UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended September 30, 1996
Commission File Number 0-22206
NIAGARA CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 59-3182820
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
667 Madison Avenue
New York, New York 10021
(Address of principal executive office)
(212) 317-1000
(Registrant's telephone number, including area code)
INTERNATIONAL METALS ACQUISITION CORPORATION
(Former name, former address and former fiscal year,
if changed since last report.)
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
Number of shares of Common Stock outstanding at September
30, 1996
Common Stock, $.001 par value 3,668,750
(Class) (Number of Shares)
___________________________________________________________________________
NIAGARA CORPORATION
Index to September 30, 1996 Form 10-Q
Page
Part I - Financial Information (Unaudited)
Financial Statements (Unaudited):
Niagara Corporation ("Niagara")
and Subsidiaries:
Balance sheets 3
Statements of operations 4-5
Statements of common stock,
preferred stock, additional
paid-in capital and deficit 6
Statements of cash flows 7
Notes to financial statements 8-12
Niagara Cold Drawn Corp. ("NCD") and Subsidiary
(Predecessor company, information prior to date of
acquisition by Niagara herein disclosed):
Statements of operations 14
Notes to financial statements 15-17
Management's Discussion and Analysis of Financial Condition
and Results of Operations 18
Part II - Other Information 21
Signatures . . . . . . . . . . . . . . . . . . . . . 24
NIAGARA CORPORATION
AND SUBSIDIARIES
BALANCE SHEETS
December 31, September 30,
1995(a) 1996(b)
(unaudited)
ASSETS
CURRENT:
Cash and cash equivalents $ 2,186,897 $ 1,273,951
Trade accounts receivable, net of allow-
ance for doubtful accounts of $183,700
and $384,553 4,239,369 8,270,631
Inventories 14,743,541 14,899,982
Other current assets 165,874 528,645
TOTAL CURRENT ASSETS 21,335,681 24,973,209
PROPERTY, PLANT AND EQUIPMENT, NET OF
ACCUMULATED DEPRECIATION 12,745,144 21,507,807
GOODWILL ON ACQUISITION, NET OF ACCUMU-
LATED AMORTIZATION - 2,463,761
OTHER ASSETS 512,587 749,733
----------- -----------
$34,593,412 $49,694,510
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT:
Trade accounts payable $ 4,786,769 $ 5,788,387
Accrued expenses and compensation 3,728,388 4,933,030
Current maturities of long-term debt 733,048 322,148
Deferred income taxes 202,000 202,000
TOTAL CURRENT LIABILITIES 9,450,205 11,245,565
LONG-TERM DEBT, LESS CURRENT MATURITIES 6,968,860 19,402,145
DEFERRED INCOME TAXES 3,712,000 3,544,000
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value -
shares authorized 500,000(c); none
outstanding - -
Common stock, $.001 par value - shares
authorized 15,000,000(c); 3,500,000
outstanding on December 31, 1995 and
3,668,750 outstanding on September 30,
1996 3,500 3,669
Additional paid-in capital 15,560,296 15,560,127
Deficit (1,101,449) (60,996)
TOTAL STOCKHOLDERS' EQUITY 14,462,347 15,502,800
----------- -----------
$34,593,412 $49,694,510
__________________
(a) Includes the balance sheets of Niagara Corporation and Niagara Cold
Drawn Corp. as of December 31, 1995.
(b) Includes the balance sheets of Niagara Corporation,
Niagara Cold Drawn Corp. and Southwest Steel Com-
pany, Inc. as of September 30, 1996.
(c) The number of authorized shares is as of September
30, 1996. There were 1,000,000 shares
of Preferred Stock and 50,000,000 shares of
Common Stock authorized as of December 31,1995.
See accompanying notes to financial statements.
NIAGARA CORPORATION
AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended September 30, 1995(a) 1996(b)
NET SALES $6,496,715 $18,524,082
COST OF PRODUCTS SOLD 5,545,617 15,430,514
GROSS PROFIT 951,098 3,093,568
OPERATING EXPENSES:
Selling, general and administra-
tive 512,800 2,241,296
INCOME FROM OPERATIONS 438,928 852,272
OTHER INCOME (EXPENSE):
Interest income 107,695 16,081
Other income - 165,000
Interest expense (105,386) (397,115)
INCOME BEFORE TAXES ON INCOME 440,607 636,238
TAXES ON INCOME 78,000 242,000
NET INCOME FOR THE PERIOD $ 362,607 $ 394,238
NET INCOME PER SHARE $ .10 $ .11
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 3,500,000 3,668,750
___________________
(a) Includes the results of Niagara Corporation and the results of Niagara
Cold Drawn Corp. from August 17, 1995 to September 30, 1995.
(b) Includes the results of Niagara Corporation, Niagara Cold Drawn
Corp. and Southwest Steel Company, Inc.
NIAGARA CORPORATION
AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine months ended September 30, 1995(a) 1996(b)
NET SALES $ 6,496,715 $58,946,011
COST OF PRODUCTS SOLD 5,545,617 50,064,045
GROSS PROFIT 951,098 8,881,966
OPERATING EXPENSES:
Selling, general and administrative 855,265 6,427,854
INCOME FROM OPERATIONS 95,833 2,454,112
OTHER INCOME (EXPENSE):
Interest income 533,170 60,653
Other income - 165,000
Interest expense (105,386) (1,033,312)
INCOME BEFORE TAXES ON INCOME 523,617 1,646,453
TAXES ON INCOME 78,000 606,000
NET INCOME FOR THE PERIOD $ 445,617 $ 1,040,453
NET INCOME PER SHARE $ 0.13 $ 0.29
WEIGHTED AVERAGE COMMON SHARES 3,500,000 3,580,680
OUTSTANDING
__________________
(a) Includes the results of Niagara Corporation and the results of Niagara
Cold Drawn Corp. from August 17, 1995 to September 30, 1995.
(b) Includes the results of Niagara Corporation and Niagara Cold Drawn
Corp. for the period from January 1, 1996 to September 30, 1996 and
the results of Southwest Steel company, Inc. for the period from
February 1, 1996 to September 30, 1996.
<TABLE>
<CAPTION>
NIAGARA CORPORATION
AND SUBSIDIARIES
NIAGARA CORPORATION
AND SUBSIDIARIES
STATEMENTS OF COMMON STOCK, PREFERRED STOCK, ADDITIONAL PAID-IN CAPITAL AND DEFICIT
(UNAUDITED)
Period January 1, 1996 to September 30, 1996
Common stock Preferred stock
Number of Amount Number of Amount Additional Retained
shares shares paid-in earnings
capital (deficit) Total
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 3,500,000 $ 3,500 - $- $15,560,296 $(1,101,449) $14,462,347
1996
Shares issued(a) 168,750 169 - - - -
(169)
Net income for the - - - - - 1,040,453 1,040,453
period
BALANCE,SEPTEMBER 3,668,750 $ 3,669 - $- $15,560,127 $ (60,996) $15,502,800
30, 1996
<FN>
(a) On May 22, 1996, Niagara Corporation issued 168,750 shares
of Common Stock in exchange for unit purchase options
issued to the underwriters of its 1993 initial public
offering. (See Note 1.)
</TABLE>
NIAGARA CORPORATION
AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine months ended September 30, 1995 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 445,617 $ 1,040,453
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 153,435 1,374,874
Deferred income taxes - (168,000)
Bad debt expense - 50,991
Gain on disposal of property - (148,773)
Changes in assets and liabili-
ties, net of effects from pur-
chase of Niagara in 1995 and
Southwest in 1996:
Increase in interest on U.S.
Gov t securities (507,473) -
Increase in accounts receivable (505,060) (1,167,828)
Decrease in inventories 2,701,624 3,063,270
Increase in other current assets (105,262) (169,447)
Increase in other assets (42,638) (266,899)
Decrease in accounts payable
and accrued expenses (2,521,714) (210,355)
TOTAL ADJUSTMENTS (827,088) 2,357,833
NET CASH PROVIDED BY
(USED IN) OPERATING
ACTIVITIES (381,471) 3,398,286
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Niagara, net of cash
acquired (10,744,045) -
Acquisition costs, Niagara (1,000,000) -
Cumulative maturities of U.S. Gov't
securities 89,592,484 -
Cumulative acquisition of U.S.
Gov't securities (74,400,900) -
Investment in marketable securities (3,186,187) -
Acquisition of Southwest, net of
cash acquired - (3,004,999)
Purchases of fixed assets (29,911) (3,365,969)
NET CASH PROVIDED BY
(USED IN) INVESTING AC-
TIVITIES 231,441 (6,370,968)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from (payments of) line
of credit and term note (693,818) 2,059,736
NET CASH PROVIDED BY
(USED IN) FINANCING (693,818) 2,059,736
NET DECREASE IN CASH AND CASH EQUIVALENTS (843,848) (912,946)
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 982,759 2,186,897
CASH AND CASH EQUIVALENTS, END OF
PERIOD $138,911 $1,273,951
See accompanying notes to financial statements.
NIAGARA CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - INFORMATION AS OF
SEPTEMBER 30, 1996 AND FOR THE PERIODS ENDED
SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED.
1. BASIS OF PRESENTATION - The accompanying finan-
cial statements are unaudited; however, in
the opinion of management, all adjustments
necessary for a fair statement of financial
position and results for the stated periods have
been included. These adjustments are of a normal
recurring nature. Selected information and
footnote disclosures normally included in
financial statements prepared in accordance with
generally accepted accounting principles have
been condensed or omitted. Results for interim
periods are not necessarily indicative of the
results to be expected for an entire fiscal year.
It is suggested that these condensed financial
statements be read in conjunction with the
audited financial statements and notes thereto as
of and for the year ended December 31, 1995.
On August 16, 1995, Niagara Corporation ("Niaga-
ra"), formerly International Metals Acquisition
Corporation, acquired all of the issued and out-
standing common and preferred stock of Niagara
Cold Drawn Corp. ("NCD"), a manufacturer of cold
drawn steel bars, for $10,744,045 in cash. The
acquisition was accounted for as a purchase and
the consolidated financial statements include the
results of NCD from August 17, 1995. (See Note
4.)
The purchase price for NCD, including certain
transaction expenses of $1,174,377, totaled
$11,918,422. NCD's stockholder's equity at Au-
gust 16, 1995 was $6,519,678. After giving effect
to this excess and a $3,309,000 deferred tax lia-
bility, the purchase price for NCD exceeded the
book value of NCD's stockholder's equity by ap-
proximately $8,708,000. This excess was allocated
to the carrying amounts of certain assets of NCD.
As a result of the NCD acquisition, Niagara was
able to utilize its net operating loss
carryforward at August 16, 1995 of approximately
$1,150,000. The tax benefit of this loss (that
was previously fully reserved by a valuation
allowance) totals approximately $460,000, which
amount was recorded as a deferred tax asset at
the date of the acquisition. Approximately
$1,000,000 of this loss was utilized as of
December 31, 1995, and the remainder was utilized
during the current year to reduce current tax
liabilities. In accordance with SFAS 109, the
tax benefit received from this utilization was
reflected as a reduction of the deferred tax
asset rather than a reduction in tax expense in
the statement of operations.
On January 31, 1996, NCD entered into a stock
purchase agreement with the stockholders of
Southwest Steel Company, Inc. ("Southwest"), a
manufacturer of cold drawn steel bars, pursuant
to which, and simultaneously therewith, NCD
purchased all of the outstanding capital stock of
Southwest for $1,920,000 in cash and $1,156,773
principal amount of Niagara promissory notes
guaranteed by Niagara. In connection with this
acquisition, NCD discharged $8,518,691 of
Southwest indebtedness, and Niagara guaranteed
$898,000 of Southwest indebtedness to a former
Southwest stockholder. The acquisition was
accounted for as a purchase and financed by a
$12,000,000 term loan facility and the
utilization of a portion of NCD's revolving line
of credit. The consolidated financial statements
include the results of Southwest from February 1,
1996.
The Southwest purchase price, including certain
transaction expenses of $483,270, totaled
$3,560,043; Southwest's stockholders' equity at
January 31, 1996 was $1,071,782. The $2,488,261
excess has been allocated to goodwill.
On May 8, 1996, pursuant to the provisions of the
Southwest stock purchase agreement, NCD asserted
indemnification claims in the aggregate amount of
approximately $1,300,000 against the former
Southwest stockholders. On May 22, 1996, NCD
brought an action against such stockholders
relating to these claims. The defendants have
denied liability in their answer. Any amount
received in satisfaction of these claims would
be accounted for as a reduction in purchase price
and an adjustment to goodwill.
On May 22, 1996, Niagara issued 168,750 shares of
Common Stock in exchange for unit purchase
options (the "Purchase Options") issued to the
underwriters of its 1993 initial public
offering. The Purchase Options were exercisable
until August 13, 1998 for an aggregate of 250,000
units at $9.00 per unit (subject, in each case,
to certain antidilution adjustments), with each
unit consisting of one share of Common Stock and
two warrants, with each warrant exercisable for
one share of Common Stock at $6.60.
NIAGARA CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - INFORMATION AS OF
SEPTEMBER 30, 1996 AND FOR THE PERIODS ENDED
SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED.
2. ACQUISITIONS OF
NCD AND
SOUTHWEST As discussed in Note 1 above, on August 16, 1995
Niagara acquired all of the issued and
outstanding shares of common and preferred stock
of NCD, and on January 31, 1996 NCD acquired all
of the issued and outstanding capital stock of
Southwest. Pro forma results of operations,
assuming both acquisitions had occurred on
January 1, 1995, are detailed below. Pro forma
adjustments primarily include additional
depreciation and amortization on the excess
purchase price allocated to property, plant,
equipment (NCD) and goodwill (Southwest),
elimination of interest income on the portion
of Niagara's investment in a U.S. government
security deposited in a trust fund liquidated
upon the acquisition of NCD and elimination of
other nonrecurring items.
This pro forma financial data does not purport to
be indicative of the results which actually could
have been obtained had such transactions been
completed as of the assumed dates or which may be
obtained in the future.
Nine months Nine months
ended September ended September
In thousands 30, 1995 30, 1996
Net sales $65,989 $61,532
Net income 1,050 1,145
Net income per share .28 .31
3. INVENTORIES Inventories consisted of the following:
December September
31, 1995 30, 1996
Raw materials $ 6,978,363 $6,293,172
Work-in-process 1,088,153 1,165,083
Finished goods 6,677,025 7,441,727
$14,743,541 $14,899,982
Inventories are stated using the LIFO method.
NIAGARA CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - INFORMATION AS OF
SEPTEMBER 30, 1996 AND FOR THE PERIODS ENDED
SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED.
4. CONTINGENCIES NCD is subject to Federal, state and local envi-
ronmental laws and regulations concerning, among
other matters, water emissions and waste dispos-
al. Management believes that NCD currently is in
material compliance with all applicable environ-
mental laws and regulations.
During 1994, Axia, Inc. ("Axia"), the prior owner
of NCD's Buffalo, N.Y. property, alleged that NCD
and certain other parties are responsible for
some or all of the costs that may be incurred to
remediate a site adjoining such property. Axia
requested payment of $200,000 in exchange for
Axia's agreeing to assume full responsibility for
the remediation and to indemnify NCD against any
claim arising from this matter. NCD is negotiat-
ing with Axia and has offered to pay $40,000 in
exchange for Axia's agreeing to assume full re-
sponsibility for the remediation and to indemnify
NCD against any claim arising from this matter.
Axia did not respond to the offer but suggested
that the parties continue their settlement dis-
cussions. The balance sheets at December 31, 1995
and September 30, 1996 include an accrued
liability of $40,000 for this contingency.
In accordance with the stock purchase agreement
for the acquisition of NCD, on August 16, 1995,
NCD's former majority stockholder, Adage, Inc.
("Adage"), paid $1,666,327 to certain senior man-
agement of NCD in satisfaction of such
individuals' rights under their existing stock
option and employment agreements. NCD treated
this payment, which is reflected as an employment
expense deduction on NCD's financial statements
for the period ended August 16, 1995, as a con-
tribution of additional paid-in capital and com-
pensation to management. Pursuant to the stock
purchase agreement, NCD is required to pay Adage
an amount equal to NCD's Federal income taxes for
the taxable period January 1, 1995 through Au-
gust 16, 1995, computed as if NCD were not in-
cluded in a consolidated Federal income tax re-
turn for such period. In determining such amount,
NCD deducted from its income the payment made to
senior management, thereby reducing the amount
payable by NCD to Adage. Adage has disputed NCD's
taking of this $1,666,327 deduction, the tax ef-
fect of which is approximately $567,000, which,
if deemed payable, would be accounted for as an
adjustment to the NCD purchase price. Pursuant to
the stock purchase agreement, this matter is sub-
ject to binding arbitration by an independent
accounting firm.
NCD has insurance coverage for catastrophes as
well as risks required to be insured by law or
contract. NCD's policy is to retain a portion of
certain expected losses relating primarily to
workers' compensation, physical loss to property,
business interruption resulting from such loss
and comprehensive general, product, vehicle, med-
ical and life benefits and liability. Provisions
for losses expected under these programs are re-
corded based on NCD's actual or estimated aggre-
gate liability for claims. Such estimates utilize
certain insurance industry actuarial assumptions
and are included in accrued expenses.
NIAGARA COLD DRAWN CORP.
AND SUBSIDIARY
CONTENTS
NIAGARA COLD DRAWN CORP. IS CONSIDERED A PREDECESSOR
COMPANY:
Statements of operations 14
Notes to financial statements 15-17
Memorandum
only
Three months ended September 30, 1995 1996 (a)
NET SALES $12,068,089 $18,524,082
COST OF PRODUCTS SOLD 10,439,974 15,430,513
GROSS PROFIT 1,628,115 3,093,568
Selling, general and administra- 873,757 2,201,803
tive expenses
INCOME FROM OPERATIONS 754,358 891,765
OTHER INCOME (EXPENSE):
Interest (209,392) (397,115)
Employment Expense (management (1,666,327) -
options)
Other Income - 165,000
INCOME BEFORE TAXES ON INCOME (1,121,361) 659,650
TAXES ON INCOME 414,000 250,000
NET INCOME $ (707,361) $ 409,650
Memorandum
only
Nine months ended September 30, 1995 1996 (a)
NET SALES $40,118,569 $58,946,011
COST OF PRODUCTS SOLD 34,539,584 50,064,045
GROSS PROFIT 5,578,984 8,881,965
Selling, general and administra- 2,711,624 6,111,257
tive expenses
INCOME FROM OPERATIONS 2,867,359 2,770,708
OTHER INCOME (EXPENSE):
Interest (687,968) (1,033,312)
Employment expense (management (1,666,327) -
options)
Other income - 165,000
INCOME BEFORE TAXES ON INCOME 513,065 1,902,395
TAXES ON INCOME 189,000 697,000
NET INCOME $ 324,065 $ 1,205,395
(a) This information is provided for informational purposes only to
provide for comparisons to prior periods. The amounts were derived
from combining the results of operations of Niagara Cold Drawn
Corp. from January 1, 1996 to September 30, 1996 with the results
of operations of Southwest Steel Company, Inc. from February 1,
1996 to September 30, 1996.
See accompanying notes to financial statements.
NIAGARA COLD DRAWN CORP.
AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS - INFORMATION FOR THE
PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED.
1. BASIS OF PRE
SENTATION The accompanying financial statements are
unaudited; however, in the opinion of
management, all adjustments necessary for a fair
statement of results for the stated periods
have been included. These adjustments are of a
normal recurring nature. Selected information and
footnote disclosures normally included in
financial statements prepared in accordance with
generally accepted accounting principles have
been condensed or omitted. Results for interim
periods are not necessarily indicative of the
results to be expected for an entire fiscal year.
It is suggested that these condensed financial
statements be read in conjunction with the
audited financial statements and notes thereto as
of and for the year ended December 31, 1995.
On January 31, 1996, Niagara Cold Drawn Corp.
("NCD") entered into a stock purchase agreement
with the stockholders of Southwest Steel Company,
Inc. ("Southwest"), a manufacturer of cold drawn
steel bars, pursuant to which, and simultaneously
therewith, NCD purchased all of the outstanding
capital stock of Southwest for $1,920,000 in cash
and $1,156,773 principal amount of NCD promissory
notes guaranteed by Niagara Corporation ("Niaga-
ra"). In connection with this acquisition, NCD
discharged $8,518,691 of Southwest indebtedness,
and Niagara guaranteed $898,000 of Southwest in-
debtedness to a former Southwest stockholder. The
acquisition was accounted for as a purchase, and
financed by a $12,000,000 term loan facility and
the utilization of a portion of NCD's revolving
line of credit. The NCD financial statements in-
clude the results of Southwest from February 1,
1996.
The Southwest purchase price, including certain
transaction expenses of $483,270, totaled
$3,560,043; Southwest's stockholders' equity at
January 31, 1996 was $1,071,782. The $2,488,261
excess has been allocated to goodwill. On May 8,
1996, pursuant to the provisions of the Southwest
stock purchase agreement, NCD asserted
indemnification claims in the aggregate amount of
approximately $1,300,000 against the former
Southwest stockholders. On May 22, 1996, NCD
brought an action against such stockholders
relating to these claims. The defendants have
denied liability in their answer. Any amount
received in satisfaction of these claims would be
accounted for as a reduction in purchase price
and an adjustment to goodwill.
NIAGARA COLD DRAWN CORP.
AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS - INFORMATION FOR THE
PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED.
2. CONTINGENCIES NCD is subject to Federal, state and local
environmental laws and regulations concerning,
among other matters, water emissions and waste
disposal. Management believes that NCD
currently is in material compliance with all
applicable environmental laws and regulations.
During 1994, Axia, Inc. ("Axia"), the prior owner
of NCD's Buffalo, N.Y. property, alleged that NCD
and certain other parties are responsible for
some or all of the costs that may be incurred to
remediate a site adjoining such property. Axia
requested payment of $200,000 in exchange for
Axia's agreeing to assume full responsibility for
the remediation and to indemnify NCD against any
claim arising from this matter. NCD is
negotiating with Axia and has offered to pay
$40,000 in exchange for Axia's agreeing to
assume full responsibility for the remediation
and to indemnify NCD against any claim arising
from this matter. Axia did not respond to the
offer but suggested that the parties continue
their settlement discussions. In accordance with
the stock purchase agreement for the acquisition
of NCD, on August 16, 1995, NCD's former majority
stockholder, Adage, Inc. ("Adage"), paid
$1,666,327 to certain senior management of NCD in
satisfaction of such individuals' rights under
their existing stock option and employment agree-
ments. NCD treated this payment, which is
reflected as an employment expense deduction on
NCD's financial statements for the period ended
August 16, 1995, as a contribution of additional
paid-in capital and compensation to management.
Pursuant to the stock purchase agreement, NCD is
required to pay Adage an amount equal to NCD's
Federal income taxes for the taxable period
January 1, 1995 through August 16, 1995, computed
as if NCD were not included in a consolidated
Federal income tax return for such period. In
determining such amount, NCD deducted from its
income the payment made to senior management,
thereby reducing the amount payable by NCD to
Adage. Adage has disputed NCD's taking of this
$1,666,327 deduction, the tax effect of which is
approximately $567,000, which, if deemed payable,
would be accounted for as an adjustment to the
NCD purchase price. Pursuant to the stock
purchase agreement, this matter is subject to
binding arbitration by an independent accounting
firm.
NCD has insurance coverage for catastrophes as
well as risks required to be insured by law or
contract. NCD's policy is to retain a portion of
certain expected losses related primarily to
workers' compensation, physical loss to
property, business interruption resulting from
such loss and comprehensive general, product,
vehicle, medical and life benefits and liability.
Provisions for losses expected under these
programs are recorded based on NCD's actual or
estimated aggregate liability for claims. Such
estimates utilize certain insurance industry
actuarial assumptions and are included in accrued
expenses.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Niagara Corporation (formerly International Metals Acquisition
Corporation), a Delaware corporation ("Niagara," and, together with
its subsidiaries, the "Company"), was organized on April 27, 1993 with
the objective of acquiring an operating business engaged in the metals
processing and distribution industry or metals-related manufacturing
industry.
On June 1, 1995, Niagara entered into a stock purchase agreement
with the stockholders of Niagara Cold Drawn Corp. ("NCD"), a manufac-
turer of cold drawn steel bars, providing for the purchase by Niagara
of all outstanding shares of common and preferred stock of NCD for
$10,744,045 in cash. This acquisition was consummated on August 16,
1995.
On January 31, 1996, NCD entered into a stock purchase agreement
with the stockholders of Southwest Steel Company, Inc. ("Southwest"),
a manufacturer of cold drawn steel bars, pursuant to which, and
simultaneously therewith, NCD purchased all outstanding capital stock
of Southwest for $1,920,000 in cash and $1,156,773 principal amount of
NCD promissory notes guaranteed by Niagara. In connection with this
acquisition, NCD discharged $8,518,691 of Southwest indebtedness, and
Niagara guaranteed $898,000 of Southwest indebtedness to a former
Southwest stockholder. On May 8, 1996, NCD asserted an aggregate of
approximately $1,300,000 of indemnification claims against the former
Southwest stockholders. On May 22, 1996, NCD brought an action
against such stockholders relating to these claims. The defendants
have denied liability in their answer. (See Note 1 to the financial
statements of Niagara and NCD; see also Part II, Item 1. Legal Pro-
ceedings.)
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH SEPTEMBER 30, 1995
Net sales for the three months ended September 30, 1996 were
$18,524,082, representing an increase of $12,027,367 or 185% over the
same period in 1995. This increase primarily resulted from the
acquisition of Southwest and the inclusion of NCD's sales for an
entire quarter in 1996 versus from August 16 through September 30 in
1995.
Cost of sales for the three months ended September 30, 1996
increased by $9,884,897 to
$15,430,514, representing an increase of 178% over the same period in
1995. This increase was primarily the result of the growth in sales.
Gross margins for the third quarter of 1996 increased approximately 2%
from the third quarter of 1995 primarily due to a more favorable mix
of higher margin products.
Selling, general and administrative expenses for the three months
ended September 30, 1996 increased by $1,728,496 to $2,241,000 as
compared to the same period in 1995. This increase was primarily due
to costs associated with the increase in sales and the inclusion of
NCD's expenses for a full quarter in 1996 versus a partial quarter in
1995.
Interest expense for the three months ended September 30, 1996,
as compared to the three months ended September 30, 1995, increased
$291,729 to $397,115 due to increased levels of borrowing caused by
the acquisition of Southwest and the inclusion of a full of a full
quarter NCD interest expense versus a partial quarter in 1995.
During the quarter Niagara substantially completed the construc-
tion of a new facility for Southwest in Midlothian, Texas and move of
the Southwest operations from Tulsa, Oklahoma to the new facility. The
Tulsa facilities were sold resulting in an approximate $150,000 gain
reflected in other income.
Net income for the three months ended September 30, 1996 was
$394,238, an increase of $31,631 or 8.7% from the three months ended
September 30, 1995. Net Income was positively impacted by the gain
from the sale of the Tulsa facilities. Taxes increased by $164,000 to
$242,000. Taxes in 1995 were favorably impacted by the utilization of
net operating loss carry forwards. These loss carry forwards were
exhausted prior to the quarter ended September 30, 1996.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH SEPTEMBER 30, 1995
Net sales for the nine months ended September 30, 1996 were
$58,946,011, representing an increase of $52,449,296 over the same
period in 1995. This increase resulted from an increase in sales due
to the acquisition of Southwest and the inclusion of NCD for the
entire period.
Cost of sales for the nine months ended September 30, 1996
increased by $44,518,428 to $50,064,045, over the same period in 1995.
This increase was primarily the result of the growth in sales.
Selling, general and administrative expenses for the nine months
ended September 30, 1996 increased by $5,572,589 to $6,427,854. This
increase was primarily due to costs associated with the increase in
sales.
Interest expense for the nine months ended September 30, 1996, as
compared to the nine months ended September 30, 1995, increased
$927,926 to $1,033,312 due to increased levels of borrowing caused by
the earlier referenced acquisitions.
Net income for the nine months ended September 30, 1996 was
$1,040,453 an increase of $594,836 or approximately 133% over net
income for the nine months ended September 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, Niagara had $1,273,951 in cash and cash
equivalents. Such funds are available for working capital and other
corporate purposes.
The Company's principal long-term liquidity requirement has been
and is expected to continue to be the funding of capital expenditures
to modernize, improve and expand its facilities, machinery and equip-
ment. Capital expenditures for the nine months ended September 30,
1996 totaled approximately $3,366,000 compared to approximately
$615,000 for the same period in 1995. Most of this increase related
to the continued construction of Southwest's new facility in
Midlothian, Texas.
NCD has credit facilities (the "Credit Facilities") with Manufac-
turers and Traders Trust Company. These Credit Facilities are guaran-
teed by Niagara and consist of a $12,000,000 term loan facility (the
"Term Loan Facility") and a $14,000,000 revolving credit facility (the
"Revolving Credit Facility"). The Credit Facilities are guaranteed by
Niagara and Southwest, primarily secured by the eligible accounts
receivable and inventory of NCD and Southwest, carry restrictions on,
among other things, capital expenditures, dividends and changes in
control of NCD, and require minimum levels of net worth through
maturity. NCD is in compliance with these provisions.
The Term Loan Facility provides for the payment of (i) interest
in monthly installments from March 1, 1996 through February 1, 1997
and (ii) principal and interest in monthly installments from March 1,
1997 through February 1, 2003. The interest rate is fixed at 7.49%
for the first two years, and thereafter will be periodically adjusted
to 2.5% above the average yield on certain United States Treasury
obligations. Loans pursuant to the Revolving Credit Facility are
secured by, and based on, a percentage of eligible accounts receivable
and inventory and will mature on January 31, 1999. The interest rate
on each loan is 2.5% above the applicable LIBOR rate. Monthly inter-
est payments commenced on March 1, 1996.
Working capital of the Company at September 30, 1996 was
$13,727,644, compared to $11,885,476 at December 31, 1995. At Septem-
ber 30, 1996, NCD had borrowed $4,907,551 under the Revolving Credit
Facility and had $8,892,449 in available credit under this Facility.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On May 22, 1996, NCD commenced an action in the Supreme
Court of the State of New York, Erie County, captioned Niagara Cold
Drawn Corp. v. Handrahan, et al., against the former Southwest stock-
holders who sold their shares to NCD. In its complaint, NCD asserts
indemnification, breach of contract, and other claims against the
defendants and seeks damages of approximately $1.3 million. The
defendants have answered NCD's complaint, denying liability. This
action is now in the early stages of discovery. Joseph Handrahan, a
former Southwest stockholder and a defendant in this action, is a Vice
President of Southwest.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
(a) An Annual Meeting of Niagara Stockholders was held
on May 16, 1996.
(b) Michael J. Scharf, William H. Hyman, Gilbert D.
Scharf, Gerald L. Cohn and Andrew R. Heyer were re-elected as direc-
tors of Niagara.
(c) The matters voted upon at the Annual Meeting were
(i) the election of Michael J. Scharf, William H. Hyman, Gilbert D.
Scharf, Gerald L. Cohn and Andrew R. Heyer to hold office until the
next Annual Meeting of Stockholders or until their respective succes-
sors have been duly elected and qualified, the vote as to which was
3,355,952 for and 9,900 withheld in connection with each of the five
nominees; (ii) a proposal to amend Niagara's Restated Certificate of
Incorporation to (a) decrease the number of authorized shares of
Common Stock from 50,000,000 to 15,000,000 shares and (b) decrease the
number of authorized shares of Preferred Stock from 1,000,000 to
500,000 shares, the vote as to which was 1,863,545 for, 12,300 against
and 11,000 abstentions; (iii) a proposal to amend Niagara's Restated
Certificate of Incorporation to change the name of the company from
International Metals Acquisition Corporation to Niagara Corporation,
the vote as to which was 3,232,652 for, 19,600 against and 13,600
abstentions; (iv) a proposal to approve Niagara's 1995 Stock Option
Plan, the vote as to which was 1,759,545 for, 86,500 against and
24,800 abstentions; and (v) the ratification and approval of the
appointment of BDO Seidman LLP as independent accountants for 1996,
the vote as to which was 3,344,552 for, 6,400 against and 14,900
abstentions.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
*3.1 Registrant's Restated Certificate of Incorporation as
amended on May 16, 1996.
**3.2 Registrant's By-laws.
**4.1 Form of Common Stock Certificate.
**4.2 Form of Warrant Certificate.
***4.3 Unit Purchase Option Granted to GKN Securities Corp.
***4.4 Warrant Agreement between Continental Stock Transfer & Trust
Company and the Registrant.
+10.12 UPO Exchange Agreement by and among the Registrant and GKN
Securities Corp., Roger Gladstone, David M. Nussbaum,
Robert Gladstone, Richard Buonocore, Debra L. Schondorf,
Andrea B. Goldman, Ira S. Greenspan and Barington Capital
Corp., L.P.
++21 Subsidiaries of the Registrant.
27 Financial Data Schedule.
__________________________
* Incorporated by reference to exhibits filed with the Registrant's
Report on Form 10-Q for the quarter ended June 30, 1996.
** Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-1, Registration No. 33-64682.
*** Incorporated by reference to exhibits filed with the Registrant's
Report on Form 10-K for the fiscal year ended December 31, 1993.
+ Incorporated by reference to exhibit 10.1 to the Registrant's
Report on Form 8-K, dated May 30, 1996.
++ Incorporated by reference to exhibits filed in the Registrant's
Report on Form 10-K for the fiscal year ended December 31, 1995.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the 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.
NIAGARA CORPORATION
(Registrant)
Date: November 13, 1996 /s/ Gilbert D. Scharf
Gilbert D. Scharf, Vice President
Date: November 13, 1996 /s/ Gilbert D. Scharf
Gilbert D. Scharf, Principal Accounting
Officer
Exhibit Index
*3.1 Registrant's Restated Certificate of Incorporation as amended
on May 16, 1996.
**3.2 Registrant's By-laws.
**4.1 Form of Common Stock Certificate.
**4.2 Form of Warrant Certificate.
***4.3 Unit Purchase Option Granted to GKN Securities Corp.
***4.4 Warrant Agreement between Continental Stock Transfer &
Trust Company and the Registrant.
+10.12 UPO Exchange Agreement by and among the Registrant and
GKN Securities Corp., Roger Gladstone, David M. Nussbaum,
Robert Gladstone, Richard Buonocore, Debra L. Schondorf,
Andrea B. Goldman, Ira S. Greenspan and Barington Capital
Corp., L.P.
++ 21 Subsidiaries of the Registrant.
27 Financial Data Schedule.
__________________________
* Incorporated by reference to exhibits filed with the Registrant's
Report on Form 10-Q for the quarter ended June 30, 1996.
** Incorporated by reference to exhibits filed with the
Registrant's Registration Statement on Form S-1, Registration
No. 33-64682.
*** Incorporated by reference to exhibits filed with the
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1993.
+ Incorporated by reference to exhibit 10.1 to the Registrant's
Report on Form 8-K, dated May 30, 1996.
++ Incorporated by reference to exhibits filed in the Registrant's
Report on Form 10-K for the fiscal year ended December 31,
1995.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> The Schedule contains summary financial
information extracted from the financial
statements of Niagara Corporation and subsidiaries
as of September 30, 1996 and is qualified in its
entirety by reference to such financial
statements.
</LEGEND>
<FISCAL-YEAR-END> 12-31-96 12-31-96
<PERIOD-START> 07-01-96 01-01-96
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