SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 8-K/A
AMENDMENT NO. 2
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
----------------
APRIL 18, 1997
------------------------------------
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED)
NIAGARA CORPORATION
------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 0-22206 59-3182820
---------------------------- --------------- -----------------
(STATE OR OTHER JURISDICTION (COMMISSION FILE (I.R.S. EMPLOYER
OF INCORPORATION) NUMBER) IDENTIFICATION NO.)
667 MADISON AVENUE
NEW YORK, NEW YORK
--------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
10021
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(ZIP CODE)
(212) 317-1000
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(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
-----------------------------------------
(FORMER NAME OR FORMER ADDRESS, IF CHANGED
SINCE LAST REPORT)
EXPLANATORY NOTE
This Amendment No. 2 on form 8-K/A, amends and restates in its entirety
Item 7 of the Form 8-K, dated May 2, 1997, as amended by Form 8-K/A, dated
July 2, 1997, of Niagara Corporation ("Niagara"), relating to the acquisition
by Niagara Cold Drawn Corp., a Delaware corporation and wholly owned
subsidiary of Niagara, of all the outstanding shares of capital stock of
LaSalle Steel Company, a Delaware corporation ("LaSalle").
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS.
(a) Financial Statements of Business Acquired.
Financial Statements of LaSalle for the years ended October 31, 1996,
1995, and 1994 and for the three month periods ended January 31, 1997
and 1996 (unaudited) and Independent Auditors' Report.
LaSalle Steel Company
Financial Statements for the Years Ended
October 31, 1996, 1995 and 1994 and for
the Three-Month Periods Ended January
31, 1997 and 1996 (Unaudited) and
Independent Auditors' Report
LASALLE STEEL COMPANY
TABLE OF CONTENTS
- -----------------------------------------------------------------------------
PAGE
INDEPENDENT AUDITORS' REPORT 5
FINANCIAL STATEMENTS:
Balance Sheets, October 31, 1996, 1995 and 1994 and January 31,
1997 (Unaudited) 6
Statements of Income and Retained Earnings for the Years Ended
October 31, 1996, 1995 and 1994 and the Three-Month Periods
Ending January 31, 1997 and 1996 (Unaudited) 7
Statements of Cash Flows for the Years Ended October 31, 1996,
1995 and 1994 and the Three-Month Periods Ending January 31,
1997 and 1996 (Unaudited) 8
Notes to Financial Statements 9
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Quanex Corporation
Houston, Texas
We have audited the accompanying balance sheets of LaSalle Steel Company (a
wholly owned subsidiary of Quanex Corporation), as of October 31, 1996,
1995 and 1994 and the related statements of income and cash flows for each
of the years then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of LaSalle Steel Company as of October 31,
1996, 1995 and 1994, and the results of its operations and cash flows (as
restated) for each of the years then ended.
/S/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Houston, Texas
February 28, 1997
<TABLE>
<CAPTION>
LASALLE STEEL COMPANY
BALANCE SHEETS,
OCTOBER 31, 1996, 1995 AND 1994 AND JANUARY 31, 1997 (UNAUDITED)
(IN THOUSANDS)
- -------------------------------------------------------------------------------------
January 31,
ASSETS 1997 1996 1995 1994
(Unaudited)
CURRENT ASSETS:
<S> <C> <C> <C> <C>
Cash and cash equivalents $10 $10 $8 $39
Accounts receivable, net of allowance for
doubtful accounts of $388, $422, $422,
and $355, respectively 19,074 13,351 16,500 15,859
Inventories 23,518 23,349 25,532 24,247
Prepaid expenses 157 13 13 97
Deferred income taxes 388
-------------------------------------
Total current assets 42,759 36,723 42,053 40,630
-------------------------------------
PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements 1,901 1,901 702 702
Buildings 4,821 4,385 4,182 4,120
Machinery and equipment 25,089 21,049 19,376 18,541
Construction in progress 875 5,243 1,739 599
-------------------------------------
32,686 32,578 25,999 23,962
Less accumulated depreciation (16,810) (16,367) (14,916) (13,649)
-------------------------------------
15,876 16,211 11,083 10,313
-------------------------------------
RECEIVABLE FROM PARENT 22,986 19,022 11,161
DEFERRED INCOME TAXES 10,139 9,710 9,653 9,545
OTHER ASSETS 1,827 1,827 1,924 2,065
-------------------------------------
TOTAL $70,601 $87,457 $83,735 $73,714
=====================================
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable $15,674 $19,266 $21,132 $18,247
Accrued expenses 4,801 6,294 7,258 7,277
Income taxes payable to parent 529 1,120 362 1,311
Deferred income taxes 152 21 75
-------------------------------------
Total current liabilities 21,156 26,701 28,827 26,835
-------------------------------------
PAYABLE TO PARENT 15,414
DEFERRED PENSION CREDIT 5,456 5,466 6,363 5,234
DEFERRED POSTRETIREMENT WELFARE BENEFITS 27,743 27,595 26,495 25,651
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDER'S EQUITY:
Common stock, $1 par value; 100,000 shares
authorized; 1,000 shares issued and
outstanding 1 1 1 1
Retained earnings 2,099 28,962 23,329 16,834
Adjustment for minimum pension liability (1,268) (1,268) (1,280) (841)
-------------------------------------
Total stockholder's equity 832 27,695 22,050 15,994
TOTAL $70,601 $87,457 $83,735 $73,714
======================================
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
LASALLE STEEL COMPANY
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994 AND
THE THREE-MONTH PERIODS ENDED JANUARY 31, 1997 AND 1996
(UNAUDITED) (In Thousands)
- ---------------------------------------------------------------------------------------
THREE MONTHS ENDED YEAR ENDED
JANUARY 31, OCTOBER 31,
------------------ ------------------------------
1997 1996 1996 1995 1994
(Unaudited)
<S> <C> <C> <C> <C> <C>
NET SALES $ 38,248 $ 37,625 $158,549 $170,675 $160,010
COST OF SALES 35,219 33,983 143,153 153,552 144,778
SELLING GENERAL AND ADMINISTRA-
TIVE EXPENSES 1,363 970 5,037 5,662 6,614
---------------------------------------------------
OPERATING INCOME 1,666 2,672 10,359 11,461 8,618
---------------------------------------------------
ALLOCATED EXPENSES FROM PARENT -
Interest and capital usage 308 200 1,114 770 1,240
---------------------------------------------------
INCOME BEFORE INCOME TAXES 1,358 2,472 9,245 10,691 7,378
INCOME TAX EXPENSE 528 994 3,612 4,196 2,884
----------------------------------------------------
NET INCOME $ 830 $ 1,478 $ 5,633 $ 6,495 $ 4,494
====================================================
BEGINNING RETAINED EARNINGS $ 28,962 $ 23,329 $ 23,329 $ 16,834 $ 12,340
DIVIDEND TO PARENT 27,693
----------------------------------------------------
ENDING RETAINED EARNINGS $ 2,099 $ 24,807 $ 28,962 $ 23,329 $ 16,834
====================================================
</TABLE>
See notes to financial statements.
<TABLE>
<CAPTION>
LASALLE STEEL COMPANY
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994 AND
THE THREE-MONTH PERIODS ENDED JANUARY 31, 1997 AND 1996
(UNAUDITED) (In Thousands) (RESTATED)
- --------------------------------------------------------------------------------------
Three Years Ended Year Ended
January 31, October 31,
------------------- ------------------------------
1997 1996 1996 1995 1994
(Unaudited)
CASH FLOWS FROM OPERATING
ACTIVITIES:
<S> <C> <C> <C> <C> <C>
Net income $ 830 $ 1,478 $ 5,633 $ 6,495 $ 4,494
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 443 420 1,451 1,267 1,214
Deferred income taxes (298) (2) (320) 318 (541)
Deferred pension costs (10) 65 (779) 550 23
Deferred postretirement
welfare benefits 148 244 1,100 844 1,439
Changes in assets and
liabilities:
Accounts receivable (5,723) 286 3,149 (641) (2,029)
Inventories (169) (263) 2,183 (1,285) 79
Prepaid expenses (144) (115) 84 (77)
Increase (decrease) in
liabilities:
Accounts payable (3,592) (4,980) (1,866) 2,885 2,281
Accrued expenses (1,493) (1,366) (964) (19) 930
Income taxes payable (591) 632 958 (631) 580
-----------------------------------------------------
* Net cash provided by
(used in) operating
activities (10,599) (3,601) 10,545 9,867 8,393
-----------------------------------------------------
CASH FLOWS FROM INVESTING
ACTIVITIES -
Payments for purchase of
property and equipment (108) (929) (6,579) (2,037) (838)
-----------------------------------------------------
CASH FLOWS FROM FINANCING
ACTIVITIES -
Receivable from/payable to
parent 10,707 4,532 (3,964) (7,861) (7,593)
-----------------------------------------------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 2 2 (31) (38)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 10 8 8 39 77
-----------------------------------------------------
CASH AND CASH EQUIVALENTS, END
OF PERIOD 10 10 10 8 39
=====================================================
SUPPLEMENTAL NONCASH FINANCING
ACTIVITY -
Dividend to parent $27,693
</TABLE>
* Restated to classify changes in receivable from/payable to parent as
financing activities rather than operating.
See notes to financial statements.
LASALLE STEEL COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994 AND
THE THREE MONTH PERIODS ENDING JANUARY 31,1997 AND 1996
- ------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS AND SALE
LaSalle Steel Company (the "Company"), a wholly owned subsidiary of
Quanex Corporation ("Quanex"), produces cold finished and special
purpose steel bar products. In its Hammond, Indiana and Griffith,
Indiana facilities, the Company produces cold finished bars and chrome
plated bars that satisfy exacting quality and metallurgical
specifications, using high quality hot finished steel bars. The
Company's products are sold directly to customers in the machinery,
industrial equipment, tooling, automotive, construction, material
handling and farm equipment markets and are used to produce items such
as clutch shafts, gear box shafts, ball joints, sprockets and drive
mechanisms. Over one-half of the Company's sales are to service centers
that supply the same industries. During years ended October 31, 1996,
1995 and 1994, sales to one customer accounted for $35,533,000,
$38,500,000 and $40,042,000, respectively, of total net sales.
On January 23, 1997, Quanex entered into a letter of intent for the sale
of the Company's stock to Niagara Corporation ("Niagara") for an
estimated purchase price of $67 million plus an additional amount for
Quanex's additional taxes to be paid in connection with the sale of
LaSalle. The sale is expected to close on or before March 31, 1997.
2. SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS - For purposes of the statement of cash flows,
the Company considers highly liquid investments purchased with a
maturity of three months or less to be cash equivalents. Income taxes
paid to Quanex during the years ended October 31, 1996, 1995 and 1994
totaled $3,173,000, $4,827,000 and $3,029,000, respectively.
INVENTORIES - Inventories are valued at the lower of cost or market.
Costs related to substantially all manufacturing inventories are
determined by the last-in, first-out ("LIFO") method (See Note 3).
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment is stated
at cost and is depreciated using the straight-line method over the
estimated useful lives of the assets. The estimated useful lives of
certain categories are as follows:
Years
Land improvements 10-25
Buildings 10-40
Machinery and equipment 3-18
Depreciation charged to cost of sales was $1,451,000, $1,267,000 and
$1,214,000 for the years ended October 31, 1996, 1995 and 1994,
respectively.
During 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed
Of." The statement establishes accounting standards related to the
impairment of long-lived assets, such as property, plant, equipment, and
intangibles. The Company will adopt SFAS No. 121 in fiscal 1997 and does
not expect a significant impact on its financial position or results of
operations.
INCOME TAXES - The Company is included in the consolidated income tax
return of Quanex. For financial reporting purposes, current and deferred
income tax expense has been computed for the Company as if it were a
separate taxpayer in accordance with SFAS No. 109, "Accounting for
Income Taxes." This statement requires the use of the asset and
liability approach for financial accounting and reporting for income
taxes (See Note 4).
USE OF ESTIMATES - The preparation of the financial statements requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amounts reflected in
the balance sheets for cash and cash equivalents, accounts receivable
and accounts payable approximate the respective fair values due to the
short maturities of those instruments.
ENVIRONMENTAL EXPENDITURES - Expenditures that relate to current
operations are expensed or capitalized, as appropriate. Expenditures
that relate to an existing condition caused by past operations, and
which do not contribute to future revenues, are expensed. Liabilities
are recorded when remedial efforts are probable and the costs can be
reasonably estimated. Such estimates are revised as additional
information becomes known.
INTERIM FINANCIAL STATEMENTS - The Company's interim financial
statements are unaudited, but include all adjustments which the Company
deems necessary for a fair presentation of its financial position and
results of operations. All such adjustments are of a normal recurring
nature. Results of operations for interim periods are not necessarily
indicative of results to be expected for the full year. All significant
accounting policies for these financial statements conform to those set
forth above for the audited financial statements for the years ended October
31, 1996, 1995 and 1994.
3. INVENTORIES
Inventories consist of the following:
- -----------------------------------------------------------------------------
1997 1996 1995 1994
(UNAUDITED) (IN THOUSANDS)
Inventories valued at lower of
cost (principally LIFO method)
or market:
Raw materials $8,435 $9,228 $12,407 $10,023
Work in process and finished
goods 14,831 13,858 12,683 13,701
Other 252 263 442 523
------- ------- ------- -------
Total $23,518 $23,349 $25,532 $24,247
======= ======= ======= =======
Replacement cost exceeded the LIFO value of inventory by approximately
$1,140,000 at October 31, 1995 and by $0 for all other periods
presented.
4. INCOME TAXES
Income tax expense (benefit) consists of the following:
OCTOBER 31,
----------------------------
1996 1995 1994
(In Thousands)
Current $ 3,932 $ 3,878 $ 3,425
Deferred (320) 318 (541)
----------------------------
Total $ 3,612 $ 4,196 $ 2,884
============================
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company's net deferred tax asset
are as follows:
OCTOBER 31,
-------------------------------
1996 1995 1994
(In Thousands)
Deferred tax assets:
Postretirement benefit obligations $10,761 $10,333 $10,004
Other employment benefit obligations 1,418 1,908 1,980
Other 362 396 329
------------------------------
12,541 12,637 12,313
==============================
Deferred tax liabilities:
Property, plant and equipment 1,767 1,703 1,644
Inventory 1,085 1,356 736
-------------------------------
2,852 3,059 2,380
-------------------------------
Net deferred tax asset 9,689 9,578 9,933
===============================
Income tax expense differs from the amount computed by applying the
statutory federal income tax rate to earnings before income taxes for the
following reasons:
OCTOBER 31,
----------------------------
1996 1995 1994
(In Thousands)
Income tax expense at statutory federal
tax rate $ 3,236 $ 3,742 $ 2,582
State income taxes, net of federal effect 362 421 289
Other 14 33 13
-----------------------------
Total $ 3,612 $ 4,196 $ 2,884
=============================
5. PENSION PLANS AND RETIREMENT BENEFITS
The Company sponsors a noncontributory defined benefit pension plan,
which covers substantially all hourly employees of the Company. The plan
pays benefits to employees at retirement using formulas based upon years
of service and job classification. Substantially all of the Company's
salaried employees are covered under a pension plan sponsored by Quanex.
This plan pays benefits to employees at retirement using formulas based
on years of service and compensation. The Company's funding policy is
generally to make the minimum annual contributions required by
applicable regulations.
The plans' funded status was as follows:
<TABLE>
<CAPTION>
Assets Exceed Accumulated Benefit
Accumulated Obligation
Benefit Exceeds
Obligation Assets
------------------------- -------------------------
October 31,
-----------------------------------------------------
1996 1995 1994 1996 1995 1994
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets available for benefits $ 6,709 $ 5,913 $ 5,192 $ 7,135 $ 5,012 $ 4,016
----------------------------------------------------
Projected benefit obligation
Vested (6,537) (5,299) (4,067) (8,800) (7,212) (6,336)
Nonvested (16) (40) (37) (1,605) (2,132) (1,263)
----------------------------------------------------
Accumulated benefit
obligation (6,553) (5,339) (4,104) (10,405) (9,344) (7,599)
Effect of future salary
increases (2,535) (2,270) (2,227) (167) (85) (173)
----------------------------------------------------
Total projected benefit
obligation (9,088) (7,609) (6,331) (10,572) (9,429) (7,772)
----------------------------------------------------
Assets less than projected
benefit obligation $(2,379) $(1,696) $(1,139) $(3,437) $(4,417) $(3,756)
=====================================================
Consisting of:
Amounts to be offset against
future pension costs:
Assets in excess of
obligation at adoption 192 218 234 68 92 116
Obligation (increase)
decrease due to plan
amendments 65 77 87 (1,827) (1,924) (2,065)
Actuarial gains (losses) (442) 40 582 (2,312) (2,275) (1,668)
Minimum liability
adjustment 3,906 4,022 3,444
Amounts recognized in
balance sheets:
Deferred pension credit (2,194) (2,031) (1,938) (3,272) (4,332) (3,296)
Accrued contribution to
pension funds (104) (287)
----------------------------------------------------
Total $(2,379) $(1,696) $(1,139) $(3,437) $(4,417) $(3,756)
=====================================================
</TABLE>
In accordance with the provisions of SFAS No. 87, the Company recorded
additional minimum pension liabilities as of October 31, 1996, 1995 and
1994, representing the excess of the accumulated benefit obligations
over the fair value of plan assets and accrued pension liabilities. The
Company recorded additional pension liabilities of $3,906,000,
$4,022,000 and $3,444,000, intangible assets of $1,827,000, $1,924,000
and $2,065,000; and stockholder's equity reductions, net of income
taxes, of $1,268,000, $1,280,000 and $841,000 at October 31, 1996, 1995
and 1994, respectively.
The projected unit credit method was used to determine the actuarial
present value of the accumulated benefit obligation and the projected
benefit obligation. For 1996, 1995 and 1994, the discount rates were
7.5%, 7.5% and 8.0%, respectively. The expected long-term rate of return
on assets was 10% each year for the three-year period ended October 31,
1996. The assumed rate of increase in future compensation levels was
4.5% in 1996 and 1995, and 5% in 1994. The plans invest primarily in
marketable equity and debt securities. Net pension costs for the
above-defined benefit plans were as follows:
YEARS ENDED OCTOBER 31,
-----------------------------
1996 1995 1994
(IN THOUSANDS)
Benefits earned during the year $ 889 $ 819 $ 808
Interest cost on projected benefit
obligation 1,337 1,172 906
Return on plan assets (1,411) (1,242) 36
Net amortization and deferral 511 488 (837)
-----------------------------
Total $ 1,326 $ 1,237 $ 913
=============================
Quanex has various defined contribution plans in effect which cover certain
eligible employees of the Company. The Company makes contributions to the
plan subject to certain limitations outlined in the plans. Contributions to
and amounts charged to compensation expense for these plans were
approximately $248,000, $244,000 and $148,000 during fiscal 1996, 1995 and
1994, respectively.
6. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides certain health care and life insurance benefits for
eligible retired employees. Employees may become eligible for those
benefits if they reach normal retirement age while working for the Company.
The Company continues to fund benefit costs on a pay-as-you-go basis; and,
for fiscal year 1996, the Company made benefit payments totaling
$1,109,000, compared to $1,268,000 and $875,000 in fiscal 1995 and 1994,
respectively.
The following table sets forth the funded status of the Company's projected
postretirement benefits other than pensions, reconciled with amounts
recognized in the Company's consolidated balance sheets at:
October 31,
---------------------------------
1996 1995 1994
(In Thousands)
Accumulated postretirement benefit
obligation:
Retirees $(13,876) $(16,097) $(15,082)
Fully eligible active plan
participants (2,958) (2,923) (2,704)
Other active plan participants (5,450) (7,060) (6,486)
---------------------------------
(22,284) (26,080) (24,272)
---------------------------------
Plan assets at fair value
Accumulated postretirement benefit
obligation in excess of plan assets (22,284) (26,080) (24,272)
Unrecognized prior service cost
(credit) (1,948) (2,153) (2,358)
Unrecognized net (gain) loss from
past experience different from
that assumed and from changes
in assumption (3,363) 1,738 979
---------------------------------
Accrued postretirement benefit cost (27,595) (26,495) (25,651)
=================================
October 31,
---------------------------------
1996 1995 1994
(In Thousands)
Net periodic postretirement benefit
cost:
Service cost - benefits attributed
to service during the period 397 384 497
Interest cost on accumulated
postretirement benefit
obligation 1,936 1,925 1,857
Net amortization and deferral (124) (197) (40)
---------------------------------
Net periodic postretirement benefit
cost 2,209 2,112 2,314
=================================
The assumed health care cost trend rate was 9.3% in 1996, decreasing
uniformly to 5.5% in the year 2003 and remaining level thereafter. The
assumed discount rate used to measure the accumulated postretirement
benefit obligation was 7.5%, 7.5% and 8.0% at October 31, 1996, 1995 and
1994, respectively.
The health care cost trend rate assumption has a significant effect on the
amount of the obligation and periodic cost recorded. For example, if the
health care cost trend rate assumptions were increased by 1%, the
accumulated postretirement benefit obligation as of October 31, 1996 would
be increased by 11.3%. The effect of this change on the sum of the service
cost and interest cost for the year ended October 31, 1996 would be an
increase of 12.1%.
7. RELATED PARTY TRANSACTIONS
The Company transfers all cash receipts, which are primarily collections
on customer accounts, to Quanex. Quanex transfers cash to the Company to
fund all payables, payroll, and other cash outflows of the Company. At
October 31, 1996, 1995 and 1994, the Company had recorded net
receivables from its parent of $22,986,000, $19,022,000 and $11,161,000,
respectively. In January 1997, the Company declared a dividend to its
parent in the amount of $27,693,000, which when taken in conjunction
with normal cash transfers from Parent for operations, gave rise to a
$15,414,000 payable to Parent at January 31, 1997.
Quanex allocates corporate charges for interest and capital usage to the
Company monthly based on 1.08% (13% on an annualized basis) of the prior
two months average equity balance. Amounts allocated in the years ended
October 31, 1996, 1995 and 1994 were $1,114,000, $770,000 and $1,240,000,
respectively.
The Company purchases certain raw materials from other
divisions/subsidiaries of Quanex. During the years ending October 31,
1996, 1995 and 1994, purchases from other Quanex divisions/subsidiaries
totaled $2,290,000, $2,134,000 and $2,956,000, respectively. Amounts
payable to other Quanex divisions/subsidiaries at October 31, 1996, 1995
and 1994 were $120,000, $183,000, and $131,000, respectively.
8. COMMITMENTS AND CONTINGENCIES
The Company is subject to extensive federal, state and local
environmental laws and regulations. These laws, which are constantly
changing, govern the discharge of materials in the environment and may
require the Company to make environmental expenditures on an on-going
basis. Environmental expenditures are expensed or capitalized depending
on their future economic benefit. Under applicable state and federal
laws, including the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended ("CERCLA"), also known as
"Superfund," the Company may be responsible for all or part of the costs
required to remove or remediate previously disposed of wastes or
hazardous substances at the locations the Company owns or operates or at
which it arranged for disposal of such materials. The Company's most
significant involvement at Superfund sites is described below.
During fiscal 1987, the Company paid approximately $200,000, of which
approximately $130,000 has subsequently been refunded by other
potentially responsible parties, in connection with a removal action at
the Conservation Chemical Co. of Illinois site in the State of Indiana
in accordance with an order of the Environmental Protection Agency (the
"EPA") pursuant to Section 106 of CERCLA. This matter relates to
hazardous substances sold to owners of the waste site by a company whose
assets were purchased by Quanex and transferred to the Company. The
Company was named in this matter by the EPA as a potentially responsible
party. The Company and other parties named by the EPA as potentially
responsible parties took various actions to comply with the EPA's order.
The Company believes that the response actions contemplated by the EPA
removal order have been substantially completed. In 1989, the Company
withdrew from the group of potentially responsible parties because its
only connection to the site was the purchase of assets, without
contractually assuming liabilities, from a company that allegedly sent
waste to the site. Since that time, the Company has had no involvement
with the site. The need for, or extent of, any further cleanup therefore
is unknown by the Company. Even if the Company is unsuccessful in
asserting its defenses, it was one of numerous parties contributing
cleanup funds and it has no reason to believe that those other parties
generally would not be able to pay costs apportioned to them. For all of
these reasons, the Company does not believe that its liability, if any,
with respect to this facility, will have a material adverse effect on
its business or financial position.
The EPA has placed on the Superfund National Priorities List the Lenz
Oil site in the State of Illinois to which a company, whose assets were
purchased by Quanex and transferred to the Company, had previously sent
used petroleum products. The State of Illinois previously had sent a
letter to the Company allegedly stating that those materials had been
disposed of improperly at that site. The Company, in conjunction with a
group of parties who received similar letters, entered into a consent
decree pursuant to which action was taken to address the matters
referred to in the letter from the State of Illinois. The Company paid
approximately $8,000 out of a $2.5 million group settlement. The Company
is currently participating in a group that is assessing site conditions
and further remediation options. Further liability could be asserted
against the Company as a result of the EPA's actions. The company that
sold its assets to Quanex is one of many companies that had sent
materials to this facility. It is Quanex's understanding that such
company contributed approximately 0.041% of the total volume of
materials handled at this facility. The Company has no reason to believe
that the other companies involved will not be financially able to contribute
to any possible future cleanup efforts at this site, or that the basis for
allocation of liability will substantially change. As a result of the
foregoing, the Company does not believe that its liability, if any, with
respect to this facility, will have a material adverse effect on its
business or financial position.
The EPA also has placed on the National Priorities List the
Douglasville, or Berks Associates, Disposal Site in the Commonwealth of
Pennsylvania to which the Company may have sent used petroleum products.
The EPA currently is administering a multistage cleanup at the site.
Liability has been asserted against the Company by a group of
potentially responsible parties for contribution toward cleanup costs
incurred at the facility. It is the Company's understanding that many
companies sent wastes to this site and that the Company is alleged to
have contributed a tiny portion of the total materials. The group of
defendants and third-party defendants include a number of large
companies and several agencies of the federal government that the
Company has no reason to believe will not be financially able to
contribute their expected share. These parties have expressed a
willingness to participate in settlement efforts. Pursuant to settlement
negotiations, the Company currently is classified as a de minimis
contributor with a 0.01% share of past costs and a 0.00071% share of
future costs. The Company anticipates that its pro-rata share of the
federal government's costs will not exceed $10,000. Based on the
foregoing, the Company does not believe that its liability, if any, with
respect to this site, will have a material adverse effect on its
business or financial position.
******
(b) Pro Forma Financial Information.
Unaudited Pro Forma Consolidated Financial Statements
of Niagara, NCD and LaSalle.
NIAGARA CORPORATION (NIAGARA),
NIAGARA COLD DRAWN CORP. (NCD) AND
LASALLE STEEL COMPANY (LASALLE)
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
==========================================================================
The unaudited pro forma consolidated balance sheet as of March 31, 1997 and
the unaudited pro forma consolidated statements of operations for the year
ended December 31, 1996 and the three months ended March 31, 1997 include
the accounts of Niagara and LaSalle for the respective periods. The
Acquisition is accounted for as an acquisition of the capital stock of
LaSalle by Niagara's subsidiary, NCD, under the purchase method of
accounting. The unaudited pro forma financial statements have been prepared
to illustrate the estimated effects of the Acquisition. The pro forma
financial statements were derived by adjusting the historical financial
statements of Niagara and LaSalle for certain transactions pursuant to the
Acquisition described in the notes to the unaudited pro forma financial
statements.
The historical financial statements of LaSalle were provided by LaSalle's
former parent, Quanex Corporation ("Quanex"), and, as discussed in Note 4
to the unaudited proforma consolidated balance sheet, are subject to review
by Niagara and NCD. Pursuant to the LaSalle stock purchase agreement, any
item disputed by Niagara and NCD is subject to binding arbitration by an
independent accounting firm.
The unaudited pro forma consolidated balance sheet was prepared as if the
Acquisition had occurred on March 31, 1997. The unaudited pro forma
consolidated statements of operations for the year ended December 31, 1996
and the three months ended March 31, 1997 were prepared as if the
Acquisition had occurred on January 1, 1996. The 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.
The pro forma financial data should be read in conjunction with the
financial statements of Niagara and LaSalle.
<TABLE>
<CAPTION>
Niagara Corporation (Niagara),
Niagara Cold Drawn Corp. (NCD) and
LaSalle Steel Company (LaSalle)
Unaudited Pro Forma Consolidated Balance Sheet
(in thousands)
Pro forma adjustments
Niagara ----------------------- Pro Forma
March 31, 1997 consolidated LaSalle Debit Credit consolidated
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Current:
Cash and cash equivalents $ 1,230 $ 10 $ 66,250(1) $ 18,454(2) $ 3,536
20,000(3) 65,500(4)
Accounts receivable, net 10,198 19,030 29,228
Inventories 14,177 24,258 38,435
Deferred income taxes - 37 37(2) -
Other current assets 258 121 379
Total current assets 22,863 43,456 86,250 83,991 71,578
Property, plant and equipment, net 21,693 16,189 53,985(4) 91,867
Deferred income taxes - 10,357 10,357(4) -
Goodwill on prior acquisition 2,530 - 2,530
Intangible assets - - 9,552(4) 9,552
Other assets, net 1,096 1,767 1,565(5) 291(4) 2,370
1,767(4)
- ---------------------------------------------------------------------------------------------------
$ 51,182 $ 71,769 $151,352 $ 96,406 $177,897
===================================================================================================
Liabilities and stockholders' equity
Current:
Trade accounts payable $ 5,913 $ 19,937 $ 25,850
Accrued expenses and other
liabilities 5,264 5,143 1,459(4) 13,931
500(4)
1,565(5)
Income taxes payable - 50 50
Due to Quanex (income taxes
payable) - - 580(6) 580
Due to Quanex (post-closing
adjustment) - - 1,574(4) 1,574
Current maturities of long term
debt (new facility) - - 1,000(1) 1,000
Current maturities of long term
debt (prior facility) 1,549 1,549(2) -
Deferred income taxes 211 - 211
- ---------------------------------------------------------------------------------------------------
Total current liabilities 12,937 25,130 1,549 6,678 43,196
Payable to Quanex - 12,341 12,341(6) -
Deferred post retirement welfare
benefits and pension credits - 32,501 5,027(4) 27,474
Revolver debt (new facility) - - 26,250(1) 26,250
Term Loan (new facility) - - 39,000(1) 39,000
Senior subordinated debt - - 1,321(3) 20,000(3) 18,679
Long-term debt, less current
maturities (prior
facility) 16,905 - 16,905(2) -
Long-term debt, other 1,909 637 2,546
Deferred income taxes 3,554 - 3,554
- ---------------------------------------------------------------------------------------------------
Total liabilities 35,305 70,609 37,143 91,928 160,699
- ---------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock 4 1 1(4) 4
Additional paid-in capital 15,560 - 11,761(4) 1,321(3) 16,881
11,761(6)
Retained earnings 313 2,409 2,409(4) 313
Adjustment for minimum pension
liability - (1,250) 1,250(4) -
- ---------------------------------------------------------------------------------------------------
Total stockholders' equity 15,877 1,160 14,171 14,332 17,198
- ---------------------------------------------------------------------------------------------------
$ 51,182 $ 71,769 $ 51,314 $ 106,260 $ 177,897
- ---------------------------------------------------------------------------------------------------
</TABLE>
NIAGARA CORPORATION (NIAGARA),
NIAGARA COLD DRAWN CORP. (NCD) AND
LASALLE STEEL COMPANY (LASALLE)
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
=========================================================================
1. Represents cash received of $66,250 under a revolving credit and term
loan agreement entered into in connection with the Acquisition
(consisting of a revolving credit loan of $26,250 and a term loan of
$40,000 ($1,000 current and $39,000 long term)).
2. Represents the repayment of NCD's prior senior indebtedness.
3. Represents cash received ($20,000) from the issuance, in connection
with the Acquisition, of NCD senior subordinated debt and 285,715
shares of Niagara common stock.
4. Represents the sum of (i) the $67,074 purchase price for the
Shares (estimated purchase price of $65,500 paid at closing plus a
post-closing adjustment due Quanex of $1,574), (ii) estimated
accrued professional fees of $1,750 ($291 of which is included in
other assets and accrued expenses of Niagara at March 31, 1997) and
(iii) estimated liability for personnel restructuring of $500. This
sum ($69,324) exceeds LaSalle's stockholders' equity of $12,921 as
of March 31, 1997 (which equity includes a loan from Quanex of
$11,761 converted to additional paid-in capital as a result of the
Acquisition) by $56,403. This excess is allocated to property, plant
and equipment ($53,985- based on appraisal of LaSalle's property,
plant and equipment of $70,174), intangible assets primarily
consisting of LaSalle's proprietary processes, patents and
trademarks ($9,552), the elimination of intangibles relating to
LaSalle's pension plan ($1,767), the elimination of net deferred
income taxes ($10,394) and the reduction of LaSalle's deferred post
retirement welfare benefits and pension obligations ($5,027-which is
subject to actuarial appraisal).
Pursuant to the LaSalle stock purchase agreement, the post closing
adjustment ($1,574) is based on the balance sheet of LaSalle as of
March 31, 1997 (Closing Balance Sheet). On July 2, 1997, Niagara and
NCD submitted to Quanex a statement disputing the amounts reflected
on the Closing Balance Sheet for inventory reserves, doubtful
account allowances and certain accrued expenses and reserves, in the
aggregate amount of $2,136,584. Any disputes between Niagara and
Quanex concerning such financial statements are subject to binding
arbitration by an independent accounting firm. There is no assurance
that these disputed items will be resolved in favor of Niagara and
NCD.
5. Represents the accrual of finance and placement fees of $1,565
incurred in connection with the Acquisition.
6. Represents the reclassification of LaSalle's loan to Quanex
($12,341) to income taxes payable ($580) and to additional paid-in
capital ($11,761).
<TABLE>
<CAPTION>
Niagara Corporation (Niagara),
Niagara Cold Drawn Corp. (NCD) and
LaSalle Steel Company (LaSalle)
Unaudited Pro Forma Consolidated Statement of Operations
(in thousands, except per share amounts)
Pro forma adjustments
Niagara ----------------------- Pro Forma
Year ended December 31, 1996 consolidated LaSalle Debit Credit consolidated
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $ 76,827 $158,750 $235,577
Cost of products sold 65,824 141,356 207,180
- ------------------------------------------------------------- ------------
Gross profit 11,003 17,394 28,397
Operating expenses:
Selling, general and
administrative 8,014 8,227 3,247(1) 19,588
100(2)
- ------------------------------------------------------------- ------------
Income from operations 2,989 9,167 8,809
Other income (expense):
Interest income 100 0 100
Interest expense (1,536) (1,167) 5,833(3) (8,536)
Other 126 0 126
- ------------------------------------------------------------- ------------
Income before income taxes 1,679 8,000 499
Taxes on income 615 3,127 3,547(4) 195
- ------------------------------------------------------------- ------------
Net income for the period $ 1,064 $4,873 $ 9,180 3,547 304
======================================================================================================
Net income per share $ 0.30 $ 0.08
======================================================================================================
Weighted average common shares
outstanding 3,602,818 3,887,818(5)
======================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Niagara Corporation (Niagara),
Niagara Cold Drawn Corp. (NCD) and
LaSalle Steel Company (LaSalle)
Unaudited Pro Forma Consolidated Statement of Operations
(in thousands, except per share amounts)
Pro forma adjustments
Niagara ----------------------- Pro Forma
Three Months ended March 31, 1996 consolidated LaSalle Debit Credit consolidated
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $ 21,185 $ 44,249 $ 65,434
Cost of products sold 18,168 39,365 57,533
- ------------------------------------------------------------- ------------
Gross profit 3,017 4,884 7,901
Operating expenses:
Selling, general and
administrative 2,078 2,456 812(1) 5,371
25(2)
- ------------------------------------------------------------- ------------
Income from operations 939 2,428 3,530
Other income (expense):
Interest income 14 0 14
Interest expense (397) (467) 1,458(3) (2,322)
- ------------------------------------------------------------- ------------
Income before income taxes 556 1,961 222
Taxes on income 206 771 890(4) 87
- ------------------------------------------------------------- ------------
Net income for the period $ 350 $ 1,190 $ 2,295 $ 890 135
=======================================================================================================
Net income per share $ 0.10 $0.03
=======================================================================================================
Weighted average common shares
outstanding 3,668,750 3,953,750(5)
=======================================================================================================
</TABLE>
NIAGARA CORPORATION (NIAGARA),
NIAGARA COLD DRAWN CORP. (NCD) AND
LASALLE STEEL COMPANY (LASALLE)
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
===========================================================================
1. Represents additional depreciation and amortization on property,
plant, equipment and intangible assets of $3,247 for the year ended
December 31, 1996 and $812 for the three months ended March 31,
1997. This is based on an estimated 40-year life on buildings,
14-year life on machinery and equipment, and 15-year life on
intangible assets.
2. Represents additional consulting fees of $100 for the year ended
December 31, 1996 and $25 for the three months ended March 31, 1997
incurred in connection with the Acquisition.
3. Represents additional interest expense of $5,833 for the year ended
December 31, 1996 and $1,458 for the three months ended March 31,
1997 on the debt incurred in connection with the Acquisition.
4. Represents consolidated income tax provision at an effective tax
rate of 39% on income before taxes.
5. Weighted average Niagara common shares outstanding used in the
calculation of earnings per share have increased by 285,715
reflecting the shares issued in connection with the Acquisition.
SIGNATURE
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 hereunto duly authorized.
NIAGARA CORPORATION
By: /s/ MICHAEL SCHARF
-----------------------------------
Name: Michael Scharf
Title: President
Date: October 27, 1997
