<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
COMMISSION FILE NUMBER 33-78922
AXIA INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 13-3205251
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 WEST 22ND STREET, SUITE 134
LOMBARD, ILLINOIS 60148
(Address of principal executive office) (zip code)
Registrant's telephone number, including area code:
(630) 629-3360
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
11% SERIES B SUBORDINATED NOTES DUE 2001
GUARANTEE OF 11% SERIES B SUBORDINATED NOTES DUE 2001
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.
(1) Yes [x] No ____
-----
(2) Yes [x] No ____
-----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[_]
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
AXIA Incorporated, the "Company," is a diversified manufacturer and marketer
of (i) formed and coated wire products, material handling and storage equipment,
(ii) specialized packaging machinery, and (iii) tools and other products for
finishing drywall in new and renovated housing and commercial construction. Ames
Taping Tool Systems, Inc. ("ATTS") and TapeTech Tool Co., Inc. ("TapeTech") are
wholly-owned subsidiaries of the Company and are guarantors of the Company's 11%
Series B Subordinated Notes ("Notes"). ATTS and TapeTech are each a Guarantor
("Guarantor"), and collectively, the "Guarantors." Mid America Machine Corp.
("MAMCO") ceased operations in 1995.
The Company was formed in 1891 as a private partnership to manufacture cold-
drawn steel bars used in agricultural machinery, railroad equipment and the
automotive industry. The Company was later incorporated as Bliss and Laughlin
Steel Co. and in 1932 listed on The New York Stock Exchange. Beginning in 1962,
the Company began a program to acquire smaller industrial companies to diversify
from the steel business, and in 1982 the Company changed its name to AXIA
Incorporated ("AXIA"). In October 1984, AXIA was acquired through a leveraged
buyout by affiliates of Merrill Lynch & Co., Inc., certain members of senior
management, and other investors. As part of the buyout, the new company sold
Bliss and Laughlin Steel Co. Following the buyout, AXIA divested certain
operations and acquired others. AXIA effected a recapitalization in 1989, paying
a substantial dividend to its stockholders and refinancing the Company's capital
structure. In 1992, AXIA sold two of its businesses to The Stanley Works. Today,
AXIA is comprised of three business segments: Metal Products Segment, Packaging
Products Segment and the Construction Tool Segment (see chart on page 8).
On March 15, 1994, AXIA was acquired by AXIA Holdings ("Holdings"), a
corporation organized by Cortec Group Fund, L.P. as a result of which it was
completely recapitalized. For convenience, AXIA prior to its recapitalization is
referred to as the "Predecessor Company." On that date, Axia Acquisition Corp.
("Acquisition"), a wholly-owned subsidiary of Holdings, entered into a merger
with AXIA in which AXIA was the surviving corporation (the "Transaction").
DESCRIPTION OF THE BUSINESS SEGMENTS
The discussion of revenues for the twelve months ended December 31, 1994,
include the applicable results of the Predecessor Company for the period ended
March 15, 1994.
METAL PRODUCTS SEGMENT. The Metal Products Segment ("MPS") produces dishwasher
racks primarily serving the premium quality dishwasher market, specializes in
the custom design and manufacture of high volume bare and coated wire products,
and manufactures stackable storage racks and telescoping, flexible, gravity-
powered and motorized conveyors for the material handling industry. Revenues
from MPS accounted for 44% of AXIA's 1996 revenues.
MPS has four plants strategically located near major customers: (i) McKenzie,
Tennessee supplying dishracks; (ii) Cleveland, Ohio producing dishdrainers,
storage racks, and conveyors, (iii) Beaver Dam, Kentucky manufacturing
dishracks, dishrack components, and other coated wire products, and (iv)
Clinton, North Carolina scheduled to begin production of dishracks and dishrack
components for a new customer in 1997.
Production of dishracks, dishdrainers, and other formed wire products requires
specialized forming and assembly equipment and, in many circumstances, high
quality powder coating lines. MPS is an active participant in the dishrack and
component design and supply programs for each of its customers. Dishwasher
marketing groups continuously push for dishracks with identifiable component
features such as adjustable shelves, peg rows and finishing innovations. The
customer demands that the machines be engineered for functional advantage, but
the prime objective is unique enhancements to attract consumer interest and to
provide differentiation of features for price point advantage. MPS manufactures
and supplies coated baskets and other components for major domestic brand
dishwashers including Maytag, Whirlpool/KitchenAid and General Electric.
1
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Dishdrainers for Rubbermaid have become an increasingly important revenue
source. In 1995, MPS initiated the supply of a new design dishdrainer and began
coating the entire dishdrainer product line. MPS is working with its customers
to provide additional value added services and product enhancements.
MPS is also a manufacturer of telescoping, flexible, gravity powered and
motorized conveyers (Nestaflex) and portable, stackable storage racks
(Nestainer). Nestaflex products are used by retailers for the loading and
unloading of tractor trailers at store sites and at distribution centers. They
are also used in assembly, packaging and mailing operations. Nestainer rack
systems are sold to a variety of customers within the retail, distribution,
food, chemical, pharmaceutical and electronics industries for storage and
transportation purposes.
PACKAGING PRODUCTS SEGMENT. The revenues from the Packaging Products
Segment ("PPS") accounted for 20% of AXIA's 1996 revenues. PPS is a
manufacturer, supplier and marketer of handheld and stationary industrial sewing
and sealing units used for bag closing. The bag closing product line includes
(i) hand-held or "portable" sewing machines for sealing multi-wall bags, (ii)
stationary industrial sewing units and accessories for highly automated
packaging facilities, (iii) proprietary devices for closing multi-wall paper
bags and (iv) machines for heat sealing plastic bags. This unique equipment
utilizes various sewing, hot melt adhesive, double fold and poly sealing
technologies. PPS also markets a line of consumable support products such as
thread, needles, and tape. PPS products and technology are widely used for
packaging chemicals, minerals, agricultural commodities, grocery products, pet
foods, and facilitating the textile manufacturing process by joining rolls of
fabric and carpet to eliminate extensive rethreading downtime. PPS continues to
develop other component equipment in a bag filling line, including bag hangers
and presenters. PPS' manufacturing facility is located in Statesville, North
Carolina. PPS markets its products through independent U.S. and foreign
distributors, and four international distribution subsidiaries in Europe and the
Far East. The international subsidiaries are located in Belgium, France, the
United Kingdom and Singapore, and accounted for 59% of PPS' 1996 revenues.
The bag making operations of Mid America Machine Corp. were discontinued in
1995 and MAMCO's assets were sold or licensed. MAMCO accounted for less than 1%
of the Company's revenues in that year.
CONSTRUCTION TOOL SEGMENT. The Construction Tool Segment ("CTS"), which
includes subsidiary companies Ames Taping Tools Systems, Inc. ("ATTS"), TapeTech
Tool Co., Inc. ("TapeTech"), and Ames Taping Tools of Canada, Limited, is a
producer, marketer and distributor of automatic drywall taping and finishing
("ATF") tools which are rented and/or sold to professional interior finishing
contractors to finish drywall joints prior to painting, wallpapering and other
forms of final treatment. The bulk of CTS' business is rental (as opposed to
the sale) of ATF tools. ATTS rents ATF systems through a network of 64 company
operated leased retail stores and 42 outlets operated by franchisees located
throughout the U.S. and Canada and sells other construction tools and related
merchandise in its stores. After consolidating two west coast repair centers in
1996, CTS maintains three repair centers which service ATTS rental tools.
Revenues from the CTS business segment accounted for 36% of AXIA's 1996 revenues
of which 97% was contributed by ATTS and TapeTech.
CTS' end-use customers are local and regional interior finishing
contractors. CTS, through the use of its large mailing lists (approximately
25,000 names, of whom 8,000 are active customers in any given month), has
developed a direct marketing approach based on telemarketing, direct mail and
targeted sales promotions coupled with the efforts of company operated stores
and stores operated by franchisees. ATF market penetration is heaviest on the
west coast, particularly in California. CTS' goal is to service all of the major
housing markets in the U.S. and Canada and to significantly increase its
penetration in the eastern region. The overall market for CTS' products is tied
principally to new construction, particularly new housing starts. However, CTS'
products are also used in commercial and repair/rehabilitation work. To increase
the rental of ATF tools, CTS has focused on penetrating those markets where hand
taping is predominant and automatic tools have not yet been widely accepted.
TapeTech, acquired by the Company in 1982, sells ATF tools under the
"TapeTech" and "TapeMaster" brand names. TapeTech tools are sold through
approximately 152 independent authorized dealers and distributors, some of which
further distribute through sub-dealers. TapeMaster tools are distributed through
a network of approximately 86 authorized independent dealers, the majority of
which sell the tools to individual customers.
2
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ATTS' 64 company operated stores, though primarily oriented to the rental of
ATF tools, sell a variety of construction hand tools and drywall supplies
including taping knives and finishing tape. The stores also rent and sell
larger pieces of equipment, such as dustless sanders, spray rigs and panel
lifts. In general, stores are leased for a period of three years or less.
Revenue by segment for fiscal years 1996, 1995 and 1994 appears below:
<TABLE>
<CAPTION>
AXIA INCORPORATED
REVENUE BY PRODUCT GROUP
(IN THOUSANDS)
1996 1995 1994
------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Metal Products Segment
Coated & Formed
Wire Products $ 39,655 38% $ 42,649 89% $46,099 46%
Storage Racks &
Conveyors 6,014 6 5,365 5 4,781 5
-------- -- -------- -- ------- --
Total MPS 45,669 44 48,014 46 50,880 51
Packaging Products Segment
Bag Closing 21,103 20 21,895 21 17,562 18
Bag Making -- 563 1 1,121 1
-------- -- -------- -- ------- --
Total PPS 21,103 20 22,458 22 18,683 19
Construction Tool Segment
Tool Rental 25,016 24 22,412 21 19,307 19
Tool & Store
Merchandise Sales 12,999 12 11,442 11 11,027 11
-------- -- -------- -- ------- --
Total CTS 38,015 36 33,854 32 30,334 30
Total Revenues $104,787 100% $104,326 100% $99,897 100%
======== === ======== === ======= ===
</TABLE>
The Company has restated its segment data to reflect similarity of product
lines rather than divisional organization. Management believes the new segment
format more appropriately reflects similarities of manufacturing processes as
well as the shared production facility in Cleveland, Ohio. As a result, the
storage rack and conveyor product lines, formerly included with bag closing and
bag making operatings comprising the Packaging Product Segment (formerly
reported as the Fischbein business segment), are now combined with formed and
coated wire products as the Metal Products Segment. These products represented
less than 14% of the total revenues at MPS in 1996 and less than 6% of the
Company's total revenues.
See Note 13 of the Notes to the Consolidated Financial Statements for
additional segment data.
COMPETITION
MPS competes directly with the dishwasher manufacturer's in-house
manufacturing capability. General Electric, Frigidaire, and Whirlpool,
dishwasher manufacturers, have dishrack manufacturing capabilities. As MPS is
competing against the self-manufacture of its product by larger companies with
more extensive financial resources, it competes on quality, flexibility and
innovation. Dishrack customers accounted for 27% of the Company's 1996 revenues.
MPS' other bare and coated wire products and conveyor and storage rack
businesses operate in a highly competitive environment.
3
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Price, including freight costs, is very important in the purchase decision
process. Competitors have similar products available (see "Customers").
PPS' products typically serve a specific niche market or a specific geographic
area. As a result, PPS does not compete with any one company in all its product
lines. As PPS offers consumable products that it does not manufacture, such as
thread, there are numerous alternative outlets available for the purchase of
these items by the customer.
CTS' tools are used for the interior finishing of drywall. CTS, therefore,
competes with alternate methods of finishing as well as with other ATF tool
manufacturers and distributors. CTS' most significant competition is from
traditional hand finishing, which CTS believes accounts for 55% of all drywall
taping. CTS' stores also operate in a highly competitive environment with
respect to the sale of merchandise. These products are also available from
contractor supply yards, building material retailers, and other sources.
MATERIALS
Raw materials and products essential to each of the Company's businesses are
available from a number of sources, and the Company is not dependent upon any
single source of supply. Historically, the Company has not been affected
significantly by shortage of raw materials.
CUSTOMERS
Two of MPS' customers each accounted for more than 10% of the Company's 1996
revenues. Together, dishrack customers accounted for approximately 27% of the
Company's consolidated revenues for 1996. No material part of any other segment
of the Company's business is dependent upon a single customer or a small group
of customers.
The Company closed its manufacturing plant in Beaver Dam, Kentucky, in
December 1994. The plant had provided dishwasher racks to the General Electric
Company's (GEC) Louisville, Kentucky plant since 1978. GEC had advised the
Company of its decision not to order dishracks beginning in 1995. Whirlpool
began to self-manufacture the KitchenAid brand lower racks in 1996 that were
produced at the Company's Canal Winchester, Ohio, facility. As a result, this
manufacturing facility was closed in 1996. As the property was leased until
March 1997, the building was returned to the lessor who had another tenant
prepared to lease the facility. Dishrack component and service rack volumes for
Whirlpool/KitchenAid, serviced by Beaver Dam and Canal Winchester, were
consolidated into the Beaver Dam plant which was then reopened in 1996.
Additionally in 1996, the Company began re-supplying GEC from this location,
though revenues were substantially lower than levels recorded in 1994.
In 1995, Frigidaire advised the Company of their decision to re-enter the
dishrack manufacturing business. As a result of this customer's decision to
self-manufacture dishracks, the Company's Clinton, North Carolina facility was
temporarily shutdown in 1996. New business has been secured for this facility
which is scheduled to resume production activities in 1997. Frigidaire
accounted for a total of 4% of the Company's 1996 revenues.
BACKLOG
The Company believes that its order backlog is not material to an
understanding of its business, since most products are available from inventory
or can be produced in a short period of time. No segment of the Company's
business is seasonal to any material extent.
RESEARCH AND DEVELOPMENT
The Company believes that research and development activities are not material
to its businesses. The Company utilizes a number of trademarks and trade names
which are well-recognized by its customers. The Company believes that the loss
of any one of its patents, trademarks, licenses, franchises and concessions
would not have a material impact on any segment of its business.
4
<PAGE>
REGULATIONS; ENVIRONMENTAL MATTERS
The Company is subject to various federal, state and local laws and
regulations governing the use, discharge and disposal of hazardous materials.
Compliance with current laws and regulations has not had, and is not expected to
have, a material adverse effect on the Company's financial condition or
operating results.
On February 25, 1991, the New York State Department of Environmental
Conservation (the "NYSDEC") sent a notice letter to the Company alleging that it
had documented the release and/or threatened release of "hazardous substances"
and/or the presence of "hazardous wastes" at a property located in Buffalo, New
York, formerly owned by Bliss and Laughlin Steel Company, a predecessor of the
Company. The NYSDEC has determined that the Company, among others, may be a
responsible party through its past ownership of the property. In the notice
letter, the NYSDEC requested that the Company agree to enter into negotiations
with the NYSDEC to execute a consent decree with respect to the financing by the
Company of a remedial investigation, as well as a feasibility study for remedial
action.
The notice letter listed four other potentially responsible parties, each of
whom received a similar letter from the NYSDEC. In addition, the Company has
notified the insurance companies it has identified as having provided coverage
during the period of the Company's ownership of the property. The initial
response of those insurance companies was to deny coverage for the liability
costs.
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 formerly owned by the Company. 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
discussions with the parties responsible for the adjoining property as discussed
above (see also Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Liquidity and Capital Resources).
EMPLOYEES
As of December 31, 1996, the Company had 920 employees, of which 122 were
represented by unions. The Company's union contracts expire in 1997 and 1999.
Foreign subsidiaries accounted for 47 of the Company's total employment. The
Company believes that its relations with its employees are satisfactory.
SUPPLIERS
Management believes that it has good relations with its suppliers and that
there are adequate sources of supply for the materials required in the conduct
of the Company's businesses.
BUSINESS COMBINATIONS AND DISPOSITIONS
The management of the Company will evaluate its business and organizational
structure on an ongoing basis to determine actions it believes to be in the best
interests of the Company and its stockholders. Management may consider
acquisitions, divestitures or the reorganization of any line of its businesses
and is currently in the process of seeking potential purchasers for the sale of
one of its divisions.
5
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INVESTMENT
At December 31, 1996, the Company had an investment in Andamios Atlas, S.A. De
C.V., located in Mexico. The Company accounted for this investment utilizing
the cost method and recorded income only to the extent it received dividends.
This investment was sold in February 1997. The Company received no dividend
income on its investment in 1995 or 1996. In 1994, the Company received
$282,000 in dividend income (see Note 17 of the Consolidated Financial
Statements).
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES.
See Note 14 to the Company's Consolidated Financial Statements.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the name, age and position held by the
directors, executive officers, and certain significant employees of the Company
and the Guarantors.
<TABLE>
<CAPTION>
NAME AGE POSITION OR OFFICE
- ---- --- ------------------
<S> <C> <C>
Dennis W. Sheehan 62 Director, President and Chief Executive Officer of the Company.
Director and Chairman of ATTS and TapeTech.
Lyle J. Feye 43 Vice President Finance, Chief Financial Officer and Treasurer of the Company.
Vice President and Director of ATTS and TapeTech.
David H. Chesney 53 President and General Manager of the Nestaway division.
Robert G. Zdravecky 50 President and General Manager of the Ames division and President of
ATTS and TapeTech.
Ian G. Wilkins 58 President and General Manager of the Fischbein and Flexible
Material Handling divisions.
T. Richard Fishbein 58 Director of the Company.
</TABLE>
Mr. Sheehan and Mr. Fishbein are the only Directors of the Company. Mr.
Sheehan and Mr. Feye are the only Directors of each of the Guarantors. The
business experience during the last five years and other information relating to
each of the executive officers and directors identified above is set forth
below:
DENNIS W. SHEEHAN
Dennis W. Sheehan is Director, President and Chief Executive Officer of the
Company and has held these positions since 1984. He joined AXIA in 1977 as Vice
President and General Counsel and Secretary. Mr. Sheehan is Director and
Chairman of ATTS and TapeTech. Mr. Sheehan serves on the Boards of Directors of
the following publicly traded companies: Allied Healthcare Products, Inc.
(Chairman), St. Louis, Missouri, a manufacturer and distributor of healthcare
products, and related products, and Greenfield Industries, Inc., Augusta,
Georgia, a manufacturer and distributor of expendable cutting tools and related
products.
LYLE J. FEYE
Lyle J. Feye is Vice President Finance, Chief Financial Officer, and Treasurer
of the Company and a Director and Vice President of ATTS and TapeTech. Prior
to his election to his present positions with the Company in March 1994, Mr.
Feye was Corporate Controller and Assistant Treasurer of the Company for five
years. Before joining AXIA, Mr. Feye served in various positions with the
Continental Group Inc. (formerly the Continental Can Company) from 1975 to 1988,
including division level financial and accounting management.
6
<PAGE>
DAVID H. CHESNEY
David H. Chesney is President and General Manager of the Nestaway division and
has held these positions since 1991. Prior to joining AXIA, Mr. Chesney served
as General Manager of Lawrence Industries, a division of Electrolux, an
assembler of vacuum cleaners and manufacturer of vacuum cleaner components,
rubber and plastic hoses, and electrical cord sets and harnesses, from 1987 to
1991. From 1967 to 1987, Mr. Chesney worked for General Electric Company where
he held a variety of positions, the most recent being Materials Manager &
Quality Assurance Manager with the Major Appliance Business Group.
ROBERT G. ZDRAVECKY
Robert G. Zdravecky is President and General Manager of the Ames division and
President of ATTS and TapeTech, positions he has held since 1993. Mr.
Zdravecky first joined AXIA in 1986 as General Manager of Sales and Marketing
for Ames. He was promoted to Vice President of the Construction Tools Group, a
position he held until 1992, when his employment with AXIA terminated as a
result of the sale of two of AXIA's divisions to The Stanley Works. He rejoined
AXIA in 1993 in his current position. Prior to joining AXIA in 1986, Mr
Zdravecky served as Vice President-Marketing and Sales, with Adhesion
Engineering Co. from 1981 to 1986.
IAN G. WILKINS
Ian G. Wilkins is the President and General Manager of the Fischbein and the
Flexible Material Handling divisions. Mr. Wilkins joined the Company in May of
1994. Prior to joining the Company, from 1988 to 1994, Mr. Wilkins was Chief
Operating Officer and General Manager of HK Metalcraft Manufacturing, a
manufacturer of metal assemblies, components and other precision products
primarily for the auto industry. Mr. Wilkins' responsibilities included
supervision of manufacturing, sales and customer service. From 1984 to 1988,
Mr. Wilkins, as Vice President of Manufacturing, directed the manufacturing
operations of the Scott Aviation, a Division of Figgie International, a producer
of oxygen equipment and health and safety products.
T. RICHARD FISHBEIN
Mr. Fishbein has been a partner of the Cortec Group from 1987 to present. He
also serves as a director of Atco Products, Inc. Mr. Fishbein formerly was
Managing Director of Bear, Stearns & Co. Inc. from 1985 to 1987.
7
<PAGE>
AXIA INCORPORATED
Metal Products Segment
-Nestaway Division
-Flexible Material Handling Division
Packaging Products Segement
-Fischbein Division
-Subsidiaries
-Compagnie Fischbein, S.A. (Belgium)
-Fischbein France S.A.R.L. (France)
-Fischbein Packaging Pte Ltd. (Singapore)
-Fischbein Ltd. (United Kingdom)
Construction Tools Segment
-Ames Division
-Subsidiaries
-Ames Taping Tool Systems, Inc.
-Ames Taping Tools of Canada Ltd.
-Tape Tech Tool Co., Inc.
The chart above details the Company's operation by segment and not by management
reporting organization. The Company has a Subsidiary in Denmark which has no
employees and is not currently active in a trade or business. All subsidiaries
are subsidiaries of the Company.
8
<PAGE>
ITEM 2. PROPERTIES
Real Estate and Facilities
The Company believes it has adequate capacity to meet the current
requirements of its customers. The major properties of the Company are listed
below. The Company also leases several offices, three repair centers, a
warehouse, and 64 stores. These locations are historically leased on a short-
term basis of one to five years to provide maximum flexibility. The business
conducted at these leased locations is relocatable and no individual lease or
location is material to the Company.
AXIA INCORPORATED
-----------------
Real Estate and Facilities
--------------------------
<TABLE>
<CAPTION>
SIZE IN
LOCATION SQ. FEET PRINCIPAL PRODUCTS/TYPE OPERATION
- -------- -------- ---------------------------------
<S> <C> <C>
Garfield Heights, Cleveland, Ohio.............. Fabrication of dishdrainer racks, wire products,
(Owned) 119,000 and storage racks and assembly of material
handling conveyers
McKenzie, Tennessee............................ 62,000 Fabrication of dishracks
(Owned)
Clinton, North Carolina........................ 60,000 Fabrication of dishracks
(Owned)
Statesville, North Carolina.................... 50,000 Assembly and manufacture of industrial
(Leased until February 1, 2003) sewing and packaging machines
Brussels, Belgium.............................. 25,000 Assembly and warehousing of packaging
(Owned) machines
Paris, France.................................. 17,000 Assembly and distribution of packaging
(Owned) machines
Beaver Dam, Kentucky........................... 48,000 Fabrication of dishracks, dishrack components
(Owned) and other formed wire products
</TABLE>
Domestic owned U.S. locations listed above are collateral under the Company's
bank credit agreement. The Canal Winchester facility was closed and returned to
the lessor in 1996 (see Item 1. BUSINESS - Customers).
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in a number of lawsuits incidental to its
business. Including the environmental matter discussed below, the Company
believes that none of these proceedings, individually, or in the aggregate, will
have a material adverse effect on the Company's financial condition or operating
results (see Item 1. BUSINESS - Regulations; Environmental Matters and Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Liquidity and Capital Resources for further discussion of
environmental matters).
The Company's operations are subject to various Federal, state and local
environmental laws and regulations. The Company believes that it is in
substantial compliance with current laws and regulations. Based on information
available at this time, the Company believes that compliance with current laws
and regulations has not had, and is not expected to have, a material effect on
the Company's financial condition or operating results.
9
<PAGE>
On February 25, 1991, the New York State Department of Environmental
Conservation (the "NYSDEC") sent a notice letter to the Company alleging that it
had documented the release and/or threatened release of "hazardous substances"
and/or the presence of "hazardous wastes" at a property located in Buffalo, New
York, formerly owned by Bliss and Laughlin Steel Company, a predecessor of the
Company. The NYSDEC has determined that the Company, among others, may be a
responsible party through its past ownership of the property. In the notice
letter, the NYSDEC requested that the Company agree to enter into negotiations
with the NYSDEC to execute a consent decree with respect to the financing by the
Company of a remedial investigation, as well as a feasibility study for remedial
action.
The notice letter listed four other potentially responsible parties, each
of whom received a similar letter from the NYSDEC. In addition, the Company has
notified the insurance companies it has identified as having provided coverage
during the period of the Company's ownership of the property. The initial
response of those insurance companies was to deny coverage for the liability
costs.
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 (see also Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Liquidity and Capital
Resources).
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
10
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Guarantors are wholly-owned by the Company and the Company is wholly-owned
by Holdings. There is no established public trading market for the common
equity of the Guarantors, the Company, or Holdings.
ITEM 6. SELECTED FINANCIAL DATA
AXIA INCORPORATED AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Predecessor Company
----------------------------
Year Ended Period Period Year Year
December 31 Ended Ended Ended Ended
------------------ -------- -------- -------- --------
Mar. 15 Dec. 31 Dec. 31 Dec. 31
Income Statement Data: 1992 1993 1994 1994 1995 1996
- ---------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net revenues $78,917 $87,767 $18,593 $81,304 $104,326 $104,787
Cost of revenues 51,775 56,594 11,869 51,662 64,829 61,294
Charges for environmental matter/(1)/ 376 1,430 - - - -
Selling, general & administrative expenses 19,349 20,728 4,587 17,883 24,181 25,146
------- ------- ------- -------- -------- --------
Income from operations $ 7,417 $ 9,015 $ 2,137 $11,759 $ 15,316 $ 18,347
Interest expense 8,018 7,084 1,500 5,300 6,596 5,123
Other expense (income) (1,226) (144) (122) (301) 493 18
------- ------- ------- -------- -------- --------
Income from continuing operations
before income taxes and
extraordinary item 625 2,075 759 6,760 8,227 13,206
Provision for income taxes 260 861 315 3,116 3,338 5,730
------- ------- ------- -------- -------- --------
Income from continuing operations
before extraordinary item 365 1,214 444 3,644 4,889 7,476
Income from discontinued operations/(2)/ 24,217 - - - - -
Loss on early extinguishment of debt - - - - - 614
------- ------- ------- -------- -------- --------
Net income $24,582 $ 1,214 $ 444 $ 3,644 $ 4,889 $ 6,862
======= ======= ======= ======== ======== ========
Balance Sheet Data:
- --------------------------------------------
Current assets $22,863 $23,837 $25,491 $ 25,262 $ 27,012 $ 26,211
Total assets $67,813 $67,963 $69,165 $104,397 $103,288 $ 99,331
Current liabilities $13,815 $16,717 $17,347 $ 17,390 $ 20,262 $ 18,849
Long-term debt, less current maturities $52,055 $45,867 $45,956 $ 52,435 $ 43,507 $ 34,548
Stockholder's equity (deficit)/(3)/ $(7,960) $(7,408) $(7,058) $ 20,796 $ 25,828 $ 32,118
</TABLE>
/(1)/ Charges related to involvement in an environmental matter and action at
a property formerly owned by a predecessor of AXIA (see Note 15 of Notes
to the Consolidated Financial Statements).
/(2)/ On April 3, 1992, AXIA sold the assets of Goldblatt Tool Company and
Jensen Tools, Inc. for cash and the assumption of certain liabilities at
an after-tax gain of $23,540,000. Operations related to the assets sold
are reflected as discontinued operations for the year ended December 31,
1992.
/(3)/ As part of the recapitalization of the Predecessor Company, which occurred
on December 21, 1989, AXIA paid a $65,695,000 cash dividend on common
stock and recognized a $617,000 premium on the redemption of previously
outstanding shares of preferred stock, resulting in a stockholders'
deficit at the end of 1989 and the succeeding periods until the
acquisition of the Predecessor Company in 1994.
11
<PAGE>
ITEM 7. 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, material handling and storage equipment,
(ii) specialized packaging machinery, and (iii) tools and other products for
finishing drywall in new and renovated housing and commercial construction. The
Company's operations consist of three business segments; Metal Products Segment
("MPS"), Packaging Products Segment ("PPS"), and the Construction Tool Segment
("CTS").
The Company was acquired by Holdings on March 15, 1994. As part of this
acquisition (the "Transaction"), a substantial portion of the Company's
outstanding debt was refinanced, a new credit agreement ("the Bank Facilities")
was obtained and the Company and Holdings privately placed 21,000 units, each
unit consisting of a $1,000 Note and three shares of Holdings common stock. As a
result of the Transaction, certain recorded assets and liabilities of the
Company were revalued pursuant to the purchase method of accounting at the
estimated fair values as of that date.
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 financial results reported below for the twelve months ended December 31,
1994 include the applicable results of the Predecessor Company for the period
ending March 15, 1994.
The results presented and management discussion exclude the debt
extinguishment costs incurred in 1996 due to the write off of unamortized
capitalized debt financing costs with the refinancing of the Company's bank
debt. Debt extinguishment costs were $1,024,000 on a pretax basis, $614,000
after tax.
The following Table 1 summarizes the Company's Consolidated Statements of
Income for the years ended December 31, 1996 , 1995, and 1994 (in thousands):
TABLE 1
<TABLE>
<CAPTION>
Summary Income Statement
------------------------
Years Ended
Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994
------------- ------------- -------------
<S> <C> <C> <C>
Net revenues $104,787 $104,326 $99,897
Cost of revenues 61,294 64,829 63,531
Selling, general and administrative expenses 25,146 24,181 22,470
-------- -------- -------
Income from operations 18,347 15,316 13,896
Interest expense 5,123 6,596 6,800
Other expense (income) 18 493 ( 423)
-------- -------- -------
Income before income taxes and extraordinary item 13,206 8,227 7,519
Provision for income taxes 5,730 3,338 3,431
-------- -------- -------
Income before extraordinary item $ 7,476 $ 4,889 $ 4,088
======== ======== =======
</TABLE>
12
<PAGE>
The following Table 2 presents, for the periods indicated, certain items in
the Company's Consolidated Statements of Income as a percentage of total net
revenues.
<TABLE>
<CAPTION>
TABLE 2
Percentage of Total Net Revenues
--------------------------------
Years Ended
Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994
------------- ------------- -------------
<S> <C> <C> <C>
Net Revenues 100.0% 100.0% 100.0%
Costs and expenses
Cost of revenues 58.5 62.1 63.6
Selling, general and adminis-
trative expenses 24.0 23.2 22.5
Interest expense 4.9 6.3 6.8
Other expense (income) - .5 (.4)
Provision for income taxes 5.5 3.2 3.4
----- ----- -----
Income before extraordinary item 7.1% 4.7% 4.1%
===== ===== =====
</TABLE>
The percentages for the year ended December 31, 1994 include the applicable
results of the Predecessor Company.
Table 3 below summarizes the net revenues and income from operations for
the years ended December 31, 1996, 1995 and 1994 by business segment (in
thousands):
<TABLE>
<CAPTION>
TABLE 3
Business Segment Operating Results
----------------------------------
Years Ended
Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994
------------- ------------- -------------
<S> <C> <C> <C>
Net Revenues
Metal Products Segment $ 45,669 $ 48,014 $50,880
Packaging Products Segment 21,103 22,458 18,683
Construction Tool Segment 38,015 33,854 30,334
-------- -------- -------
Total Net Revenues $104,787 $104,326 $99,897
======== ======== =======
Income from Operations
Metal Products Segment $ 9,081 $ 8,832 $ 9,832
Packaging Products Segment 2,251 2,191 1,627
Construction Tool Segment 10,157 7,569 6,307
Corporate and Eliminations (3,142) (3,276) (3,870)
-------- -------- -------
Income from Operations $ 18,347 $ 15,316 $13,896
======== ======== =======
</TABLE>
The amounts for the year ended December 31, 1994 include the applicable
results of the Predecessor Company.
The Company has restated its segment data to reflect similarity of product
lines rather than divisional organization. Management believes the new segment
format more appropriately reflects similarities of manufacturing processes as
well as the shared production facility in Cleveland, Ohio. As a result, the
storage rack and conveyor product lines, formerly included with bag closing and
bag making operations comprising the Packaging Product Segment (formerly
reported as the Fischbein business segment), are now combined with formed and
coated wire products as the Metal Products Segment. These products represented
less than 14% of the total revenues at MPS in 1996 and less than 6% of the
Company's total revenues.
13
<PAGE>
RESULTS OF OPERATIONS
1996 OPERATIONS COMPARED TO 1995
Consolidated net revenues increased .4% to $104,787,000 in 1996 from
$104,326,000 in 1995. Revenue growth was primarily the result of increased
rental revenues of automatic taping tools in the Company's CTS business segment.
Store merchandise sales also improved at CTS. This revenue growth offset the
impact of a termination of a supply contract with a MPS dishrack customer, which
resulted in a revenue decline of $3,459,000 from 1995.
Cost of revenues decreased 5.5% to $61,294,000 in 1996 from $64,829,000 in
1995. The gross profit margin improvement was primarily attributable to changes
in product and customer mix with revenue growth in the higher margin CTS
business segment. Margins also improved at MPS and PPS due to cost reductions as
discussed below.
Consolidated selling, general and administrative expenses (SG&A) increased
4.0% to $25,146,000 in 1996 from $24,181,000 in 1995. This was primarily
attributable to additional marketing programs and bad debt expense incurred to
support revenue growth within the Company's CTS business segment.
Interest expense decreased 22.3% to $5,123,000 in 1996 from $6,596,000 in
1995. In addition to lower debt outstanding, the Company's interest rates were
lowered 1.50% on its bank debt as a result of a refinancing which occurred in
June 1996.
Other expense decreased to $18,000 in 1996 compared to $493,000 in 1995. The
Company recorded income in 1996 of $179,000 as a result of a distribution
relating to past claims received from the liquidation of an insurance company.
In 1995, the Company had recorded unusual charges for the scrapping of taping
tools ($148,000) and the consolidation of two tool repair centers ($158,000).
Income before taxes (IBT) increased 60.5% to $13,206,000 in 1996 from
$8,227,000 in 1995. As discussed in the preceding paragraphs, this improvement
was principally the result of rental revenue growth and lower interest expense.
Income taxes in 1996 were 43.4% of IBT compared to 40.6% in 1995. The
Company's effective tax rates increased for federal, state and foreign taxing
authorities.
METAL PRODUCTS SEGMENT Net revenues decreased 4.9% to $45,669,000 in 1996 from
$48,014,000 in 1995. The decrease was primarily attributable to the termination
of a supply contract with a dishrack customer which resulted in a decline in
revenues of $3,459,000.
Cost of revenues decreased 7.1% to $32,655,000 in 1996 from $35,150,000 in
1995. The decrease was primarily attributable to the decline in revenues
discussed above. Gross profit margins improved for both coated and formed wire
products and material handling equipment due primarily to product and customer
mix. MPS had incurred nonrecurring expenses in 1995 due to the startup of a new
style dishdrainer and the inception of the coating of all dishdrainers. In 1996,
MPS recorded lower workers' compensation premiums, real estate and personal
property taxes, and postretirement benefit costs.
Selling, general and administrative expenses decreased 2.5% to $3,933,000 in
1996 from $4,032,000 in 1995. The Company recorded lower professional service
fees in 1996 including the reversal of $100,000 in legal fees accrued in 1995.
As a result of the gross profit margin improvement and reductions in selling,
general and administrative expenses discussed in the preceding paragraphs,
income from operations increased 2.8% to $9,081,000 in 1996 from $8,832,000 in
1995.
PACKAGING PRODUCTS SEGMENT Net revenues decreased 6.0% to $21,103,000 in 1996
from $22,458,000 in 1995. In 1995, the Company recorded revenues of $563,000
from the sale of bag making equipment, a product line which was discontinued in
that year. The Company also recorded in 1995 additional revenues of $971,000
from the elimination of a one-month lag in financial reporting by its foreign
subsidiaries. (The impact on operating income was not material.) Additionally,
currency changes resulted in a reduction in revenues of $610,000 in 1996.
14
<PAGE>
Cost of revenues decreased 7.8% to $13,423,000 in 1996 from $14,554,000 in
1995. The decrease was primarily attributable to the decline in revenues. New
equipment acquisitions in 1995 and 1996 permitted PPS to bring in-house to
Statesville, North Carolina, the manufacture of certain components. This and
other cost reduction programs improved gross profit margins.
Selling, general and administrative expenses decreased 5.0% to $5,429,000 in
1996 from $5,713,000 in 1995. PPS had recorded a nonrecurring bad debt charge of
$240,000 in 1995.
As a result of the gross profit margin improvement and reductions in selling,
general and administrative expenses discussed in the preceding paragraphs,
income from operations increased 2.7% to $2,251,000 in 1996 from $2,191,000 in
1995.
CONSTRUCTION TOOL SEGMENT Net revenues increased 12.3% to $38,015,000 in 1996
from $33,854,000 in 1995. Revenue growth was attributable to increased tool
rentals, merchandise sales, and the sale of automatic taping tools.
Cost of revenues increased .6% to $15,216,000 in 1996 from $15,125,000 in
1995. The Company recorded improved operating margins due to reduced ongoing
repair expenses for rental tools, including lower parts consumption. This
included a one-time gain of $329,000 recorded in the fourth quarter as a result
of a change in the method of estimating tool repair costs for ATF tools in
repair centers and on rent.
Selling, general and administrative expenses increased 13.3% to $12,642,000 in
1996 from $11,160,000 in 1995. The increase was primarily attributable to added
marketing programs and an increase in bad debt expense in conjunction with
revenue growth.
As a result of the changes discussed in the preceding paragraphs, income from
operations increased 34.2% to $10,157,000 in 1996 from $7,569,000 in 1995.
1995 OPERATIONS COMPARED TO 1994
Consolidated net revenues increased 4.4% to $104,326,000 in 1995 from
$99,897,000 in 1994. Revenue growth was primarily the result of increased sales
of bag closing equipment in the Company's PPS business segment, primarily in
Europe, and increased revenues from the rental of automatic taping tools in the
Company's CTS business segment. CTS' revenues improved due to the increased
number of tools rented and a price increase. Revenues improved despite the loss
of a dishrack customer at MPS, who accounted for revenues of $7,583,000 in 1994.
Consolidated cost of revenues increased 2.0% to $64,829,000 in 1995 from
$63,531,000 in 1994. This increase was primarily attributable to the related
increase in volume. In 1994, the Company recorded $500,000 in charges for
realignment of production capacity, including a possible plant closing, within
the Company's MPS business segment.
Consolidated selling, general and administrative expenses (SG&A) increased
7.6% to $24,181,000 in 1995 from $22,470,000 in 1994. The SG&A increase was
attributable to volume growth, goodwill amortization from the Transaction, an
increase in certain benefit costs, and marketing expenses incurred to expand the
market for automatic taping tools.
Interest expense declined 3.0% to $6,596,000 in 1995 from $6,800,000 in 1994.
This decrease resulted from the restructuring of the Company's debt with the
Transaction. Increased interest rates on the Company's variable rate debt were
offset by lower amounts outstanding.
Other expense increased to $493,000 in 1995 from other income of $423,000 in
1994. The increase was primarily attributable to the reduction in dividend
income from the Company's investment in Andamios Atlas, an unconsolidated
Mexican company. The Company recorded income of $282,000 from this investment in
1994 and no dividends were paid in 1995. The Company recorded losses of $148,000
on the scrapping of taping tools at CTS in 1995. Additionally, CTS recorded a
charge in 1995 of $158,000 for the consolidation of two of its tool repair
centers.
15
<PAGE>
Income before taxes (IBT) increased 9.4% to $8,227,000 in 1995 from $7,519,000
in 1994. As discussed in the preceding paragraphs, this improvement was
principally the result of increased revenue volume and profit margin
improvement.
Income taxes in 1995 were 40.6% of IBT in 1995 compared to 45.6% in 1994. The
Company's effective tax rate decreased primarily as a result of lower estimated
state tax liability.
The following is an analysis of operating results for the MPS, PPS and CTS
business segments.
METAL PRODUCTS SEGMENT Net revenues decreased 5.6% to $48,014,000 in 1995 from
$50,880,000 in 1994. The revenue decline was the result of the loss of dishrack
business with one customer who accounted for revenues of $7,583,000 in 1994,
which was partially offset by increases in business with other customers
including Rubbermaid.
Cost of revenues decreased 6.7% to $35,150,000 in 1995 from $37,637,000 in
1994. The decrease in cost of revenues was primarily attributable to the
decrease in volume discussed above.
Selling, general and administrative expenses increased 18.2% to $4,032,000 in
1995 from $3,411,000 in 1994. Professional fees increased $276,000 largely as a
result of increased outside services including legal. MPS also began the
investment in personnel necessary to provide the engineering and marketing
expertise to broaden the business segment's product lines. Twelve months of
goodwill amortization was recorded in 1995, as a result of the Transaction,
compared to a partial year in 1994.
As a result of the change in revenues and other items, income from operations
decreased 10.2% to $8,832,000 in 1995 from $9,832,000 in 1994.
PACKAGING PRODUCTS SEGMENT Net revenues for the PPS business segment increased
20.2% to $22,458,000 in 1995 from $18,683,000 in 1994. Bag closing revenues
increased as PPS' European operations revenues improved $4,974,000. This was, in
part, due to a one-time increase in revenues of $971,000 from the elimination of
a one month lag in financial reporting. (The impact on operating income was not
material.) The fluctuation in currency translation also resulted in an increase
of $919,000 for the year. The bag making operations of MAMCO were terminated in
1995 resulting in a reduction of $558,000 in revenues compared to 1994.
Cost of revenues increased 16.5% to $14,554,000 in 1995 from $12,490,000 in
1994. Volume changes discussed above were the primary factors.
Selling, general and administrative expenses increased 25.1% to $5,713,000 in
1995 from $4,566,000 in 1994. The increase was attributable primarily to volume.
PPS added additional staff involved in the development of new product offerings
and the redesign of current bag closing equipment. PPS also recorded an increase
of $190,000 in bad debt expense due to the financial condition of a distributor.
As a result of the factors discussed in the preceding paragraphs, income from
operations for the PPS business segment increased 34.7% to $2,191,000 in 1995
from $1,627,000 in 1994.
CONSTRUCTION TOOL SEGMENT Net revenues increased 11.6% to $33,854,000 in 1995
from $30,334,000 in 1994. The growth was the result of the increased rental of
automatic taping tools and a price increase on tool rentals. The price increase
accounted for 6.8% of the improvement in revenues from 1994.
Cost of revenues increased 12.8% to $15,125,000 in 1995 from $13,404,000 in
1994. This increase was primarily attributable to the related revenue increases.
Selling, general and administrative expenses increased 5.1% to $11,160,000 in
1995 from $10,623,000 in 1994. An increase in marketing costs was necessary to
support programs developed to increase tool rentals and position the Company for
volume growth. Bad debt expense increased $176,000 in conjunction with revenue
growth.
As a result of the factors discussed in the preceding paragraphs, income from
operations increased 20.0% to $7,569,000 in 1995 from $6,307,000 in 1994.
16
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company entered into a new bank credit agreement on June 27, 1996, which
reduced the interest rate on its variable rate bank loans by 1.25% to 1.50%,
depending on the maintaining of certain ratios and Subordinated Note
repurchases. The new 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. The
term loan matures in equal quarterly installments beginning September 30, 1996,
with the final payment due on December 31, 2000. Subsequent to December 31,
1996, the Company negotiated an amendment to the agreement to increase the
revolving credit loan to $20,000,000. Management believes that, in addition to
reducing its interest costs, this financing provides better financial
flexibility and will be sufficient to meet the Company's current expectations
through the period of the agreement.
The refinancing of the bank credit agreement resulted in a writeoff of the
unamortized deferred financing costs from the previous loan agreement. This
amount, $614,000 net of tax, is identified as an extraordinary item in the
Consolidated Statements of Income.
The Company has the option of redeeming all or a portion of its Subordinated
Notes after March 15, 1997 with a 4.4% premium. Management anticipates that it
may repurchase and extinguish an undetermined amount of the Notes in 1997,
depending on certain factors, including pricing, the cost of the transaction,
and prevailing interest rates. The revolving credit loan will be utilized to
facilitate the transaction.
The Company paid down $9,155,000 in debt. The Company had no outstanding
balance on its revolving credit loan at December 31, 1996.
At December 31, 1996, the Company had working capital of $7,362,000 compared
to working capital of $6,750,000 at December 31, 1995. The working capital
increase was primarily attributable to additional cash. At December 31, 1996,
receivables declined $1,670,000 from December 31, 1995 due to lower revenues in
December and O.E.M. customers utilizing standard accounts payable discounts.
Inventories also declined $228,000 due to the permanent closure of a dishrack
facility and the temporary shutdown of another.
The only material environmental remedial obligation known to management is
related to a Buffalo facility formerly operated by the Company's predecessor,
Bliss & Laughlin Steel Co. A feasibility study completed in 1994 established a
range of estimated total costs of $686,000 to $2,887,000, plus or minus 30% of
those costs with the most probable manner of remediation at the higher end of
this range. The Company has established a reserve of $3,900,000 for remediation
of this site. Management believes remediation is not likely to commence prior to
1998 and the Company believes other entities may also be liable for a portion of
these costs. In addition, the Company has notified the insurance companies it
has identified as having provided coverage during the time period of the
Company's ownership of the property. The initial response of those insurance
companies was to deny coverage for the liability costs. NYSDEC has recently
expressed concern about the possible contamination of other properties adjacent
to the site formerly owned by the Company. The extent to which such alleged
pollution may, or may not, have occurred, and the responsibility, has not been
investigated or characterized. The Company expects to utilize its revolving loan
capacity, which the Company expects to maintain through new or amended credit
agreements for the foreseeable future, to remediate the site. As another
property adjoining the site has also been in the process of addressing concerns
raised by NYSDEC, the Company has entered into discussions with parties
responsible for said property in efforts to negotiate a joint remediation plan
which would prove a more economical solution for both matters. 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 (see also Item 3. LEGAL
PROCEEDINGS).
As a result of dishrack sourcing decisions made by its customers in 1996, the
Company shut down a leased production facility in Canal Winchester, Ohio, and
temporarily idled a second plant in Clinton, North Carolina. The Clinton
facility is expected to resume operations in 1997. The Beaver Dam, Kentucky,
plant, shut down in 1994 due to a customer's decision to utilize an alternative
source of supply, was reopened in 1996 to produce dishrack components, lower
volume dishracks, and other formed and coated wire products. During 1996, the
Company charged $980,000 of costs incurred against a facility realignment
reserve established in prior periods. The Company had $624,000 accrued at
December 31, 1996 in estimation of further costs to be incurred in 1997.
17
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (CONT'D)
Capital expenditures were $3,862,000 for the year ended December 31, 1996
compared to $3,853,000 for the year ended December 31, 1995. Cash provided by
operating activities and credit availability is expected to be sufficient to
cover the financing of anticipated capital requirements in future periods.
While both the Bank Facilities agreement and the Indenture of AXIA
Incorporated, issuer, ("Indenture") governing the Notes, restrict the Company's
ability to incur additional indebtedness, management, based upon the budgets
prepared by its business segments, 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 December 31, 1996.
OTHER MATTERS
In 1996, the Company adopted Financial Accounting Standards Board Statement
No. 121 ("SFAS 121"), "Accounting For the Impairment of Long-Lived Assets and
For Long-Lived Assets to Be Disposed of." SFAS 121 governs the accounting for
the impairment of long-lived assets, certain identifiable intangibles, and
goodwill related to the assets to be held and used. SFAS 121 also establishes
accounting standards for long-lived assets and certain intangibles to be
disposed of. The adoption of SFAS 121 did not have a material impact on the
financial position or the results of operations of the Company.
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>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company called for by this Item
8, together with the report thereon of the independent accountants dated March
6, 1997, are set forth on pages 20 to 47 inclusive. Financial statement
schedules not included in this Report on Form 10-K have been omitted because
they are not applicable or because the information called for is shown in the
consolidated financial statements or notes thereto.
AXIA INCORPORATED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Pages
<S> <C>
Consolidated Balance Sheets as of December 31, 1996 and 1995 20
Consolidated Statements of Stockholder's Equity (Deficit) for
the periods ended December 31, 1996, December 31, 1995,
December 31, 1994, and March 15, 1994. 21
Consolidated Statements of Income for the periods ended
December 31, 1996, December 31, 1995, December 31, 1994,
and March 15, 1994. 22
Consolidated Statements of Cash Flows for the periods ended
December 31, 1996, December 31, 1995, December 31, 1994,
and March 15, 1994. 23
Notes to the Consolidated Financial Statements 24-46
Independent Auditors' Report 47
</TABLE>
19
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND DECEMBER 31, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS 1996 1995
- ------ -------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,716 $ 45
Accounts receivable, net 10,687 12,357
Inventories 9,086 9,314
Prepaid income taxes and other current assets 1,695 1,971
Deferred income tax benefits 3,027 3,325
------- --------
Total Current Assets $26,211 $ 27,012
------- --------
PLANT AND EQUIPMENT AT COST:
Land $ 521 $ 521
Buildings and improvements 6,509 6,617
Machinery and equipment 23,149 22,218
Equipment leased to others 6,040 4,174
------- --------
$36,219 $ 33,530
Less: Accumulated depreciation 11,346 7,491
------- --------
Net Plant and Equipment $24,873 $ 26,039
------- --------
OTHER ASSETS:
Goodwill, net $34,679 $ 35,631
Intangible assets, net 377 721
Deferred charges, net 12,213 12,893
Investment in affiliate 900 900
Other assets 78 92
------- --------
Total Other Assets $48,247 $ 50,237
------- --------
TOTAL ASSETS $99,331 $103,288
======= ========
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt $ 6,647 $ 6,650
Accounts payable 3,655 4,137
Accrued liabilities 8,547 9,316
Accrued income taxes - 159
------- --------
Total Current Liabilities $18,849 $ 20,262
------- --------
NON-CURRENT LIABILITIES:
Long-term debt, less current maturities $34,548 $ 43,507
Other non-current liabilities 11,050 11,025
Deferred income taxes 2,766 2,666
------- --------
Total Non-Current Liabilities $48,364 $ 57,198
------- --------
STOCKHOLDER'S EQUITY:
Common stock, $.01 par value
100 shares issued and outstanding $ - $ -
Additional paid-in capital 16,723 16,723
Retained earnings 15,395 8,533
Additional minimum pension liability (324) (54)
Cumulative translation adjustment 324 626
------- --------
Total Stockholder's Equity $32,118 $ 25,828
------- --------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $99,331 $103,288
======= ========
</TABLE>
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these balance sheets.
20
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
FOR THE PERIODS ENDED DEC. 31, 1996, DEC. 31, 1995, DEC. 31, 1994 AND
MAR. 15, 1994
(Dollars in thousands)
<TABLE>
<CAPTION>
Common Stock
Par
------------- Additional Retained Minimum Cumulative
Class Class Paid-in Earnings Pension Treasury Translation
A B Capital (Deficit) Liability Stock Adjustments
------ ------ ----------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
PREDECESSOR COMPANY:
BALANCE, DEC. 31, 1993 $ 560 $ 203 $ 8,608 $(15,889) $(348) $(786) $ 244
===== ===== ======= ======== ===== ===== =====
Net income - - - 444 - - -
Cumulative translation adjustment - - - - - - 90
Other - - (188) 4 - - -
----- ----- ------- -------- ----- ----- -----
BALANCE, MAR. 15, 1994 $ 560 $ 203 $ 8,420 $(15,441) $(348) $(786) $ 334
(Pre-acquisition)
AXIA INCORPORATED:
Acquisition adjustments:
Eliminate Predecessor
Company equity (560) (203) (8,420) 15,441 348 786 (334)
Contribution from Holdings - - 16,876 - - - -
----- ----- ------- -------- ----- ----- -----
BALANCE, MAR. 15, 1994 $ - $ - $16,876 $ - $ - $ - $ -
(Post Acquisition) ===== ===== ======= ======== ===== ===== =====
Net income - - - 3,644 - - -
Contribution from Holdings - - 75 - - - -
Cumulative translation adjustment - - - - - - 304
Other - - (103) - - - -
----- ----- ------- -------- ----- ----- -----
BALANCE, DEC. 31, 1994 $ - $ - $16,848 $ 3,644 $ - $ - $ 304
===== ===== ======= ======== ===== ===== =====
Net income - - - 4,889 - - -
Stock repurchase - - (125) - - - -
Cumulative translation adjustment - - - - - - 322
Other - - - - (54) - -
----- ----- ------- -------- ----- ----- -----
BALANCE, DEC. 31, 1995 $ - $ - $16,723 $ 8,533 $ (54) $ - $ 626
===== ===== ======= ======== ===== ===== =====
Net income - - - 6,862 - - -
Cumulative translation adjustment - - - - - - (302)
Other - - - - (270) - -
----- ----- ------- -------- ----- ----- -----
BALANCE, DEC. 31, 1996 $ - $ - $16,723 $ 15,395 $(324) $ - $ 324
===== ===== ======= ======== ===== ===== =====
</TABLE>
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these statements.
21
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE PERIODS ENDED DEC. 31, 1996, DEC. 31, 1995, DEC. 31, 1994, AND
MAR. 15, 1994
(Dollars in thousands)
<TABLE>
<CAPTION>
Predecessor
Company
-------------
Year Ended Year Ended Mar. 16, 1994 Jan. 1, 1994
December 31, December 31, to to
1996 1995 Dec. 31, 1994 Mar. 15, 1994
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 79,771 $ 81,914 $65,543 $15,047
Net rentals 25,016 22,412 15,761 3,546
------- ------- ------ ------
NET REVENUES $104,787 $104,326 $81,304 $18,593
Cost of sales 52,434 55,171 45,133 10,225
Cost of rentals 8,860 9,658 6,529 1,644
Selling, general and
administrative expenses 25,146 24,181 17,883 4,587
------- ------- ------ ------
INCOME FROM OPERATIONS $ 18,347 $ 15,316 $11,759 $ 2,137
Interest expense 5,123 6,596 5,300 1,500
Interest income (39) (44) (61) (17)
Other expense (income), net 57 537 (240) (105)
------- ------- ------ ------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM $ 13,206 $ 8,227 $ 6,760 $ 759
Provision for income taxes 5,730 3,338 3,116 315
------- ------- ------ ------
INCOME BEFORE EXTRAORDINARY ITEM $ 7,476 $ 4,889 $ 3,644 $ 444
EXTRAORDINARY ITEM:
Loss on early extinguishment of
debt, net of income taxes of $410
(see Notes 5 and 7) 614 - - -
------- ------- ------ ------
NET INCOME $ 6,862 $ 4,889 $ 3,644 $ 444
======= ======= ====== ======
</TABLE>
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these statements.
22
<PAGE>
<TABLE>
<CAPTION>
AXIA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDED DEC. 31, 1996, DEC. 31, 1995, DEC. 31, 1994, AND MAR. 15, 1994
(Dollars in thousands)
Predecessor
Company
--------------
Jan. 1, 1996 Jan. 1, 1995 Mar. 16, 1994 Jan. 1, 1994
to to to to
Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994 Mar. 15, 1994
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,862 $ 4,889 $ 3,644 $ 444
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation and amortization 6,716 6,380 5,444 1,075
Extraordinary item-write off of deferred financing costs 1,024 - - -
Deferred income tax provision (benefit) 398 753 379 (47)
Loss (gain) on disposal of fixed assets 14 184 27 (1)
Provision for losses on accounts receivable 1,499 1,049 629 115
Provision for obsolescence of inventories 592 (20) 176 17
Credit to pension expense (275) (166) (79) -
Changes in assets and liabilities:
Accounts receivable (15) (1,291) (1,621) (312)
Inventories (501) (1,146) 593 (1,157)
Accounts payable (433) 651 (191) 365
Accrued liabilities (437) (308) (2,014) 1,036
Other current assets 270 (706) (52) (35)
Income taxes payable (151) 569 933 402
Other non-current assets (176) (408) (109) (167)
Other non-current liabilities 25 (479) 72 133
-------- ------- -------- -------
Net Cash Provided by Operating Activities $ 15,412 $ 9,951 $ 7,831 $ 1,868
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash used for capital expenditures (3,862) (3,853) (2,676) (445)
Proceeds from sale of fixed assets 55 281 319 7
Acquisition of Predecessor Company - - (22,952) -
-------- ------- -------- -------
Net Cash (Used in) Investing Activities $ (3,807) $(3,572) $(25,309) $ (438)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from other long-term debt 25,411 296 59,223 15
Payments of other long-term debt (34,566) (7,374) (55,033) (72)
Net decrease in Revolving Credit Loan - - - (700)
Payments of deferred financing costs (426) - (3,637) -
Other equity transactions (301) (166) (6) (195)
Contribution from Holdings - - 15,552 -
-------- ------- -------- -------
Net Cash (Used in) Provided by Financing Activities $ (9,882) $(7,244) $ 16,099 $ (952)
EFFECT OF EXCHANGE RATE CHANGES ON CASH (52) 38 24 16
-------- ------- -------- -------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $ 1,671 $ (827) $ (1,355) $ 494
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 45 872 2,227 1,733
-------- ------- -------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,716 $ 45 $ 872 $ 2,227
======== ======= ======== =======
</TABLE>
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these statements.
23
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
NOTE 1 ACCOUNTING POLICIES
NATURE OF BUSINESS
AXIA Incorporated, the "Company," is a diversified manufacturer and marketer
of (i) formed and coated wire products, material handling and storage equipment,
(ii) specialized packaging machinery, and (iii) tools and other products for
finishing drywall in new and renovated housing and commercial construction.
PRINCIPLES OF CONSOLIDATION
The Consolidated Financial Statements include AXIA INCORPORATED AND
SUBSIDIARIES (the "Company"). All significant intercompany items are eliminated
in consolidation.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign subsidiaries are translated at the current
rate of exchange at the balance sheet date. Revenues and expenses are
translated at the average exchange rate for the period. Translation adjustments
have been excluded from the results of operations and are reported as a separate
component of Stockholder's Equity (Deficit) Gains and losses resulting from
foreign currency transactions, which are not material, are included in the
Consolidated Statements of Income.
CASH AND CASH EQUIVALENTS
Cash equivalents are carried at cost, which approximates market. The Company
considers all highly liquid investments with a maturity of three months or less
when purchased to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of first-in, first-out (FIFO) cost or
market.
PLANT AND EQUIPMENT
Depreciation is provided over the following useful lives:
Buildings and improvements..................2-30 years
Machinery and equipment.....................3-12 years
Equipment leased to others.....................7 years
Depreciation on plant and equipment is provided on the straight-line method
over the estimated useful lives of the assets for financial reporting purposes.
Accelerated methods and lives are used for income tax purposes. Expenditures
for maintenance and repairs are charged to expense when incurred. Expenditures
for renewals and betterments are capitalized and depreciated over the estimated
remaining useful lives of the assets.
The original cost and related accumulated depreciation of assets sold or
retired are removed from the applicable accounts, with any gain or loss
resulting from the transaction included in income.
24
<PAGE>
NOTE 1 ACCOUNTING POLICIES (cont'd)
INCOME TAXES
Income tax provisions are made for the estimated amount of income taxes on
reported earnings which are payable currently and in the future.
As required by Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS 109), the deferred tax provision is
determined using the liability method. Under this method, deferred tax assets
and liabilities are recognized based on differences between the financial
statements and the tax basis of assets and liabilities as determined using
presently enacted tax laws and the appropriate tax rates.
DEFERRED CHARGES, INTANGIBLE ASSETS AND GOODWILL
Amortizable loan costs, organization costs, patents, customer lists, and other
intangible assets and deferred charges are stated in the accompanying
Consolidated Balance Sheets net of amortization and are amortized over their
estimated useful lives, which range from 2 to 16 years.
Goodwill represents the excess purchase price paid over the estimated fair
value of the net assets acquired in the March 15, 1994 merger. Goodwill is
stated net of amortization and is being amortized on a straight-line basis for a
period of not more than 40 years. Subsequent to its acquisition, the Company
continually evaluates whether later events and circumstances have occurred that
indicate the remaining estimated useful life of goodwill may warrant revision or
that the remaining balance of goodwill may not be recoverable. When factors
indicate that goodwill should be evaluated for possible impairment, the Company
uses an estimate of the related business segment's undiscounted operating income
(before goodwill amortization) over the remaining life of the goodwill in
measuring whether the goodwill is recoverable.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements as
well as the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
RECLASSIFICATION
Certain amounts in previously issued financial statements have been
reclassified to conform with current year classifications.
NEW ACCOUNTING PRONOUNCEMENT
In 1996, the Company adopted Statement of Financial Accounting Standards No.
121 ("SFAS 121") "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." The adoption of SFAS 121 did not have a
material impact on the financial position or results of operations of the
Company.
25
<PAGE>
NOTE 2 ACQUISITION AND REFINANCING
On March 15, 1994, AXIA Incorporated (the "Predecessor Company") was acquired
as part of a merger with a newly-formed company, Axia Acquisition Corp.
("Acquisition"), a Delaware corporation, with the surviving corporation
continuing under the name AXIA Incorporated (the "Company", including reference
to the Predecessor Company where appropriate Acquisition was formed solely for
the purpose of merging into the Company. Acquisition was incorporated on
January 13, 1994, and issued 100 shares of its $.01 par value common stock to
Axia Holdings Corp. ("Holdings") on March 1, 1994. Other than the stock
issuance, Acquisition had no activity until its concurrent contribution from
Holdings and its merger with Predecessor Company on March 15, 1994.
Holdings, a newly-formed Delaware company, owns 100% of Acquisition. Holdings
was capitalized by aggregate equity contributions of approximately $15.1
million, including $13.9 million in cash and the balance in shares of common
stock of the Company valued at $1.2 million (contributed by continuing senior
managers of the Company Holdings contributed this $15.1 million plus an
additional $1.8 million (raised in the private placement described below) to
Acquisition.
The equity contributions from Holdings and a portion of the proceeds from the
issuance of debt described below were used to pay the $20.5 million merger price
to the holders of the Company's common stock and stock options. Due to the
substantial change in controlling interest in the Company, the Company reflected
a complete change in its accounting basis of its assets and liabilities from
Predecessor Company historical cost to estimated fair value as of March 15,
1994.
Concurrent with the merger, a substantial portion of the Predecessor Company's
outstanding debt, including all of the outstanding balances of the Senior Notes,
the Term Notes and the Revolving Credit Loan, was refinanced. In addition, the
surviving company privately placed 21,000 units of a combined debt and equity
package whereby each unit represented a $1,000 Subordinated Note and 3 shares of
Holdings' common stock ("Subordinated Units").
Goodwill of the surviving company as of December 31, 1996, represents the
excess purchase price paid over the estimated fair value of the net assets
acquired, excluding Predecessor Company goodwill, in the March 15, 1994 merger.
The merger was accounted for as a purchase and resulting goodwill of $37.4
million was recorded as of the acquisition date. Goodwill is stated within the
Consolidated Balance Sheets net of amortization and is being amortized on a
straight-line basis over forty years (see Note 5).
Financing costs paid or accrued by the Company and associated with the debt
issued in the refinancing totaled $3.6 million. Such costs were deferred and
are being amortized over the term of the issued debt. The Company wrote off
$1.0 million of an unamortized portion of these costs as a result of a
refinancing discussed in Note 7. The Senior Subordinated Notes were issued with
a $1.8 million discount which are being amortized over the term of the issue.
The following table illustrates the unaudited pro forma results of operations
of the Company for the year ended December 31, 1994, as if the merger and
refinancing occurred on January 1, 1994 (in thousands):
<TABLE>
<CAPTION>
Year Ended
Dec. 31, 1994
Pro Forma
-------------
<S> <C>
Net revenues $99,897
Income from operations 13,423
Income before income taxes 7,177
Net income (loss) 3,813
</TABLE>
The preceding pro forma balances reflect the effect of an increase in goodwill
amortization and depreciation expense, a net reduction in interest expense, a
$.5 million annual management fee charged by Cortec Capital Corporation, a
reduction of pension credits and the income tax effect of these adjustments.
26
<PAGE>
NOTE 3 ACCOUNTS RECEIVABLE
Trade accounts receivable are stated net of allowance for doubtful accounts.
Transactions affecting the allowance for doubtful accounts are shown in the
following table (in thousands):
<TABLE>
<CAPTION>
Predecessor
Company
-----------
December 31, December 31, December 31, March 15,
1996 1995 1994 1994
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Balance, beginning of period $1,140 $ 942 $ 833 $ 859
Additions, charged to income 1,499 1,049 629 115
Deductions, write-off
of uncollectible accounts,
net of recoveries (1,148) (851) (520) (141)
------ ------ ----- -----
Balance, end of period $1,491 $1,140 $ 942 $ 833
====== ====== ===== =====
</TABLE>
The Company is a diversified distributor, marketer and manufacturer of a wide
range of high quality products used in the construction industry and
agricultural and durable goods businesses. As such, its customers range from
individual entrepreneurs to large corporations.
NOTE 4 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, net of reserves of $546,000 and $449,000 as of December 31, 1996
and 1995, respectively, consist of
(in thousands):
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Raw materials $4,653 $5,108
Work in process 854 935
Finished goods 3,579 3,271
------ ------
Total inventories $9,086 $9,314
====== ======
</TABLE>
27
<PAGE>
NOTE 5 GOODWILL, INTANGIBLE ASSETS AND DEFERRED CHARGES
Goodwill, intangible assets and deferred charges consist of the following
(in thousands):
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Goodwill $37,380 $37,380
Less amortization 2,701 1,749
------- -------
Goodwill, net $34,679 $35,631
======= =======
Patents $ 529 $ 529
Noncompete agreements - 328
Customer lists 223 223
Other intangibles 611 468
------- -------
Subtotal $ 1,363 $ 1,548
Less amortization 986 827
------- -------
Intangible assets, net $ 377 $ 721
======= =======
Prepaid pension costs $ 7,690 $ 7,370
Life insurance deposits 3,297 3,198
Deferred financing costs 1,632 3,544
Other deferred charges 147 202
------- -------
Subtotal $12,766 $14,314
Less amortization 553 1,421
------- -------
Deferred charges, net $12,213 $12,893
======= =======
</TABLE>
Total amortization expense related to the above assets was $1,842,000 for
the period ended December 31, 1996, $2,113,000 for the period ended December 31,
1995, $1,924,000 for the period ended December 31, 1994 and $252,000 for the
period ended March 15, 1994. As a result of the refinancing of its bank debt as
discussed in Note 7, the Company wrote off $1,024,000 of unamortized loan costs.
NOTE 6 ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Salaries, wages, vacations and
payroll taxes $2,445 $1,923
Insurance 1,509 1,491
Other current liabilities 4,593 5,902
------ ------
Total accrued liabilities $ 8,547 $ 9,316
======= ======
</TABLE>
28
<PAGE>
NOTE 7 LONG-TERM DEBT
Long-term debt, inclusive of capitalized lease obligations which are not
material, is as follows (in thousands):
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
11.00% Senior Subordinated Notes $ 18,343 $ 18,150
Term Loan 22,222 31,620
Revolving Credit Loan -- --
Other 630 387
-------- -------
Total Debt 41,195 $ 50,157
Less: Current maturities 6,647 6,650
-------- -------
Total Long-Term Debt $ 34,548 $ 43,507
======== ========
</TABLE>
The Senior Subordinated Notes above are stated net of an unamortized discounts
of $1,156,522 and $1,350,000 for December 31, 1996 and 1995, respectively. The
carrying amount of the Term Loan approximates its fair value as the term notes
bear interest at floating rates. The fair value of the Senior Subordinated
Notes at December 31, 1996 was $20,475,000 as determined by market quotations.
On June 27, 1996, the Company and its domestic subsidiaries, Ames Taping Tool
Systems, Inc., ("ATTS"), and TapeTech Tool Co., Inc., ("TapeTech"), entered into
a new bank credit agreement (the "Bank Credit Agreement") which replaced its
then existing bank financing. The Company initially borrowed $25,000,000 on a
new term loan and $3,500,000 of the $15,000,000 available on the revolving
credit loan. The proceeds of this borrowing plus cash on hand paid off the
outstanding amounts owed by the Company under the previous bank financing. An
additional $426,000 in deferred transaction costs were incurred and will be
amortized over the life of the Bank Credit Agreement which terminates December
31, 2000. The Company recorded a pre-tax charge of $1,024,000 representing the
writeoff of unamortized deferred loan costs. This charge, net of tax, is
reflected as an extraordinary item in the accompanying Consolidated Statements
of Income for the period ended December 31, 1996. The Bank Credit Agreement
effectively reduced the interest rate of the Company's bank debt by 1.25% to
1.50%. Term loan maturities were also extended to December 31, 2000 and
scheduled quarterly Term Loan payments reduced.
BANK CREDIT AGREEMENT
As part of a refinancing of its bank debt discussed above, the Company, ATTS,
and TapeTech entered into a 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 (see Note 17).
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 December 31, 1996 was 7.07%. Substantially all of the assets of
the Company, ATTS, and TapeTech act as collateral under the Bank Credit
Agreement.
As a result of a prepayment discussed in Note 17, the Term Loan has scheduled
maturities 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.
29
<PAGE>
NOTE 7 LONG-TERM DEBT (cont'd)
11.00% SENIOR SUBORDINATED NOTES
The $21,000,000 of 11.00% Senior Subordinated Notes were issued pursuant to a
trust indenture (the "Indenture") between the Company, certain guarantors and a
trustee bank and were sold to a group of private investors. 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 18 for further information regarding these
guarantees.
In February 1995, the Company repurchased and extinguished $1,500,000 in face
amount of its Senior Subordinated Notes for $1,346,000 plus accrued interest.
The remaining principal amount outstanding at December 31, 1996 is $19,500,000.
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 December 31, 1996.
SCHEDULED PRINCIPAL PAYMENTS
Scheduled payments of principal of long-term debt outstanding at December 31,
1996, including capitalized lease obligations, are (in thousands):
<TABLE>
<CAPTION>
December 31, 1996
---------------------------------
Senior
Term Subordinated
Loan Notes Other
-------- ------- -----
<S> <C> <C> <C>
1997 $ 6,490 $ - $157
1998 5,248 - 152
1999 5,248 - 131
2000 5,236 - 120
2001 - 18,343 70
Subsequent years - - -
------- ------- ----
Total $22,222 $18,343 $630
======= ======= ====
</TABLE>
The scheduled maturities above include payment of the net proceeds from the
sale of the Company's investment in Andamios Atlas, S.A. in February 1997 (see
Note 17).
The Company made the following interest payments for the periods ended
December 31, 1996, December 31, 1995, December 31, 1994 and March 15, 1994
(in thousands):
<TABLE>
<CAPTION>
Predecessor
Company
-----------
December 31, December 31, December 31, March 15,
1996 1995 1994 1994
------------ ------------ ------------ ---------
<S> <C> <C> <C> <C>
Interest payments $4,399 $5,780 $6,731 $ 46
</TABLE>
30
<PAGE>
NOTE 8 CAPITAL STOCK
Subsequent to the merger and acquisition on March 15, 1994, the Company has
100 shares of common stock, par value $.01 per share, authorized, issued and
outstanding, all of which are owned by Holdings.
NOTE 9 INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities presented in the financial
statements and the amount used for income tax purposes. Deferred tax net assets
and liabilities were composed of the following (in thousands):
<TABLE>
<CAPTION>
Deferred Income Tax Assets December 31, December 31,
Current Assets 1996 1995
- -------------- ------------- -------------
<S> <C> <C>
Inventory valuation $ 652 $ 453
Bad debt reserves 570 416
Insurance accruals 464 488
Rental tool repair 168 324
Environmental accrual 209 289
Facility realignment 239 335
Tax accruals 76 181
Other, net 649 839
------- -------
Total deferred tax asset $ 3,027 $ 3,325
======= =======
Deferred Income Tax Assets (Liabilities) December 31, December 31,
Noncurrent Assets (Liabilities) 1996 1995
- ------------------------------- ------------ ------------
Depreciation & amortization $(3,666) $(3,675)
Pension plans (2,661) (2,703)
Insurance accruals 420 335
Facility realignment - 336
Tax accruals 76 77
Post-retirement benefits (ex. pensions) 1,464 1,425
Environmental accrual 1,339 1,300
Other, net 262 239
------- -------
Total deferred tax (liability), net $(2,766) $(2,666)
======= =======
</TABLE>
31
<PAGE>
NOTE 9 INCOME TAXES (CONT'D)
The components of the deferred tax provisions are as follows for the
periods ended December 31, 1996, December 31, 1995, December 31, 1994 and March
15, 1994 (in thousands):
<TABLE>
<CAPTION>
Predecessor
Company
------------
December 31, December 31, December 31, March 15,
1996 1995 1994 1994
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Depreciation & amortization $ (9) $ (43) $ 686 $ (54)
Pension plans (42) 2 388 67
Inventory valuation (200) 302 (22) (64)
Bad debt reserves (154) (71) (64) 9
Insurance accruals (61) 274 (165) (17)
Facility realignment 432 405 (284) -
Tax accruals 106 46 (96) -
Environmental accrual 41 33 (61) 2
Post-retiree benefits 77 (245) 95 -
Other, net 208 50 (98) 10
---- ----- ----- -----
Total $ 398 $ 753 $ 379 $ (47)
===== ===== ===== =====
</TABLE>
The components of the income tax provision, excluding the amount
attributable to the extraordinary item, are as follows (in thousands):
<TABLE>
<CAPTION>
Predecessor
Company
------------
December 31, December 31, December 31, March 15,
1996 1995 1994 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
U.S. and state taxes payable $4,700 $1,899 $2,470 $ 329
Foreign taxes payable 632 686 267 33
------ ------ ------ -----
Taxes currently payable 5,332 2,585 2,737 362
Deferred taxes, net 398 753 379 (47)
------ ------ ------ -----
Total provision $5,730 $3,338 $3,116 $ 315
====== ====== ====== =====
</TABLE>
A reconciliation between the statutory and the effective income tax rates,
excluding the amount attributable to the extraordinary item, is as follows:
<TABLE>
<CAPTION>
Predecessor
Company
------------
December 31, December 31, December 31, March 15,
1996 1995 1994 1994
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Statutory income tax rate 34.3% 34.0% 34.0% 34.0%
Non-deductible
amortization 3.7 4.0 4.5 3.0
State income taxes, net
of federal income
tax benefit 3.1 2.2 4.0 3.0
Other, net 2.3 .4 3.6 1.5
----- ----- ----- -----
Effective income tax rate 43.4% 40.6% 46.1% 41.5%
===== ===== ===== =====
</TABLE>
32
<PAGE>
NOTE 9 INCOME TAXES (CONT'D)
The Company made the following income tax payments, net of refunds, during
the periods ended December 31, 1996, December 31, 1995, December 31, 1994 and
March 15, 1994 (in thousands):
<TABLE>
<CAPTION>
Predecessor
Company
------------
December 31, December 31, December 31, March 15,
1996 1995 1994 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Income taxes paid (refunded) $4,691 $2,561 $1,527 $(232)
</TABLE>
The Company does not record deferred income taxes applicable to undistributed
earnings of foreign subsidiaries. The Company considers these earnings to be
invested for an indefinite period. If such earnings were distributed, the U.S.
income taxes payable would not be material as the resulting liability would be
substantially offset by foreign tax credits.
NOTE 10 PENSION PLANS
The Company's pension plans provide benefits for substantially all employees.
A majority of plan assets are invested in cash, bonds, domestic and
international equities and real estate. Pension costs are funded by the Company
at a rate necessary to maintain the plans on an actuarially sound basis.
The components of pension expense (credits) are as follows (in thousands):
<TABLE>
<CAPTION>
Predecessor
Company
------------
December 31, December 31, December 31, March 15,
1996 1995 1994 1994
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Normal cost $ 983 $ 799 $ 706 $ 253
Interest on beginning
of period projected
benefit obligation 1,679 1,680 1,178 385
Return on fund assets (2,944) (2,581) 958 (685)
Net amortization and
deferrals 7 (4) (2,921) (147)
Effect of curtailment - (60) - -
------- ------- ------- -----
Total credit to
pension expense $ (275) $ (166) $ (79) $(194)
======= ======= ======= =====
</TABLE>
In 1995, the Company recorded a gain of $60,000 on the curtailment of an
hourly pension plan as a result of the closure of a production facility.
33
<PAGE>
NOTE 10 PENSION PLANS (cont'd.)
A summary of the benefit obligations and plan assets is shown in the table
below (in thousands):
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
------------------- -------------------
<S> <C> <C> <C> <C>
(A) (B) (A) (B)
Actuarial present value
of benefit obligations:
Vested benefits $ 19,380 $ 3,644 $ 19,802 $ 2,158
Nonvested benefits 782 22 734 17
-------- ------- -------- -------
Accumulated benefit
obligation $ 20,162 $ 3,666 $ 20,536 $ 2,175
Effect of projected
future compensation
levels 1,382 - 1,351 -
-------- ------- -------- -------
Projected benefit
obligation $ 21,544 $ 3,666 $ 21,887 $ 2,175
Less: Plan assets at
fair value (29,077) (3,067) (28,674) (1,909)
-------- ------- -------- -------
Plan assets (in
excess)/less than
projected benefit
obligation $ (7,533) $ 599 $ (6,787) $ 266
Unrecognized prior service cost - ( 35) - -
Unrecognized net
actuarial (loss) gain (47) (524) (583) (24)
Adjustment required to
recognize minimum
liability - 559 - 54
-------- ------- -------- -------
Net (asset) liability
on balance sheet $ (7,580) $ 599 $ (7,370) $ 296
======== ======= ======== =======
</TABLE>
(A) Plans with Assets in excess of Accumulated Benefits
(B) Plans with Accumulated Benefits in excess of Assets
At December 31, 1996, the Company has recorded pension assets of $7,690,000
and liabilities of $709,000 in the Consolidated Balance Sheets. Calculations of
1996, 1995 and 1994 pension expense under the provisions of SFAS No. 87 assumed
a settlement rate of 7.25%, 7.25% and 9.00%, respectively, and a long-term rate
of return on plan assets of 10.0% for all years.
34
<PAGE>
NOTE 11 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company sponsors three defined benefit postretirement plans. The Company
entered into employment agreements with executive employees which provide for
death benefits to the executive's estate upon the executive's death. A second
plan provides prescription drug benefits to nonsalaried employees at one of its
plants, and the other provides life insurance benefits to selected salaried and
nonsalaried employees. All plans are noncontributory and unfunded. The following
table sets forth the plans' combined status reconciled with the amount shown in
the Company's Consolidated Balance Sheets as of December 31, 1996 and 1995 (in
thousands):
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $(3,231) $(3,037)
Fully eligible active plan participants (421) (406)
Other active plan participants (233) (285)
------- -------
Total postretirement benefit obligation $(3,885) $(3,728)
Plan assets at fair value - -
Accumulated postretirement benefit obligation
in excess of plan assets $(3,885) $(3,728)
------- -------
Accrued postretirement benefit cost $(3,885) $(3,728)
======= =======
Net periodic postretirement benefit cost
included the following components:
Service cost - benefits attributed to
service during the period $ (104) $ (72)
Interest cost on accumulated postretirement
benefit obligation 265 244
------- -------
Net periodic postretirement benefit cost $ 161 $ 172
======= =======
</TABLE>
The Company entered into Salary Continuation Agreements with certain key
executive employees which provide a death benefit, contingent upon employment or
service as a consultant with the Company until retirement or death. Pursuant to
the agreement with each such executive, upon the executive's death, the Company
will pay to the respective designated beneficiary, annually for a period of ten
years, an amount equal to 40% of the executives current salary or salary at the
date of retirement. The Company has purchased life insurance policies on the
lives of the executives, naming the Company as the sole beneficiary. The amount
of such coverage is designed to provide to the Company a source of funds to
satisfy its obligations under the program. The total postretirement benefit
obligation of this benefit program included in the table above is $3,398,000 and
$3,150,000 at December 31, 1996 and 1995, respectively.
The Company, in accordance with a union contract, provides prescription drug
benefits at one of its plants. For measurement purposes, a 7 percent annual rate
of increase in the per capita cost of covered prescription drug benefits was
assumed for 1996 and 1995 and for each year thereafter. The prescription drug
cost trend rate assumption has an effect on the amounts reported. To illustrate,
increasing the assumed health care cost trend rates by 1 percentage point in
each year would increase the accumulated postretirement benefit obligation as of
December 31, 1996 by approximately $58,000 and the aggregate of the service and
interest cost components of net periodic postretirement benefit cost for the
year then ended by approximately $3,700. The discount rate used in determining
the accumulated post-retirement benefit obligation was 8.5% in 1996 and 9.0% in
1995.
35
<PAGE>
NOTE 12 LEASES
Minimum rental commitments of the Company under noncancellable operating
leases (primarily real estate) with initial terms in excess of one year are as
follows (in thousands):
<TABLE>
<CAPTION>
December 31,
1996
------------
<S> <C>
1997 $1,929
1998 1,159
1999 506
2000 232
2001 201
Subsequent years 192
------
Total $4,219
======
</TABLE>
The Company incurred the following expense for operating leases for the
periods ended December 31, 1996, December 31, 1995, December 31, 1994 and March
15, 1994 (in thousands):
<TABLE>
<CAPTION>
Predecessor
Company
-----------
December 31, December 31, December 31, March 15,
1996 1995 1994 1994
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Lease expense $2,339 $2,298 $1,777 $ 439
</TABLE>
NOTE 13 BUSINESS SEGMENTS
The Company currently conducts its operations through three business
segments: Metal Products Segment, Packaging Products Segment and Construction
Tool Segment.
The Metal Products Segment manufactures dishwasher baskets and other formed
and coated wire products, conveyors, and stackable storage racks. The Packaging
Products Segment produces industrial packaging equipment and systems, and the
Construction Tool Segment manufactures, sells or rents a broad line of
construction tools and equipment, and drywall tape and taping tool systems for
finishing gypsum wallboard.
One of the Metal Products Segment's dishrack customers accounted for 19%,
20% and 22% of the Company's revenues for 1996, 1995 and 1994, respectively.
Dishrack customers, as a group, accounted for 27%, 32% and 41% of the Company's
revenues for 1996, 1995 and 1994, respectively. Another customer of the Metal
Products Segment who purchases dishdrainers and other products accounted for
11%, 8% and 5% of the Company's revenues for 1996, 1995 and 1994, respectively.
The percentages for 1994 include the results of the Predecessor Company.
The Metal Products Segment competes directly with the dishwasher
manufacturer's in-house manufacturing capability. Frigidaire, General Electric
and Whirlpool, major dishwasher manufacturers, have dishrack manufacturing
capability. Because MPS is competing against the self-manufacture of its
product by larger companies with more extensive financial resources, MPS
competes on quality, flexibility and innovation. As a result of dishrack
sourcing decisions made by its customers in 1996, the Company shut down a leased
production facility in Canal Winchester, Ohio, and temporarily idled a second
plant in Clinton, North Carolina. The Clinton facility is expected to resume
operations in 1997. The Beaver Dam, Kentucky, plant, shut down in 1994 due to a
customer's decision to utilize an alternative source of supply, was reopened in
1996 to produce dishrack components, lower volume dishracks, and other formed
and coated wire products. During 1996, the Company charged $980,000 of costs
incurred against a facility realignment reserve established in prior periods.
The Company had $624,000 accrued at December 31, 1996 in estimation of further
costs to be incurred in 1997. The Company recorded a charge for plant
realignment of $500,000 in 1994 in the accompanying Consolidated Statements of
Income.
36
<PAGE>
NOTE 13 BUSINESS SEGMENTS (cont'd)
A summary of segment data for the periods ended December 31, 1996, December
31, 1995, December 31, 1994 and March 15, 1994 is as follows (in thousands):
<TABLE>
<CAPTION>
Metal Packaging Construction Corporate
Products Products Tool and
Segment Segment Segment Eliminations Consolidated
-------- --------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Period ended December 31, 1996:
Net revenues $45,669 $21,103 $38,015 $ - $104,787
Income from operations 9,081 2,251 10,157 (3,142) 18,347
Identifiable assets 41,244 16,024 26,476 15,587 99,331
Depreciation and amortization 3,581 596 1,789 750 6,716
Capital expenditures 255 719 2,807 81 3,862
======= ======= ======= ======= ========
Period ended December 31, 1995:
Net revenues $48,014 $22,458 $33,854 $ - $104,326
Income from operations 8,832 2,191 7,569 (3,276) 15,316
Identifiable assets 46,996 16,371 24,071 15,850 103,288
Depreciation and amortization 3,409 439 1,484 1,048 6,380
Capital expenditures 2,055 500 1,297 1 3,853
======= ======= ======= ======= ========
Period ended December 31, 1994:
Net revenues $40,742 $15,785 $24,777 $ - $ 81,304
Income from operations 7,793 1,375 5,520 (2,929) 11,759
Identifiable assets 47,477 15,731 24,189 17,000 104,397
Depreciation and amortization 2,869 506 1,173 896 5,444
Capital expenditures 1,297 157 1,222 - 2,676
======= ======= ======= ======= ========
Period ended March 15, 1994:
(Prior to acquisition)
Net revenues $10,138 $ 2,898 $ 5,557 $ - $ 18,593
Income from operations 2,039 252 787 (941) 2,137
Identifiable assets 31,166 11,875 10,785 15,339 69,165
Depreciation and amortization 632 117 250 76 1,075
Capital expenditures 78 14 348 5 445
======= ======= ======= ======= ========
</TABLE>
Information presented in the table above for periods prior to and including
March 15, 1994 are for the Predecessor Company.
The Company has restated its segment data to reflect similarity of product
lines rather than divisional organization. As a result, the storage rack and
conveyor product lines, formerly included with bag closing and bag making
operatings comprising the Packaging Product Segment (formerly reported as the
Fischbein business segment), are now combined with formed and coated wire
products as the Metal Products Segment. These products represented less than
14% of the total revenues at MPS in 1996 and less than 6% of the Company's total
revenues.
37
<PAGE>
NOTE 14 GEOGRAPHICAL DATA
The Company conducts the majority of its business within the United States.
The Construction Tool Segment also conducts business in Canada. The Packaging
Products Segment has operations in various other countries, primarily in Europe
and Singapore. Activity in any single country or area outside of the United
States is not material. Export sales outside of the United States to
unaffiliated customers are less than 10% of sales.
A summary of geographical data for the periods ended December 31, 1996,
December 31, 1995, December 31, 1994 and March 15, 1994 is as follows (in
thousands):
<TABLE>
<CAPTION>
Corporate
and
Domestic Foreign Eliminations Consolidated
-------- ------- ------------ ------------
<S> <C> <C> <C> <C>
Period ended December 31, 1996:
Net revenues $91,307 $13,480 $ - $104,787
Income from operations 19,877 1,612 (3,142) 18,347
Identifiable assets 77,775 5,969 15,587 99,331
Depreciation and amortization 5,896 70 750 6,716
Capital expenditures 3,697 84 81 3,862
======= ======= ======= ========
Period ended December 31, 1995:
Net revenues $89,613 $14,713 $ - $104,326
Income from operations 16,458 2,134 (3,276) 15,316
Identifiable assets 81,053 6,385 15,850 103,288
Depreciation and amortization 5,258 74 1,048 6,380
Capital expenditures 3,790 62 1 3,853
======= ======= ======= ========
Period ended December 31, 1994:
Net revenues $73,570 $ 7,734 $ - $ 81,304
Income from operations 13,907 801 (2,949) 11,759
Identifiable assets 81,966 5,431 17,000 104,397
Depreciation and amortization 4,472 76 896 5,444
Capital expenditures 2,634 42 - 2,676
======= ======= ======= ========
Period ended March 15, 1994:
(Prior to acquisition)
Net revenues $16,661 $ 1,932 $ - $ 18,593
Income from operations 2,959 119 (941) 2,137
Identifiable assets 49,579 4,247 15,339 69,165
Depreciation and amortization 982 17 76 1,075
Capital expenditures 414 26 5 445
======= ======= ======= ========
</TABLE>
Information presented in the table above for periods prior to and including
March 15, 1994 are for the Predecessor Company.
38
<PAGE>
NOTE 15 CONTINGENCY
The Company's operations are subject to various federal, state and local
environmental laws and regulations. The Company believes that it is in
substantial compliance with current laws and regulations. Including the item
discussed below, based on information available at this time, the Company
believes that compliance with current laws and regulations has not had, and is
not expected to have, a material effect on the Company's financial condition or
operating results.
On February 25, 1991, the New York State Department of Environmental
Conservation (the "NYSDEC") sent a notice letter to the Company alleging that it
had documented the release and/or threatened release of "hazardous substances"
and/or the presence of "hazardous wastes" at a property located in Buffalo, New
York, formerly owned by Bliss and Laughlin Steel Company, a predecessor of the
Company. The NYSDEC has determined that the Company, among others, may be a
responsible party through its past ownership of the property. In the notice
letter, the NYSDEC requested that the Company agree to enter into negotiations
with the NYSDEC to execute a consent decree with respect to the financing by the
Company of a remedial investigation, as well as a feasibility study for remedial
action.
The notice letter listed four other potentially responsible parties, each
of whom received a similar letter from the NYSDEC. In addition, the Company has
notified the insurance companies it has identified as having provided coverage
during the period of the Company's ownership of the property. The initial
response of those insurance companies has been 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 formerly owned by the Company. 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.
NOTE 16 RELATED PARTY TRANSACTIONS
The Company is wholly-owned by Holdings. The Company has entered into
certain transactions with beneficial owners of Holdings shares as described
herein. The Company believes that these transactions are on terms as least as
favorable to the Company as it could obtain from unaffiliated third parties.
In connection with the acquisition and refinancing, the Company and
Holdings paid Cortec Capital Corp. ("CCC") a transaction fee of $784,525 and
reimbursed it for out-of-pocket expenses of $235,282 incurred in connection with
the Transaction. CCC is the general partner of Cortec, which is the beneficial
owner of 59.1% of Holdings. Services performed by CCC included negotiations of
the terms of the Agreement and Plan of Merger, dated as of January 31, 1994,
between Acquisition and the Company, arranging for and negotiating the terms of
the Senior Debt financing and performing all of the due diligence associated
with the merger, including environmental and tax due diligence. Donaldson,
Lufkin & Jenrette Securities Corporation, a beneficial owner of 13.0% of
Holdings, and Bank Indosuez, a beneficial owner of 8.9% of Holdings and agent
for the Bank Credit Agreement, also received transaction fees of $840,000 and
$1,590,000, respectively, and reimbursement of expenses of $40,000 and $9,011,
respectively. The credit agreement for which Banque Indosuez was agent was
replaced with a new agreement in June 1996. Banque Indosuez did not participate
in the new financing (see Note 7).
39
<PAGE>
NOTE 16 RELATED PARTY TRANSACTIONS (CONT'D)
The Company has entered into a Management Agreement (the "Management
Agreement") with CCC for certain management and financial services. Pursuant to
the Management Agreement, CCC will provide the Company with professional and
administrative advice in areas relating to the Company's business, including
finance, budgeting, risk management, business planning, manufacturing, sales,
marketing, staffing levels and acquisitions. CCC will receive a quarterly fee of
1% of the Company's net sales, not to exceed $125,000. The Management Agreement
continues until March 31, 2001, and thereafter for successive one year periods
unless terminated by either party. Total fees and reimbursed expenses for these
services were $504,959, $458,662 and $426,780 in 1996, 1995 and 1994,
respectively, and are included in selling, general and administrative expenses
in the Consolidated Statements of Income.
NOTE 17 SUBSEQUENT EVENTS
In February 1997, the Company consummated a transaction resulting in the sale
of its investment in Andamios Atlas, S.A. de C.V., a Mexican company for net
cash proceeds of approximately $1.2 million. Such proceeds were applied to pay
down the Company's Term Loan as required by its Bank Credit Agreement. The
Company's cost basis for this investment was $.9 million.
In March 1997, the Bank Credit Agreement's Revolving Credit Loan capacity was
increased from $15,000,000 to $20,000,000.
NOTE 18 SUBSIDIARY GUARANTEES
The Company's payment obligations under the Subordinated Notes are fully and
unconditionally guaranteed on a joint and several basis (collectively, the
"Subsidiary Guarantees") by Ames Taping Tool Systems, Inc., and TapeTech Tool
Co., Inc., each a wholly-owned subsidiary of the Company and each a "Guarantor."
These subsidiaries, together with the operating divisions of the Company,
represent all of the operations of the Company conducted in the United States.
The remaining subsidiaries of the Company are foreign subsidiaries. Pursuant to
the sale of its assets, Mid America Machine Corp. ("MAMCO") was released as a
Guarantor in 1995.
The Company's payment obligations under the Bank Credit Agreement are fully
and unconditionally guaranteed on a joint and several basis by the Company and
each Guarantor. The obligations of each Guarantor under its Subsidiary Guarantee
are subordinated to all senior indebtedness of such Guarantor, including the
guarantee by such Guarantor of the Company's borrowings under the Bank Credit
Agreement.
With the intent that the Subsidiary Guarantees not constitute fraudulent
transfers or conveyances under applicable state or federal law, the obligation
of each Guarantor under its Subsidiary Guarantee is also limited to the maximum
amount as will, after giving effect to such maximum amount and all other
liabilities (contingent or otherwise) of such Guarantor that are relevant under
such laws, and after giving effect to any rights to contribution of such
Guarantor pursuant to any agreement providing for an equitable contribution
among such Guarantor and other affiliates of the Company of payments made by
guarantees by such parties, result in the obligations of such Guarantor in
respect of such maximum amount not constituting a fraudulent conveyance.
The following consolidating condensed financial data illustrates the
composition of the combined Guarantors. Management believes separate complete
financial statements of the respective Guarantors would not provide additional
material information which would be useful in assessing the financial
composition of the Guarantors. No single Guarantor has any significant legal
restrictions on the ability of investors or creditors to obtain access to its
assets in event of default on the Subsidiary Guarantee other than its
subordination to senior indebtedness described above.
Investments in subsidiaries are accounted for by the parent on the equity
method for purposes of the supplemental consolidating presentation. Earnings of
subsidiaries are therefore reflected in the parent's investment accounts and
earnings. The principal elimination entries eliminate investments in
subsidiaries and intercompany balances and transactions.
40
<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>
41
<PAGE>
CONSOLIDATING STATEMENT OF INCOME
FOR THE YEAR ENDED 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>
Net sales $61,031 $12,995 $12,523 $ (6,778) $ 79,771
Net rentals 13,768 24,037 957 (13,746) 25,016
------- ------- ------- -------- --------
Net revenues $74,799 $37,032 $13,480 $(20,524) $104,787
Cost of sales $43,560 $ 7,860 $ 7,729 $ (6,715) $ 52,434
Cost of rentals 2,589 19,404 613 (13,746) 8,860
Selling, general and administrative expenses 14,602 7,018 3,526 - 25,146
------- ------- ------- -------- --------
Income from operations $14,048 $ 2,750 $ 1,612 $ (63) $ 18,347
Interest expense 5,100 9 14 - 5,123
Intercompany interest expense (income) (80) 80 - - -
Other expense (income), net (2,598) 41 224 2,351 18
------- ------- ------- -------- --------
Income before income taxes $11,626 $ 2,620 $ 1,374 $ (2,414) $ 13,206
Provision for income taxes 3,955 1,210 565 - 5,730
------- ------- ------- -------- --------
Net income $ 7,671 $ 1,410 $ 809 $ (2,414) $ 7,476
======= ======= ======= ======== ========
</TABLE>
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 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>
CASH FLOWS FROM OPERATING ACTIVITIES $ 14,036 $1,034 $ 342 $ - $ 15,412
CASH FLOW FROM INVESTING ACTIVITIES:
Cash used for capital expenditures (3,675) (103) (84) - (3,862)
Proceeds from sale of fixed assets 55 - - - 55
-------- ------ ----- -------- --------
Net Cash Used In Investing Activities $ (3,620) $ (103) $ (84) $ - $ (3,807)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in Revolving Credit Loan - - - - -
Proceeds from other long-term debt 25,375 36 - - 25,411
Payments of other long-term debt (34,532) (34) - - (34,566)
Dividends received from (paid by) subsidiaries 191 - (191) - -
Payments of deferred financing costs (426) - - - (426)
Net increase (decrease) in advance account 673 (680) 7 - -
Other equity transactions (300) - (1) - (301)
-------- ------ ----- -------- --------
Net Cash Used In Financing Activities $ (9,019) $ (678) $(185) $ - $ (9,882)
EFFECT OF EXCHANGE RATE CHANGES
ON CASH - - (52) - (52)
-------- ------ ----- -------- --------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS $ 1,397 $ 253 $ 21 $ - $ 1,671
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR (990) 254 781 - 45
-------- ------ ----- -------- --------
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 407 $ 507 $ 802 $ - $ 1,716
======== ====== ===== ======== ========
</TABLE>
42
<PAGE>
CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
Parent
and its Guarantor Non-guarantor Consolidated
Divisions Subsidiaries Subsidiaries Eliminations Totals
--------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ (990) $ 254 $ 781 $ - $ 45
Accounts receivable, net 6,410 3,973 3,012 (1,038) 12,357
Inventories 6,286 1,347 2,113 (432) 9,314
Prepaid income taxes and other current assets 1,738 131 102 - 1,971
Deferred income tax benefits 3,325 - - - 3,325
-------- ------ ------ -------- --------
Total Current Assets $ 16,769 $5,705 $6,008 $ (1,470) $ 27,012
-------- ------ ------ -------- --------
PLANT AND EQUIPMENT, AT COST:
Land $ 521 $ - $ - $ - $ 521
Buildings and improvements 6,296 18 303 - 6,617
Machinery and equipment 21,591 405 222 - 22,218
Equipment leased to others 4,116 34 24 - 4,174
-------- ------ ------ -------- --------
$ 32,524 $ 457 $ 549 $ - $ 33,530
Less: Accumulated depreciation 7,074 220 197 - 7,491
-------- ------ ------ -------- --------
Net Plant and Equipment $ 25,450 $ 237 $ 352 $ - $ 26,039
-------- ------ ------ -------- --------
OTHER ASSETS:
Goodwill, net $ 32,900 $2,713 $ 18 $ - $ 35,631
Intangible assets, net 586 135 - - 721
Deferred charges, net 12,004 882 7 - 12,893
Investment in wholly-owned subsidiaries 11,801 - - (11,801) -
Investment in affiliates 900 - - - 900
Other assets 92 - - - 92
-------- ------ ------ -------- --------
Total Other Assets $ 58,283 $3,730 $ 25 $(11,801) $ 50,237
-------- ------ ------ -------- --------
TOTAL ASSETS $100,502 $9,672 $6,385 $(13,271) $103,288
======== ====== ====== ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt $ 6,618 $ 32 $ - $ - $ 6,650
Accounts payable 3,323 346 1,062 (594) 4,137
Accrued liabilities 8,197 557 1,006 (444) 9,316
Accrued income taxes 1 - 158 - 159
Advance account (418) 1,129 (711) - -
-------- ------ ------ -------- --------
Total Current Liabilities $ 17,721 $2,064 $1,515 $ (1,038) $ 20,262
-------- ------ ------ -------- --------
NON-CURRENT LIABILITIES:
Long-term debt, less current maturities $ 43,456 $ 51 $ - $ - $ 43,507
Other non-current liabilities 11,025 - - - 11,025
Deferred income taxes 2,666 - - - 2,666
-------- ------ ------ -------- --------
Total Non-Current Liabilities $ 57,147 $ 51 $ - $ - $ 57,198
-------- ------ ------ -------- --------
STOCKHOLDER'S EQUITY (DEFICIT):
Common stock and
additional paid-in capital $ 16,723 $5,098 $2,000 $ (7,098) $ 16,723
Retained earnings 8,965 2,459 2,244 (5,135) 8,533
Additional minimum pension liability (54) - - - (54)
Cumulative translation adjustment - - 626 - 626
-------- ------ ------ -------- --------
Total Stockholder's Equity (Deficit) $ 25,634 $7,557 $4,870 $(12,233) $ 25,828
-------- ------ ------ -------- --------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY (DEFICIT) $100,502 $9,672 $6,385 $(13,271) $103,288
======== ====== ====== ======== ========
</TABLE>
43
<PAGE>
CONSOLIDATING STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
Parent
and its Guarantor Non-guarantor Consolidated
Divisions Subsidiaries Subsidiaries Eliminations Totals
---------- ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Net sales $62,211 $11,840 $13,736 $ (5,873) $ 81,914
Net rentals 12,179 21,394 977 (12,138) 22,412
------- ------- ------- -------- --------
Net revenues $74,390 $33,234 $14,713 $(18,011) $104,326
Cost of sales $45,780 $ 6,985 $ 8,395 $ (5,989) $ 55,171
Cost of rentals 3,488 17,843 465 (12,138) 9,658
Selling, general and administrative expenses 14,410 6,052 3,719 - 24,181
------- ------- ------- -------- --------
Income from operations $10,712 $ 2,354 $ 2,134 $ 116 $ 15,316
Interest expense 6,556 9 31 - 6,596
Intercompany interest expense (income) (145) 145 - - -
Other expense (income), net (2,149) 182 394 2,066 493
------- ------- ------- -------- --------
Income before income taxes $ 6,450 $ 2,018 $ 1,709 $ (1,950) $ 8,227
Provision for income taxes 1,677 975 686 - 3,338
------- ------- ------- -------- --------
Net income $ 4,773 $ 1,043 $ 1,023 $ (1,950) $ 4,889
======= ======= ======= ======== ========
</TABLE>
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
Parent
and its Guarantor Non-guarantor Consolidated
Divisions Subsidiaries Subsidiaries Eliminations Totals
---------- ------------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES $ 7,741 $ 546 $ 1,664 $ - $ 9,951
CASH FLOW FROM INVESTING ACTIVITIES:
Cash used for capital expenditures (3,560) (234) (59) - (3,853)
Proceeds from sale of fixed assets 243 38 - - 281
------- ------- ------- ----- -------
Net Cash Used In Investing Activities $(3,317) $ (196) $ (59) $ - $(3,572)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in Revolving Credit Loan - - - - -
Proceeds from other long-term debt 213 83 - - 296
Payments of other long-term debt (7,374) - - - (7,374)
Dividends received from (paid by) subsidiaries 4,195 (3,171) (1,024) - -
Net increase (decrease) in advance account (2,316) 2,488 (172) - -
Other equity transactions (201) 23 12 - (166)
------- ------- ------- ----- -------
Net Cash Used In Financing Activities $(5,483) $ (577) $(1,184) $ - $(7,244)
EFFECT OF EXCHANGE RATE CHANGES
ON CASH - - 38 - 38
------- ------- ------- ----- -------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS $(1,059) $ (227) $ 459 $ - $ (827)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 69 481 322 - 872
------- ------- ------- ----- -------
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ (990) $ 254 $ 781 $ $ 45
======= ======= ======= ===== =======
</TABLE>
44
<PAGE>
CONSOLIDATING STATEMENT OF INCOME
FOR THE PERIOD FROM MARCH 16, 1994 TO DECEMBER 31, 1994
(Dollars in thousands)
<TABLE>
<CAPTION>
Parent
and its Guarantor Non-guarantor Consolidated
Divisions Subsidiaries Subsidiaries Eliminations Totals
---------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales $52,638 $ 9,944 $6,942 $ (3,981) $65,543
Net rentals 8,573 14,928 792 (8,532) 15,761
------- ------- ------ -------- -------
Net revenues $61,211 $24,872 $7,734 $(12,513) $81,304
Cost of sales $39,176 $ 5,681 $4,305 $ (4,029) $45,133
Cost of rentals 2,518 12,121 422 (8,532) 6,529
Selling, general and administrative expenses 11,068 4,609 2,206 - 17,883
------- ------- ------ -------- -------
Income from operations $ 8,449 $ 2,461 $ 801 $ 48 $11,759
Interest expense $ 5,280 $ 5 $ 15 $ - $ 5,300
Intercompany interest expense (income) (11) 11 - - -
Other expense (income), net (2,271) 22 84 1,864 (301)
------- ------- ------ -------- -------
Income before income taxes $ 5,451 $ 2,423 $ 702 $ (1,816) $ 6,760
Provision for income taxes 1,855 995 266 - 3,116
------- ------- ------ -------- -------
Net income $ 3,596 $ 1,428 $ 436 $ (1,816) $ 3,644
======= ======= ====== ======== =======
</TABLE>
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM MARCH 16, 1994 TO DECEMBER 31, 1994
(Dollars in thousands)
<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 $ 6,397 $ 1,222 $ 212 $ - $ 7,831
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash used for capital expenditures $ (2,625) $ (7) $ (44) - $ (2,676)
Proceeds from sale of fixed assets 3 316 - - 319
Acquisition of Predecessor Company (22,952) - - - (22,952)
-------- ------- ----- ---- --------
Net Cash Used In Investing Activities $(25,574) $ 309 $ (44) $ - $(25,309)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in Revolving Credit Loan
Proceeds from long-term debt $ 59,223 $ - $ - $ - $ 59,223
Payments of long-term debt (55,033) - - - (55,033)
Payments of deferred financing costs (3,637) - - - (3,637)
Contribution from Holdings 15,552 - - - 15,552
Other equity transactions - - (6) - (6)
Intercompany dividends 483 - (483) - -
Net increase (decrease) in advance account 2,074 (2,071) (3) - -
-------- ------- ----- ---- --------
Net Cash Provided by Financing Activities $ 18,662 $(2,071) $(492) $ - $ 16,099
EFFECT OF EXCHANGE RATE
CHANGES ON CASH $ - $ - $ 24 $ - $ 24
-------- ------- ----- ---- --------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS $ (515) $ (540) $(300) $ - $ (1,355)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD $ 584 $ 1,021 $ 622 $ - $ 2,227
-------- ------- ----- ---- --------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 69 $ 481 $ 322 $ - $ 872
======== ======= ===== ==== ========
</TABLE>
45
<PAGE>
CONSOLIDATING STATEMENT OF INCOME
FOR THE PERIOD FROM JANUARY 1, 1994 TO MARCH 15, 1994
(Dollars in thousands)
<TABLE>
<CAPTION>
Predecessor Company
----------------------------------------------------------------------
Parent
and its Guarantor Non-guarantor Consolidated
Divisions Subsidiaries Subsidiaries Eliminations Totals
---------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales $12,199 $2,051 $1,738 $ (941) $15,047
Net rentals 1,933 3,340 194 (1,921) 3,546
------- ------ ------ ------- -------
Net revenues $14,132 $5,391 $1,932 $(2,862) $18,593
Cost of sales $ 8,758 $1,307 $1,087 $ (927) $10,225
Cost of rentals 568 2,892 105 (1,921) 1,644
Selling, general and administrative expenses 2,748 1,218 621 - 4,587
------- ------ ------ ------- -------
Income (loss) from operations $ 2,058 $ (26) $ 119 $ (14) $ 2,137
Interest expense 1,500 - - - 1,500
Intercompany interest expense (income) (11) 11 - - -
Other expense (income), net (145) - 29 (6) (122)
------- ------ ------ ------- -------
Income before income taxes $ 714 (37) $ 90 $ (8) $ 759
Provision for income taxes 255 27 33 - 315
------- ------ ------ ------- -------
Net income $ 459 $ (64) $ 57 $ (8) $ 444
======= ====== ====== ======= =======
</TABLE>
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1994 TO MARCH 15, 1994
(Dollars in thousands)
<TABLE>
<CAPTION>
Predecessor Company
----------------------------------------------------------------------
Parent
and its Guarantor Non-guarantor Consolidated
Divisions Subsidiaries Subsidiaries Eliminations Totals
---------- ------------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES $1,300 $ 657 $(89) $ -- $1,868
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash used for capital expenditures (405) (14) (26) -- (445)
Proceeds from sale of fixed assets - 7 - -- 7
------ ------ ---- ------ ------
Net Cash Used In Investing Activities $ (405) $ (7) $(26) $ -- $ (438)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in Revolving Credit Loan (700) - - -- (700)
Payments of other long-term debt 3 (60) - -- (57)
Other equity transactions (270) - 75 -- (195)
------ ------ ---- ------ ------
Net Cash (Used In) Provided by
Financing Activities $ (967) $ (60) $ 75 $ -- $ (952)
EFFECT OF EXCHANGE RATE
CHANGES ON CASH - - 16 -- 16
------ ------ ---- ------ ------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS $ (72) $ 590 $(24) $ -- $ 494
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 656 431 646 -- 1,733
------ ------ ---- ------ ------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 584 $1,021 $622 $ -- $2,227
====== ====== ==== ====== ======
</TABLE>
46
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Stockholders and Board of
Directors of AXIA Incorporated:
We have audited the accompanying consolidated balance sheets of AXIA
INCORPORATED (a Delaware corporation) AND SUBSIDIARIES as of December 31, 1996
and 1995, and the related consolidated statements of income, stockholder's
equity (deficit) and cash flows for the periods ended December 31, 1996,
December 31, 1995, December 31, 1994 and March 15, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AXIA INCORPORATED AND
SUBSIDIARIES as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for the periods ended December 31, 1996,
December 31, 1995, December 31, 1994 and March 15, 1994, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 6, 1997
47
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information is set forth under the heading "Directors and Executive
Officers of the Registrant" in Part I, Item 1 of this Annual Report on Form
10-K.
ITEM 11. EXECUTIVE COMPENSATION
The following table provides certain summary information with respect to
compensation paid to or accrued by the Company on behalf of the Company's Chief
Executive Officer and the four other most highly compensated executive officers
of the Company for the year ended December 31, 1996:
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
------------------------------------------------
<S> <C> <C> <C> <C>
Other Annual
Name and Position Held (1) Salary Bonus (2) Compensation (3)
- -------------------------- ------ --------- -----------------
Dennis W. Sheehan 1996 $336,000 $200,000 $19,626
President/CEO 1995 $336,000 $100,000 $20,143
1994 $336,000 $140,000 $20,144
Lyle J. Feye 1996 $134,208 $ 45,000 $10,183
Vice President Finance 1995 $127,709 $ 28,000 $10,150
& Treasurer 1994 $119,500 $ 40,000 $ 8,508
Robert G. Zdravecky 1996 $163,333 $ 67,500 $11,664
President & General Manager, 1995 $154,165 $ 22,100 $10,767
Ames division, ATTS 1994 $144,167 $ 43,000 $10,680
& TapeTech
David H. Chesney 1996 $158,875 $114,000 $ 9,202
President & General Manager, 1995 $152,502 $ 67,900 $ 8,731
Nestaway division 1994 $145,000 $ 54,000 $ 9,000
Ian G. Wilkins 1996 $155,250 $ 52,000 $ 9,339
President & General Manager, 1995 $145,835 $ 22,100 $ 9,145
Fischbein & Flexible Material 1994 $ 84,359 - $53,490 (4)
Handling divisions
</TABLE>
- -------------------------------------
(1) Since 1994, these individuals did not receive any restricted stock awards
or options.
(2) The Company provides a bonus plan with bonus payments to be made in cash.
(3) Includes payments for life insurance and automobile allowance.
(4) Mr. Wilkins joined the Company in 1994. Other annual compensation
includes reimbursed moving expenses.
There are no independent directors of the Company and therefore no
directors receive remuneration for their services in that capacity.
48
<PAGE>
RETIREMENT PLAN
Substantially all regular, salaried and non-bargaining hourly employees
participate in the AXIA Incorporated Salaried Employees' Retirement Plan. Under
the terms of the Plan, each eligible employee receives a retirement benefit
based on the number of years of credited service with the Company and average
total earnings for the five consecutive years of highest earnings during the
fifteen years preceding termination of employment.
As of December 31, 1996, the number of years of credited service for the
indicated persons are: Mr. Sheehan, 18.08 years; Mr. Feye, 7.33 years; Mr.
Zdravecky, 8.08 years and Mr. Chesney, 4.83 years and Mr. Wilkins, 1.58 years.
The amounts shown in the following table are estimated annual retirement
benefits (payable as a straight life annuity) for the respective compensation
levels and years of service, after deduction of an offset of anticipated Social
Security benefits as provided under the terms of the Plan:
PENSION TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
---------------------------------------------
<S> <C> <C> <C> <C> <C>
REMUNERATION 10 15 20 25 30
------------ ------- ------- ------- -------- --------
$125,000 $23,596 $35,394 $47,192 $ 58,990 $ 70,788
$150,000 28,596 42,894 57,192 71,490 85,788
$175,000 33,596 50,394 67,192 83,990 100,788
$200,000 38,596 57,894 77,192 96,490 115,788
$225,000 43,596 65,394 87,192 108,990 125,000*
</TABLE>
*The annual pension payable from a qualified plan is restricted by the Internal
Revenue Code to the amount designated by an asterisk.
MEDICAL INSURANCE
Certain Company officers participate in a medical insurance plan covering
up to $100,000 per participant in annual medical expenses. The aggregate benefit
amount paid for such participants totaled $12,064 for 1996.
SALARY CONTINUATION (DEATH BENEFIT)
In order to attract and encourage key executives to remain with the
Company, the Company instituted a salary continuation (death benefit) program
which provides certain key executives with a death benefit, contingent upon
employment or service as a consultant with the Company until retirement or
death. Upon the executive's death, the Company will pay to his designated
beneficiary, annually for a period of ten years, an amount equal to 40 percent
of the executive's current annual salary or salary at date of retirement. The
Company may terminate the death benefit program and the agreement with any
executive at any time prior to the executive's death, disability or retirement,
except that, during the three year period following certain events involving a
"change of control" of the Company, only a portion of those benefits may be
terminated. The Company has purchased life insurance policies on the lives of
the executives, naming the Company as the sole beneficiary. The amount of such
coverage is designed to provide to the Company a source of funds to satisfy its
obligations under the program. Annual premiums paid in 1996 with respect to Mr.
Sheehan, was approximately $53,839; however, if current assumptions as to
mortality experience, policy dividends and other factors are realized, the
Company will recover, through tax deductions over the life of the program, all
of its payments to the insurance company and the executives. Mr. Sheehan is the
only active executive covered by this program.
49
<PAGE>
TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL AGREEMENTS
The Company has an employment agreement with Mr. Sheehan. Mr. Sheehan's
agreement is for a five-year term commencing June 15, 1993. The agreement
provides for an annual base salary that is subject to annual upward adjustment
at the discretion of the Company. Such salary for 1996 is reflected in the
Summary Compensation Table. Unless the employee is terminated for cause, or the
employee voluntarily terminates his employment, upon termination of employment,
the Company is obligated to make severance payments. For Mr. Sheehan, such
severance payments shall be equal to his base salary for the duration of the
agreement, or twelve months, whichever is longer.
MANAGEMENT INCENTIVE COMPENSATION PLAN
The Company has adopted an incentive plan which provides to certain
employees, including the executives listed above, an annual performance bonus.
These bonuses are calculated on the basis of the employee's base annual salary
and percentage eligibility as defined in the plan. Bonuses are paid in the
first quarter of the following year, assuming the Company meets a targeted
earnings improvement, revenues, gross margin, cash flow, and/or such other
measures as may be determined annually by the Company's directors.
STOCK OPTIONS
Holdings has granted stock options to certain employees who have the option
to purchase restricted shares of common stock of Holdings in the aggregate of
approximately 4% of the common stock on a fully diluted basis.
BONUS AGREEMENT
The Company has entered into a bonus agreement with certain executive
officers which provides for a cash bonus in the event that a defined internal
rate of return is achieved on the original investments made on the date of the
Transaction. The bonus is payable upon the sale of all or substantially all of
the shares of common stock of Holdings and for the assets of Holdings. The
bonus amount for each executive is equal to 1% of the aggregate cash purchase
price paid for the shares or the amount distributed to shareholders as a
liquidation dividend upon the sale of the assets of Holdings, net of all related
transaction expenses.
50
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Guarantors are wholly-owned by the Company and the Company is wholly-
owned by Holdings. The following sets forth the beneficial ownership of the
common stock of Holdings as of December 31, 1996, by (a) each person who is
known by Holdings to beneficially own more than 5% of such common stock, (b)
each of the Company's and the Guarantors' directors and executive officers, and
(c) all directors and executive officers of the Company and the Guarantors as a
group.
<TABLE>
<CAPTION>
Title of Class Number of Shares Percent of
of Common Stock Beneficial Owner Beneficially Owned Total Shares (1)
- --------------- ---------------- ------------------ ----------------
<S> <C> <C> <C>
A Cortec Group Fund, L.P. (2) 354,483 59.1%
200 Park Avenue
New York, New York 10028
A Donaldson, Lufkin and Jenrette (3) 77,987 13.0%
Securities Corporation
140 Broadway
New York, New York 10005
A Dennis W. Sheehan (4) 50,859 8.5%
c/o AXIA Incorporated
100 West 22nd Street, Suite 134
Lombard, Illinois 60148
A Lyle J. Feye (6) 2,659 .4%
c/o AXIA Incorporated
100 West 22nd Street, Suite 134
Lombard, Illinois 60148
A Robert G. Zdravecky (7) 1,912 .3%
c/o AXIA Incorporated
100 West 22nd Street, Suite 134
Lombard, Illinois 60148
A T. Richard Fishbein (5) 13,293 2.2%
c/o Cortec Group Inc.
200 Park Avenue
New York, New York 10028
All officers and directors 68,723 11.5%
as a group (4 persons)
</TABLE>
(1) Gives effect to the conversion of outstanding Class B Common Stock into
Class A Common Stock. Prior to such conversion, Cortec Group Fund, L.P.
("Cortec"), Donaldson, Lufkin & Jenrette Securities Corporation, Dennis W.
Sheehan and all directors and officers as a group own beneficially 64.9%,
14.3%, 9.3%, and 12.6%, respectively, of the outstanding Class A Common
Stock consisting of 546,400 shares. All of the 53,173 shares of Class B
Common Stock are owned by Indosuez AXIA Holding, Partners. Class B Common
Stock is non-voting stock, and, subject to limitations described in this
note, is fully convertible at any time at the option of the holder into an
equal number of shares of Class A Common Stock. Upon a conversion of all of
the Class B Common Stock, such shares would constitute 8.9% of the total
Class A Common Stock. Paragraph C(ii) of Holdings' certificate of
incorporation provides that no holder of non-voting common stock may
convert any such shares into voting common stock to the extent that, as a
result of such conversion, such holder and its affiliates, directly or
indirectly, would own, control or have the power to vote a greater number
of shares of voting common stock than such holder and its affiliates are
permitted to own, control or have the power to vote under any law,
51
<PAGE>
rule, regulation or other requirement of any governmental authority
applicable to such holder or its affiliates. Indosuez Axia Holding,
Partners has advised Holdings that it is subject to the provisions of
Regulation Y of the Board of Governors of the Federal Reserve System, which
restricts it from owning more than 5% of any class of voting securities. An
affiliate of Indosuez Axia Holding, Partners is the Agent for the Bank
Facilities.
(2) Includes the 311,946 shares of Common Stock owned by Cortec and the 42,537
shares beneficially owned by certain officers and employees of Cortec
Capital Corp., the general partner of Cortec, including persons who serve
as directors of Holdings. See "Stockholders Agreements" below. Cortec
Capital Corp., the general partner of Cortec disclaims beneficial ownership
of Cortec's shares, except to the extent of its percentage ownership of the
partnership.
(3) Includes shares held by DLJ First ESC L.L.C., DLJ Capital Corporation and
employees of DLJ or its affiliates.
(4) Mr. Sheehan is Chairman, President and Chief Executive Officer of the
Company.
(5) Mr. Fishbein is a Director of the Company and a partner in Cortec. The
number of shares presented includes 886 shares owned by Mr. Fishbein's
daughter, but does not include the 311,946 shares owned by the Cortec Group
Fund or 29,244 shares beneficially owned by certain officers and employees
of Cortec Capital Corp., or its affiliates.
(6) Mr. Feye is Vice President, Chief Financial Officer, and Treasurer of the
Company.
(7) Mr. Zdravecky is President and General Manager of the Ames division and
President of ATTS and TapeTech.
STOCKHOLDERS AGREEMENTS
Holdings and the holders of the common stock of Holdings ("Holdings Common
Stock") have entered into various stockholders agreements for the purpose of
regulating certain aspects of the relationships of such stockholders. In
general, the stockholders agreements have provisions which relate to certain
registration rights, "tag-along" obligations and "drag-along" rights.
Pursuant to the stockholders agreements, Cortec Group Fund, L.P. ("Cortec")
has granted all stockholders except those stockholders whose Holdings Common
Stock is beneficially owned by Cortec, "tag-along" rights pursuant to which such
holders will have the option of participating in a sale by Cortec (other than
sales to affiliates of Cortec) of Holdings Common Stock on terms and conditions
substantially similar to the terms and conditions agreed to by Cortec. With
respect to certain employee stockholders (including the director of the
Company), the "tag-along" provision is applicable in connection with a sale of
any or all of the Holdings Common Stock owned by Cortec. With respect to the
other stockholders, the provision is applicable only upon a sale by Cortec of
20% or more of its Holdings Common Stock.
The stockholders agreements also provide that if Cortec desires to sell all
of its Holdings Common Stock, Cortec can require the other stockholders to sell
their Holdings Common Stock simultaneously with and, on the same terms as, the
sale by Cortec.
The stockholders agreements for holders whose Holdings Common Stock is
beneficially owned by Cortec provides that, until March 15, 2004, each such
holder will vote its shares in the same manner that Cortec votes its shares.
Certain officers of Cortec have been appointed as proxy to vote such stock in
accordance with the terms of the agreement.
The stockholders agreements with certain employees (including the director
of the Company) also contain provisions (i) restricting the transfer of Holdings
Common Stock, (ii) granting a right of first offer to Holdings to purchase its
Common Stock, and (iii) granting certain "piggy-back" registration rights.
52
<PAGE>
Finally, the stockholders agreements entered into with certain stockholders
(other than the employees and the stockholders whose Holdings Common Stock is
beneficially owned by Cortec) grants certain registration rights under the
Securities Act. Certain stockholders are granted the right to demand
registration of the sale of their Holdings Common Stock after the earlier of (i)
March 15, 1999 and (ii) 270 days after the completion of an initial public
offering of the Holdings Common Stock provided that a specified minimum
percentage of the outstanding Holdings Common Stock will be included in such
demand registration. Each stockholder may participate ("piggy-back") in
registrations requested by other stockholders, subject to certain volume
limitations. In addition, if at any time Holdings proposes to register any
Holdings Common Stock under the Securities Act in connection with a public
offering of such securities, each stockholder has the right to request that any
of its Stock be included in such registration statement, subject to certain
volume limitations.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following is information concerning certain transactions between the
Company and certain affiliates. The Company believes that these transactions
are on terms at least as favorable to the Company as it could obtain from
unaffiliated third parties. These transactions were not approved by a majority
of the disinterested members of the Board of Directors.
TRANSACTION FEES
In connection with the Transaction, the Company and Holdings paid Cortec
Capital Corp. ("CCC") a transaction fee of $784,525 and reimbursed it for out-
of-pocket expenses of $235,282 incurred in connection with the Transaction.
Services performed by CCC included negotiations of the terms of the Agreement
and Plan of Merger, dated as of January 31, 1994, between Acquisition and the
Company, arranging for and negotiating the terms of the Senior Debt financing
and performing all of the due diligence associated with the merger, including
environmental and tax due diligence. Donaldson, Lufkin & Jenrette Securities
Corporation, a beneficial owner of 13.0% of Holdings, and Bank Indosuez, a
beneficial owner of 8.9% of Holdings and agent for the Bank Facilities, also
received transaction fees of $840,000 and $1,590,000, respectively, and
reimbursement of expenses of $40,000 and $9,011, respectively.
MANAGEMENT AGREEMENT
The Company has entered into a Management Agreement (the "Management
Agreement") with CCC for certain management and financial services. Pursuant
to the Management Agreement, CCC will provide the Company with professional and
administrative advice in areas relating to the Company's business, including
finance, budgeting, risk management, business planning, manufacturing, sales,
marketing, staffing levels and acquisitions. CCC is the general partner of
Cortec, which is the beneficial owner of 59.1% of Holdings. CCC will receive a
quarterly fee of 1% of the Company's net sales, not to exceed $125,000. The
Management Agreement continues until March 31, 2001, and thereafter for
successive one year periods unless terminated by either party. Subsequent to
the Transaction, the Company paid or accrued $426,780, $458,662 and $504,959 for
1994, 1995 and 1996, respectively, for fees and reimbursed expenses under the
Management Agreement.
BANK FACILITIES
In connection with the Transaction, the Company entered into the Bank
Facilities with Banque Indosuez, which is a beneficial owner of 8.9% of the
outstanding capital stock of Holdings. As a result of a refinancing of the Bank
Facilities on June 27, 1996, Banque Indosuez is no longer the agent bank, or a
participant, for the Company's bank credit agreement.
53
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report or
incorporated herein by reference.
(1) The Consolidated Financial Statements and Financial Statement
Schedules of AXIA Incorporated are listed on the Index, page
19, of this Form 10-K.
(2) Exhibits required to be filed by Item 601 of Regulation S-K
are listed under the caption "Exhibits" below:
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)/
4.5 Specimen Certificate of 11% Series B Senior Notes due 2001 (the
Exchange 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)/
54
<PAGE>
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./(4)/
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)/
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.
99.1 Form of Letter of Transmittal./(2)/
99.2 Form of Notice of Guaranteed Delivery./(2)/
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the three months ended December
31, 1994.
/(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.
55
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AXIA INCORPORATED
By /s/ Lyle J. Feye
-----------------------------------------
Lyle J. Feye
Vice President, Treasurer, Chief Financial
Officer
Date: March 27, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Dennis W. Sheehan Chairman, President and Chief March 27, 1997
- ------------------------ Executive Officer and Director
Dennis W. Sheehan
/s/ Lyle J. Feye Vice President Finance, March 27, 1997
- ------------------------ Principal Financial Officer,
Lyle J. Feye and
Principal Accounting Officer
/s/ T. Richard Fishbein Director March 27, 1997
- ------------------------
T. Richard Fishbein
56
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation of
our Report dated March 6, 1997, included in this Form 10-K into the Company's
previously filed Registration Statement on Form S-4 (File No. 33-78922).
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 27, 1997
<TABLE> <S> <C>
<PAGE>
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,716
<SECURITIES> 0
<RECEIVABLES> 12,178
<ALLOWANCES> 1,491
<INVENTORY> 9,086
<CURRENT-ASSETS> 26,211
<PP&E> 36,219
<DEPRECIATION> 11,346
<TOTAL-ASSETS> 99,331
<CURRENT-LIABILITIES> 18,849
<BONDS> 18,343
0
0
<COMMON> 16,723
<OTHER-SE> 15,395
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 79,771
<TOTAL-REVENUES> 104,787
<CGS> 52,434
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<OTHER-EXPENSES> 18
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<INTEREST-EXPENSE> 5,123
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<INCOME-TAX> 5,730
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<DISCONTINUED> 0
<EXTRAORDINARY> 614
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<NET-INCOME> 6,862
<EPS-PRIMARY> 0
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</TABLE>
