<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For Quarter Ended June 30, 1999 Commission File No. 333-64555
---------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
________________________
AXIA INCORPORATED
(Exact name of Registrant as specified in its charter)
Delaware 13-3205251
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 West 22nd Street, Suite 134, Lombard, Illinois 60148 (630) 629-3360
--------------------------------------------------------------------------
(Address and telephone number of principal executive offices)
________________________
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No _______
-------
________________________
<PAGE>
PART I
Item 1. Financial Statements
AXIA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- ------------
ASSETS (Unaudited)
- ------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 7,405 $ 5,904
Accounts receivable, net 15,536 14,133
Inventories, net 11,122 11,092
Prepaid income taxes and other current assets 1,909 1,135
Deferred income tax benefits 3,444 3,439
-------- --------
Total Current Assets $ 39,416 $ 35,703
-------- --------
PLANT AND EQUIPMENT, AT COST:
Land $ 984 $ 984
Buildings and improvements 5,211 4,600
Machinery and equipment 19,530 18,750
Equipment leased to others 10,801 10,113
-------- --------
$ 36,526 $ 34,447
Less: Accumulated depreciation 3,841 1,758
-------- --------
Net Plant and Equipment $ 32,685 $ 32,689
-------- --------
OTHER ASSETS:
Goodwill, net $109,685 $107,633
Intangible assets, net 1,027 807
Deferred charges, net 17,366 18,097
Other assets 26 28
-------- --------
Total Other Assets $128,104 $126,565
-------- --------
TOTAL ASSETS $200,205 $194,957
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt $ 4,376 $ 4,655
Accounts payable 5,385 4,334
Payable to parent 215 -
Accrued liabilities 12,503 11,868
Accrued income taxes 123 11
-------- --------
Total Current Liabilities $ 22,602 $ 20,868
-------- --------
NON-CURRENT LIABILITIES:
Long-term debt, less current maturities $131,891 $131,020
Other non-current liabilities 8,345 7,970
Deferred income taxes 6,655 6,750
-------- --------
Total Non-Current Liabilities $146,891 $145,740
-------- --------
Commitments and contingencies $ - $ -
Common stock held by ESOP 1,620 1,620
Less: Note receivable from ESOP (1,336) $ (1,473)
STOCKHOLDER'S EQUITY:
Common stock ($.01 par value; 100 shares
authorized, issued and outstanding) $ - $ -
Additional paid-in capital 26,511 26,511
Retained earnings 4,076 1,482
Accumulated other comprehensive income (159) 209
-------- --------
Total Stockholder's Equity $ 30,428 $ 28,202
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $200,205 $194,957
======== ========
</TABLE>
The accompanying Notes to the Unaudited Interim Consolidated Financial
Statements are an integral part of these balance sheets.
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
Predecessor Company
-------------------
April 1, 1999 April 1, 1998
to to
June 30, 1999 June 30, 1998
------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C>
Net sales $24,138 $20,629
Net rentals 8,917 7,426
------- -------
Net revenues $33,055 $28,055
Cost of sales 14,884 12,499
Cost of rentals 2,604 2,279
Selling, general and administrative expenses 7,244 6,380
Depreciation and amortization 1,845 1,201
------- -------
Income from operations $ 6,478 $ 5,696
Interest expense 3,574 660
Interest income (83) -
Other expense (income), net (99) 102
------- -------
Income before income taxes and extraordinary item $ 3,086 $ 4,934
Provision for income taxes 1,484 1,870
------- -------
Income before extraordinary item $ 1,602 $ 3,064
Extraordinary item:
Loss on early extinguishment of debt,
net of income tax of $181 $ - $ 300
------- -------
$ 1,602 $ 2,764
======= =======
</TABLE>
The accompanying Notes to the Unaudited Interim Consolidated Financial
Statements are an integral part of these statements.
2
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
Predecessor Company
-------------------
January 1, 1999 January 1, 1998
to to
June 30, 1999 June 30, 1998
------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C>
Net sales $46,926 $41,725
Net rentals 17,286 14,475
------- -------
Net revenues $64,212 $56,200
Cost of sales 29,309 25,274
Cost of rentals 4,924 4,489
Selling, general and administrative expenses 14,084 12,565
Depreciation and amortization 3,675 2,371
------- -------
Income from operations $12,220 $11,501
Interest expense 7,125 1,393
Interest income (147) (7)
Other expense (income), net 113 171
------- -------
Income before income taxes and extraordinary item $ 5,129 $ 9,944
Provision for income taxes 2,535 3,954
------- -------
Income before extraordinary item $ 2,594 $ 5,990
Extraordinary item:
Loss on early extinguishment of debt,
net of income tax of $181 $ - $ 300
------- -------
Net income $ 2,594 $ 5,690
======= =======
</TABLE>
The accompanying Notes to the Unaudited Interim Consolidated Financial
Statements are an integral part of these statements.
3
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
Other Comprehensive Income
----------------------------------------------
Common Additional Minimum Cumulative Accumulated Compre-
Stock Paid-in Retained Pension Translation Other Compre- hensive
Par Value Capital Earnings Liability Adjustments hensive Income Income
--------- ---------- -------- --------- ----------- -------------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Predecessor Company
- -------------------
BALANCE, DECEMBER 31, 1997 $ - $ 16,723 $ 23,818 $ (182) $ (292) $ (474) $ -
Net income - - 5,690 - - - 5,690
Cumulative translation adjustment - - - - (51) (51) (51)
-------- -------- --------- ----------- -------------- ----------- -------
Comprehensive income $5,639
======
BALANCE, JUNE 30, 1998 (unaudited) $ - $ 16,723 $ 29,508 $ (182) $ (343) $ (525)
======== ======== ========== =========== ============== ===========
AXIA Incorporated
- -----------------
BALANCE, DECEMBER 31, 1998 $ - $ 26,511 $ 1,482 $ (1) $ 210 $ 209 $ -
Net income - - 2,594 - - - 2,594
Cumulative translation adjustment - - - - (368) (368) (368)
------- -------- --------- ----------- -------------- ----------- -------
Comprehensive income $2,226
======
BALANCE, JUNE 30, 1999 (unaudited) $ - $ 26,511 $ 4,076 $ (1) $ (158) $ (159)
======== ======== ========== =========== ============== ===========
</TABLE>
The accompanying Notes to the Unaudited Interim Consolidated Financial
Statements are an integral part of these statements.
4
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
Predecessor Company
-------------------
January 1, 1999 January 1, 1998
to to
June 30, 1999 June 30, 1998
-------------------- ----------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,594 $ 5,690
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation and amortization 4,066 2,523
Extraordinary item-write off of capitalized financing costs - 361
Deferred income tax provision (benefit) (100) (105)
Loss (gain) on disposal of fixed assets 112 54
Provision for losses on accounts receivable 952 898
Provision for obsolescence of inventories (19) (176)
Credit to pension expense (118) (169)
Changes in assets and liabilities:
Accounts receivable (2,127) (2,789)
Inventories 507 (385)
Accounts payable 855 634
Payable to parent 215 -
Accrued liabilities 690 (540)
Other current assets (101) (67)
Income taxes payable (556) 1,608
Other non-current assets 303 (353)
Other non-current liabilities 332 86
Payments on note receivable from ESOP 137 -
------- -------
Net Cash Provided by Operating Activities $ 7,742 $ 7,270
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash used for capital expenditures $(1,630) $(3,011)
Cash used for acquisitions (5,295) -
Proceeds from sale of fixed assets 22 -
------- -------
Net Cash Provided by (Used in) Investing Activities $(6,903) $(3,011)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in Revolving Credit Loan $ - $ 3,200
Borrowing on Acquisition Facility 3,000 -
Payments of other long-term debt (2,408) (8,232)
------- -------
Net Cash (Used in) Financing Activities $ 592 $(5,032)
EFFECT OF EXCHANGE RATE CHANGES ON CASH $ 70 $ (47)
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 1,501 $ (820)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,904 1,310
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,405 $ 490
======= =======
</TABLE>
The accompanying Notes to the Unaudited Interim Consolidated Financial
Statements are an integral part of these statements.
5
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1 ORGANIZATION AND PRESENTATION
By agreement dated June 17, 1998, AXIA Acquisition Corp. ("Acquisition Co."),
a company organized to effect the acquisition (the "Acquisition") of Axia
Holdings Corp., entered into an Agreement and Plan of Merger (the "Merger
Agreement") with Axia Holdings Corp. ("Holdings"), the parent of AXIA Inc. (the
"Predecessor Company" prior to the date of the Transaction) to effect the
Acquisition for a purchase price of $155,250,000 (including the repayment of
indebtedness), subject to certain post-closing adjustments. Upon completion of
the transaction (the "Transaction"): (i) Holdings and AXIA Incorporated (the
"Company") became direct and indirect subsidiaries, respectively, of AXIA
Group, Inc. ("AXIA Group" the parent company of Acquisition Co.) and (ii) the
Company became the primary obligor on borrowings made under the bank credit
agreement (the "Bank Credit Agreement") and Senior Subordinated Notes issued on
the Transaction Date defined below.
On July 22, 1998 (the "Transaction Date"), AXIA Group sold $28,000,000 of its
common stock ("Common Stock") and contributed the proceeds thereof to
Acquisition Co. (the "Equity Investment"). Finance Co., an indirect subsidiary
of AXIA Group, borrowed approximately $39,250,000 under the Bank Credit
Agreement and received approximately $100,000,000 in gross proceeds from the
sale of the Senior Subordinated Notes. Such funds were used: (i) to effect the
Acquisition pursuant to the Merger Agreement; (ii) to fund the ESOP; (iii) to
repay existing indebtedness of the Company and (iv) to pay fees and expenses in
connection with the Transaction. Finance Co. then merged into the Company.
The Merger Agreement contains indemnification provisions binding on each of
the parties to the Merger Agreement. Pursuant to such provisions each of the
parties has agreed to indemnify each other for breaches of representations,
warranties and covenants.
Accounting policies used in the preparation of the unaudited interim
consolidated financial statements are consistent with the accounting policies
described in the Notes to the Consolidated Financial Statements for the year
ended December 31, 1998 in the Company's Form 10-K. In the opinion of the
management, the interim financial statements reflect all adjustments consisting
only of normal recurring adjustments which are necessary for a fair presentation
of the Company's financial position, results of operations and cash flows for
the interim periods presented. The results for such interim periods are not
necessarily indicative of results for the full year. These financial statements
should be read in conjunction with the consolidated financial statements for the
year ended December 31, 1998 and the accompanying notes thereto in the Company's
Form 10-K under the Securities Act of 1934.
NOTE 2 MERGER AND REFINANCING EFFECTS
Goodwill of the surviving company as of June 30, 1999, represents the excess
purchase price paid over the estimated fair value of the net assets acquired,
excluding Predecessor Company goodwill, in the July 22, 1998 merger and the
excess purchase price paid over the estimated fair value of the net assets
acquired of two acquisitions made during the quarter ended June 30, 1999. The
Transaction was accounted for as a purchase and resulting goodwill of
$108,837,000 was recorded on the Transaction Date. Subsequent acquisitions
resulted in additional goodwill of $3,397,000 (see Note 7). Goodwill is stated
net of amortization and is being amortized on a straight-line basis over forty
years.
6
<PAGE>
The following table illustrates the unaudited results of operations of the
Company for the three month and six month periods ended June 30, 1999 and the
unaudited pro forma results of operations of the Company for the three month and
six month periods ended June 30, 1998 as if the Transaction occurred on January
1, 1998 (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
----------------------------
June 30, 1999 June 30, 1998
Actual Pro Forma
------------- -------------
<S> <C> <C>
Net revenues $33,055 $28,055
Income from operations 6,478 5,149
Income before income taxes 3,086 1,538
Net income 1,602 843
Six Months Ended
----------------------------
June 30, 1999 June 30, 1998
Actual Pro Forma
------------- -------------
Net revenues $64,212 $56,200
Income from operations 12,220 10,389
Income before income taxes 5,129 3,065
Net income 2,594 1,494
</TABLE>
The preceding pro forma amounts include the effect of an increase in goodwill
amortization, adjustments to depreciation expense as a result of a revaluation
of fixed assets, an increase in interest expense as a result of the new debt
structure, a reduction in the annual management fee, the addition of an ESOP
plan, and the income tax effect of these adjustments.
NOTE 3 INVENTORIES
Inventories are stated at the lower of first-in, first-out (FIFO) cost or
market. The cost elements included in inventories are material, labor and
factory overhead. Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
Raw materials $ 5,037 $ 4,752
Work in process 1,079 1,176
Finished goods 5,006 5,164
------- -------
Total inventories $11,122 $11,092
======= =======
</TABLE>
NOTE 4 LONG-TERM DEBT
Long-term debt, inclusive of capital lease obligations which are not material,
consists of the following (in thousands):
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
-------------- ------------------
<S> <C> <C>
10.75% Senior Subordinated Notes $100,000 $100,000
Term Loan 31,945 34,167
ESOP Term Loan 1,106 1,313
Acquisition Facility 3,000 -
Other 216 195
-------- --------
Total Debt $136,267 $135,675
Less Current Maturities (4,376) ( 4,655)
-------- --------
Total Long-Term Debt $131,891 $131,020
======== ========
</TABLE>
7
<PAGE>
Current maturities of long-term debt as of June 30, 1999 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
Scheduled Payment
Date Amount
------------------ -------
<S> <C> <C>
Term Loan and ESOP Loan September 30, 1999 $1,075
Term Loan and ESOP Loan December 31, 1999 1,075
Term Loan and ESOP Loan March 31, 2000 1,075
Term Loan and ESOP Loan June 30, 2000 1,075
Other Various 76
------
Total Current Maturities $4,376
======
</TABLE>
Bank Credit Agreement
On the Transaction Date, the Company and its domestic subsidiaries entered
into a credit agreement (the "Bank Credit Agreement") which included a term loan
("Term Loan") with an original principal amount of $35,000,000, a $1,500,000
term loan for an ESOP (the "ESOP Loan"), an aggregate $25,000,000 in principal
amount available for acquisitions (the "Acquisition Facility"), and a non-
amortizing revolving credit loan ("Revolving Credit Facility") of up to
$15,000,000, including up to $2,000,000 of letters of credit. The Company, at
closing, borrowed $35,000,000 of the Term Loan, $1,500,000 of the ESOP Loan and
$2,750,000 against the Revolving Credit Facility. Borrowings under the
Revolving Credit Facility are subject to a borrowing base as determined per the
agreement and the satisfaction of certain conditions.
The Revolving Credit Facility, Acquisition Facility, Term Loan and ESOP Term
Loan (collectively, the "Loans") bear interest at an alternate base rate, as
defined in the agreement, based in part on a prime rate, or at a LIBOR rate, in
each case plus an applicable margin. The applicable margin may be adjusted
based on the ratio of total debt to EBITDA, as defined, and will range from 0%
to 1.00% for alternate base rate advances and 1.00% to 2.25% for LIBOR rate
advances. The weighted average interest rate at June 30, 1999 was 7.27%. At
June 30, 1999, the Company had no borrowings outstanding under the Revolving
Credit Facility.
All principal and interest on the Loans are due in 2004, except the ESOP Term
Loan, which is due in 2002, and are subject to certain mandatory prepayments and
scheduled payments. Accrued interest under the Loans is due quarterly and/or at
the end of the relevant interest period in the case of LIBOR Rate Advances. The
Term Loan matures June 30, 2004 with quarterly amortization payments due on the
last day each March, June, September and December. Amounts borrowed under the
Acquisition Facility are due on the last day of each September, December, March
and June, from September 2001 to June 2004. The Bank Credit Agreement permits
prepayments with notice, provides for reimbursement for certain costs, and
requires prepayments from a portion of excess cash flow (as defined) as well as
to the extent cash proceeds from certain events exceed amounts determined by
certain formulas.
Borrowings under the Acquisition Facility (which are available until September
2001) are subject to certain conditions precedent, including delivering certain
information to the Lenders about the proposed acquisition, the delivery of
guarantees and security documents as to the proposed acquisition and the
conformance of the acquisition to certain criteria.
10.75% Senior Subordinated Notes
The 10.75% Senior Subordinated Notes (the "Notes") were issued pursuant to the
Transaction and mature on July 15, 2008. Interest is payable January 15 and
July 15 of each year, commencing January 15, 1999. The Notes are unsecured
senior subordinated obligations of the Company and, as such, are subordinated in
right of payment to all existing and future senior indebtedness of the Company.
The Notes may be redeemed at the option of the Company, in whole or in part,
at any time on or after July 15, 2003 at the redemption prices set forth in the
indenture plus accrued interest on the date of
8
<PAGE>
redemption. Up to an aggregate of 35% of the principal amount of the Notes may
be redeemed from time to time prior to July 15, 2001 at the option of the
Company at the redemption price set forth in the indenture plus accrued interest
to the date of redemption, with the net proceeds received from one or more
public equity offerings.
Upon a change of control, the Company will be required to make an offer to
repurchase all outstanding Notes at 101% of the principal amount thereof plus
accrued interest to the date of repurchase.
The Notes are guaranteed, jointly and severally on a senior subordinated
basis, by each of the Company's existing and future direct and indirect
subsidiaries, excluding unrestricted subsidiaries, as defined, and foreign
subsidiaries. The guarantees are general unsecured obligations of the
Guarantors hereinafter referred to. The Guarantors also guarantee all
obligations of the Company under the Bank Credit Agreement. The obligations of
each Guarantor under its Guaranty is subordinated in right of payment to the
prior payment in full of all Guarantor senior indebtedness (as defined),
including such subsidiary's guarantee of indebtedness under the Bank Credit
Agreement, of such Guarantor to substantially the same extent as the Notes are
subordinated to all existing and future senior indebtedness of the Company.
Restrictive Loan Covenants
The Bank Credit Agreement contains restrictive covenants limiting the ability
(subject to certain exceptions) of the Company and its subsidiaries to, among
other things: (i) incur debt or contractual contingent obligations; (ii) pay
certain subordinated debt or amend subordinated debt documents without the prior
consent of the Lenders; (iii) create or allow to exist liens or other
encumbrances; (iv) transfer assets outside the Company except for sales and
other transfers of inventory or surplus, immaterial or obsolete assets in the
ordinary course of business of the Company; (v) enter into mergers,
consolidations and asset dispositions of all or substantially all of its
properties; (vi) make investments; (vii) sell, transfer or otherwise dispose of
any class of stock or the voting rights of any subsidiary of the Company; (viii)
enter into transactions with related parties other than in the ordinary course
of business on an arm's-length basis on terms no less favorable to the Company
than those available from third parties; (ix) amend certain agreements, unless
such amendment is not expected to have a material adverse effect; (x) make any
material change in the general nature of the business conducted by the Company;
(xi) pay cash dividends or redeem shares of capital stock; (xii) make capital
expenditures and (xiii) pay dividends or repurchase stock.
Under the Bank Credit Agreement, the Company is required to satisfy certain
financial covenants, including (i) a fixed charge coverage ratio; (ii) a minimum
net worth test; (iii) a ratio of total debt to EBITDA and (iv) a minimum
interest coverage ratio, all as defined in the agreement. The Company was in
compliance with its loan covenants at June 30, 1999.
The indenture under which the Notes were issued contains certain covenants
that, among other things, limit the ability of the Company and/or its Restricted
Subsidiaries (as defined) to (i) incur additional indebtedness, (ii) pay
dividends or make certain other restricted payments, (iii) make investments,
(iv) enter into transactions with affiliates, (v) make certain asset
dispositions, and (vi) merge or consolidate with, or transfer substantially all
of its assets to, another person. The indenture also limits the ability of the
Company's Restricted Subsidiaries to issue Capital Stock (as defined) and to
create restrictions on the ability of such Restricted Subsidiaries to pay
dividends or make any other distributions. In addition, the Company is
obligated, under certain circumstances, to offer to repurchase Notes at a
purchase price equal to 100% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the date of repurchase, with the net cash proceeds
of certain sales or other dispositions of assets. However, all of these
limitations and prohibitions are subject to a number of important
qualifications.
NOTE 5 STOCKHOLDER'S EQUITY
The Company has 100 shares of common stock, par value $.01 per share,
authorized, issued and outstanding, all of which are owned by the parent
company.
9
<PAGE>
NOTE 6 BUSINESS SEGMENTS
The Company is a designer, manufacturer, distributor and marketer of a diverse
range of products in several niche markets including productivity enhancing
construction tools, formed wire products and industrial bag closing equipment
and systems, and conveyor handling systems.
Ames ("Ames") is the designer, manufacturer, distributor and marketer of
automatic taping and finishing tools, which are rented or sold to interior
finishing contractors to finish drywall joints prior to painting, wallpapering
and other forms of final treatment. In addition, Ames sells a variety of other
drywall tools, finishing accessories, and supplies through its network of
Company-managed stores.
Nestaway ("Nestaway") is a manufacturer of formed wire products which are used
for a variety of commercial and consumer product applications. Nestaway
manufactures coated wire dishwasher racks and components which are sold to
dishwasher appliance manufacturers. Nestaway also manufactures, on a contract
basis, other close tolerance, formed, welded and coated formed wire products
such as dish drainers, sink protectors, shower caddies, dryer racks, golf cart
baskets, bucket bails, medical baskets and small gauge axles.
Fischbein ("Fischbein") is a worldwide manufacturer of industrial bag closing
equipment and systems, and a manufacturer of flexible conveyor handling systems
and stackable storage equipment. Bag closing equipment and systems include: (i)
portable and stationary industrial sewing heads and sewing systems for paper,
textile and woven polypropylene bags; (ii) industrial heat sealing and bag
handling systems for paper and plastic bags and (iii) consumables, including
thread, tape and service parts. Fischbein manufactures extendable, flexible,
gravity and motorized conveyors and portable, nestable and stackable warehouse
storage racks.
A summary of segment information for the three months ended June 30, 1999 and
June 30, 1998 is as follows (in thousands):
<TABLE>
<CAPTION>
Ames Nestaway Fischbein Corporate Consolidated
------- -------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C>
June 30, 1999
Revenues $14,270 $10,722 $8,063 $ - $33,055
Income from operations 4,196 2,053 1,175 (946) 6,478
Depreciation and amortization 954 610 276 201 2,041
Capital expenditures 695 127 108 5 935
Predecessor Company
- -------------------
Ames Nestaway Fischbein Corporate Consolidated
------- ------- ------ ----- -------
June 30, 1998
Revenues $11,706 $ 9,507 $6,842 $ - $28,055
Income from operations 3,256 2,120 1,071 (751) 5,696
Depreciation and amortization 494 534 164 77 1,269
Capital expenditures 1,080 648 45 1 1,774
</TABLE>
10
<PAGE>
A summary of segment information for the six months ended June 30, 1999 and
June 30, 1998 is as follows (in thousands):
<TABLE>
<CAPTION>
Ames Nestaway Fischbein Corporate Consolidated
------- -------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C>
June 30, 1999
Revenues $27,646 $21,709 $14,857 $ - $ 64,212
Income from operations 7,949 4,043 1,940 (1,712) 12,220
Total assets 80,750 59,871 35,715 23,869 200,205
Depreciation and amortization 1,834 1,302 525 405 4,066
Capital expenditures 1,236 231 158 5 1,630
Predecessor Company
- -------------------
Ames Nestaway Fischbein Corporate Consolidated
------- ------- ------- ------- --------
June 30, 1998
Revenues $22,954 $20,062 $13,184 $ - $ 56,200
Income from operations 6,479 4,528 1,977 (1,483) 11,501
Total assets 29,539 40,503 18,671 10,930 99,643
Depreciation and amortization 963 1,057 333 170 2,523
Capital expenditures 1,469 1,465 76 1 3,011
</TABLE>
NOTE 7 ACQUISITIONS
In April 1999, a subsidiary of the Company completed the acquisition of The
Thames Packaging Equipment Company Limited ("Thames") for $2,820,000. The
Company utilized its Acquisition Facility to finance the acquisition. Thames,
based in London, England, is a manufacturer of industrial heat sealing equipment
used for high volume closure of plastic bags. Thames results are reported
within the Fischbein business unit.
In June 1999, the Company acquired certain assets of Concorde Tool
Corporation, a Canadian manufacturer and distributor of automatic taping and
finishing tools for approximately $2,475,000. The acquisition was financed with
cash on hand.
These acquisitions were accounted for using the purchase method of accounting.
Accordingly, the cost of each acquisition has been allocated to assets acquired
and liabilities assumed based on their estimated fair market values at the date
of the acquisition. The operating results of these acquisitions are included in
the consolidated statements of operations from their respective acquisition
date. Pro forma results of these acquisitions have not been presented as the
pro forma revenue and net income would not be materially different from the
Company's actual results.
Based on preliminary estimates of the fair value of the net assets acquired,
the Company preliminarily recorded goodwill from the acquisitions of $3,397,000.
Although Management has used its best judgment and available information in
estimating the fair values of the net assets acquired, various analyses and
operational decisions may result in changes in the current estimates and
corresponding changes of the goodwill as a result of the acquisitions.
NOTE 8 SUBSIDIARY GUARANTEES
The Company's payment obligations under the 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.
11
<PAGE>
The Company's payment obligations under the Bank Credit Agreement are fully
and unconditionally guaranteed on a joint and several basis by 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.
The following consolidating condensed financial data illustrates the condition
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.
12
<PAGE>
AXIA INCORPORATED
SUPPLEMENTAL CONSOLIDATING BALANCE SHEET INFORMATION
AS OF JUNE 30, 1999
(Dollars in thousands, except share amounts)
<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 $ 5,466 $ 1,188 $ 751 $ - $ 7,405
Accounts receivable, net 7,035 6,196 3,383 (1,078) 15,536
Inventories, net 6,566 2,348 2,759 (551) 11,122
Prepaid income taxes and other current assets 1,607 141 161 - 1,909
Deferred income tax benefits 3,444 - - - 3,444
-------- ------- ------ -------- --------
Total Current Assets $ 24,118 $ 9,873 $7,054 $ (1,629) $ 39,416
-------- ------- ------ -------- --------
PLANT AND EQUIPMENT, AT COST:
Land $ 984 $ - $ - $ - $ 984
Buildings and improvements 4,470 61 680 - 5,211
Machinery and equipment 18,656 610 264 - 19,530
Equipment leased to others 10,801 - - - 10,801
-------- ------- ------ -------- --------
$ 34,911 $ 671 $ 944 $ - $ 36,526
Less: Accumulated depreciation 3,608 190 43 - 3,841
-------- ------- ------ --------
Net Plant and Equipment $ 31,303 $ 481 $ 901 $ - $ 32,685
-------- ------- ------ -------- --------
OTHER ASSETS:
Goodwill, net $ 93,724 $14,727 $1,234 $ - $109,685
Intangible assets, net 1,019 8 - - 1,027
Deferred charges, net 16,413 952 1 - 17,366
Investment in wholly-owned subsidiaries 20,655 - - (20,655) -
Other assets 26 - - - 26
-------- ------- ------ -------- --------
Total Other Assets $131,837 $15,687 $1,235 $(20,655) $128,104
-------- ------- ------ -------- --------
TOTAL ASSETS $187,258 $26,041 $9,190 $(22,284) $200,205
======== ======= ====== ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt $ 4,336 $ 40 $ - $ - $ 4,376
Accounts payable 3,844 928 1,906 (1,078) 5,600
Accrued liabilities 11,066 893 544 - 12,503
Accrued income taxes - - 123 - 123
Advance account (8,236) 9,147 (911) - -
-------- ------- ------ -------- --------
Total Current Liabilities $ 11,010 $11,008 $1,662 $ (1,078) $ 22,602
-------- ------- ------ -------- --------
NON-CURRENT LIABILITIES:
Long-term debt, less current maturities $129,826 $ 65 $2,000 $ - $131,891
Other non-current liabilities 8,345 - - - 8,345
Deferred income taxes 6,655 - - - 6,655
-------- ------- ------ -------- --------
Total Non-Current Liabilities $144,826 $ 65 $2,000 $ - $146,891
-------- ------- ------ -------- --------
Common stock held by ESOP $ 1,620 - - - $ 1,620
Less: Note receivable from ESOP (1,336) - - - (1,336)
STOCKHOLDER'S EQUITY:
Common stock and
additional paid-in capital $ 26,511 $ 5,098 $1,924 $ (7,022) $ 26,511
Retained earnings 4,627 9,870 3,763 (14,184) 4,076
Accumulated other comprehensive income - - (159) - (159)
-------- ------- ------ -------- --------
Total Stockholder's Equity $ 31,138 $14,968 $5,528 $(21,206) $ 30,428
-------- ------- ------ -------- --------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $187,258 $26,041 $9,190 $(22,284) $200,205
======== ======= ====== ======== ========
</TABLE>
13
<PAGE>
AXIA INCORPORATED
SUPPLEMENTAL CONSOLIDATING STATEMENT OF INCOME INFORMATION
FOR THE THREE MONTHS ENDED JUNE 30, 1999
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Parent
and its Guarantor Non-guarantor Consolidated
Divisions Subsidiaries Subsidiaries Eliminations Totals
---------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Net sales $16,757 $ 5,410 $3,627 $(1,656) $24,138
Net rentals 4,905 8,690 226 (4,904) 8,917
------- ------- ------ ------- -------
Net revenues $21,662 $14,100 $3,853 $(6,560) $33,055
Cost of sales $11,141 $ 3,132 $2,287 $(1,676) $14,884
Cost of rentals 588 6,783 137 (4,904) 2,604
Selling, general and administrative expenses 3,882 2,511 851 - 7,244
Depreciation and amortization 1,591 227 27 - 1,845
------- ------- ------ ------- -------
Income (loss) from operations $ 4,460 $ 1,447 $ 551 $ 20 $ 6,478
Interest expense $ 3,571 $ 3 $ - $ - $ 3,574
Intercompany interest expense (income) (20) 20 - - -
Other expense (income), net (1,439) 18 102 1,137 (182)
------- ------- ------ ------- -------
Income (loss) before income taxes
and extraordinary item $ 2,348 $ 1,406 $ 449 $(1,117) $ 3,086
Provision for income taxes 766 554 164 - 1,484
------- ------- ------ ------- -------
Income (loss) before extraordinary item $ 1,582 $ 852 $ 285 $(1,117) $ 1,602
======= ======= ====== ======= =======
</TABLE>
14
<PAGE>
AXIA INCORPORATED
SUPPLEMENTAL CONSOLIDATING STATEMENT OF INCOME INFORMATION
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Parent
and its Guarantor Non-guarantor Consolidated
Divisions Subsidiaries Subsidiaries Eliminations Totals
---------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Net sales $33,188 $10,399 $6,385 $ (3,046) $46,926
Net rentals 9,508 16,835 449 (9,506) 17,286
------- ------- ------ -------- -------
Net revenues $42,696 $27,234 $6,834 $(12,552) $64,212
Cost of sales $22,355 $ 6,041 $4,031 $ (3,118) $29,309
Cost of rentals 1,094 13,062 274 (9,506) 4,924
Selling, general and administrative expenses 7,593 4,905 1,586 - 14,084
Depreciation and amortization 3,249 376 50 - 3,675
------- ------- ------ -------- -------
Income (loss) from operations $ 8,405 $ 2,850 $ 893 $ 72 $12,220
Interest expense $ 7,119 $ 5 $ 1 $ - $ 7,125
Intercompany interest expense (income) 23 (23) - - -
Other expense (income), net (2,406) 33 238 2,101 (34)
------- ------- ------ -------- -------
Income (loss) before income taxes $ 3,669 $ 2,835 $ 654 $ (2,029) $ 5,129
and extraordinary item
Provision for income taxes 1,147 1,126 262 - 2,535
------- ------- ------ -------- -------
Income (loss) before extraordinary item $ 2,522 $ 1,709 $ 392 $ (2,029) $ 2,594
======= ======= ====== ======== =======
</TABLE>
AXIA INCORPORATED AND SUBSIDIARIES
SUPPLEMENTAL STATEMENT OF CASH FLOWS INFORMATION
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Parent
and its Guarantor Non-guarantor Consolidated
Divisions Subsidiaries Subsidiaries Eliminations Totals
---------- ------------- -------------- ------------ --------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES $ 5,230 $ 2,209 $ 303 $ - $ 7,742
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash used for capital expenditures (1,586) - (44) - (1,630)
Cash used for acquisitions (2,475) - (2,820) - (5,295)
Proceeds from sale of fixed assets 22 - - - 22
------- ------- ------- ------------ -------
Net Cash (Used In) Investing Activities $(4,039) $ - $(2,864) $ - $(6,903)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in revolving credit $ - $ - $ - $ - $ -
Borrowing on acquisition facility 3,000 - - - 3,000
Payments of other long-term debt (2,426) 18 - - (2,408)
Intercompany loan (2,000) - 2,000 - -
Net increase (decrease) in advance account 1,457 (1,346) (111) - -
Equity contribution to subsidiary (748) - 748 - -
------- ------- ------- ------------ -------
Net Cash (Used In) Financing Activities $ (717) $(1,328) $ 2,637 $ - $ 592
EFFECT OF EXCHANGE RATE
CHANGES ON CASH $ - $ - $ 70 $ - $ 70
------- ------- ------- ------------ -------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $ 474 $ 881 $ 146 $ - $ 1,501
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 4,992 307 605 - 5,904
------- ------- ------- ------------ -------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 5,466 $ 1,188 $ 751 $ - $ 7,405
======= ======= ======= ============ =======
</TABLE>
15
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING BALANCE SHEET INFORMATION
AS OF DECEMBER 31, 1998
(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 $ 4,992 $ 307 $ 605 $ - $ 5,904
Accounts receivable, net 6,601 6,049 2,716 (1,233) 14,133
Inventories, net 6,742 2,422 2,551 (623) 11,092
Prepaid income taxes and other current assets 894 140 101 - 1,135
Deferred income tax benefits 3,439 - - - 3,439
-------- ------- ------ -------- --------
Total Current Assets $ 22,668 $ 8,918 $5,973 $ (1,856) $ 35,703
-------- ------- ------ -------- --------
PLANT AND EQUIPMENT, AT COST:
Land $ 984 $ - $ - $ - $ 984
Buildings and improvements 4,371 51 178 - 4,600
Machinery and equipment 18,099 528 123 - 18,750
Equipment leased to others 10,101 - 12 - 10,113
-------- ------- ------ -------- --------
$ 33,555 $ 579 $ 313 $ - $ 34,447
Less: Accumulated depreciation 1,603 81 74 - 1,758
-------- ------- ------ -------- --------
Net Plant and Equipment $ 31,952 $ 498 $ 239 $ - $ 32,689
-------- ------- ------ -------- --------
OTHER ASSETS:
Goodwill, net $ 92,706 $14,915 $ 12 $ - $107,633
Intangible assets, net 796 11 - - 807
Deferred charges, net 17,184 912 1 - 18,097
Investment in wholly-owned subsidiaries 17,806 - - (17,806) -
Other assets 28 - - - 28
-------- ------- ------ -------- --------
Total Other Assets $128,520 $15,838 $ 13 $(17,806) $126,565
-------- ------- ------ -------- --------
TOTAL ASSETS $183,140 $25,254 $6,225 $(19,662) $194,957
======== ======= ====== ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt $ 4,621 $ 34 $ - $ - $ 4,655
Accounts payable 3,197 620 1,750 (1,233) 4,334
Accrued liabilities 10,566 795 507 - 11,868
Accrued income taxes - - 11 - 11
Advance account (9,693) 10,493 (800) - -
-------- ------- ------ -------- --------
Total Current Liabilities $ 8,691 $11,942 $1,468 $ (1,233) $ 20,868
-------- ------- ------ -------- --------
NON-CURRENT LIABILITIES:
Long-term debt, less current maturities $130,967 $ 53 $ - $ - $131,020
Other non-current liabilities 7,970 - - - 7,970
Deferred income taxes 6,750 - - - 6,750
-------- ------- ------ -------- --------
Total Non-Current Liabilities $145,687 $ 53 $ - $ - $145,740
-------- ------- ------ -------- --------
Common stock held by ESOP $ 1,620 $ - $ - $ - $ 1,620
Less: Note receivable from ESOP (1,473) - - - (1,473)
STOCKHOLDER'S EQUITY:
Common stock and
additional paid-in capital $ 26,511 $ 5,098 $1,176 $ (6,274) $ 26,511
Retained earnings 2,105 8,161 3,371 (12,155) 1,482
Accumulated other comprehensive income (1) - 210 - 209
-------- ------- ------ -------- --------
Total Stockholder's Equity $ 28,615 $13,259 $4,757 $(18,429) $ 28,202
-------- ------- ------ -------- --------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $183,140 $25,254 $6,225 $(19,662) $194,957
======== ======= ====== ======== ========
</TABLE>
16
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 1998
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Predecessor Company
---------------------------------------------------------------------
Parent
and its Guarantor Non-guarantor Consolidated
Divisions Subsidiaries Subsidiaries Eliminations Totals
---------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Net sales $15,466 $ 4,259 $2,838 $(1,934) $20,629
Net rentals 4,085 7,205 220 (4,084) 7,426
------- ------- ------ ------- -------
Net revenues $19,551 $11,464 $3,058 $(6,018) $28,055
Cost of sales $10,036 $ 2,543 $1,870 $(1,950) $12,499
Cost of rentals 462 5,765 136 (4,084) 2,279
Selling, general and administrative expenses 3,472 2,154 754 - 6,380
Depreciation and amortization 1,129 55 17 - 1,201
------- ------- ------ ------- -------
Income (loss) from operations $ 4,452 $ 947 $ 281 $ 16 $ 5,696
Interest expense 658 2 - - 660
Intercompany interest expense (income) 28 (28) - - -
Other expense (income), net (675) 8 52 717 102
------- ------- ------ ------- -------
Income (loss) before income taxes and $ 4,441 $ 965 $ 229 $ (701) $ 4,934
extraordinary item
Provision for income taxes 1,393 370 107 - 1,870
------- ------- ------ ------- -------
Income (loss) before extraordinary item $ 3,048 $ 595 $ 122 $ (701) $ 3,064
======= ======= ====== ======= =======
</TABLE>
17
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING STATEMENT OF INCOME INFORMATION
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Predecessor Company
------------------------------------------------------------------------------
Parent
and its Guarantor Non-guarantor Consolidated
Divisions Subsidiaries Subsidiaries Eliminations Totals
-------------------- ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Net sales $31,576 $ 8,433 $5,561 $ (3,845) $41,725
Net rentals 7,963 14,013 458 (7,959) 14,475
------- ------- ------ -------- -------
Net revenues $39,539 $22,446 $6,019 $(11,804) $56,200
Cost of sales $20,406 $ 4,982 $3,721 $ (3,835) $25,274
Cost of rentals 979 11,188 281 (7,959) 4,489
Selling, general and administrative expenses 6,867 4,242 1,456 - 12,565
Depreciation and amortization 2,235 102 34 - 2,371
------- ------- ------ -------- -------
Income (loss) from operations $ 9,052 $ 1,932 $ 527 $ (10) $11,501
Interest expense $ 1,386 $ 4 $ 3 $ - $ 1,393
Intercompany interest expense (income) 48 (48) - - -
Other expense (income), net (1,421) 26 172 1,387 164
------- ------- ------ -------- -------
Income before income taxes and extraordinary item $ 9,039 $ 1,950 $ 352 $ (1,397) $ 9,944
Provision for income taxes 3,039 752 163 - 3,954
------- ------- ------ -------- -------
Income (loss) before extraordinary item $ 6,000 $ 1,198 $ 189 $ (1,397) $ 5,990
======= ======= ====== ======== =======
</TABLE>
AXIA INCORPORATED AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Parent
and its Guarantor Non-guarantor Consolidated
Divisions Subsidiaries Subsidiaries Eliminations Totals
---------- ------------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES $ 5,622 $ 546 $ 1,102 $ - $ 7,270
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash used for capital expenditures (2,932) (49) (30) - (3,011)
Proceeds from sale of fixed assets - - - - -
Proceeds from sale of investment - - - - -
------- ----- ------- ------------ -------
Net Cash (Used In) Investing Activities $(2,932) $ (49) $ (30) $ - $(3,011)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in Revolving Credit $ 3,200 $ - $ - $ - $ 3,200
Payments of other long-term debt (7,904) (4) (324) - (8,232)
Net increase (decrease) in advance account 761 (690) (71) - -
Intercompany dividends 669 - (669) - -
------- ----- ------- ------------ -------
Net Cash (Used In) Financing Activities $(3,274) $(694) $(1,064) $ - $(5,032)
EFFECT OF EXCHANGE RATE
CHANGES ON CASH $ - $ - $ (47) $ - $ (47)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (584) (197) (39) - (820)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD (35) 925 420 - 1,310
------- ----- ------- ------------ -------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ (619) $ 728 $ 381 $ - $ 490
======= ===== ======= ============ =======
</TABLE>
18
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
The Company is a leading designer, manufacturer, marketer and distributor of a
diverse range of products in several niche markets including productivity
enhancing construction tools, formed wire products, industrial bag closing
equipment and flexible conveyors. The Company operates through three business
units: Ames, Nestaway and Fischbein. Ames is the leading designer,
manufacturer, marketer and distributor of automatic taping and finishing ("ATF")
tools, which are rented or sold to interior finishing contractors to finish
drywall joints prior to painting, wallpapering or other forms of final
treatment. Nestaway is a leading manufacturer of formed wire products which are
used for a variety of commercial and consumer product applications. Fischbein is
a leading worldwide manufacturer and marketer of industrial bag closing and
handling equipment and systems and a leading manufacturer of flexible conveyors
and storage racks.
By agreement dated June 17, 1998, AXIA Acquisition Corp. ("Acquisition Co."),
a company organized to effect the acquisition (the "Acquisition") of Axia
Holdings Corp., entered into an Agreement and Plan of Merger (the "Merger
Agreement") with Axia Holdings Corp. ("Holdings"), the parent of AXIA Inc. (the
"Predecessoor Company" prior to the date of the Transaction) to effect the
Acquisition for a purchase price of $155,250,000 (including the repayment of
indebtedness), subject to certain post-closing adjustments. Upon completion of
the Transaction (the "Transaction"): (i) Holdings, and AXIA Incorporated (the
"Company") became direct and indirect subsidiaries of AXIA Group, Inc. ("AXIA
Group" the parent company of Acquisition Co.) and (ii) the Company became the
primary obligor on borrowings made under the bank credit agreement (the "Bank
Credit Agreement") and Senior Subordinated Notes issued on the Transaction Date
defined below.
On July 22, 1998 (the "Transaction Date"), AXIA Group sold $28,000,000 of its
common stock ("Common Stock") and contributed the proceeds thereof to
Acquisition Co. (the "Equity Investment"). Finance Co., an indirect subsidiary
of AXIA Group, borrowed approximately $39,250,000 under the Bank Credit
Agreement and received approximately $100,000,000 in gross proceeds from the
sale of subordinated notes. Such funds were used: (i) to effect the Acquisition
pursuant to the Merger Agreement; (ii) to fund an ESOP; (iii) to repay existing
indebtedness of the Company and (iv) to pay fees and expenses in connection with
the Transaction. Finance Co. then merged into the Company.
As a result of the Transaction, the Company will incur significantly higher
interest costs and goodwill amortization than in historical periods included
herein.
The Company manufactures and distributes certain of its products through
subsidiaries located in Belgium, France, the United Kingdom, Singapore and
Canada. The Company also sells directly from the United States to other
geographic regions, including Latin America. The Company accounts for gains and
losses resulting from foreign currency transactions in its consolidated
statements of income. Income and expense items are translated at the average
exchange rate for the period. The assets and liabilities of foreign
subsidiaries are translated at the current rate of exchange at the balance sheet
date. Balance sheet translation adjustments have been excluded from the results
of operations and are reported as a separate component of stockholder's equity.
As the Company's foreign revenues accounted for approximately 12% of the
Company's 1998 net revenues, the results of the Company may be favorably or
unfavorably affected to the extent the U.S. dollar weakens or strengthens versus
the applicable corresponding foreign currency. The Company currently does not
enter into hedging programs in an attempt to mitigate the fluctuations against
the U.S. dollar.
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.
19
<PAGE>
Results of Operations
The table below summarizes the results of operations of the Company for the
three month periods indicated (in thousand $):
<TABLE>
<CAPTION>
Predecessor Company
-------------------
June 30, 1999 June 30, 1998
--------------- -------------------
<S> <C> <C> <C> <C>
Net revenues
Ames net revenues $14,270 43.2% $11,706 41.7%
Nestaway net revenues 10,722 32.4 9,507 33.9
Fischbein net revenues 8,063 24.4 6,842 24.4
------- ----- ------- -----
Total net revenues $33,055 100.0% $28,055 100.0%
Cost of revenues 17,488 52.9 14,778 52.6
------- ----- ------- -----
Gross profit $15,567 47.1% $13,277 47.4%
Selling, general, administrative expenses 7,244 21.9 6,380 22.7
Depreciation and amortization 1,845 5.6 1,201 4.3
------- ----- ------- -----
Income from operations $ 6,478 19.6% $ 5,696 20.4%
Interest expense 3,574 10.8 660 2.4
Other expense (income) (182) (.5) 102 .4
------- ----- ------- -----
Income before income taxes
and extraordinary items $ 3,086 9.3% $ 4,934 17.6%
Provision for income taxes 1,484 4.5 1,870 6.7
------- ----- ------- -----
Income before extraordinary item $ 1,602 4.8% $ 3,064 10.9%
Extraordinary item:
Loss on early extinguishment of debt,
net of income tax of $181 - - 300 1.1
------- ----- ------- -----
Net income $ 1,602 4.8% $ 2,764 9.8%
======= ===== ======= =====
</TABLE>
20
<PAGE>
The table below summarizes the results of operations of the Company for the
six month periods indicated (in thousand $):
<TABLE>
<CAPTION>
Predecessor Company
-------------------
June 30, 1999 June 30, 1998
------------- -------------------
<S> <C> <C> <C> <C>
Net revenues
Ames net revenues $27,646 43.1% $22,954 40.8%
Nestaway net revenues 21,709 33.8 20,062 35.7
Fischbein net revenues 14,857 23.1 13,184 23.5
------- ----- ------- -----
Total net revenues $64,212 100.0% $56,200 100.0%
Cost of revenues 34,233 53.3 29,763 53.0
------- ----- ------- -----
Gross profit $29,979 46.7% $26,437 47.0%
Selling, general, administrative expenses 14,084 21.9 12,565 22.4
Depreciation and amortization 3,675 5.7 2,371 4.2
------- ----- ------- -----
Income from operations $12,220 19.1% $11,501 20.4%
Interest expense 7,125 11.1 1,393 2.5
Other expense (income) (34) - 164 .3
------- ----- ------- -----
Income before income taxes
and extraordinary items $ 5,129 8.0% $ 9,944 17.6%
Provision for income taxes 2,535 4.0 3,954 7.0
------- ----- ------- -----
Income before extraordinary item $ 2,594 4.0% $ 5,990 10.6%
Extraordinary item:
Loss on early extinguishment of debt,
net of income tax of $181 - - 300 .5
------- ----- ------- -----
Net income $ 2,594 4.0% $ 5,690 10.1%
======= ===== ======= =====
</TABLE>
21
<PAGE>
QUARTER ENDED JUNE 30, 1999 COMPARED TO QUARTER ENDED JUNE 30, 1998.
Net Revenues. Net revenues increased $5,000,000 or 17.8%, to $33,055,000
in the three month period ended June 30, 1999 from $28,055,000 in the three
month period ended June 30, 1998. Net revenues improved primarily due to
increased rentals of ATF tools, sales of drywall related merchandise and
dishwasher racks, and the revenue contribution of an acquisition in the bag
closing industry.
Ames' net revenues increased $2,564,000 or 21.9%, to $14,270,000 in the
three month period ended June 30, 1999 from $11,706,000 in the three month
period ended June 30, 1998. The increase was primarily the result of increased
rental revenues due to both an increase in the number of tools on rent and a
rental price increase and sales of drywall related merchandise at company-
managed distribution outlets. Revenues generated from the sale of ATF tools
also improved. Ames benefited from the strength of the U.S. housing market.
Nestaway's net revenues increased $1,215,000 or 12.8%, to $10,722,000 in
the three month period ended June 30, 1999 from $9,507,000 in the three month
period ended June 30, 1998. Revenue growth was primarily attributable to
increased sales of dishwasher racks to OEMs.
Fischbein's net revenues increased $1,221,000 or 17.8%, to $8,063,000 in
the three month period ended June 30, 1999 from $6,842,000 in the three month
period ended June 30, 1998. The increase was primarily due to increased
revenues generated by the acquisition of Thames Packaging Equipment Company in
April, which contributed $690,000 in revenues for the quarter, and increased
sales of material handling products. Bag closing equipment revenues, exclusive
of the acquisition, also improved in the U.S. and European markets.
Gross Profit. Gross profit excluding depreciation and amortization
increased $2,290,000 or 17.2%, to $15,567,000 in the three month period ended
June 30, 1999 from $13,277,000 in the three month period ended June 30, 1998.
The increase in gross profit was primarily attributable to the net revenue
increase discussed above. Gross profit without depreciation and amortization as
a percentage of net revenues declined .2% to 47.1% from 47.3%.
Ames' gross profit improved in conjunction with revenue growth. Although
Nestaway's revenues improved over the prior year period, gross profits were
comparable due to the non-recurring benefit recorded in 1998 of $423,000 from a
refund from the Ohio Bureau of Workmans' Compensation together with lower
workers compensation premium assessments. Fischbein's gross profits improved on
an increase in revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") excluding depreciation and amortization
increased $864,000 or 13.5%, to $7,244,000 in 1999 from $6,380,000 in the three
month period ended June 30, 1998. SG&A growth was primarily attributable to
increased selling expenses related to Ames' efforts to take advantage of market
opportunities related to strong housing starts and continued emphasis on
expanded marketing programs. Bad debt expense, incurred principally at Ames,
increased $157,000 over the prior year principally due to revenue growth. The
Company also incurred additional consulting and professional services for tax,
legal, collections, and benefit plan assistance.
The Company recorded approximately $220,000 of expense during the quarter
for severance (approximately $105,000) and other relocation costs associated
with the transfer of its corporate offices to Houston, Texas. As this process
will not be completed until September, additional expense estimated to be of a
similar magnitude for recruiting, hiring, travel, dual facility costs, and other
matters will be incurred in the third quarter.
Depreciation and Amortization. Depreciation and amortization increased
$644,000 or 53.6%, to $1,845,000 from $1,201,000 in 1998. This was primarily
attributable to an increase in goodwill amortization of $413,000 as a result of
the Transaction.
Interest Expense. Interest expense increased $2,914,000 to $3,574,000 in
1999 from $660,000 in 1998. The increase was the result of the acquisition of
the Company and resultant increase in debt.
22
<PAGE>
Other Income and Expense. Other income was $182,000 in 1999 compared
to other expense of $102,000 in 1998. The other income was the result of gains
recognized on life insurance policies insuring a former executive of the Company
who recently passed away. The gain represents the excess of the proceeds from
the insurance over the present value of the liability of the Company to the
executive's estate. The Company also recorded additional interest income due to
increased cash on hand.
Income Taxes and Net Income. The effective tax rate was 48.1% in 1999
compared to 38.7% in 1998. The increase was due to an increase in nondeductible
goodwill amortization. Net income decreased $1,162,000 or 42.0%, to $1,602,000
for the three month period ended June 30, 1999 from $2,764,000 for the three
month period ended June 30, 1998 primarily due to increased interest expense and
goodwill amortization as discussed in the previous paragraphs.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Net Revenues. Net revenues increased $8,012,000 or 14.3%, to
$64,212,000 in the six month period ended June 30, 1999 from $56,200,000 in the
six month period ended June 30, 1998. The increase in net revenues was primarily
a result of increased rentals of automatic taping and finishing ("ATF") tools
and sales of drywall related merchandise, formed wire products, dishwasher
racks, and material handling equipment. The Company benefited from the
acquisition of Thames Packaging Equipment Company in April, which contributed
$690,000 in additional revenue.
Ames' net revenues increased $4,692,000 or 20.4%, to $27,646,000 in
the six month period ended June 30, 1999 from $22,954,000 in the six month
period ended June 30, 1998. The increase was primarily the result of increased
rental revenues due to both an increase in the number of tools on rent and a
rental price increase. Sales of ATF tools are also improved over the prior year
period. In addition Ames' revenues increased due to higher sales of drywall
related merchandise at Company-managed distribution outlets. Ames benefited from
the strength of the U.S. housing market.
Nestaway's net revenues increased $1,647,000 or 8.2%, to $21,709,000
in the six month period ended June 30, 1999 from $20,062,000 in the six month
period ended June 30, 1998. Revenue growth occurred both in sales of dishwasher
racks to OEMs and formed wire products.
Fischbein's net revenues increased $1,673,000 or 12.7%, to $14,857,000
in the six month period ended June 30, 1999 from $13,184,000 in the six month
period ended June 30, 1998. The increase was primarily due to increased sales of
flexible conveyors and storage racks and the impact of the acquisition discussed
above. Bag closing product revenues, exclusive of the acquisition, improved in
the domestic market and Europe, but were impacted by a reduction in sales to
Latin America which continues to be adversely effected by general economic
conditions.
Gross Profit. Gross profit excluding depreciation and amortization
increased $3,542,000 or 13.4%, to $29,979,000 in the six month period ended June
30, 1999 from $26,437,000 in the six month period ended June 30, 1998. The
increase in gross profit was primarily attributable to the net revenue increase
discussed above. Gross profit without depreciation and amortization as a
percentage of net revenues declined to 46.7% from 47.0% primarily as a result of
the impact of a $350,000 non-recurring price adjustment recorded at Nestaway in
the first quarter of 1998 and the benefit of a one-time refund and temporary
reduction in workers' compensation insurance rates of $423,000 recorded in the
second quarter of 1998. Excluding the impact of these non-recurring items, the
comparable 1998 gross profit margin, excluding depreciation and amortization,
would have been 46.0%.
Ames' gross profit improved in conjunction with revenue growth.
Although Nestaway's revenues grew over the prior year period, gross profits
declined due to the non-recurring items noted above. Fischbein's gross profits
improved on an increase in revenues, although gross profit as a percentage of
net revenues declined from the prior year period in part due to product mix.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") excluding depreciation and amortization
increased $1,519,000 or 12.1%, to $14,084,000 in 1999 from $12,565,000 in the
six month period ended June 30, 1998. SG&A growth was primarily attributable to
increased selling expenses related to Ames' efforts to take advantage of market
opportunities related to strong housing starts and continued emphasis on
expanded marketing programs. The Company also incurred additional consulting
services during the period related to computer systems conversions at one of the
Company's businesses and consulting and professional services for tax, legal,
collections, and benefit plan assistance.
23
<PAGE>
The Company recorded approximately $220,000 of expense during the
second quarter for severance and other relocation costs associated with the
transfer of its corporate offices to Houston, Texas. As this process will not be
completed until September, additional expense estimated to be of a similar
magnitude for recruiting, hiring, travel, dual facility costs and other matters
will be incurred in the third quarter.
Depreciation and Amortization. Depreciation and amortization
increased $1,304,000 or 55.0%, to $3,675,000 from $2,371,000 in 1998. This was
primarily attributable to an increase in goodwill amortization of $899,000 as a
result of the Transaction.
Interest Expense. Interest expense increased $5,732,000 to $7,125,000
in 1999 from $1,393,000 in 1998. The increase was the result of the acquisition
of the Company and resultant increase in debt.
Other Expense. Other income was $34,000 in 1999 compared to other
expense of $164,000 in 1998. The other income was the result of gains recognized
on life insurance policies insuring a former executive of the Company who
recently passed away. The gain represents the excess of the proceeds from the
insurance over the present value of the liability of the Company to the
executive's estate. The Company also recorded additional interest income due to
increased cash on hand.
Income Taxes and Net Income. The effective tax rate was 49.4% in 1999
compared to 39.8% in 1998. The increase was due to an increase in nondeductible
goodwill amortization. Net income decreased $3,096,000 or 54.4%, to $2,594,000
for the six month period ended June 30, 1999 from $5,690,000 for the six month
period ended June 30, 1998 primarily due to increased interest expense and
goodwill amortization as discussed in the previous paragraphs.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated cash from operating activities of $7,742,000 in
the six month period ended June 30, 1999 compared to $7,270,000 in the six month
period ended June 30, 1998 and had cash on hand of $7,405,000 at June 30, 1999.
At June 30, 1999, the Company had working capital of $16,814,000
compared to working capital of $14,835,000 at December 31, 1998. The increase in
working capital was primarily due to an increase in cash and cash equivalents
and an increase in accounts receivable due to increased revenues. This was
partially offset by an increase in accounts payable also as a result of revenue
growth.
With the consummation of the Transaction, interest payments on the
Notes and under the Bank Credit Agreement and amortization of the Term Loan
represent significant obligations of the Company. The Company's remaining
liquidity demands relate to capital expenditures and working capital needs. For
the six months ended June 30, 1999, the Company spent $1,630,000 on capital
projects. The Company projects capital expenditures of approximately $6,000,000
in 1999, although this amount is subject to change based on numerous factors.
The Company's primary sources of liquidity are cash flows from
operations and borrowings under the Bank Credit Agreement. The Revolving Credit
Facility provides the Company with $15,000,000 of borrowings, subject to various
conditions including availability under the borrowing base. The Acquisition
Facility provides the Company with $25,000,000 of borrowings, subject to
customary conditions. At June 30, 1999, there were no borrowings outstanding
under the Revolving Credit Facility and $3,000,000 outstanding under the
Acquisition Facility. The Company believes that, based on current and
anticipated financial performance, cash flow from operations and borrowings
under the Revolving Credit Facility will be adequate to meet anticipated
requirements for capital expenditures, working capital and scheduled interest
payments. However, the Company's capital requirements may change, particularly
if the Company should complete any material acquisitions. The ability of the
Company to satisfy its capital requirements will be dependent upon the future
financial performance of the Company, which in turn will be subject to general
economic conditions and to financial, business and other factors, including
factors beyond the Company's control.
Accounting Changes
In 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133").
SFAS 133 requires companies to recognize all derivatives contracts as either
assets or liabilities in the balance sheet and to measure them at fair value. If
certain conditions are met, a derivative may be specifically designated as a
hedge the objective of which is to match the timing of gain or loss
24
<PAGE>
recognition on the hedging derivative with the recognition of (i) the changes in
the fair value of the hedged asset or liability that are attributable to the
hedged risk or (ii) the earning effect of the hedged forecasted transaction. For
a derivative not designated as a hedging instrument, the gain or loss is
recognized in income in the period of change. In June 1999, the FASB issued SFAS
137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement No. 133," which provides that SFAS 133 is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
Historically, the Company has not entered into derivatives contracts, either to
hedge existing risks or for speculative purposes.
Other Matters
With the coming of the year 2000, there has been a great deal of
publicity concerning computer information reporting and equipment failure due to
hardware's and software's use of two-digit dates ("Year 2000"). Management is
responsible for identifying the Company's computer systems affected by the Year
2000 issue and developing and executing a compliance plan. Each business unit
has prepared and is in the process of implementing plans to replace obsolete
equipment both to address the Year 2000 issue and the need to upgrade system
capacities to management requirements. As a result, all business units expect
their management information systems to be Year 2000 compliant in 1999. The
Company has spent approximately $1,300,000 and estimates an additional $150,000
in the aggregate in 1999 to upgrade its management information systems. There is
no guarantee, however, that such systems replacements and modifications will be
completed on time. The failure of the Company's suppliers and customers to
address the Year 2000 issue could significantly impact the Company.
Nestaway and Fischbein expect their information systems projects to be
complete by the end of the third quarter of 1999. Neither business unit has
developed a detailed contingency plan due to the lack of complexity in the
system upgrades and advanced status of the installation. Management believes at
Nestaway and Fischbein that production equipment and engineering CAD systems are
Y2K compliant. The Ames information system, however, is heavily customized and
includes accounting, invoicing, merchandise inventory control, rental tool
inventory control and other applications. Ames' management anticipates
completion of the project in the third quarter of 1999. The installation of the
new computer system at Ames is, however, dependent upon the performance of
outside consultants whose availability and expertise will impact the timeliness
and adequacy of the conversion. In the event the project is not fully completed
by yearend, partial installation will have occurred and contingency plans will
be developed for those selected applications on which installation may be
delayed.
Private Securities Litigation Reform Act Disclosure
This report contains certain estimates and forward looking statements.
Actual results could differ materially from those projected in the estimates and
forward looking statement as a result of any number of factors. Therefore, undue
reliance should not be placed upon such estimates and statements. No assurance
can be given that any of such estimates or statements will be realized and
actual results may differ materially from those contemplated by such forward
looking statements. Factors that may cause such differences include: (i)
increased competition; (ii) increased costs; (iii) loss or retirement of key
members of management and (iv) changes in general economic conditions in the
markets in which the Company may from time to time compete. Many of such factors
will be beyond the control of the Company and its management.
Euro Conversion
A single European currency ("the Euro") was introduced on January 1,
1999, at which time the conversion rates between the old, or legacy, currencies
and the Euro were set for 11 participating member countries. However, the legacy
currencies in those countries will continue to be used as legal tender through
January 1, 2002. Thereafter, the legacy currencies will be canceled, and Euro
bills and coins will be used in the 11 participating countries. The Company does
not believe that it will be subject to a significant increase in pricing
transparency due to the introduction of the Euro. The Company's customers may
require billing in one or more currencies. The Company has the capability of
billing in the Euro or other prescribed currency. The Company does not believe
that this conversion will materially affect its contracts. The Company does not
presently have any interest rate or currency swaps that are denominated in Euro
legacy currencies. The Company continues to assess the impact of the Euro on its
operations and financial, accounting and operational systems. The Company does
not presently anticipate that the transition to the Euro will have a significant
impact on its results of operations, financial position or cash flows.
25
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is subject to various federal, state, local and foreign laws
and regulations governing environmental and employee health and safety matters,
including the handling, the use, discharge and disposal of hazardous materials
and pollutants. The Company believes that the conduct of its operations is in
substantial compliance with current applicable environmental laws and
regulations. Maintaining such compliance in the conduct of its operations has
not had, and is not expected to have, a material adverse effect on the Company's
financial condition or operating results. However, changes in laws or
regulations or other circumstances might, individually or in the aggregate, 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 ("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. NYSDEC determined that the Company, among others, may be a responsible
party through its past ownership of the property. The site is currently listed
on the New York State Registry of Inactive Hazardous Waste Disposal Sites.
Environmental consultants engaged by the Company have established a range of
estimated remediation costs of approximately $1,000,000 to $3,000,000, plus or
minus 30% of those costs. The Company established an accrual of $3,900,000 for
the remediation and associated costs.
In 1997, the Company entered into an agreement with an adjoining landowner,
who is obligated by NYSDEC to address environmental concerns at his property. By
this agreement, the adjoining landowner agreed to accept responsibility for
remediating the property formerly owned by the Company if a particular remedy
for that property is ultimately approved by NYSDEC. On the advice of its
environmental consultants, provided after reviewing available data about the
Company's former property, the Company believes it is likely that NYSDEC will
approve the remedy in question, but the Company can give no assurance that
NYSDEC will in fact offer its approval. The Company paid the $520,000 payable
under the agreement and has an exposure under the agreement of up to an
additional $120,000 if contamination is more widespread than estimated by the
Company's environmental consultants. In the event NYSDEC does not approve the
remedy envisioned in the agreement with the adjoining landowner, the Company may
terminate the agreement and demand the return of its payment with interest. In
that case, the adjoining landowner would no longer be obligated to undertake the
remediation of the property formerly owned by the Company.
Of the consideration paid pursuant to the Merger Agreement, $5,000,000 was
set aside in a special escrow account to cover environmental costs which may be
incurred by the Company in connection with cleanup of the site and any damages
or other required environmental expenditures relating to the site. The balance
in the account, after payment of such costs, will be released to the former
stockholders upon the first to occur of the approval by NYSDEC of the proposed
remediation action or the confirmation by NYSDEC that remediation at the site
has been completed in accordance with its then applicable decision in the matter
(the "Early Release Date"). If, however, the Early Release Date occurs before
the additional $120,000 is paid under the above-described agreement, the special
escrow account will continue as to that $120,000 until it is paid or it has
become clear that no claim will be made for such funds. In addition, if certain
additional specified cleanup activities are not completed by the Early Release
Date, an additional $80,000 will be withheld in the special escrow account until
such cleanup is completed. If all of the funds in the special escrow account
have not been released by the third anniversary of the Transaction Date, the
funds remaining in the special escrow account will be disbursed to the Company
to cover the remaining estimated costs, with the balance to be distributed to
the former stockholders of the Company, in accordance with an agreement to be
reached by the Company and the Stockholder Representative identified in the
Merger Agreement, or upon failure of such parties to agree, through an
arbitration procedure.
The Company may also make claims against the warranty fund of the escrow
fund for breach of certain representations and warranties in the Merger
Agreement regarding other environmental matters for a period of 24 months after
Transaction Date, subject to a specified threshold and deductible.
26
<PAGE>
The Company is aware of other formerly-owned sites at which activities
similar to the operations previously conducted on the Buffalo, New York property
have taken place. However, the Company has received no claims in connection with
those sites, and has no information that would lead it to believe that any such
claim is likely to be made. The Company is also a part-owner and landlord at a
stainless steel and aluminum facility in Commerce, California that is leased to
and operated by an unrelated company. The Company has received no claims against
it in connection with this site, but the Company cannot rule out the possibility
that it might incur some liability should a claim actually be made against it as
current owner of the property.
The Buffalo, New York property formerly owned by the Company was at one
time used to mill uranium rods for the Atomic Energy Commission. The U.S.
Department of Energy has since identified residual radioactivity in a building
at the site. In 1996, the government estimated the costs of addressing the
residual radioactivity at $965,000. Given the available data, the Company and
its environmental consultants believe that a more likely total cost is less than
$100,000. To date, no cleanup costs have been assessed against the Company.
In addition, the Company has retained or assumed certain environmental
liabilities and risks of future liabilities associated with businesses
previously operated or acquired by it, including Bliss and Laughlin Steel
Company. The Company does not believe that these retained or assumed liabilities
and risks would be expected to have a material adverse effect on the Company's
financial condition or operating results. However, changes in laws or
regulations, liabilities identified or incurred in the future, or other
circumstances, might (individually or in the aggregate) have such an effect.
The Company is a defendant in a number of lawsuits incidental to its
business. Including the environmental matters discussed above and taking into
account the proceeds held in escrow pursuant to the Merger Agreement and
insurance coverages, where appropriate, 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.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
No reports on Form 8-K were filed during the fiscal quarter ended June
30, 1999.
27
<PAGE>
EXHIBITS
Exhibit
No. Description
- ------- -----------
3.1* Certificate of Incorporation of the Company, as amended
3.2* Bylaws of the Company
4.1* Indenture, as supplemented, dated as of July 22, 1998 by and between
the Company and State Street Bank & Trust Company National Bank, as
Trustee, with respect to the 10.75% Senior Subordinated Notes due
2008, including the form of the Note
10.1* Axia Group, Inc. 1998 Stock Awards Plan
10.2* Axia Finance Corp. Employees Stock Ownership Plan and 401(k) Plan to
be renamed AXIA Incorporated Employee Stock Ownership and 401(k) Plan
10.3* Axia Finance Corp. Employee Stock Ownership Plan and 401(k) Plan Trust
Agreement to be renamed AXIA Incorporated Employee Stock Ownership and
401(k) Plan Trust Agreement
10.8* Credit Agreement dated as of July 22, 1998 among Axia Finance Corp.,
AXIA Incorporated, Ames Taping Tool Systems, Inc., TapeTech Tool Co.,
Inc. and Paribas
10.9* Security Agreement dated as of July 22, 1998 by and between Axia
Finance Corp., AXIA Incorporated, Paribas and the Lenders named
therein
10.10* Pledge Agreement dated as of July 22, 1998 by and between AXIA
Incorporated, Paribas and the Lenders named therein
10.11* Letter Agreement dated June 23, 1998 by and among The Sterling Group,
Inc., Axia Group, Inc., Axia Acquisition Corp. and each of their
subsidiaries
10.12* Form of Indemnity Agreement Between AXIA Incorporated and each of its
officers and directors
10.13* Form of Tax Sharing Agreement among Axia Group, Inc., Axia Holdings
Corp., AXIA Incorporated, Ames Taping Tool Systems, Inc. and TapeTech
Tool Co., Inc.
* Filed as an exhibit to the Company's S-4 under the exhibit number identical
to that described herein and incorporated herein by this reference.
28
<PAGE>
SIGNATURES
Pursuant to requirements of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
AXIA INCORPORATED
Date: August 11, 1999 /s/ Lyle J. Feye
----------------------------------------
Lyle J. Feye
Vice President Finance, Treasurer,
Chief Financial Officer
29
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