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, 1997
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)
N/A
-------------------------------------------
(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, 1997
Common Stock, $.001 par value 3,954,465
----------------------------- ---------------------
(Class) (Number of Shares)
NIAGARA CORPORATION
Index to September 30, 1997 Form 10-Q
- --------------------------------------------------------------------------
Page
----
Part I - Financial Information (Unaudited)
Financial Statements (Unaudited):
Niagara Corporation
Balance Sheets......................................... 3
Statements of Income................................... 4-5
Statement of Stockholders' Equity...................... 6
Statements of Cash Flows............................... 7
Notes to Financial Statements.......................... 8-13
Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 14-17
Part II - Other Information...................................... 18
Signatures....................................................... 21
Niagara Corporation
and Subsidiaries
Balance Sheets
- ----------------------------------------------------------------------------
December 31, September 30,
1996(a) 1997(b)
- ----------------------------------------------------------------------------
(unaudited)
Assets
Current:
Cash and cash equivalents $ 1,587,927 $ 1,070,203
Trade accounts receivable, net
of allowance for doubtful accounts 5,952,896 26,307,609
Inventories 14,446,473 38,261,887
Other current assets 253,078 484,953
- ----------------------------------------------------------------------------
Total current assets 22,240,374 66,124,652
Property, plant and equipment, net
of accumulated depreciation 21,649,219 90,723,936
Intangible assets 2,543,294 12,010,758
Other assets, net 914,928 2,261,759
- ----------------------------------------------------------------------------
$ 47,347,815 $ 171,121,105
============================================================================
Liabilities and Stockholders' Equity
Current:
Trade accounts payable $ 4,109,731 $ 20,850,841
Accrued expenses and other current 4,380,691 16,577,612
Current maturities of long-term debt 1,662,039 1,134,347
- ----------------------------------------------------------------------------
Total current liabilities 10,152,461 38,562,800
- ----------------------------------------------------------------------------
Long-term debt, less current maturities 18,075,147 81,137,028
- ----------------------------------------------------------------------------
Deferred post retirement and pension -- 28,137,717
- ----------------------------------------------------------------------------
Deferred income taxes 3,594,000 3,474,000
- ----------------------------------------------------------------------------
Stockholders' equity:
Preferred stock, $.001 par value -
500,000 shares authorized; none
outstanding -- --
Common stock, $.001 par value -
15,000,000 shares authorized;
3,668,750 and 3,954,465 outstanding 3,669 3,955
Additional paid-in capital 15,560,127 16,881,273
Retained earnings (deficit) (37,589) 2,924,332
- ----------------------------------------------------------------------------
Total stockholders' equity 15,526,207 19,809,560
- ----------------------------------------------------------------------------
$ 47,347,815 $ 171,121,105
============================================================================
(a) Includes the balance sheets of Niagara Corporation and Niagara Cold
Drawn Corp.
(b) Includes the balance sheets of Niagara Corporation, Niagara Cold
Drawn Corp. and LaSalle Steel Company, which was acquired effective
April 1, 1997.
See accompanying notes to financial statements.
Niagara Corporation
and Subsidiaries
Statements of Income
(Unaudited)
- ----------------------------------------------------------------------------
Three months ended September 30, 1996(a) 1997(b)
- ----------------------------------------------------------------------------
Net sales $ 18,524,082 $ 62,357,428
Cost of products sold 15,430,514 52,594,809
- ----------------------------------------------------------------------------
Gross profit 3,093,568 9,762,619
Operating expenses:
Selling, general and administrative 2,241,296 5,449,763
- ----------------------------------------------------------------------------
Income from operations 852,272 4,312,856
Other income (expense):
Interest income 16,081 7,630
Other income 165,000 183,538
Interest expense (397,115) (1,920,662)
- ----------------------------------------------------------------------------
Income before taxes on income 636,238 2,583,362
Taxes on income 242,000 1,007,352
- ----------------------------------------------------------------------------
Net income for the period $ 394,238 $ 1,576,010
- ----------------------------------------------------------------------------
Net income per share (primary) $ .11 $ .21(c)
- ----------------------------------------------------------------------------
Net income per share (fully diluted) $ .11 $ .20(c)
============================================================================
Weighted average common shares
outstanding 3,668,750 10,403,572(d)
============================================================================
(a) Includes the results of Niagara Corporation, Niagara Cold Drawn
Corp. and Southwest Steel Company, Inc. from July 1, 1996. On
November 1, 1996, Southwest Steel Company, Inc. was merged into
Niagara Cold Drawn Corp.
(b) Includes the results of Niagara Corporation, Niagara Cold Drawn
Corp. and LaSalle Steel Company for the entire quarter.
(c) Earnings per share have been calculated using the Modified Treasury
Stock Method which assumes the exercise of all of the Company's
outstanding warrants and stock options, with the proceeds therefrom
used to repurchase 20% of the Company's outstanding shares of common
stock and the balance of such assumed proceeds used to retire debt.
(d) Assumes exercise of 6,050,000 outstanding warrants and 1,190,000
stock options.
See accompanying notes to financial statements.
Niagara Corporation
and Subsidiaries
Statements of Income
(Unaudited)
- ----------------------------------------------------------------------------
Nine months ended September 30, 1996(a) 1997(b)
- ----------------------------------------------------------------------------
Net sales $ 58,946,011 $ 152,939,637
Cost of products sold 50,064,045 130,231,053
- ----------------------------------------------------------------------------
Gross profit 8,881,966 22,708,584
Operating expenses:
Selling, general and administrative 6,427,854 14,021,037
- ----------------------------------------------------------------------------
Income from operations 2,454,112 8,687,547
Other income (expense):
Interest income 60,653 34,101
Other income 165,000 183,538
Interest expense (1,033,312) (4,067,481)
- ----------------------------------------------------------------------------
Income before taxes on income 1,646,453 4,837,705
Taxes on income 606,000 1,875,784
- ----------------------------------------------------------------------------
Net income for the period $ 1,040,453 $ 2,961,921
- ----------------------------------------------------------------------------
Net income per share (primary) $ .29 $ .59(c)
- ----------------------------------------------------------------------------
Net income per share (fully diluted) $ .29 $ .58(c)
============================================================================
Weighted average common shares
outstanding 3,580,680 6,010,110(d)
============================================================================
(a) Includes the results of Niagara Corporation and Niagara Cold Drawn
Corp. from January 1, 1996 and the results of Southwest Steel
Company, Inc. from February 1, 1996.
(b) Includes the results of Niagara Corporation and Niagara Cold Drawn
Corp. from January 1, 1997 and the results of LaSalle Steel Company
from April 1, 1997.
(c) Earnings per share have been calculated using the Modified Treasury
Stock Method which assumes the exercise of all of the Company's
outstanding warrants and stock options, with the proceeds therefrom
used to repurchase 20% of the Company's outstanding shares of common
stock and the balance of such assumed proceeds used to retire debt.
(d) Assumes exercise of 6,050,000 outstanding warrants and 1,190,000
stock options
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
Niagara Corporation
and Subsidiaries
Statement of Stockholders' Equity
(Unaudited)
- -----------------------------------------------------------------------------------------------------------------
Period January 1, 1997 to September 30, 1997
- -----------------------------------------------------------------------------------------------------------------
Common Stock
-------------------
Number of Additional paid-in Retained earnings
shares Amount capital (deficit) Total
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997 3,668,750 $ 3,669 $ 15,560,127 $ (37,589) $ 15,526,207
Shares issued (a) 285,715 286 1,321,146 -- 1,321,432
Net income for the period -- -- -- 2,961,921 2,961,921
- -----------------------------------------------------------------------------------------------------------------
Balance, September 30, 1997 3,954,465 $ 3,955 $ 16,881,273 $ 2,924,332 $ 19,809,560
=================================================================================================================
</TABLE>
(a) On April 18, 1997, Niagara Corporation issued 285,715 shares of
common stock in connection with the subordinated debt portion of the
financing for the acquisition of LaSalle Steel Company. (See note 1)
See accompanying notes to financial statements.
Niagara Corporation
and Subsidiaries
Statements of Cash Flows
(Unaudited)
- ----------------------------------------------------------------------------
Nine months ended September 30, 1996(a) 1997(b)
- ----------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 1,040,453 $ 2,961,921
- ----------------------------------------------------------------------------
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,374,874 4,194,396
Deferred income taxes (168,000) 120,000
Provision for doubtful accounts 50,991 76,454
Gain on disposal of property (148,773) --
Changes in assets and liabilities,
net of effects from purchase of
Southwest in 1996 and LaSalle in
1997:
Increase in accounts receivable (1,167,828) (1,400,888)
Decrease (increase) in
inventories 3,063,270 443,031
Decrease (increase) in other
current assets (169,447) (110,883)
Increase (decrease) in other
assets, net (266,899) 94,805
Increase (decrease) in trade
accounts payable and accrued
expenses (210,355) 1,535,492
- ----------------------------------------------------------------------------
Total adjustments 2,357,833 4,952,407
- ----------------------------------------------------------------------------
Net cash provided by
operating activities 3,398,286 7,914,328
- ----------------------------------------------------------------------------
Cash flows from investing activities:
Acquisition of Southwest, net of cash
acquired (3,004,999) --
Acquisition of LaSalle, net of cash
acquired -- (67,240,635)
Acquisitions of fixed assets, net (3,365,969) (2,395,621)
- ----------------------------------------------------------------------------
Net cash used in investing
activities (6,370,968) (69,636,256)
- ----------------------------------------------------------------------------
Cash flows from financing activities:
Net proceeds from financing 2,059,736 62,769,285
Financing fees -- (1,565,081)
- ----------------------------------------------------------------------------
Net cash provided by
financing activities 2,059,736 61,204,204
- ----------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents (912,946) (517,724)
Cash and cash equivalents, beginning of
period 2,186,897 1,587,927
- ----------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 1,273,951 $ 1,070,203
============================================================================
(a) Includes the cash flows of Niagara Corporation and Niagara Cold
Drawn Corp. from January 1, 1996 and the cash flows of Southwest
Steel Company, Inc. from February 1, 1996.
(b) Includes the cash flows of Niagara Corporation and Niagara Cold
Drawn Corp. from January 1, 1997 and the cash flows of LaSalle Steel
Company from April 1, 1997.
Niagara Corporation
and Subsidiaries
Notes to Financial Statements - Information as of
September 30, 1997 and for the periods ended
September 30, 1996 and 1997 is unaudited.
1. Basis of Presentation The accompanying financial 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, 1996.
2. Acquisition of LaSalle On April 18, 1997, Niagara Corporation
("Niagara") and Niagara Cold Drawn Corp.
("Niagara Cold Drawn") entered into a stock
purchase agreement with Quanex Corporation
("Quanex"), pursuant to which, and at a
closing occurring simultaneously therewith,
Niagara Cold Drawn purchased from Quanex all
of the outstanding shares of capital stock
of LaSalle Steel Company ("LaSalle").
Pursuant to the LaSalle stock purchase
agreement and in consideration for the sale
of the LaSalle shares (i) Niagara Cold Drawn
paid Quanex $65,500,000 in cash at the
closing and (ii) Quanex or Niagara Cold
Drawn, as the case may be, will pay the
other an amount based on changes in
LaSalle's stockholder's equity between
October 31, 1996 and March 31, 1997. The
LaSalle stock purchase agreement also
provides that Quanex or Niagara Cold Drawn,
as the case may be, pay the other an amount
based on cash activity in the intercompany
account between Quanex and LaSalle from
April 1, 1997 through April 18, 1997.
The acquisition was accounted for as a
purchase and the financial statements
include the results of LaSalle from April 1,
1997. The purchase price, including
acquisition costs and other estimated
liabilities as of the acquisition date, was
approximately $70,000,000. The purchase
price exceeded LaSalle's stockholder's
equity by approximately $56,000,000, and
based on an appraisal, the excess was
primarily allocated to property, plant and
equipment.
The acquisition of LaSalle and the
refinancing of existing Niagara Cold Drawn
indebtedness was financed pursuant to (i) a
revolving credit and term loan agreement
with Niagara Cold Drawn and LaSalle
(guaranteed by Niagara), providing for a
$50,000,000 three-year revolving credit
facility and a $40,000,000 term loan and
(ii) the issuance and sale of $20,000,000
aggregate principal amount of 12.5% senior
subordinated notes of Niagara Cold Drawn due
April 18, 2005 (the "Subordinated Notes").
In connection with the subordinated debt
portion of this financing, the purchasers of
these notes were issued 285,715 shares of
Niagara common stock.
Pro forma results of operations, assuming
the acquisition had occurred on January 1,
1996, are unaudited and detailed below. Pro
forma adjustments primarily include
additional depreciation and amortization on
excess purchase price allocated to property,
plant, equipment and intangible assets and
additional interest expense related to debt
incurred for the acquisition.
This pro forma data does not purport to be
indicative of the results which actually
would have been obtained had such
transactions been completed as of the
assumed dates or of the results which may be
obtained in the future.
<TABLE>
<S> <C> <C>
Nine months ended September 30, 1996 September 30, 1997
--------------------------------------------------------------------
Net Sales $181,646,011 $197,188,637
Net Income $ 833,138 $ 2,747,260
Net Income per share
(primary) $ .23 $ .55
Net Income per share
(fully diluted) $ .23 $ .55
--------------------------------------------------------------------
</TABLE>
3. Inventories Inventories consisted of the following:
December 31, September 30,
1996 1997
-----------------------------------------------
Raw materials $ 6,302,827 $17,725,692
Work-in-process 1,252,278 6,805,796
Finished goods 6,891,368 13,730,399
-----------------------------------------------
$14,446,473 $38,261,887
===============================================
Inventories are stated using the LIFO method.
4. Contingencies On January 31, 1996, Niagara Cold Drawn
entered into a stock purchase agreement with
the stockholders of Southwest Steel Company,
Inc. ("Southwest"), pursuant to which, and
simultaneously therewith, Niagara Cold Drawn
purchased all of the outstanding capital
stock of Southwest for $1,920,000 in cash
and $1,156,773 principal amount of Niagara
Cold Drawn promissory notes guaranteed by
Niagara. On May 8, 1996, pursuant to the
provisions of the Southwest stock purchase
agreement, Niagara Cold Drawn asserted
indemnification claims in the aggregate
amount of approximately $1,300,000 against
the former Southwest stockholders. On May
22, 1996, Niagara Cold Drawn brought an
action against such stockholders relating to
these claims. The defendants have denied
liability in their answer. On January 17,
1997, Niagara Cold Drawn notified the former
Southwest stockholders that in light of the
ongoing claim for indemnification, Niagara
Cold Drawn was asserting its common law
right of offset and would not be making
principal and interest payments (the first
of which was due on January 31, 1997) under
the terms of the promissory notes issued to
such individuals in connection with the
acquisition.
Pursuant to the LaSalle stock purchase
agreement, Quanex or Niagara Cold Drawn, as
the case may be, will pay the other an
amount based on changes in LaSalle's
stockholder's equity between October 31,
1996 and March 31, 1997. Based on the March
31, 1997 balance sheet submitted by Quanex,
Quanex has estimated that it is due a
purchase price adjustment of $2,154,000. On
July 2, 1997, Niagara and Niagara Cold Drawn
submitted to Quanex a statement disputing
the amounts reflected on the balance sheet
of LaSalle as of March 31, 1997 for
inventory reserves, doubtful account
allowances, and certain accrued expenses and
reserves in the aggregate amount of
$2,136,584. In accordance with the LaSalle
stock purchase agreement, Niagara, Niagara
Cold Drawn and Quanex have submitted these
disputes to an independent accounting firm
for binding arbitration. There is no
assurance that these disputed items will be
resolved in favor of Niagara and Niagara
Cold Drawn.
The acquisition of LaSalle and the
refinancing of existing Niagara Cold Drawn
indebtedness was financed in part pursuant
to the issuance and sale of the Subordinated
Notes. Niagara Cold Drawn is obligated to
prepay the Subordinated Notes at 107% of the
outstanding principal amount (plus accrued
interest) with the net proceeds from any
exercise of Niagara's Redeemable Common
Stock Purchase Warrants. These Warrants have
been called for redemption (See Note 5).
Under applicable state and federal laws,
including the Comprehensive Environmental
Response, Compensation and Liability Act of
1980 as amended ("CERCLA"), LaSalle may be
responsible for parts of the costs required
to remove or remediate previously disposed
wastes or hazardous substances at the
locations LaSalle owns or operates or at
which it arranged for disposal of such
materials. The costs are largely covered by
insurance, in certain cases LaSalle is
classified as a de minimis contributor and a
reserve has been established for these
matters which management believes is
adequate. Niagara believes any settlement of
these matters will not have a material
adverse effect on its financial position.
Niagara Cold Drawn and LaSalle are also
subject to federal, state and local
environmental laws and regulations
concerning, among other matters, water
emissions and waste disposal. Management
believes that both companies currently are
in material compliance with all applicable
environmental laws and regulations.
Under Niagara Cold Drawn's and LaSalle's
insurance programs, coverage is obtained for
catastrophic exposures as well as those
risks required to be insured by law or
contract. It is the policy of Niagara Cold
Drawn and LaSalle 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 upon Niagara Cold Drawn's or
LaSalle's, as the case may be, estimates of
the aggregate liability, actual and
estimated, for claims. Such estimates
utilize certain actuarial assumptions
followed in the insurance industry and are
included in accrued expenses.
5. Subsequent Event On October 31, 1997, Niagara exercised its
right to redeem on December 9, 1997 (the
"Redemption Date") all of its then
outstanding Redeemable Common Stock Purchase
Warrants (the "Warrants"), at $.01 per
Warrant. As a result of this call for
redemption, the Warrants may not be
exercised after 5 P.M. New York City Time
(the "Exercise Deadline") on the Redemption
Date. Each outstanding Warrant entitles the
holder to purchase from Niagara, prior to
the Exercise Deadline, one share of Niagara
Common Stock at an exercise price of $5.50.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Niagara was organized in April of 1993. With the acquisition of
Niagara Cold Drawn in August 1995, Niagara entered the cold finished
steel bar industry. With plants in Buffalo, New York and Chattanooga,
Tennessee, Niagara Cold Drawn had an established position in the
northeast and southeast regions of the United States cold finished steel
bar market.
In January 1996, Niagara Cold Drawn acquired Southwest. During
1996, Southwest completed construction of a new plant outside of Dallas,
Texas and closed existing facilities in Tulsa, Oklahoma. With this
acquisition, Niagara gained an established position in the southwest
region of the United States as Southwest was the leading cold finished
steel bar producer servicing that area.
In April 1997, Niagara Cold Drawn completed its acquisition of
LaSalle, which has plants in Hammond and Griffith, Indiana. This
acquisition gave Niagara Cold Drawn a strong market position in the
midwest region of the United States and broadened Niagara Cold Drawn's
product range by adding thermal treated and chrome plated bars.
After the acquisition of LaSalle, Niagara became the largest
independent producer of cold finished steel bars in the United States.
The geographic position of Niagara's plants creates competitive
advantages because of freight savings and the ability to supply
efficiently multiple locations of steel service center companies.
Three Months Ended September 30, 1997 Compared with September 30, 1996
Net sales for the three months ended September 30, 1997 were
$62,357,428, representing an increase of $43,833,346, or 236%, over the
same period in 1996. This increase resulted primarily from the
acquisition of LaSalle.
Cost of sales for the three months ended September 30, 1997
increased by $37,164,295 to $52,594,809, representing an increase of 241%
over the same period in 1996. This increase was primarily attributable to
the increase in sales.
Gross margins for the third quarter of 1997 decreased by 1.0% to
15.7% as compared to the same period in 1996. The decrease was caused by
the increased depreciation included in the cost of sales as a result of
the LaSalle acquisition.
Selling, general and administrative expenses for the three
months ended September 30, 1997 increased by $3,208,467 to $5,449,763, or
8.7% of sales, compared to 12.1% of sales for the same period in 1996.
The dollar increase was due to the increased sales, and the decline as a
percentage of sales was caused by the consolidation of the LaSalle and
Niagara Cold Drawn sales forces and other personnel reductions at
LaSalle.
Net interest expense for the three months ended September 30,
1997 increased $1,531,998 to $1,913,032, due primarily to the increased
level of debt incurred in connection with the acquisition of LaSalle.
Net income for the three months ended September 30, 1997 was
$1,576,010, an increase of $1,181,772, or 300%, as compared to the net
income for the three months ended September 30, 1996.
Nine Months Ended September 30, 1997 Compared with September 30, 1996
Net sales for the nine months ended September 30, 1997 were
$152,939,637, representing an increase of $93,993,626, or 160%, over the
same period in 1996. This increase resulted primarily from the
acquisition of LaSalle.
Cost of sales for the nine months ended September 30, 1997
increased by $80,167,008 to $130,231,053, representing an increase of
160% over the same period in 1996. This increase was primarily
attributable to the increase in sales.
Gross margins for the nine months of 1997 decreased by .3% as
compared to the same period in 1996. This decrease was caused by the
increased depreciation included in the cost of sales as a result of the
LaSalle acquisition.
Selling, general and administrative expenses for the nine months
ended September 30, 1997 increased by $7,593,183 to $14,021,037, or 9.2%
of sales, compared to 10.9% of sales for the same period in 1996. The
dollar increase was primarily due to the increased sales, and the decline
as a percentage of sales was caused by the consolidation of the LaSalle
and Niagara Cold Drawn sales forces and other personnel reductions at
LaSalle.
Net interest expense for the nine months ended September 30,
1997 increased $3,060,721 to $4,033,380, due primarily to the increased
level of debt incurred in connection with the acquisition of LaSalle.
Net income for the nine months ended September 30, 1997 was
$2,961,921, an increase of $1,921,468, or 185%, over the net income for
the nine months ended September 30, 1996.
On a pro forma basis, and as disclosed in Note 2 to the
financial statements, net income for the nine months ended September 30,
1997 was $2,747,260 compared to $833,138 for the same period in 1996.
This increase resulted primarily from an increase of sales of
$15,542,626.
Liquidity and Capital Resources
At September 30, 1997, Niagara had $1,070,203 in cash and cash
equivalents. Such funds are used for working capital and other corporate
purposes.
Cash flows provided by operations were $7,914,327 for the nine
months ended September 30, 1997 (which included cash flows of LaSalle
from April 1,1997) compared to $3,398,286 for the nine months ended
September 30, 1996 (which included cash flows of Southwest from February
1, 1996). This increase of $4,516,041 is primarily attributable to an
increase of $1,921,468 in net income and an increase of $2,819,522 in
depreciation and amortization. The company's cash flows provided by
operations during the nine months ended September 30, 1997 together with
its financing discussed in more detail below (net proceeds of
$62,769,285) were utilized in the acquisition of LaSalle ($67,240,635
including $65,500,000 paid at closing plus certain acquisition costs).
Niagara's principal short-term and long-term liquidity
requirement has been and is expected to be the funding of capital
expenditures to modernize, improve and expand its facilities, machinery
and equipment. Capital expenditures for the nine months ended September
30, 1997 totaled $2,395,621 compared to $3,365,969 for the same period in
1996.
On April 18, 1997 and in connection with the acquisition of
LaSalle, Niagara Cold Drawn and LaSalle entered into a revolving credit
and term loan agreement (the "Credit Agreement") with Manufacturers and
Traders Trust Company ("M&T"), CIBC Inc. and National City Bank. The
Credit Agreement provides for a $50,000,000 revolving credit facility and
a $40,000,000 term loan. The obligations of Niagara Cold Drawn and
LaSalle under the Credit Agreement are guaranteed by Niagara and secured
by substantially all of the assets of Niagara Cold Drawn and LaSalle. In
addition, all of the outstanding capital stock of Niagara Cold Drawn and
LaSalle was pledged to M&T, as Agent. In connection with the execution of
the Credit Agreement, Niagara Cold Drawn terminated its previously
existing term loan and revolving credit agreements with M&T.
Principal of the term loan under the Credit Agreement amortizes
in monthly installments commencing on November 1, 1997 and ending on
April 1, 2004. The principal repayment installments on the term loan
escalate throughout the term of such loan. Interest on the term loan is
payable in monthly installments either at the LIBOR rate (for a period
specified by Niagara Cold Drawn from time to time) plus 285 basis points,
or M&T's prime rate plus 50 basis points. Revolving credit loans made
pursuant to the Credit Agreement will be based on a percentage of
eligible accounts receivable and inventory and will mature on April 17,
2000. Interest on such loans is payable in monthly installments and will
be either 250 basis points above the LIBOR rate (for a period specified
by Niagara Cold Drawn from time to time) or M&T's prime rate plus 25
basis points.
Note and stock purchase agreements were entered into on April
18, 1997, by and among Niagara, Niagara Cold Drawn, LaSalle and,
respectively, The Prudential Insurance Company of America, The Equitable
Life Assurance Society of the United States and United States Fidelity
and Guaranty Company (collectively, the "Note and Stock Purchase
Agreements") providing for, among other things, the issuance and sale of
$20,000,000 aggregate principal amount of Senior Subordinated Notes of
Niagara Cold Drawn. In connection with this financing, the purchasers of
the Subordinated Notes were issued 285,715 shares of Niagara common
stock.
The Note and Stock Purchase Agreements also provide for the
payment of interest on the outstanding principal amount of the
Subordinated Notes on each April 18 and October 18 until such principal
has been paid in full. Niagara Cold Drawn may at any time on or after
August 13, 2000 prepay all or part of the amount owing under the
Subordinated Notes at amounts ranging from 112.5% to 100% of the
outstanding principal amount (plus accrued interest). Niagara Cold Drawn
is obligated to prepay the Subordinated Notes at 107% of the outstanding
principal amount (plus accrued interest) with the net proceeds from any
exercise of the Warrants.
On October 31, 1997, Niagara exercised its right to redeeem on
December 9, 1997 all of its then outstanding Warrants at $.01 per
Warrant. As a result of this call for Redemption, the Warrants may not be
exercised after 5 P.M. New York City Time on the Redemption Date. Each
outstanding Warrant entitles the holder to purchase from Niagara, prior
to the Exercise Deadline, one share of Niagara Common Stock at an
exercise price of $5.50. If all the warrants are exercised, Niagara will
realize proceeds in the amount of $33,275,000. Proceeds from the exercise
of the Warrants in excess of those required to prepay the Subordinated
Notes will be used for general corporate purposes and working capital.
The Credit Agreement and the Note and Stock Purchase Agreements
carry restrictions on, among other things, indebtedness, liens, capital
expenditures, dividends, asset dispositions and changes in control of
Niagara and Niagara Cold Drawn, and require minimum levels of net worth
through maturity. Also included in these agreements are requirements
regarding the ratio of consolidated current assets to consolidated
current liabilities and the ratio of net income before interest, taxes,
depreciation and amortization to cash interest expense. Niagara was in
compliance with all of these requirements as of September 30, 1997.
At September 30, 1997, Niagara Cold Drawn had borrowed
$20,100,000 under its revolving credit facility and had $25,500,000 in
available credit thereunder. Working capital of the company at September
30, 1997 was $27,561,852 as compared to $12,087,913 on December 31, 1996.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable.
Item 2. Changes in Securities and Use of Proceeds.
Not applicable.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to Vote of Security Holders.
Not applicable.
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 Warrant Agreement between Continental Stock Transfer &
Trust Company and the Registrant, dated as of August
13, 1993.
##4.4 Revolving Credit and Term Loan Agreement, dated as of
April 18, 1997, by and among Niagara Cold Drawn Corp.,
LaSalle Steel Company, Manufacturers and Traders Trust
Company (individually and as Agent), CIBC Inc. and
National City Bank.
##4.5 Form of Note and Stock Purchase Agreement, dated as of
April 18, 1997, by and among the Registrant, Niagara
Cold Drawn Corp., LaSalle Steel Company and each of
The Prudential Insurance Company of America, The
Equitable Life Assurance Society of the United States
and United States Fidelity and Guaranty Company.
##4.6 Stockholders Agreement, dated as of April 18, 1997,
among the Registrant, Niagara Cold Drawn Corp.,
Michael J. Scharf, The Prudential Insurance Company of
America, The Equitable Life Assurance Society of the
United States and United States Fidelity and Guaranty
Company.
!10.1 Stock Purchase Agreement by and among Niagara Cold Drawn
Corp. and the stockholders of Southwest Steel Company,
Inc., dated January 31, 1996.
!!10.2 Form of Promissory Note made by Niagara Cold Drawn Corp.,
dated January 31, 1996.
!!10.3 Form of Guaranty made by the Registrant, dated January
31, 1996.
!!10.4 Amended and Restated Promissory Note made by Southwest
Steel Company, Inc. in favor of the Cohen Family
Revocable Trust, u/t/a dated June 15, 1988, in the
principal amount of $898,000, dated January 31, 1996.
!!10.5 Guaranty, made by the Registrant in favor of the Cohen
Family Revocable Trust, u/t/a dated June 15, 1988,
dated January 31, 1996.
!!!10.6 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.
!!!!10.7 International Metals Acquisition Corporation 1995 Stock
Option Plan.
#10.8 First Amendment to the International Metals Acquisition
Corporation 1995 Stock Option Plan, dated October 5,
1996.
##10.9 Stock Purchase Agreement, dated April 18, 1997, by and
among the Registrant, Niagara Cold Drawn Corp. and
Quanex Corporation.
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 exhibits filed with the Registrant's
Report on Form 8-K, dated February 13, 1996.
!! Incorporated by reference to exhibits filed with the Registrant's
Report on Form 10-K for the year ended December 31, 1995.
!!! Incorporated by reference to exhibit 10.1 to the Registrant's
Report on Form 8-K, dated May 30, 1996.
!!!! Incorporated by reference to Annex A to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders held on May 16,
1996.
# Incorporated by reference to exhibit 10.10 to the Registrant's
Report on Form 10-K for the fiscal year ended December 31, 1996.
## Incorporated by reference to exhibits filed with the Registrant's
Report on Form 8-K, dated May 2, 1997.
(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.
Date: November 13, 1997 NIAGARA CORPORATION
(Registrant)
/s/ Gilbert D. Scharf
---------------------------------
Gilbert D. Scharf, Vice President
Date: November 13, 1997 /s/ Gilbert D. Scharf
----------------------------------
Gilbert D. Scharf, Principal
Accounting Officer
EXHIBIT INDEX
Exhibit No. Description Page No.
- ----------- ----------- --------
27 Financial Data Schedule 23
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF
NIAGARA CORPORATION AND SUBSIDIARIES AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-Mos
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,070,203
<SECURITIES> 0
<RECEIVABLES> 27,014,244
<ALLOWANCES> 706,635
<INVENTORY> 38,261,887
<CURRENT-ASSETS> 66,124,652
<PP&E> 96,333,327
<DEPRECIATION> 5,609,391
<TOTAL-ASSETS> 171,121,105
<CURRENT-LIABILITIES> 38,562,800
<BONDS> 81,137,028
<COMMON> 3,955
0
0
<OTHER-SE> 19,805,605
<TOTAL-LIABILITY-AND-EQUITY> 171,121,105
<SALES> 152,939,637
<TOTAL-REVENUES> 152,939,637
<CGS> 130,231,053
<TOTAL-COSTS> 130,231,053
<OTHER-EXPENSES> 14,021,037
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,067,481
<INCOME-PRETAX> 4,837,705
<INCOME-TAX> 1,875,784
<INCOME-CONTINUING> 2,961,921
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,961,921
<EPS-PRIMARY> .59
<EPS-DILUTED> .58
</TABLE>
