 - 26 - 104
Advance account 1,358 (588) (770) - -
------- ------- ------ -------- -------
Total Current Liabilities $16,490 $ 628 $ (27) $ 153 $17,244
------- ------- ------ -------- -------
NON-CURRENT LIABILITIES:
Long-term debt, less current maturities $29,392 $ 30 $ - $ - $29,422
Other non-current liabilities 11,569 - - - 11,569
Deferred income taxes 2,476 - - - 2,476
------- ------- ------ -------- -------
Total Non-Current Liabilities $43,437 $ 30 $ - $ - $43,467
------- ------- ------ -------- -------
STOCKHOLDER'S EQUITY:
Common stock and
additional paid-in capital $16,723 $ 5,098 $2,000 $ (7,098) $16,723
Retained earnings 21,604 5,277 2,950 (8,643) 21,188
Additional minimum pension liability (324) - - - (324)
Cumulative translation adjustment - - (175) - (175)
------- ------- ------ -------- -------
Total Stockholder's Equity $38,003 $10,375 $4,775 $(15,741) $37,412
------- ------- ------ -------- -------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $97,930 $11,033 $4,748 $(15,588) $98,123
======= ======= ====== ======== =======
</TABLE>
10
<PAGE>
CONSOLIDATING STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 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 $42,929 $11,203 $8,079 $ (4,753) $57,458
Net rentals 11,127 19,472 726 (11,109) 20,216
------- ------- ------ -------- -------
Net revenues $54,056 $30,675 $8,805 $(15,862) $77,674
Cost of sales $30,474 $ 6,713 $5,063 $ (4,834) $37,416
Cost of rentals 2,185 15,568 461 (11,109) 7,105
Selling, general and administrative expenses 10,887 5,964 2,132 - 18,983
------- ------- ------ -------- -------
Income (loss) from operations $10,510 $ 2,430 $1,149 $ 81 $14,170
Interest expense $ 2,899 $ 7 $ 7 $ - $ 2,913
Intercompany interest expense (income) (17) 17 - - -
Other expense (income), net (2,280) 39 209 1,956 (76)
------- ------- ------ -------- -------
Income (loss) before income taxes $ 9,908 $ 2,367 $ 933 $ (1,875) $11,333
and extraordinary item
Provision for income taxes 3,423 958 387 - 4,768
------- ------- ------ -------- -------
Income (loss) before extraordinary item $ 6,485 $ 1,409 $ 546 $ (1,875) $ 6,565
======= ======= ====== ======== =======
</TABLE>
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 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 $ 6,005 $ 1,425 $ (149) - $ 7,281
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash used for capital expenditures (2,714) (59) (64) - (2,837)
Proceeds from sale of fixed assets 8 - - - 8
Proceeds from sale of investment 1,459 - - - 1,459
-------- ------- ------ ------ --------
Net Cash Used In Investing Activities $ (1,247) $ (59) $ (64) $ - $ (1,370)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in Revolving Credit Loan $ 7,500 - - - $ 7,500
Payments of other long-term debt (14,497) (14) - - (14,511)
Net increase (decrease) in advance account 1,103 (1,037) (66) - -
Intercompany dividends 488 - (488) - -
Other equity transactions - - (32) - (32)
-------- ------- ------ ------ --------
Net Cash Provided by (Used In) $ (5,406) $(1,051) $ (586) $ - $ (7,043)
Financing Activities
EFFECT OF EXCHANGE RATE
CHANGES ON CASH - - (36) - (36)
NET INCREASE (DECREASE) IN CASH -------- ------- ------ ------ --------
AND CASH EQUIVALENTS $ (648) $ 315 $ (835) - $ (1,168)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 407 507 802 - 1,716
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ (241) $ 822 $ (33) - $ 548
======== ======= ====== ====== ========
</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 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 NINE MONTHS ENDED SEPTEMBER 30, 1996
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Parent
and its Guarantor Non-guarantor Consolidated
Divisions Subsidiaries Subsidiaries Eliminations Totals
---------- ------------ ------------- ------------- -------
<S> <C> <C> <C> <C> <C>
Net sales $46,457 $ 9,772 $ 9,453 $ (4,393) $61,289
Net rentals 10,070 17,580 699 (10,054) 18,295
------- ------- ------- -------- -------
Net revenues $56,527 $27,352 $10,152 $(14,447) $79,584
Cost of sales $33,202 $ 5,934 $ 5,890 $ (4,313) $40,713
Cost of rentals 2,304 14,351 450 (10,054) 7,051
Selling, general and administrative expenses 11,040 4,984 2,513 - 18,537
------- ------- ------- -------- -------
Income (loss) from operations $ 9,981 $ 2,083 $ 1,299 $ (80) $13,283
Interest expense $ 4,029 $ 7 $ 11 $ - $ 4,047
Intercompany interest expense (income) (68) 68 - - -
Other expense (income), net (1,814) 32 173 1,660 51
------- ------- ------- -------- -------
Income (loss) before income taxes $ 7,834 $ 1,976 $ 1,115 $ (1,740) $ 9,185
and extraordinary item
Provision for income taxes 2,635 865 566 - 4,066
------- ------- ------- -------- -------
Income (loss) before extraordinary item $ 5,199 $ 1,111 $ 549 $ (1,740) $ 5,119
======= ======= ======= ======== =======
</TABLE>
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Parent
and its Guarantor Non-guarantor Consolidated
Divisions Subsidiaries Subsidiaries Eliminations Totals
---------- ------------- -------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES $ 8,806 $ 918 $ 107 $ - $ 9,831
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash used for capital expenditures (3,178) (45) (47) - (3,270)
Proceeds from sale of fixed assets 41 - - - 41
---------- ------- ----- ------- ---------
Net Cash Used In Investing Activities $ (3,137) $ (45) $ (47) $ - $ (3,229)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in Revolving Credit Loan 2,500 - - - 2,500
Payments of other long-term debt (33,029) (8) - - (33,037)
Proceeds from other long-term debt 25,000 - - - 25,000
Payments of deferred financing costs (459) - - - (459)
Net increase (decrease) in advance account 508 (517) 9 - -
Intercompany dividends 191 - (191) - -
Other equity transactions (28) - 1 - (27)
---------- ------- ----- ------------ ---------
Net Cash Provided by (Used In)
Financing Activities $ (5,317) $ (525) $(181) $ - $ (6,023)
EFFECT OF EXCHANGE RATE
CHANGES ON CASH - - (46) - (46)
---------- ------- ----- ------------ ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $ 352 $ 348 $(167) $ - 533
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD (990) 254 781 - 45
---------- ------- ----- ------------ ---------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ (638) $ 602 $ 614 $ $ 578
========== ======= ===== ============ =========
</TABLE>
13
<PAGE>
CONSOLIDATING STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 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 $14,395 $ 3,750 $2,508 $(1,671) $18,982
Net rentals 3,844 6,725 254 (3,839) 6,984
------- ------- ------ ------- -------
Net revenues $18,239 $10,475 $2,762 $(5,510) $25,966
Cost of sales $10,531 $ 2,238 $1,642 $(1,680) $12,731
Cost of rentals 707 5,381 160 (3,839) 2,409
Selling, general and administrative expenses 3,514 1,943 683 - 6,140
------- ------- ------ ------- -------
Income (loss) from operations $ 3,487 $ 913 $ 277 $ 9 $ 4,686
Interest expense 881 2 1 - 884
Intercompany interest expense (income) 9 (9) - - -
Other expense (income), net (532) 15 107 743 333
------- ------- ------ ------- -------
Income (loss) before income taxes and $ 3,129 $ 905 $ 169 $ (734) $ 3,469
extraordinary item
Provision for income taxes 1,061 307 25 - 1,393
------- ------- ------ ------- -------
Income (loss) before extraordinary item $ 2,068 $ 598 $ 144 $ (734) $ 2,076
======= ======= ====== ======= =======
</TABLE>
CONSOLIDATING STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Parent
and its Guarantor Non-guarantor Consolidated
Divisions Subsidiaries Subsidiaries Eliminations Totals
---------- ------------ ------------- ------------- --------
<S> <C> <C> <C> <C> <C>
Net sales $13,620 $3,533 $3,151 $(1,624) $18,680
Net rentals 3,532 6,166 243 (3,526) 6,415
------- ------ ------ ------- -------
Net revenues $17,152 $9,699 $3,394 $(5,150) $25,095
Cost of sales $10,256 $2,154 $1,975 $(1,601) $12,784
Cost of rentals 825 4,928 154 (3,526) 2,381
Selling, general and administrative expenses 3,378 1,685 779 - 5,842
------- ------ ------ ------- -------
Income (loss) from operations $ 2,693 $ 932 $ 486 $ (23) $ 4,088
Interest expense 1,172 2 3 0 1,177
Intercompany interest expense (income) (21) 21 0 0 -
Other expense (income), net (863) 11 91 753 (8)
------- ------ ------ ------- -------
Income (loss) before income taxes and $ 2,405 $ 898 $ 392 $ (776) $ 2,919
extraordinary item
Provision for income taxes 832 392 145 - 1,369
------- ------ ------ ------- -------
Income (loss) before extraordinary item $ 1,573 $ 506 $ 247 $ (776) $ 1,550
======= ====== ====== ======= =======
</TABLE>
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 nine month periods ended September 30, 1997 and September 30, 1996 (in
thousands):
Table 1
<TABLE>
<CAPTION>
Summary of Income Statement
---------------------------
Three Months Ended Nine Months Ended
Sept. 30, 1997 Sept. 30, 1996 Sept. 30, 1997 Sept. 30, 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net revenues $25,966 $25,095 $77,674 $79,584
Cost of revenues 15,140 15,165 44,521 47,764
Selling, general and administrative
expenses 6,140 5,842 18,983 18,537
------- ------- ------- -------
Income from operations $ 4,686 $ 4,088 $14,170 $13,283
Interest expense 884 1,177 2,913 4,047
Other expense (income), net 333 (8) (76) 51
------- ------- ------- -------
Income before income taxes and
extraordinary item $ 3,469 $ 2,919 $11,333 $ 9,185
Provision for income taxes 1,393 1,369 4,768 4,066
------- ------- ------- -------
Income before extraordinary item $ 2,076 $ 1,550 $ 6,565 $ 5,119
======= ======= ======= =======
</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 nine month periods ended September 30, 1997 and September 30,
1996:
<TABLE>
<CAPTION>
Table 2
Percentage of Total Net Revenues
--------------------------------
Three Months Ended Nine Months Ended
Sept. 30, 1997 Sept. 30, 1996 Sept. 30, 1997 Sept. 30, 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net Revenues.......................... 100.0% 100.0% 100.0% 100.0%
Costs and expenses
Cost of revenues............. 58.3 60.4 57.3 60.0
Selling, general and
administrative expenses..... 23.6 23.3 24.4 23.3
Interest expense............. 3.4 4.7 3.8 5.1
Other expense (income), net.. 1.3 - (.1) .1
Provision for income taxes... 5.4 5.4 6.1 5.1
----- ----- ----- -----
Income before extraordinary item...... 8.0% 6.2% 8.5% 6.4%
</TABLE>
Results of Operations - Year-to-Date September 30, 1997
Consolidated net revenues for the nine month period ended September 30, 1997,
decreased 2.4% to $77,674,000 from $79,584,000 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 $4,289,000 in the nine month period ended
September 30, 1996. The Packaging Products Segment also recorded lower revenues
due primarily to currency translation rate changes which reduced revenues
$1,161,000 within this business segment in comparison to the corresponding prior
year period. The Construction Tool Segment revenue increased as a result of
improved drywall taping tool rentals and sales and increased merchandise sales
through Company-operated stores.
Consolidated cost of revenues for the nine month period ended September 30,
1997, decreased 6.8% to $44,521,000 from $47,764,000 in the comparable period in
1996. The decline in cost of revenues was primarily attributable to the revenue
decrease. 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 and tool service center efficiency.
The Company's margins also improved due to revenue growth in higher margin
product lines.
Consolidated selling, general and administrative expenses ("SG&A") for the
nine month period ended September 30, 1997, increased 2.4% to $18,983,000 from
$18,537,000 in the comparable period in 1996. Bad debt expense increased
$557,000 as a result of revenue growth within the Construction Tool Segment.
Revenue growth within this business segment is often accompanied by comparable
increases in bad debt expense. Salaries and incentive compensation also
increased primarily as a result of revenue growth within the Construction Tool
Segment.
Interest expense for the nine month period ended September 30, 1997, decreased
28.0% to $2,913,000 from $4,047,000 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 bank credit refinancing and the repurchase and extinguishment of $9,250,000
of the 11% Subordinated Notes in May 1997.
16
<PAGE>
Other income was $76,000 for the nine month period ended September 30, 1997,
compared to other expense of $51,000 in the comparable period in 1996.
Income before income taxes (IBT) and extraordinary charges due to the early
extinguishment of debt for the nine month period ended September 30, 1997,
increased 23.4% to $11,333,000 from $9,185,000 in the comparable period in 1996.
As discussed in the preceding paragraphs, this improvement was primarily due to
the result of improved operating margins and lower interest expense.
Income taxes for the period ended September 30, 1997, were 42.1% of IBT
compared to 44.3% in the comparable period in 1996.
Results of Operations - Quarter Ended September 30, 1997
Consolidated net revenues for the three month period ended September 30, 1997,
increased 3.5% to $25,966,000 from $25,095,000 in the comparable period in 1996.
The increase was primarily attributable to the revenue growth in the
Construction Tool Segment due to improved drywall taping tool rentals and sales
and increased merchandise sales through Company-operated stores. The Packaging
Products Segment also recorded higher revenues with stronger sales into Latin
America.
Consolidated cost of revenues for the three month period ended September 30,
1997, decreased 0.2% to $15,140,000 from $15,165,000 in the comparable period in
1996. The decrease was primarily attributable to a change in business mix with a
reduction in revenues within the Metal Products Segment, accompanied by a growth
in revenues within the Construction Tool Segment.
Consolidated selling, general and administrative expenses ("SG&A") for the
three month period ended September 30, 1997, increased 5.1% to $6,140,000 from
$5,842,000 in the comparable period in 1996. SG&A increased primarily due to
revenue growth occurring within the Construction Tool Segment. The Company
incurred additional advertising and promotional expense, travel and
entertainment, and compensation expense within this business segment.
Interest expense for the three month period ended September 30, 1997,
decreased 24.9% to $884,000 from $1,177,000 in the comparable period in 1996.
The decrease was the result of both a reduction in outstanding debt and lower
interest rates with the repurchase and extinguishment of $9,250,000 of the 11%
Subordinated Notes in May 1997.
Other expense was $333,000 for the three month period ended September 30,
1997, compared to other income of $8,000 in 1996. The increase primarily relates
to efforts to sell one of the Company's divisions.
Income before income taxes (IBT) and extraordinary charges due to the early
extinguishment of debt for the three month period ended September 30, 1997,
increased 18.8% to $3,469,000 from $2,919,000 in the comparable period in 1996.
As discussed in the preceding paragraphs, this improvement was primarily the
result of improved revenues and operating margins, and lower interest expense.
Income taxes for the period ended September 30, 1997, were 40.2% of IBT
compared to 46.9% in the comparable period in 1996. The Company lowered its
estimate of its state income tax liability and adjusted its year to date
accruals to reflect its recent estimates. In 1996, the Company had adjusted
upward its accruals for state income taxes in the third quarter.
17
<PAGE>
Liquidity and Capital Resources
The Company generated cash from operations of $7,281,000 for the nine month
period ended September 30, 1997, compared to $9,831,000 for the nine month
period ended September 30, 1996, and had cash on hand of $548,000. The reduction
in cash generated from operations from the comparable prior year period was
primarily due to the increase in working capital.
At September 30, 1997, the Company had working capital of $9,598,000
compared to working capital of $7,362,000 at December 31, 1996. Receivables
have increased $1,575,000 from December 31, 1996, principally as a result of
revenue growth. Inventories have increased $71,000 from December 31, 1996. At
September 30, 1997, current liabilities decreased $1,605,000 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 nine month period ended September 30, 1997, were
$2,837,000. Management believes its cash flow from operations, together with its
revolving loan and leasing credit availabilities, will be sufficient to meet its
capital expenditure requirements for the remainder of 1997 and 1998. The Company
amended the Bank Credit Agreement to increase the capacity of capital leases
from $1,000,000 to $2,000,000.
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 nine month period ended September 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, legal expenses, agent fees, and other costs of the transaction.
The Company has entered into an agreement for the environmental remediation of
a site formerly owned by the Company. (See PART II - OTHER INFORMATION, Item 1.
Legal Proceedings.) Under the agreement, the Company deposited $520,000 in
October 1997 for the remediation. The ultimate cost to the Company under this
agreement may increase in certain circumstances. It is not as yet known whether
the remediation will proceed as specified in the agreement.
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, revolving loan capacity,
and leasing credit availability 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 September 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.
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.
The Company has entered into an agreement with the party responsible for an
adjoining site who also have been in the process of addressing concerns raised
by NYSDEC which will transfer responsibility to remediate the formerly-owned
property to the party remediating the adjoining site. The Company has paid in
October 1997 the $520,000 payable under the agreement and has an exposure of up
to an additional $120,000 if sediment contamination is higher than estimated by
the Company's environmental consultants. In the event the party responsible for
the adjoining site are unable to consummate an agreement with NYSDEC within one
year of its agreement with the Company, the Company has the option of the return
of its contribution to the remediation of the sites and pursuing its own
remediation plan. Should NYSDEC not allow the disposal of contaminated soil from
the property formerly owned by the Company on the adjoining site, the agreement
for the joint remediation of both sites can be nullified and funds returned to
the Company. The Company is pursuing contributions from directors and officers
of other users of the previously owned property. No estimate can be given as to
possible recovery.
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.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
19
<PAGE>
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)/
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)/
20
<PAGE>
Item 6(a) continued
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./(7)/
10.18 Second Amendment to Loan Agreement dated September 11, 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.
/(7)/ Previously filed as an exhibit to the Company's Form 10-Q for the period
ended March 31, 1997 filed with the Securities and Exchange Commission
on May 12, 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: November 10, 1997 /s/ Lyle J. Feye
------------------------------
Lyle J. Feye
Vice President Finance, Treasurer,
Chief Financial Officer
22
<PAGE>
Exhibit 10.18
SECOND AMENDMENT TO LOAN AGREEMENT
----------------------------------
THIS SECOND AMENDMENT TO LOAN AGREEMENT, dated as of September 11, 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, as amended by a First Amendment to Loan Agreement,
dated as of March 10, 1997 (the "Loan Agreement").
B. Borrowers have requested that Agent and Lenders enter into this
Amendment in order to amend certain 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 Clause (xi) of Subsection 7.3(a) of the Loan Agreement is hereby
deleted and the following is inserted in its stead:
"(xi) Indebtedness not exceeding $2,000,000 at any time outstanding
incurred to finance the cost of the acquisition of real or personal tangible
property (including Capital Leases); provided that such Indebtedness shall be at
least 70% and shall not exceed 100% of the fair value (as determined in good
faith by the Board of Directors of AXIA) of such property, and provided, further
that such Indebtedness is not secured by any Lien other than a Lien referred to
in clause (d) of Section 7.9,"
2. MISCELLANEOUS
-------------
2.1 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.
<PAGE>
2.2 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 connection therewith or referred to or incorporated
therein, the terms of this Amendment shall govern and control.
2.3 Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed to be an original.
2.4 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.
2.5 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: /s/ Jim Hartlieb
-------------------------------
Name: Jim Hartlieb
-------------------------
Title: Assistant Vice President
AMES TAPING TOOL SYSTEMS, INC. ------------------------
By: /s/ Lyle J. Feye THE NORTHERN TRUST COMPANY, as
------------------------------- Lender
Name: Lyle J. Feye
Title: Vice President By: /s/ R. J. Mallert
-------------------------------
Name: R. J. Mallert
-----------------------------
TAPETECH TOOL CO., INC. Title: Vice President
----------------------------
By: /s/ Lyle J. Feye
-------------------------------
Name: Lyle J. Feye NATIONAL CITY BANK, as Lender
Title: Vice President
By: /s/ D. Tobon
-------------------------------
Name: D. Tobon
-------------------------
Title: Vice President
------------------------
2
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