SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
--------------------
FORM 10-K
(MARK ONE)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____________ to _________________
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 NO.)
667 MADISON AVENUE, NEW YORK, NEW YORK 10021
-------------------------------------- -----
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) ZIP CODE
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 317-1000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
TITLE OF EACH CLASS
COMMON STOCK, $.001 PAR VALUE
UNITS, CONSISTING OF COMMON STOCK AND WARRANTS
WARRANTS TO PURCHASE COMMON STOCK
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
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS
PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL
NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE
PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF
THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. YES X NO
AS OF MARCH 27, 1997, THE AGGREGATE MARKET VALUE OF THE VOTING
STOCK HELD BY NON-AFFILIATES OF THE REGISTRANT WAS APPROXIMATELY
$14,280,031 (ASSUMES OFFICERS, DIRECTORS AND ALL STOCKHOLDERS HOLDING 5%
OF THE OUTSTANDING SHARES ARE AFFILIATES).
THERE WERE 3,668,750 SHARES OF THE REGISTRANT'S COMMON STOCK
OUTSTANDING AS OF MARCH 27, 1997.
DOCUMENTS INCORPORATED BY REFERENCE: PORTIONS OF THE
REGISTRANT'S PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE
HELD ON MAY 29, 1997 ARE INCORPORATED BY REFERENCE INTO PART III (ITEMS
10, 11, 12 AND 13) HEREOF.
PART I
ITEM 1. BUSINESS.
Niagara Corporation, formerly International Metals Acquisition
Corporation ("Niagara"), a Delaware corporation, 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. ("Niagara Cold Drawn,"
and together with Niagara, the "Company"), a manufacturer of cold drawn
steel bars, providing for the purchase by Niagara of all outstanding
shares of common and preferred stock of Niagara Cold Drawn for
$10,744,045 in cash. This acquisition was consummated on August 16,
1995.
On January 31, 1996, Niagara Cold Drawn 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, Niagara Cold Drawn purchased all
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. In connection with this acquisition, Niagara Cold
Drawn discharged $8,518,691 of Southwest indebtedness and Niagara
guaranteed $898,000 of Southwest indebtedness. On November 1, 1996,
Southwest was merged into Niagara Cold Drawn.
On January 23, 1997, Niagara entered into a letter of intent to
purchase all of the issued and outstanding shares of LaSalle Steel
Company, a wholly owned subsidiary of Quanex Corporation. Consummation of
the proposed transaction is subject to the satisfaction of certain
conditions including, among others, the satisfactory completion of the
Company's due diligence review and the negotiation and execution of a
mutually acceptable stock purchase agreement.
Since Niagara, as a result of the acquisition of Niagara Cold
Drawn in August 1995 and Niagara Cold Drawn's acquisition of Southwest in
January 1996, is engaged in substantive commercial activity through
Niagara Cold Drawn, the description of the Company's business relates to
the operations of Niagara Cold Drawn.
OVERVIEW
Niagara Cold Drawn manufactures cold drawn steel bars through a
process in which hot rolled steel bars (the raw material for cold drawn
steel bars) are descaled, drawn, straightened and cut to specific
lengths. This process produces steel bars with uniform shape, close size
tolerances, enhanced strength characteristics, improved machinability and
clean, scale-free surfaces. These characteristics are essential for many
industrial applications such as tooling and mechanical shafting. Niagara
Cold Drawn manufactures round bars, ranging from one-quarter inch to six
inches in diameter, and rectangular, square and hexagonal bars in a
variety of sizes, the majority of which are drawn in sizes one-quarter
inch to six inches thick and up to fifteen inches wide. The production of
these flat bars generally requires greater technical skill than the
production of round bars.
Niagara Cold Drawn sells its products primarily to steel service
centers, which account for approximately 80% of sales, with the balance
of sales to original equipment manufacturers ("OEMs"). Steel service
centers purchase and warehouse large quantities of standardized steel
products which are then sold directly to OEMs. OEMs use cold drawn steel
bars in a wide range of products, including in the manufacture of machine
and engine parts, tooling, transmission components, mechanical shafts and
other products.
The manufacture of cold drawn steel bars involves several steps.
Hot-rolled steel bars are cleaned of mill scale by a process that
involves shotblasting the surface of the bars with hardened steel shot.
After shotblasting, the bars are mechanically drawn, or pulled, through a
tungsten carbide die containing an orifice one-sixteenth of an inch
smaller in cross-section than the size of the hot-rolled bar. Drawing the
hot-rolled steel bar in this manner elongates the bar and creates a
quality micro-finished surface. The bars are then cut to length, either
by shearing or sawing, depending on the size of the bar and the
requirements for accuracy, and are then straightened. As additional
steps, bars may be turned and ground to very close tolerance levels.
Niagara Cold Drawn's facilities operated at approximately 70% of capacity
in 1996.
CUSTOMERS
Niagara Cold Drawn has two primary types of customers for cold
drawn steel bars: steel service centers and OEMs. Niagara Cold Drawn
concentrates its sales efforts on steel service centers, which purchase
relatively standardized products on a regular basis.
Niagara Cold Drawn has approximately 250 active customers in the
United States and Canada and is not dependent upon any one geographical
market. As of December 31, 1996, Niagara Cold Drawn's ten largest
customers (by tons shipped) represented approximately 75% of sales.
Niagara Cold Drawn's three largest customers during 1996 represented
approximately 43% of sales; loss of any of the three largest customers
would have a material adverse effect on sales.
MARKETING
Niagara Cold Drawn markets its products through salaried
in-house sales personnel and sales representatives compensated on a
commission-only basis. Such sales representatives and in-house personnel
cover approximately 90% of the U.S. and certain regions of Canada.
STRATEGY
Niagara Cold Drawn's business strategy focuses on improving
product quality and customer service and maintaining strict cost
controls. It seeks to obtain a competitive advantage through its ability
to supply customers on a timely basis with a range of sizes and shapes of
high quality cold drawn steel bars. In this regard, Niagara Cold Drawn
maintains inventories of the most commonly ordered sizes and shapes and
seeks to maintain inventories at levels appropriate to demand. The
existence of this stock inventory often allows Niagara Cold Drawn to ship
product, if necessary, on the same day that an order is received. Because
Niagara Cold Drawn produces commodity-type products, backlog is not
significant.
SUPPLY
Niagara Cold Drawn purchases raw material, which consists of
hot-rolled steel bars, from integrated steel mills and mini-mills. The
cost of hot-rolled steel bars is primarily dependent on the price of
scrap steel. Since the price of scrap steel is subject to substantial
price fluctuations, the price of hot-rolled steel bars is subject to
similar fluctuations. Niagara Cold Drawn procures raw material from both
domestic and foreign suppliers and is generally able to pass along to
customers increases in the price of hot-rolled steel.
COMPETITION
The cold drawn steel bar market is highly competitive, based on
price, product quality and customer service. Niagara Cold Drawn's
strategy is to seek to remain competitive on price and surpass its
competitors in product quality and customer service. Its principal
competitors are domestic companies.
The cold drawn steel industry allocates freight costs among
suppliers and customers based on an "equalizing" system whereby the
customer pays freight cost equal to that of the nearest supplier. Niagara
Cold Drawn's three manufacturing facilities (located in Buffalo, New
York; Chattanooga, Tennessee; and Midlothian, Texas) provide close
proximity to many customers and rapid delivery.
Niagara Cold Drawn competes in a narrow segment of the steel
industry, but its business is affected by conditions within the broader
steel industry and in particular the automotive and machine tool
industries. Consequently, a significant downturn in the broader steel
industry (which generally results from a downturn in the U.S. economy as
a whole) or the automotive or machine tool industries may result in a
similar downturn in the cold drawn steel bar market and have an adverse
effect on the Company.
EMPLOYEES
Niagara Cold Drawn employs approximately 275 non-unionized
persons and believes that its relationship with employees is good.
ITEM 2. PROPERTIES.
Niagara
Niagara utilizes approximately 5,000 square feet of headquarters
space in New York, New York under a lease expiring in March 2001.
Niagara Cold Drawn
Niagara Cold Drawn operates manufacturing facilities in Buffalo,
New York; Chattanooga, Tennessee; and Midlothian, Texas. Niagara Cold
Drawn owns the 195,000 square-foot Buffalo facility, leases the 92,000
square-foot Chattanooga facility and owns the 115,000 square foot
facility in Midlothian, Texas. The Chattanooga lease expires in May 1998,
at which time Niagara Cold Drawn has an option to purchase such property
for $1,250,000. Management considers these facilities, which operated at
approximately 70% of capacity in 1996, suitable for its current
operations.
ITEM 3. LEGAL PROCEEDINGS.
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 in the Supreme Court of the State of New York, Erie
County, captioned Niagara Cold Drawn Corp. v. Handrahan, et al., against
such stockholders relating to these claims. The claims alleged by Niagara
Cold Drawn include, among others, that the sellers inaccurately
represented the value of Southwest's inventory and breached other
representations, warranties, and covenants in the Southwest stock
purchase agreement. The defendants have denied liability in their answer.
On June 28, 1996, this action was removed to the U.S. District Court for
the Western District of New York. 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 (otherwise due on January 31, 1997) under the terms of the
promissory notes issued to such individuals in connection with the
acquisition. This action is currently at the discovery stage. Joseph
Handrahan, a former Southwest stockholder and a defendant in this action,
is a Vice President of Niagara Cold Drawn.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Niagara's Common Stock is traded on the Nasdaq National Market.
Until October 15, 1995, such stock was quoted on the OTC Bulletin Board,
a National Association of Securities Dealers, Inc. sponsored and operated
inter-dealer automated quotation system for equity securities not
included in the Nasdaq System. Such over-the-counter market quotations
reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not necessarily reflect actual transactions.
HIGH LOW
1995
January 1 through March 31........ 5 1/4 4 3/4
April 1 through June 30 .......... 5 1/4 4 7/8
July 1 through September 30....... 6 1/4 5
October 1 through December 31..... 5 1/2 4
1996
January 1 through March 31........ 7 4 1/4
April 1 through June 30 .......... 6 5/8 4 3/8
July 1 through September 30....... 6 1/2 4 1/4
October 1 through December 31..... 5 1/8 3 7/8
1997
January 1 through March 27........ 6 1/4 4 7/16
As of March 27, 1997, there were 31 registered holders of
Niagara's Common Stock and 19 registered holders of warrants to purchase
such stock.
Niagara has not declared or paid any dividends on its Common
Stock since its inception. The payment of dividends is conditioned on
Niagara's earnings, which are dependent on the earnings of its
subsidiary, capital requirements and general financial condition.
Pursuant to its working capital facility, Niagara Cold Drawn is subject
to restrictions on its ability to declare dividends to Niagara. See
"Management's Discussion and Analysis of Results of Operations and
Financial Condition -- Liquidity and Capital Resources."
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1994 1995(1) 1996(2)
(in thousands, except per share data)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C>
Net sales................................ $ -- $ 17,455 $ 76,827
Cost of products sold.................... -- 15,421 65,824
Gross profit............................. -- 2,034 11,003
Selling, general and administrative
expenses.............................. -- 1,805 8,014
Interest income.......................... 601 628 100
Other income............................. -- -- 126
Interest expense......................... -- 272 1,537
Income taxes (recovery).................. (6) 240 615
Net income (loss)........................ (1,215) 344 1,064
Net income (loss) per share.............. $ (.35) $ .10 $ .30
Weighted average common shares
outstanding........................... 3,500 3,500 3,603
AT DECEMBER 31,
-------------------------------------------------
1994 1995 1996
----- ---- ----
(in thousands)
BALANCE SHEET DATA:
Cash and cash equivalents................ $ 937 $ 2,187 $ 1,588
U.S. Government securities deposited
in trust fund and accrued interest
thereon................................ 14,684 -- --
Trade accounts receivable................ -- 4,239 5,953
Inventories.............................. -- 14,744 14,446
Property, plant and equipment, net....... -- 12,745 21,649
Goodwill, net............................ -- -- 2,543
TOTAL ASSETS............................. 15,640 34,593 47,348
Trade accounts payable................... -- 4,787 4,110
Accrued expenses......................... -- 3,212 3,690
Accrued workmen's compensation........... -- 517 480
Current maturities of long-term debt..... -- 733 1,662
Long-term debt, less current maturities.. -- 6,969 18,075
Deferred income taxes.................... -- 3,914 3,805
TOTAL LIABILITIES........................ 1,522 20,131 31,821
Common Stock subject to possible
redemption............................ 2,935 -- --
STOCKHOLDERS' EQUITY .................... 11,183 14,462 15,526
</TABLE>
- ---------------
(1) Includes the results of Niagara Cold Drawn for the period from
August 17, 1995 to December 31, 1995.
(2) Includes the results of Niagara Cold Drawn for the entire year,
and the results of Southwest from February 1, 1996.
<TABLE>
<CAPTION>
NIAGARA COLD DRAWN CORP. (PREDECESSOR COMPANY)
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
1992 1993 1994 1995(1) 1996(2)
---- ---- ---- ---- ----
(in thousands)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Net sales............................. $33,028 $37,533 $46,624 $51,740 $76,827
Cost of products sold................. 23,398 32,184 40,546 44,030 65,824
Gross profit.......................... 4,630 5,349 6,078 7,710 11,003
Selling, general and administrative
expenses.............................. 3,225 3,788 4,065 4,494 7,449
Employment expense -
management options................. -- -- -- 1,666 --
Operating income...................... 1,405 1,561 2,013 1,550 3,554
Other Income -- -- -- 17 152
Interest expense...................... 673 636 711 771 1,537
Income before income taxes and
cumulative effect of chane in
accounting for income taxes......... 732 925 1,302 795 2,169
Income taxes.......................... 282 361 480 270 855
Cumulative effect of change in ac-
counting for income taxes........... 117 -- -- --
Net income............................ $ 567 $ 564 $ 822 $ 525 $ 1,314
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, AUGUST 16,
---------------------------------------------------- -----------
1992 1993 1994 1995(3)
---- ---- ---- ----
(in thousands)
BALANCE SHEET DATA:
<S> <C> <C> <C> <C>
Current assets.............................. $ 8,760 $ 10,325 $ 13,533 $ 18,257
Current liabilities......................... 4,428 5,625 8,427 11,118
Working capital............................. 4,332 4,700 5,106 7,139
Property plant and equipment, net .......... 6,846 6,838 6,810 6,829
Total assets................................ 15,643 17,179 20,355 25,103
Long-term debt and capital lease
obligations (excluding current portion).. 6,546 6,320 6,088 6,266
Total liabilities........................... 11,799 12,850 15,365 17,384
Redeemable preferred stock.................. 585 560 453 251
Stockholders' equity........................ $ 3,259 $ 3,769 $ 4,537 $ 6,268
</TABLE>
(1) - Derived from combining results of operations prior to acquisition by
Niagara (January 1 to August 16, 1995) with results from after such
acquisition (August 17 to December 31, 1995).
(2) - Includes the results of Southwest from February 1, 1996.
(3) - Acquisition date by Niagara.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
OVERVIEW
Niagara was organized on April 27, 1993 with the objective of
acquiring an operating business 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 providing for the purchase by Niagara of all
outstanding shares of common and preferred stock of Niagara Cold Drawn
for $10,744,045 in cash. This acquisition was consummated on August 16,
1995.
On January 31, 1996, Niagara Cold drawn entered into a stock
purchase agreement with the stockholders of Southwest pursuant to which,
and simultaneously therewith, Niagara Cold Drawn purchased all
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. In connection with this acquisition, Niagara Cold
Drawn discharged $8,518,691 of Southwest indebtedness and Niagara
guaranteed $898,000 of Southwest indebtedness. On November 1, 1996,
Southwest was merged into Niagara Cold Drawn.
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.
On January 23, 1997, Niagara entered into a letter of intent to
purchase all of the issued and outstanding shares of LaSalle Steel
Company, a wholly owned subsidiary of Quanex Corporation. Consummation of
the proposed transaction is subject to the satisfaction of certain
conditions including, among others, the satisfactory completion of the
Company's due diligence review and the negotiation and execution of a
mutually acceptable stock purchase agreement.
Niagara is engaged in substantive commercial activity only
through its wholly owned subsidiary, Niagara Cold Drawn, and the
following comparison of results of operations relates solely to Niagara
Cold Drawn's operations. Such results include the results of operations
of Southwest since February 1, 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH DECEMBER 31, 1995
Net sales for the twelve months ended December 31, 1996 were
$76,827,165, an increase of $25,087,414 or 48.5% over the same period in
1995. This increase was primarily due to sales attributable to Southwest.
Cost of sales for the twelve months ended December 31, 1996 was
$65,824,190, an increase of $21,794,557 or 49.5% over the same period in
1995. This increase was attributable to increased volume following the
acquisition of Southwest. Gross margins for the twelve months ended
December 31, 1996 decreased by 0.6% over the same period in 1995 due to
pricing pressures.
Selling (absent freight), general and administrative expenses
(absent management charges and bonuses) increased $2,029,753 to
$5,036,332 or 6.6% of sales in the twelve months ended December 31, 1996
compared to 5.8% for the same period in 1995. This increase was caused by
increased costs associated with the increased volume, increased Canadian
goods and services taxes and duties resulting from increased Canadian
sales and increased depreciation and amortization associated with the
step-up in basis of Niagara Cold Drawn's fixed assets.
Interest expense increased $765,445 to $1,536,717 primarily due
to higher levels of borrowing incurred in financing the acquisition of
Southwest.
Net income for the twelve months ended December 31, 1996 was
$1,314,218, an increase of $788,841 or 150.2% from the same period in
1995. This increase was due primarily to the inclusion of Niagara Cold
Drawn's results for a full year.
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH DECEMBER 31, 1994
Net sales for the twelve months ended December 31, 1995 were
$51,739,751, an increase of $5,116,114 or 11.0% over the same period in
1994. Of the 11.0% increase, 7.1% was attributable to increased volume
with the balance attributable to improved pricing.
Cost of sales for the twelve months ended December 31, 1995 was
$43,967,359, an increase of $3,421,425 or 8.4% over the same period in
1994. This increase was attributable to increased volume. Gross margins
increased approximately 2.0%, primarily as a result of improved pricing,
a more favorable product mix and reduced last-in first-out ("LIFO")
impact.
Selling (absent freight), general and administrative expenses
(absent management fees and administrative bonuses) increased
approximately $131,000 to $2,923,000 or 5.7% of sales in the twelve
months ended December 31, 1995 compared to 6.0% for the same period in
1994. This increase was caused by increased commission expenses,
increased salaries and increased Canadian goods and services taxes and
duties resulting from increased Canadian sales.
Interest expense increased $59,854 to $771,272 due to higher
levels of borrowing.
Net income for the twelve months ended December 31, 1995 was
$525,377, a decrease of $296,222 or approximately 36.1% from the same
period in 1994. Income before taxes was adversely affected by $1,666,327
in expenses related to management exercise of stock options, $235,000
primarily as a result of depreciation and amortization related to the
pushdown of the fair value of acquired assets and $130,000 in increased
management fees.
LIQUIDITY AND CAPITAL RESOURCES
Niagara'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 the facilities, machinery and equipment of
Niagara Cold Drawn. Net capital expenditures for the year ending December
31, 1996 (after proceeds from the sale of Southwest's Tulsa facilities)
were $3,867,944 compared to $807,768 for the same period in 1995. The
increase in expenditures was largely due to the construction of the
facility in Midlothian, Texas, which became operational in late 1996.
Working capital of the Company at December 31, 1996 and 1995 was
$12,087,913 and $11,885,476, respectively. At December 31, 1996, Niagara
Cold Drawn had a $5,146,579 balance under its revolving credit agreement
with Manufacturers and Traders Trust Company ("M&T") and $8,853,421 in
available credit thereunder.
On January 31, 1996, Niagara Cold Drawn acquired all the
outstanding capital stock of Southwest. This acquisition was financed
pursuant to credit agreements (the "Credit Agreements") entered into with
M&T on January 31, 1996 by Niagara Cold Drawn (and guaranteed by
Niagara). Among these were: (i) a $12,000,000 Term Loan Agreement (the
"Term Loan Agreement") and (ii) a $14,000,000 Amended and Restated
Revolving Credit Agreement (the "Revolving Credit Agreement"). In
connection with the execution of the Credit Agreements, Niagara Cold
Drawn terminated its existing term loan facility with M&T, and Southwest
terminated its existing bank credit agreements.
The Credit Agreements are guaranteed by Niagara and secured by
substantially all of the assets of Niagara Cold Drawn. These agreements
carry restrictions on, among other things, capital expenditures,
dividends and changes in control and management of Niagara Cold Drawn and
require minimum levels of net worth through maturity. Niagara Cold Drawn
is currently in compliance with these provisions.
The Term Loan Agreement 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 made pursuant to the Revolving Credit Agreement are based on a
percentage of eligible accounts and inventory and will mature on January
31, 1999. The interest rate on each loan is 2.25% above the applicable
LIBOR rate. Monthly interest payments commenced on March 1, 1996.
Loan proceeds pursuant to the Credit Agreements were used to
consummate the acquisition of Southwest, to repay and discharge certain
indebtedness of Southwest and Niagara Cold Drawn, for certain acquisition
expenses, to finance the completion of Niagara Cold Drawn's Midlothian,
Texas facility and for general corporate purposes.
RECENT ACCOUNTING CHANGES
In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share
("SFAS 128") which provides a different method of calculating earnings
per share than is currently used in accordance with APB 15. SFAS 128
provides for the calculation of basic and diluted earnings per share.
Basic earnings per share is computed by dividing income available to
common shareholders by the weighted average number of shares outstanding
for the period. Diluted earnings per share reflects the potential
dilution of securities that could share in the earnings of an entity,
similar to fully diluted earnings per share. Early implementation of SFAS
128 would have had no effect on the 1996 net income per share.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS
Page
NIAGARA CORPORATION
AND SUBSIDIARY:
Report of independent certified public accountants.... 11
Balance sheets........................................ 12
Statements of operations.............................. 13
Statements of Stockholders' equity.................... 14
Statements of cash flows.............................. 15
Notes to financial statements......................... 16
NIAGARA COLD DRAWN CORP. IS CONSIDERED A PREDECESSOR COMPANY AND
THE INFORMATION DISCLOSED HEREIN IS AS OF AND PRIOR TO THE DATE OF
ACQUISITION BY NIAGARA, ON AUGUST 16, 1995:
Reports of independent certified public
accountants.................................. 34
Statements of operations....................... 36
Statements of cash flows....................... 37
Notes to financial statements.................. 38
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Niagara Corporation
New York, New York
We have audited the accompanying consolidated balance sheets of Niagara
Corporation (formerly International Metals Acquisition Corporation) and
subsidiary (the "Company") as of December 31, 1995 and 1996, and the
related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Niagara Corporation and subsidiary as of December 31, 1995 and 1996, and
the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
BDO Seidman, LLP
New York, New York
March 27, 1997
<TABLE>
<CAPTION>
NIAGARA CORPORATION
AND SUBSIDIARY
BALANCE SHEETS
DECEMBER 31, 1995 1996
- -------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT:
<S> <C> <C>
CASH AND CASH EQUIVALENTS $2,186,897 $1,587,927
TRADE ACCOUNTS RECEIVABLE, NET OF
ALLOWANCE FOR DOUBTFUL ACCOUNTS
OF $184,000 AND $233,000 (Notes 7 and 15) 4,239,369 5,952,896
INVENTORIES (NOTES 5 AND 7) 14,743,541 14,446,473
OTHER CURRENT ASSETS 165,874 253,078
- -------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 21,335,681 22,240,374
PROPERTY, PLANT AND EQUIPMENT, NET (NOTES 4, 6 AND 7) 12,745,144 21,649,219
GOODWILL, NET OF ACCUMULATED AMORTIZATION OF $76,030 (NOTE 1) - 2,543,294
OTHER ASSETS, NET (NOTES 1, 4 AND 20) 512,587 914,928
- -------------------------------------------------------------------------------------------------------------
$34,593,412 $47,347,815
- -------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT:
TRADE ACCOUNTS PAYABLE $4,786,769 $4,109,731
ACCRUED EXPENSES 3,211,643 3,689,584
ACCRUED WORKMEN'S COMPENSATION 516,745 480,107
CURRENT MATURITIES OF LONG-TERM DEBT (NOTE 7) 733,048 1,662,039
DEFERRED INCOME TAXES (NOTE 13) 202,000 211,000
- -------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 9,450,205 10,152,461
- -------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT, LESS CURRENT MATURITIES (NOTE 7) 6,968,860 18,075,147
- -------------------------------------------------------------------------------------------------------------
DEFERRED INCOME TAXES (NOTE 13) 3,712,000 3,594,000
- -------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTES 10, 11, 14 AND 16)
STOCKHOLDERS' EQUITY (NOTES 2, 8 AND 9):
PREFERRED STOCK, $.001 PAR VALUE - SHARES AUTHORIZED
500,000; NONE OUTSTANDING - -
COMMON STOCK, $.001 PAR VALUE - SHARES AUTHORIZED
15,000,000; OUTSTANDING 3,500,000 AND 3,668,750 3,500 3,669
ADDITIONAL PAID-IN CAPITAL 15,560,296 15,560,127
DEFICIT (1,101,449) (37,589)
- -------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 14,462,347 15,526,207
- -------------------------------------------------------------------------------------------------------------
$34,593,412 $47,347,815
- -------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
NIAGARA CORPORATION
AND SUBSIDIARY
STATEMENTS OF OPERATIONS
Year ended December 31, 1994 1995(a) 1996(b)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES (NOTE 15) $ - $17,454,688 $76,827,165
COST OF PRODUCTS SOLD - 15,421,064 65,824,190
- ------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT - 2,033,624 11,002,975
OPERATING EXPENSES:
Selling, general and administrative (Note 17) 1,821,665 1,805,269 8,013,589
- ------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS (1,821,665) 228,355 2,989,386
OTHER INCOME (EXPENSE):
Interest income 600,880 628,375 100,244
Interest expense - (272,312) (1,536,717)
Other, net - primarily gain on sale of property - - 126,147
- ------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE TAXES ON INCOME
(RECOVERY) (1,220,785) 584,418 1,679,060
TAXES ON INCOME (RECOVERY) (NOTE 13) (6,000) 240,000 615,200
- ------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $(1,214,785) $344,418 $1,063,860
- ------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) PER SHARE $ (.35) $ .10 $ .30
- ------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 3,500,000 3,500,000 3,602,818
- ------------------------------------------------------------------------------------------------------------------------
- ----------------
(a) Includes the results of Niagara Cold Drawn for the period from
August 17, 1995 to December 31, 1995.
(b) Includes the results of Niagara Cold Drawn for the entire year,
and the results of Southwest from February 1, 1996.
- ------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
NIAGARA CORPORATION
AND SUBSIDIARY
STATEMENTS OF STOCKHOLDERS' EQUITY
Period January 1, 1994 to December 31, 1996
- -------------------------------------------------------------------------------------------------------------------------
Common stock
-------------------------- Additional Retained Total
Number of paid-in earnings stockholders'
shares Amount capital (deficit) equity
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994 2,925,001 $2,925 $12,524,073 $ (17,917) $12,509,081
Net loss for the year - - - (1,214,785) (1,214,785)
Accretion to redemption value of common
stock subject to possible redemption - - - (111,721) (111,721)
- -------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1994 2,925,001 2,925 12,524,073 (1,344,423) 11,182,575
Accretion to redemption value of common stock
subject to possible redemption through
August 16, 1995 - - - (101,444) (101,444)
Reclassification of common stock subject to
possible redemption 574,999 575 3,036,223 - 3,036,798
Net income for the year - - - 344,418 344,418
- -------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 3,500,000 3,500 15,560,296 (1,101,449) 14,462,347
Shares issued (Note 2) 168,750 169 (169) - -
Net income for the year - - - 1,063,860 1,063,860
- ------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 3,668,750 $3,669 $15,560,127 $ (37,589) $15,526,207
- -------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
NIAGARA CORPORATION
AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
(NOTE 19)
Year ended December 31, 1994 1995(a) 1996(b)
- --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income (loss) $ (1,214,785) $ 344,418 $ 1,063,860
- --------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income (loss)
to net cash provided by (used
in) operating activities:
Depreciation and amortization 5,364 472,663 1,846,058
Gain on sale of property - - (124,773)
Provision for doubtful accounts - 36,000 68,991
Deferred income taxes - 216,000 229,000
Interest on U.S. Government securities in
trust fund (558,880) (507,473) -
Changes in assets and liabilities, net of
effects from purchase of Niagara Cold
Drawn in 1995 and Southwest in 1996:
(Increase) decrease in accounts receivable - (83,599) 1,131,906
(Increase) decrease in inventories - 640,288 3,516,779
Increase in other assets - (98,613) (169,909)
Increase (decrease) in trade accounts
payable, accrued expenses and accrued
workmen's compensation 1,386,791 (3,390,808) (2,729,972)
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL ADJUSTMENTS 833,275 (2,715,542) 3,768,080
- ---------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (381,510) (2,371,124) 4,831,940
- ---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property - - 551,000
Acquisition of Niagara Cold Drawn, net of cash
acquired - (11,862,766) -
Acquisition of Southwest, net of cash acquired - - (2,354,289)
Acquisition of fixed assets - (293,661) (4,418,944)
Financing costs - - (124,533)
Deferred acquisition costs - (115,000) -
Cumulative maturities of U.S. Government securities
deposited in trust fund 72,166,798 89,592,484 -
Cumulative maturities of U.S. Government securities
reinvested in trust fund (72,166,798) (74,400,900) -
- ----------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES - 2,920,157 (6,346,766)
- ----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving line of credit - 998,445 (31,960)
Proceeds from long-term debt - - 9,998,963
Repayment of long-term debt - (297,338) (9,051,147)
- ----------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES - 701,107 915,856
- ----------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (381,510) 1,250,140 (598,970)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,318,267 936,757 2,186,897
- ----------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 936,757 $ 2,186,897 $ 1,587,927
- ----------------------------------------------------------------------------------------------------------------------------
- -------------------
(a) Includes the cash flows of Niagara Cold Drawn for the period from August 17, 1995 to December 31, 1995.
(b) Includes the cash flows of Niagara Cold Drawn for the entire year, and the cash flows of Southwest
from February 1, 1996.
- ---------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
NIAGARA CORPORATION
AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF ACCOUNTING Organization, Business Operations
POLICIES and Acquisitions
Niagara Corporation, formerly
International Metals Acquisition
Corporation ("Niagara"), was
incorporated in Delaware on April 27,
1993 with the objective of acquiring
an operating business in the metals
processing and distribution industry
or metals-related manufacturing
industry.
Niagara consummated an initial public
offering (the "Offering") on August
20, 1993 and raised net proceeds of
$15,295,100.
On August 16, 1995, Niagara acquired
all of the issued and outstanding
common and preferred stock of Niagara
Cold Drawn Corp. ("Niagara Cold
Drawn," and together with Niagara,
the "Company") a manufacturer of cold
drawn steel bars, for $10,744,045 in
cash. Concurrent with this
acquisition, which was approved by
Niagara's stockholders, the shares of
common stock subject to redemption
totalling $3,036,798 was reclassified
as additional paid-in capital since
no Niagara shares were redeemed. This
acquisition was accounted for as a
purchase, and the financial state-
ments include the results of Niagara
Cold Drawn from this acquisition
date. (see Note 3).
The purchase price of Niagara Cold
Drawn including certain transaction
expenses of $1,174,377, was
$11,918,422. Niagara Cold Drawn's
stockholder's equity at August 16,
1995 was $6,519,678. After giving
effect to this excess and a
$3,309,000 deferred tax liability
(see Notes 3 and 4), the purchase
price for Niagara Cold Drawn exceeded
the book value of Niagara Cold
Drawn's stockholder's equity by
approximately $8,708,000. As a
result of this acquisition, Niagara's
net operating loss carryforward at
August 16, 1995 of approximately
$1,150,000 was able to be utilized.
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 of
Niagara Cold Drawn. Approximately
$1,000,000 of this loss was utilized
as of December 31, 1995 and the
remainder was utilized in 1996 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, Niagara Cold
Drawn 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, 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
promissory notes guaranteed by
Niagara. In connection with this
acquisition, Niagara Cold Drawn
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
Niagara Cold Drawn's revolving line
of credit. The financial statements
include the results of Southwest from
February 1, 1996.
The Southwest purchase price,
including certain transaction
expenses of $524,270, together with
liabilities of $350,063 assumed in a
purchase business combination,
totaled $3,951,106. Southwest's
stockholders' equity at January 31,
1996 was $1,071,782. The $2,879,324
excess has been allocated to goodwill
and is being amortized on a
straight-line basis over 30 years
(see Note 4). Southwest was merged
into Niagara Cold Drawn on November
1, 1996. Southwest's Tulsa, Oklahoma
operations were closed during 1996
and its Midlothian, Texas operations
became a division of Niagara Cold
Drawn following the merger.
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.
Niagara Cold Drawn operates from
three principal locations: Buffalo,
New York; Chattanooga, Tennessee; and
Midlothian, Texas. It produces cold
drawn steel bars for steel service
centers and original equipment
manufacturers throughout North
America. Niagara Cold Drawn competes
in a narrow sector of the steel
industry, and its business is
affected by conditions within the
broader steel and machine tool
industries. It grants trade credit to
its customers consistent with
industry practice.
Net Income (Loss) Per Share
Net income (loss) per common share is
computed on the basis of the weighted
average number of common shares
outstanding during the period,
including common stock equivalents
(unless antidilutive) which would
arise from the exercise of stock
warrants and options.
Cash Equivalents
For purposes of the statements of
cash flows, the Company considers
cash equivalents to consist of all
short-term highly liquid debt
instruments which are readily
convertible into cash at par value
(cost). Cash equivalent investments
were $2,143,172 and $1,370,981 at
December 31, 1995 and 1996,
respectively.
Revenue Recognition
Revenue from the sale of products is
recorded at the time the goods are
shipped.
Inventories
Inventories are stated at the lower
of cost or market, with cost being
determined using the last-in,
first-out (LIFO) method.
Property, Plant and Equipment
Property, plant and equipment is
stated at cost.
Additions to property, plant and
equipment are stated at cost, and
include expenditures for new
facilities and those which
substantially increase the useful
lives of existing property, plant and
equipment. Maintenance, repairs and
minor renewals are expensed as
incurred.
Niagara Cold Drawn provides for
depreciation of property, plant and
equipment at rates designed to
amortize such equipment over their
useful lives. Depreciation is
computed on the straight-line method
using lives of 3 to 15 years on
machinery and equipment and furniture
and fixtures, and 10 to 20 years on
buildings and improvements and
leasehold improvements.
Intangible Assets
Niagara Cold Drawn has a Power
Authority of New York Power
Replacement Agreement which
provides for low cost energy and is
included in other assets (see Note
4). The agreement is being amortized
on a straight-line basis over 10
years.
Income Taxes
Deferred income taxes are recognized
for the tax consequences of temporary
differences between the financial
reporting bases and the tax bases of
the Company's assets and liabilities
in accordance with Statement of
Financial Accounting Standards No.
109 ("SFAS No. 109"). Valuation
allowances are established when
necessary to reduce deferred tax
assets to the amount expected to be
realized. Income tax expense is the
tax payable for the period and the
change during the period in deferred
tax assets and liabilities.
Use of Estimates
The preparation of financial
statements in conformity with
generally accepted accounting
principles requires management to
make 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.
Reclassifications
Certain reclassifications have been
made to prior year amounts to conform
to current year presentation.
Recent Accounting Standards
In March 1995, the Financial
Accounting Standards Board ("FASB")
issued Statement of Financial
Accounting Standards No. 121,
"Accounting for Impairment of
Long-Lived Assets and for Long-Lived
Assets to be Disposed of" ("SFAS No.
121"). SFAS No. 121 requires, among
other things, impairment loss of
assets to be held and gains or losses
from assets that are expected to be
disposed of be included as a compo-
nent of income from continuing
operations before taxes on income.
The Company assesses recoverability
of these assets by estimating future
non-discounted cash flows. The
Company adopted SFAS No. 121 in
fiscal 1996 and its implementation
did not have a material effect on the
financial statements.
In October 1995, the FASB issued
Statement of Financial Accounting
Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No.
123"). SFAS No. 123 encourages
entities to adopt the fair value
method in place of the provisions of
Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued
to Employees" ("APB No. 25"), for all
arrangements under which employees
receive shares of stock or other
equity instruments of the employer or
the employer incurs liabilities to
employees in amounts based on the
price of its stock. The Compaany has
not adopted the fair value method
encouraged by SFAS No. 123 and will
continue to account for such
transactions in accordance with APB
No. 25 (see Note 11).
In March 1997, the FASB issued
Statement of Financial Accounting
Standards No. 128, Earnings Per Share
("SFAS 128") which provides a
different method of calculating
earnings per share than is currently
used in accordance with APB 15. SFAS
128 provides for the calculation of
basic and diluted earnings per share.
Basic earnings per share is computed
by dividing income available to
common shareholders by the weighted
average number of common shares
outstanding for the period. Diluted
earnings per share reflects the
potential dilution of securities that
could share in the earnings of an
entity, similar to fully diluted
earnings per share. Early
implementation of SFAS 128 would have
had no effect on the 1996 net income
per share.
2. PUBLIC OFFERING On August 20, 1993, Niagara sold
2,875,000 units ("Units") in the
Offering. Each Unit consists of one
share of Niagara's common stock,
$.001 par value, and two Redeemable
Common Stock Purchase Warrants
("Warrants"). Each Warrant entitles
the holder to purchase from Niagara,
until the close of business on August
13, 2000, one share of common stock
at an exercise price of $5.50,
subject to adjustment in certain
circumstances. The Warrants will be
redeemable at a price of $.01 per
Warrant upon 30 days' notice in the
event that the last sale price of the
common stock has been at least $10.00
per share for 20 consecutive trading
days ending on the third day prior to
the date on which notice of
redemption is given.
Niagara issued an aggregate of
$150,000 of promissory notes to
certain accredited investors. These
notes bore interest at the rate of
10% per annum and were repaid on the
consummation of the Offering with
accrued interest thereon. The
investors were issued 300,000
warrants (valued at a nominal amount)
which are (following Niagara's
acquisition of Niagara Cold Drawn)
identical to the Warrants.
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 the Offering. The
Purchase Options were exercisable
until August 13, 1998 for an aggre-
gate 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.
3. ACQUISITIONS OF NIAGARA As discussed in Note 1, on August 16,
COLD DRAWN AND SOUTH-WEST 1995, Niagara acquired all of the
issued and outstanding shares of
common and preferred stock of Niagara
Cold Drawn and, on January 31, 1996,
Niagara Cold Drawn acquired all of
the issued and outstanding capital
stock of Southwest. For financial
reporting purposes, both transactions
were accounted for under the purchase
method.
Pro forma results of operations for
1995, as if both acquisitions had
occurred January 1, 1995, are
unaudited and are detailed below. Pro
forma adjustments primarily include
additional depreciation and
amortization on the excess purchase
price allocated to property, plant
and equipment and intangible assets
(Niagara Cold Drawn) and goodwill
(Southwest), elimination of interest
income on the portion of Niagara's
investment in U.S. government
securities deposited in a trust fund
and liquidated upon consummation of
the acquisition of Niagara Cold
Drawn, elimination of the Niagara
Cold Drawn employment expense
(exercise of management options)
discussed in Note 16, additional
accrual of salaries for Niagara
management, elimination of merger
costs on terminated transactions
prior to the acquisition of Niagara
Cold Drawn (see Note 17), elimination
of other nonrecurring items and
provision for income taxes. 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. Information
has not been presented for 1996 since
the pro forma results reflecting
Southwest were not materially
different from the accompanying
financial statements.
Year ended December 31, 1995
-------------------------------------
Net sales $84,654,000
Net income 882,000
Net income per share .25
-------------------------------------
4. EXCESS PURCHASE PRICE OF As discussed in Notes 1 and 3 above, on
NIAGARA COLD DRAWN AND August 16, 1995, Niagara acquired all
SOUTHWEST ASSETS AND of Niagara Cold Drawn's outstanding
LIABILITIES capital stock. The financial statements
have been adjusted to reflect the
fair value of net assets based on an
appraisal which was obtained as of
the acquisition date and to reflect
the deferred tax asset related to the
net operating loss of Niagara. The
carrying amounts of certain assets
and liabilities were increased by
allocation of the following amounts:
--------------------------------------
Inventories $ 1,839,000
Land, buildings and
improvements 2,256,000
Machinery and equipment 3,815,000
Power Authority of New
York Power Replacement
Agreement (included
in other assets 338,000
Deferred tax asset on
net operating loss
carryforward 460,000
Less: Deferred tax
liability (3,309,000)
--------------------------------------
Allocation of excess pur-
chase price of Niagara $ 5,399,000
---------------------------------------
As discussed in Notes 1 and 3 above,
on January 31, 1996, Niagara Cold
Drawn acquired all of Southwest's
capital stock. The book values of
assets and liabilities of Southwest
reflected the estimated fair values
at the date of acquisition and the
excess purchase price of $2,879,324
was allocated to goodwill.
For the period from August 17, 1995
through December 31, 1995 and for the
year ended December 31, 1996, income
before income taxes was decreased by
approximately $235,000 and
$595,000, respectively, primarily as
a result of depreciation and
amortization, related to the
adjustment for the excess purchase
price of Niagara Cold Drawn and
Southwest.
5. INVENTORIES Inventories consisted of the following:
December 31, 1995 1996
-----------------------------------------
Raw materials $ 6,978,363 $ 6,302,827
Work-in-process 1,088,153 1,252,278
Finished goods 6,677,025 6,891,368
------------------------------------------
$ 14,743,541 $ 14,446,473
------------------------------------------
6. PROPERTY, PLANT AND Property, plant and equipment (after
EQUIPMENT accounting for the allocation of excess
purchase price disclosed in Note 4 above)
consisted of the following:
<TABLE>
<CAPTION>
December 31, 1995 1996
--------------------------------------------------------------------
<S> <C> <C>
Land, buildings and improvements $ 3,000,370 $ 7,447,214
Leasehold improvements 717,095 717,095
Machinery and equipment 8,950,643 15,026,487
Furniture and fixtures 369,225 476,659
Equipment under capital leases 134,375 95,265
--------------------------------------------------------------------
Total 13,171,708 23,762,720
Less:
Accumulated depreciation (420,942) (2,058,256)
Accumulated depreciation on
equipment under capital leases (5,622) (55,245)
--------------------------------------------------------------------
$ 12,745,144 $ 21,649,219
--------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
7. LONG-TERM DEBT The long-term debt consisted of the
following:
<S> <C> <C> <C>
December 31, 1995 1996
- --------------------------------------------------------------------------------------------------------
Secured bank revolving line of credit
up to $14,000, d to a portion of the
value of Niagara Cold Drawn's eligible
accounts receivable and inventories. In-
terest is calculated at the LIBOR rate
plus 2.25% (effective rate of 7.516% at
December 31, 1996) $5,178,539 $5,146,579
Term note payable - bank, maturing in
monthly payments of interest only
at 7.49% through February 1, 1997,
followed by monthly installments
of principal and interest from
March 1, 1997 through February 1,
2003. Beginning March 1, 1997
through February 1, 1998, the
monthly installments of principal
and interest are $207,423. The
monthly principal and interest
payment is adjusted annually each
March 1 to reflect the current
interest rate, which is 2.5% over
the weekly average yield on United
States Treasury obligations. The
note is collateralized by accounts
receivable and inventories 2,288,253 12,000,000
Notes payable - former Southwest
stockholders, maturing $82,627
annually on January 31 through
2010, plus interest at 8.5%,
guaranteed by Niagara (see Note 1) - 1,156,773
Note payable - former Southwest
stockholder, maturing $64,143
annually on January 31 through
2010, plus interest 8.5%,
guaranteed by Niagara (see Note 1) - 898,000
Note payable - former Southwest
stockholder, maturing $33,333
annually on April 17 through
2005, plus interest at 10% - 300,000
Obligations under capital leases
maturing in varying monthly and
quarterly installments through
December 1999, including interest
ranging from 7.4% to 9.5%, colla-
teralized by leased equipment
(se Note 10) - 109,102
Term note payable - Tennessee
landlord, maturing in monthly
installments of $2,643 through
June 1998, including interest at
10%, collateralized by equipment 69,900 44,008
Subordinated note payable - develop-
ment corporation, maturing in
monthly installments of $1,467
through November 1998, including
interest at 6.5%, collateralized by
accounts receivable, inventories
and equipment, and personally
guaranteed by certain officers of
Niagara Cold Drawn 45,458 31,653
Subordinated note payable - develop-
ment corporation, maturing in
monthly installments of $1,547
through December 1997, including
interest at 6%, collatearlized by
accounts receivable, inventories
and equipment, and personally
guaranteed by certain officers of
Niagara Cold Drawn. 33,524 16,765
Subordinated note payable - develop-
ment corporation, maturing in
monthly installments of $888
through May 1999, including
interest at 6%, collateralized by
accounts receivable and
inventories, and personally
guaranteed by certain officers of
Niagara Cold Drawn. 32,848 23,920
Other 53,386 10,386
-------------------------------------------------------------------
7,701,908 19,737,186
Less: Current maturities of
long-term debt 733,048 1,662,039
------------------------------------------------------------------
$ 6,968,860 $18,075,147
------------------------------------------------------------------
</TABLE>
The bank revolving line of credit
and term loan agreements contain
certain financial covenants
relating to Niagara Cold Drawn's
working capital, current ratio,
tangible net worth, debt to
tangible net worth and
restrictions on capital
expenditures, operating leases and
dividends.
Approximate maturities of
long-term debt are as follows:
Year ended December 31,
----------------------------------
1997 $ 1,622,000
1998 2,019,000
1999 7,248,000
2000 2,214,000
2001 2,372,000
----------------------------------
Niagara Cold Drawn has a $200,000
open letter of credit with a bank
that expires in July 1997, secured
by accounts receivable and
inventories. No amounts were
outstanding under the letter of
credit at December 31, 1996.
8. PREFERRED STOCK Niagara is authorized to issue
500,000 shares of preferred stock
with such designations, voting and
other rights and preferences as
may be determined from time to
time by its Board of Directors.
9. COMMON STOCK At December 31, 1996, 6,550,000
shares of Niagara common stock
were reserved for issuance upon
exercise of redeemable warrants
and underwriters' warrants (see
Note 2).
10. LEASE COMMITMENTS Niagara leases office space under
an operating lease and Niagara
Cold Drawn leases equipment and
its Chattanooga, Tennessee
facility under capital and
operating leases. Assets under
capital leases are capitalized
using interest rates appropriate
at the inception of the lease. At
December 31, 1996, future minimum
payments under capital and
noncancellable operating leases
are approximately as follows:
<TABLE>
<CAPTION>
Capital leases Operating lease
-----------------------------------------------
<S> <C> <C> <C>
1997 $ 47,000 $ 450,000
1998 53,000 338,000
1999 24,000 251,000
2000 - 276,000
2001 - 69,000
-----------------------------------------------
Total minimum
lease payments 124,000 $ 1,384,000
Amount representing
interest (15,000)
-----------------------------------------------
Present value of
net minimum
lease payments
(see Note 7) $ 109,000
-----------------------------------------------
</TABLE>
Rent expense under operating
leases was approximately $63,000
for the period August 17, 1995 to
December 31, 1995 and
approximately $449,000 for the
year ended December 31, 1996. The
Chattanooga operating lease
expires in May 1998, at which time
Niagara Cold Drawn has the option
to purchase such property for
$1,250,000.
11. COMPENSATION PLANS Incentive Compensation Plan
Niagara Cold Drawn has an
incentive compensation plan
pursuant to which bonuses are paid
to participants as designated by
Niagara Cold Drawn's Board of
Directors. Compensation under the
plan is related solely to Niagara
Cold Drawn's earnings performance.
The amount charged to expense
under the plan was approximately
$123,000 for the period August 17,
1995 to December 31, 1995 and
approximately $307,000 for the
year ended December 31, 1996.
Stock Compensation Plan
Niagara has a stock option plan
which is described below. The
Company applies APB Opinion 25,
"Accounting for Stock Issued to
Employees," and related
Interpretations in accounting for
the plan. Under APB Opinion 25,
because the exercise price of
Niagara's employee stock options
equals the market price of the
underlying stock on the date of
grant, no compensation cost is
recognized.
Under Niagara's stock option plan,
the Compensation Committee of
Niagara's Board of Directors may
grant options to the Company's
officers, directors, employees and
independent contractors for up to
1,500,000 shares of Niagara common
stock. The exercise price of each
option is no less than the market
price of Niagara's common stock on
the date of grant.
FASB Statement 123, "Accounting
for Stock-Based Compensation,"
requires the Company to provide
pro forma information regarding
net income and earnings per share
as if compensation cost for the
Company's stock option plan had
been determined in accordance
with the fair value method
prescribed in FASB Statement 123.
The Company estimates the fair
value of each stock option at the
grant date by using the
Black-Scholes option-pricing model
with the following weighted
average assumptions used for
grants in 1995 and 1996: dividend
yield of -0- percent; expected
volatility of 20 percent;
risk-free interest rates of 6.6
percent; expected lives of 10
years and a discount due to
marketability of 28 percent.
Under the accounting provisions of
FASB Statement 123, the Company's
net income and earnings per share
would have been reduced to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
1995 1996
------------------------------------------------------------
Net income:
<S> <C> <C>
As reported $344,418 $1,063,860
Pro forma 270,368 798,133
Primary earnings
per share:
As reported .10 .30
Pro forma .8 .22
------------------------------------------------------------
</TABLE>
A summary of the status of the
Niagara's stock option plan as of
December 31, 1995 and 1996, and
changes during the years ending on
those dates is presented below:
<TABLE>
<CAPTION>
-------------------------------------------------------------
December 31, 1995 December 31, 1996
----------------------------- -----------------------------
Weighted Weighted
Shares average exer- Shares average exer-
(000) cise price (000) cise price
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
Outstanding at begin-
ning of year - $ - 520,000 $5.75
Granted 520,000 5.75 295,000 5.50
Exercised - - - -
Forfeited - - - -
--------------------------------------------------------------------------------------
Outstanding at end
of year 520,000 $5.75 815,000 $5.66
--------------------------------------------------------------------------------------
Options exercisable
at year-end - $ - 254,666 $5.70
--------------------------------------------------------------------------------------
Weighted average fair
value of options
granted during
the year $ 2.14 $ 1.47
--------------------------------------------------------------------------------------
</TABLE>
The following table summarizes
information about fixed stock
options outstanding at December
31, 1996.
<TABLE>
<CAPTION>
Options outstanding Options exercisable
----------------------------------------- ----------------------------
Weighted
average Weighted
Range of Number remaining average Number Weighted
exercise outstanding contractual exercise exercisable average
prices at 12/31/96 life price at 12/31/96 exercise price
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$5.50 to 815,000 9 years $5.66 254,666 $5.70
$5.75
------------------------------------------------------------------------------------
</TABLE>
12. RELATED PARTY TRANSAC- During the period from August 17,
TIONS 1995 to December 31, 1995, Niagara
Cold Drawn incurred approximately
$25,000 of freight and shipping
charges to a related party.
From the effective date of the
Offering through the date of the
acquisition of Niagara Cold Drawn,
Niagara occupied office space
provided by a company owned by a
stockholder. Niagara paid $5,000
per month for such office space
and certain administrative and
secretarial services.
13. INCOME TAXES The provision for Federal and
state income tax expense (benefit)
was comprised of the following:
<TABLE>
<CAPTION>
Year ended December 31, 1994 1995 1996
------------------------------------------------------------------------
Current:
<S> <C> <C> <C>
Federal $(4,000) $ 12,000 $352,200
State (2,000) 12,000 34,000
------------------------------------------------------------------------
(6,000) 24,000 386,200
------------------------------------------------------------------------
Deferred:
Federal - 208,000 207,000
State - 8,000 22,000
------------------------------------------------------------------------
- 216,000 229,000
------------------------------------------------------------------------
Total income taxes
(recovery) $(6,000) $240,000 $615,200
-------------------------------------------------------------------------
</TABLE>
Niagara Cold Drawn is included in
the consolidated Federal income
tax return of its parent, Niagara,
from the date of acquisition.
At December 31, deferred tax
assets (liabilities) consisted of
the following:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
December 31, 1995 1996
-----------------------------------------------------------------------------------------
New York State investment tax credits $ 715,000 $ 427,000
Net operating loss carryforward 78,000 -
Accrued expenses deductible when paid 231,000 182,000
Inventory capitalization 100,000 159,000
Allowance for doubtful accounts 71,000 89,000
-----------------------------------------------------------------------------------------
Gross deferred tax assets 1,195,000 857,000
Valuation allowance for deferred tax assets (715,000) (427,000)
-----------------------------------------------------------------------------------------
Net deferred tax assets 480,000 430,000
-----------------------------------------------------------------------------------------
Differences in property, plant,
equipment and intangibles
related to allocation of Niagara
excess purchase price (2,574,000) (2,379,000)
Book versus tax depreciation of
property, plant and equipment (1,138,000) (1,215,000)
Differences in inventories related
to allocation of Niagara Cold Drawn
excess purchase price (682,000) (641,000)
----------------------------------------------------------------------------------------
Gross deferred tax liabilities (4,394,000) (4,235,000)
----------------------------------------------------------------------------------------
Net deferred tax liabilities $(3,914,000) $(3,805,000)
----------------------------------------------------------------------------------------
Included in the accompany balance
sheets as follows:
1995 1996
----------------------------------------------------------------------------------------
Current liability for deferred income taxes $ (202,000) $ (211,000)
Noncurrent liability for deferred income taxes (3,712,000) (3,594,000)
-----------------------------------------------------------------------------------------
Net deferred tax liabilities $(3,914,000) $(3,805,000)
-----------------------------------------------------------------------------------------
</TABLE>
At December 31, 1996, Niagara Cold
Drawn had New York State
investment tax credit
carryforwards of approximately
$427,000, which may be available
to offset certain future state
income taxes. These credits expire
through 2005. A valuation
allowance has been provided for
these tax credits. The future
utilization of these tax credits,
if any, will be credited to
Niagara Cold Drawn's noncurrent
assets.
A reconciliation of the statutory
Federal income tax rate and
effective rate as a percentage of
pre-tax income was as follows:
<TABLE>
<CAPTION>
1995 1996
----------------------------- --------------------------
Amount % Amount %
----------------------------------------------------------- --------------------------
<S> <C> <C> <C> <C>
Tax at statutory rate $199,000 34% $591,000 34%
State income taxes, net
of Federal income tax
benefit 13,000 2 37,000 3
Goodwill amortization - - 30,000 3
Other, including prior
year overaccrul 28,000 5 (42,800) (3)
----------------------------------------------------------- --------------------------
Effective tax rate $240,000 41% $615,200 37%
----------------------------------------------------------------------------------------
</TABLE>
14. RETIREMENT PLANS Niagara Cold Drawn has a contributory
salary deferral retirement plan
(401(k)). Under the terms of the
plan, participants may elect to
defer up to 15% of their earnings.
Niagara Cold Drawn matches one
quarter of the participant's
contribution, up to a maximum of
4% of the participant's earnings.
All contributions are subject to
the limitations of Section 401 of
the Internal Revenue Code of 1986,
as amended and the requirements of
the Employee Retiree Income
Security Act of 1974, as amended.
Total expense related to this plan
for the period from August 17,
1995 to December 31, 1995 and
for the year ended December 31,
1996 was approximately $25,000 and
$8,000, respectively. The funds
are invested in annuity contracts.
15. MAJOR CUSTOMERS Niagara Cold Drawn had three
customers during 1995 and two
customers during 1996 to which
combined sales were approximately
57% and 43%, respectively, of
total sales. Accounts receivable
outstanding from these major
customers represented
approximately 65% and 52% of
accounts receivable at December
31, 1995 and 1996, respectively.
16. COMMITMENTS Niagara Cold Drawn is subject to
AND CONTINGENCIES Federal, state and local environ-
mental laws and regulations
concerning, among other matters,
water emissions and waste
disposal. Management believes that
Niagara Cold Drawn currently is in
material compliance with all
applicable environmental laws and
regulations.
During 1994, Axia, Inc. ("Axia"),
the prior owner of Niagara Cold
Drawn's Buffalo, N.Y. property,
alleged that Niagara Cold Drawn
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 Niagara Cold
Drawn against any claim arising
from this matter. Niagara Cold
Drawn offered to pay $40,000 in
exchange for Axia's agreeing to
assume full responsibility for the
remediation, and to indemnify
Niagara Cold Drawn against any
claim arising from this matter.
Axia did not respond to the offer.
The financial statements include
an accrued liability of $40,000
for this contingency.
In accordance with the purchase
agreement for the acquisition of
Niagara Cold Drawn, on August 16,
1995, Niagara Cold Drawn's former
majority stockholder, Adage, Inc.
("Adage"), paid $1,666,327 to
certain senior management of
Niagara Cold Drawn in satisfaction
of such individuals' rights under
their existing stock option and
employment agreements. Niagara
Cold Drawn treated this payment as
a contribution of additional
paid-in capital and compensation
to management which is reflected
as an employment expense deduction
on Niagara Cold Drawn's financial
statements for the period ended
August 16, 1995. Pursuant to the
purchase agreement, Niagara Cold
Drawn is required to pay Adage an
amount equal to Niagara Cold
Drawn's Federal income taxes for
the taxable period January 1, 1995
through August 16, 1995, computed
as if Niagara Cold Drawn were not
included in a consolidated Federal
income tax return for such period.
In determining such amount,
Niagara Cold Drawn deducted from
its income the payment made to
senior management, thereby
reducing the amount payable by
Niagara Cold Drawn to Adage. Adage
has disputed Niagara Cold Drawn's
taking of this $1,666,327
deduction, the tax effect of which
is approximately $567,000. The
settlement of this matter is
subject to binding arbitration by
an independent accounting firm.
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.
Niagara Cold Drawn and its parent,
Niagara, have entered into
employment contracts with certain
officers of Niagara Cold Drawn.
The contracts, which expire in
August 2000, provide minimum
salary levels, adjusted annually
for cost-of-living changes, as
well as incentive bonuses and
Niagara stock options. The
aggregate contract commitment
for future minimum salaries at
December 31, 1996, excluding
bonuses and stock options, was
approximately $1,529,000.
Under Niagara Cold Drawn'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 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 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.
17. TRANSACTION COSTS On October 5, 1994, Niagara entered
into a merger agreement with New
Jersey Steel Corporation and a
related stock purchase agreement
with its majority stockholder. On
February 1, 1995, the merger
agreement and related stock
purchase agreement were
terminated. The costs of
$1,580,333 relating to this
transaction were expensed in 1994
and included in selling, general
and administrative expenses.
During 1995, Niagara expensed
$321,237 of costs (included in
selling, general and
administrative expenses) with
respect to proposed acquisitions
that were later terminated.
18. DISCLOSURE ABOUT FAIR The following methods and
VALUE OF FINANCIAL assumptions were used to estimate
INSTRUMENTS the fair value of each class of
financial instruments for which
it is practicable to estimate that
value.
The carrying amounts of cash,
trade accounts receivable and
current liabilities approximate
fair value because of the short
maturity of these instruments.
The carrying amount of debt
approximates fair value because
the interest rates on these
instruments fluctuate with market
interest rates or are based on
current rates offered to the
Company for debt with similar
terms and maturities.
19. SUPPLEMENTAL CASH FLOW Interest paid during 1995 and 1996
INFORMATION was approximately $243,000 and
$1,357,000, respectively.
Income tax payments made during
1995 and 1996 totaled approxi-
mately $1,000 and $86,500,
respectively.
As discussed in Note 3 above,
Niagara acquired all the capital
stock of Niagara Cold Drawn for
$11,918,000 in 1995. In connection
with this acquisition, liabilities
were assumed as follows:
------------------------------------
Fair value of Niagara
Cold Drawn assets
acquired $30,502,000
Cash paid for stock,
plus expenses 11,918,000
------------------------------------
Liabilities assumed $18,584,000
------------------------------------
As discussed in Note 3 above, Niagara
Cold Drawn purchased all of the capital
stock of Southwest for $3,951,000 in
1996. In conjunction with this
acquisition, net assets were acquired
as follows:
-----------------------------------
Fair value of Southwest
assets acquired $13,529,000
Liabilities assumed (12,457,000)
-----------------------------------
Net assets acquired $1,072,000
-----------------------------------
20. SUBSEQUENT EVENT Subsequent to December 31, 1996,
Niagara entered into a letter of
intent to purchase all of the
issued and outstanding shares of
LaSalle Steel Company ("LaSalle"),
a wholly owned subsidiary of
Quanex Corporation. LaSalle is a
producer of cold finished and
special purpose steel bar products
with plants in Hammond and
Griffith, Indiana. Costs relating
to this proposed acquisition,
primarily professional fees, to-
talled $87,000 at December 31,
1996, and have been deferred and
included in other assets.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholder and Board of Directors
Niagara Cold Drawn Corp.
Buffalo, New York
We have audited the accompanying statements of operations and cash flows
for the period from January 1, 1995 to August 16, 1995 for Niagara Cold
Drawn Corp. 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 audit.
We conducted our audit 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 audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the results of Niagara Cold Drawn Corp.
operations and its cash flows for the period from January 1, 1995 to
August 16, 1995 in conformity with generally accepted accounting
principles.
BDO Seidman, LLP
New York, New York
March 8, 1996
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholder and Board of Directors
Niagara Cold Drawn Corp.
Buffalo, New York
We have audited the accompanying statements of operations and cash flows
of Niagara Cold Drawn Corp. for the year ended December 31, 1994. These
financial statements are the responsibility of the company's management.
Our responsibility is to express an opinion on these financial statements
based our audit.
We conducted our audit 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 audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the results of Niagara Cold Drawn Corp.
operations and its cash flows for the year ended December 31, 1994, in
conformity with generally accepted accounting principles.
MACDADE ABBOTT & CO.
Paoli, Pennsylvania
July 10, 1995
<TABLE>
<CAPTION>
NIAGARA COLD DRAWN CORP.
STATEMENT OF OPERATIONS
Period from Memorandum only
January 1, 1995 -----------------------
Year ended to August 16, Year ended
December 31, 1994 1995(a) December 31, 1995(b)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES (NOTE 7) $46,623,637 $34,285,063 $51,739,751
COST OF PRODUCTS SOLD 40,545,934 28,608,569 44,029,633
- --------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 6,077,703 5,676,494 7,710,118
- --------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Selling, general and administrative 4,064,686 3,521,776 4,494,052
Employment expense - management options (Note 2) - 1,666,327(c) 1,666,327(c)
Interest expense 711,418 498,960 771,272
- --------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 4,776,104 5,687,063 6,931,651
- --------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS) 1,301,599 (10,569) 778,467
OTHER INCOME, NET - - 16,910
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES 1,301,599 (10,569) 795,377
INCOME TAXES (NOTE 5) 480,000 - 270,000
- --------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 821,599 $ (10,569) $ 525,377
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------------
(a) Acquisition date by Niagara.
(b) This information is unaudited and is provided for informational
purposes only to provide for comparisons to prior periods. The
1995 amounts were derived from combining Niagara Cold Drawn's
results of operations prior to the acquisition by Niagara
(January 1 to August 16, 1995) with the results after the
acquisition by Niagara (August 17 to December 31, 1995).
(c) Payment due in accordance with purchase agreement.
- ---------------------------------------------------------------------------
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
NIAGARA COLD DRAWN CORP.
STATEMENTS OF CASH FLOWS
(NOTE 9)
Year ended Decem- Period from Janu-
ber 31, ary 1, 1995 to
1994 August 16, 1995(a)
- -------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ 821,599 $ (10,569)
Adjustment to reconcile net income (loss) to
cash provided by (used
in) operating activities:
Depreciation and amortization 740,133 495,185
(Decrease) increase in allowance for
doubtful accounts 72,000 8,494
Deferred income taxes (56,000) -
Increase in inventories (1,886,251) (4,272,038)
Increase in trade accounts receivable (1,406,589) (26,892)
Increase in trade accounts payable, accrued
expenses and accrued compensation 2,631,108 3,137,441
Net change in other current assets and
liabilities (12,169) (63,860)
- ----------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 903,831 (732,239)
- ----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (708,575) (514,018)
- ----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in revolving line of credit 424,562 -
Proceeds from term notes - -
Payment of debt (647,882) (631,239)
Capital contribution - 1,666,327
Proceeds from long-term debt - 1,211,692
Net payments under revolving line of
credit - (323,063)
Payments of dividends - (313,384)
Payments of redeemable preferred stock - (212,371)
Redemption of redeemable preferred stock - (126,442)
- ----------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (223,320) 1,271,520
- ----------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH (28,064) 25,263
CASH, BEGINNING OF PERIOD 58,457 30,393
- ---------------------------------------------------------------------------------------------------------
CASH, END OF PERIOD $ 30,393 $ 55,656
- ---------------------------------------------------------------------------------------------------------
- --------------
(a) Acquisition date by Niagara.
- ---------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
NIAGARA COLD DRAWN CORP.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT Organization
ACCOUNTING POLICIES
Niagara Cold Drawn Corp.
("Niagara Cold Drawn") is a
Delaware corporation and operates
from its two principal locations
in Buffalo, New York and
Chattanooga, Tennessee. Through
August 16, 1995, Niagara Cold
Drawn was a wholly owned
subsidiary of Adage, Inc. On
August 16, 1995, Niagara
Corporation, formerly
International Metals Acquisition
Corporation ("Niagara"), acquired
all of the issued and outstanding
common and preferred stock of
Niagara Cold Drawn for
$10,744,045 in cash.
Business Activity
Niagara Cold Drawn produces cold
drawn steel bars for steel
service centers and original
equipment manufacturers
throughout North America. Niagara
Cold Drawn competes in a narrow
sector of the steel industry and
its business is affected by
conditions within the broader
steel and machine tool
industries. Niagara Cold Drawn
grants trade credit to its
customers consistent with
industry practice.
Revenue Recognition
Revenue from the sale of products
is recorded at the time the goods
are shipped.
Income Taxes
Deferred income taxes are
recognized for the tax
consequences of temporary
differences between the financial
reporting bases and the tax bases
of Niagara Cold Drawn's assets
and liabilities in accordance
with Statement of Financial
Accounting Standards No. 109.
Valuation allowances are
established when necessary to
reduce deferred tax assets to the
amount expected to be realized.
Income tax expense is the tax
payable for the period and the
change during the period in
deferred tax assets and
liabilities.
Use of Estimates
The preparation of financial
statements in conformity with
generally accepted accounting
principles requires management to
make 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.
2. EMPLOYMENT EXPENSE - In accordance with the purchase
MANAGEMENT OPTIONS agreement for the acquisition of
Niagara Cold Drawn, on August 16,
1995, Niagara Cold Drawn's former
majority stockholder, Adage, Inc.
("Adage"), paid $1,666,327 to
certain senior management of
Niagara Cold Drawn in
satisfaction of such individuals'
rights under their existing stock
option and employment agreements.
Niagara Cold Drawn treated this
payment as a contribution of
additional paid-in capital and
compensation to management which
is reflected as employment
expense - management options on
Niagara Cold Drawn's financial
statements for the period from
January 1 to August 16, 1995.
Adage has disputed the taking of
this deduction. The settlement of
this matter is subject to binding
arbitration by an independent
accounting firm (see Note 8).
3. INCENTIVE COMPENSATION PLAN Niagara Cold Drawn has an incentive
compensation plan pursuant to
which bonuses are paid to
participants as designated by
Niagara Cold Drawn's Board of
Directors. Compensation under the
plan is related solely to Niagara
Cold Drawn's earnings
performance. The amount charged
to expense for future
distributions under this plan was
approximately $132,000 in 1994
and $200,000 for the period
January 1, 1995 to August 16,
1995.
4. RELATED PARTY TRANSAC- During the period from January 1
TIONS to August 16, 1995, Niagara Cold
Drawn incurred approximately
$50,000 of freight and shipping
charges to a related party.
During the year ended December
31, 1994, these charges were
$174,000.
During the period from January 1
to August 16, 1995, Niagara Cold
Drawn incurred $62,500 in
management fees from its prior
parent, Adage, Inc.
During 1994, Niagara Cold Drawn
incurred interest expense of
$80,000 to Adage, related to
intercompany balances. During
1994, Niagara Cold Drawn incurred
$100,000 of management fees to
Adage. At December 31, 1994,
$346,000 (included in accrued
expenses) was due to Adage.
5. INCOME TAXES The provisions for income taxes
were comprised of the following
amounts:
1994 1995
-------------------------------------
Current:
Federal $482,000 $-
State 54,000 -
-------------------------------------
536,000 -
-------------------------------------
Deferred:
Federal (55,000) -
State (1,000) -
-------------------------------------
(56,000) -
-------------------------------------
Total tax pro-
visions $480,000 $-
-------------------------------------
A reconciliation of the statutory
Federal income tax rate and
effective rate as a percentage of
pre-tax income is as follows:
1994 1995
--------------------------------------
Statutory rate 34.00% 34.00%
State income taxes, net
of Federal income tax
benefit 3.64 -
Other (.76) (34.00)
--------------------------------------
Effective tax rate 36.88% - %
--------------------------------------
Niagara Cold Drawn had been
included in the consolidated
Federal income tax return of its
parent, Adage. The provision for
Federal income taxes is
calculated on the separate
company basis.
NIAGARA COLD DRAWN CORP.
NOTES TO FINANCIAL STATEMENTS
6. RETIREMENT PLANS Niagara Cold Drawn has a contribu-
tory salary deferral retirement
plan (401(k)). Under the terms of
the plan, participants may elect
to defer up to 15% of their
earnings. Niagara matches one
quarter of the participant's
contribution, up to a maximum
of 4% of the participant's
earnings. All contributions are
subject to the limitations of
Section 401 of the Internal
Revenue Code and the requirements
of the Employee Retiree Income
Security Act of 1974, as amended.
Total expense related to this
plan for the period from January
1 to August 16, 1995 was
approximately $13,000. Total
expense related to this plan for
1994 was $18,114. The funds are
invested in annuity contracts.
7. MAJOR CUSTOMERS Niagara Cold Drawn had three
customers during the period from
January 1 to August 16, 1995, to
which combined sales were
approximately 57% of Niagara Cold
Drawn's total sales. These same
customers represented 47% and 51%
of the sales for the year ended
December 31, 1994. Accounts
receivable outstanding from the
three major customers represented
approximately 65% of Niagara Cold
Drawn accounts receivable at
August 16, 1995.
8. COMMITMENTS AND CON- Niagara Cold Drawn is subject to
TINGENCIES Federal, state and local environ-
mental laws and regulations
concerning, among other matters,
water emissions and waste
disposal. Management believes
that Niagara Cold Drawn currently
is in material compliance with
all applicable environmental laws
and regulations.
During 1994, Axia, Inc. ("Axia"),
the prior owner of Niagara Cold
Drawn's Buffalo, N.Y. property,
alleged that Niagara Cold Drawn
and certain other parties are
respon- sible 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
Niagara Cold Drawn against any
claim arising from this matter.
Niagara Cold Drawn offered to pay
$40,000 in exchange for Axia's
agreeing to assume full
responsibility for the
remediation, and to indemnify
Niagara Cold Drawn against any
claim arising from this matter.
Axia did not respond to the
offer, but suggested that the
parties continue their settlement
discussions. At August 16, 1995,
the financial statements include
an accrued liability of $40,000
for this contingency.
Pursuant to the August 16, 1995
Niagara Cold Drawn purchase
agreement, Niagara Cold Drawn is
required to pay to Adage an
amount equal to Niagara Cold
Drawn's Federal income taxes for
the taxable period January 1,
1995 through August 16, 1995,
computed as if Niagara Cold Drawn
were not included in a
consolidated Federal income tax
return for such period. In
determining such amount, Niagara
Cold Drawn deducted from its
income the payment made to senior
management thereby reducing the
amount payable by Niagara Cold
Drawn to Adage (see Note 2).
Adage has disputed Niagara Cold
Drawn's taking of this $1,666,327
deduction, the tax effect of
which is approximately $567,000.
The settlement of this matter is
subject to binding arbitration by
an independent accounting firm.
Under Niagara Cold Drawn
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 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
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.
9. SUPPLEMENTAL CASH FLOW Interest paid for the year ended
December 31, 1994 was $658,133.
Interest paid during the period
from January 1 to August 16, 1995
was approximately $521,000.
Income taxes paid for the year
ended December 31, 1994 was
$256,204. Income taxes paid
during the period from January 1
to August 16, 1995 was
approximately $1,000.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The information required by Item 10 is contained in, and
incorporated herein by reference to, the section entitled "Proposal 1 -
Election of Directors" of the Proxy Statement for the 1997 Annual Meeting
of Stockholders to be held on May 29, 1997 and filed with the Commission
(the "Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is contained in, and
incorporated herein by reference to, the section entitled "Executive
Compensation" of the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is contained in, and
incorporated herein by reference to, the section entitled "Security
Ownership of Directors and Executive Officers" of the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is contained in, and
incorporated herein by reference to, the section entitled "Proposal 1 --
Election of Directors -- Certain Relationships and Related Transactions"
of the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS ON FORM 8-K.
(a) List of documents filed as a part of this Report:
1. Financial Statements. Financial Statements filed as
part of this Report on Form 10-K are listed in Item 8 on
page 11.
2. Financial Statement Schedules
Schedule I is filed as part of this Report on Form 10-K
beginning on page S-1 hereof.
3. Exhibits
(b) The Company did not file a Form 8-K during
the last quarter of fiscal 1996.
(c) 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.
+10.1 Term Loan Agreement between Manufacturers and
Traders Trust Company and Niagara Cold Drawn Corp.
dated January 31, 1996.
+10.2 Amended and Restated Revolving Credit Agreement
between Manufacturers and Traders Trust Company
and Niagara Cold Drawn Corp. dated January 31, 1996.
+10.3 Stock Purchase Agreement by and among Niagara
Cold Drawn Corp. and the stockholders of Southwest
Steel Company, Inc. dated January 31, 1996.
++10.4 Form of Promissory Note made by Niagara Cold
Drawn Corp., dated January 31, 1996.
++10.5 Form of Guaranty made by the Registrant,
dated January 31, 1996.
++10.6 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.
++10.7 Guaranty, made by the Registrant in favor of the
Cohen Family Revocable Trust, u/t/a dated June 15,
1988, dated January 31, 1996.
+++10.8 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.
++++10.9 International Metals Acquisition Corporation 1995
Stock Option Plan.
10.10 First Amendment to the International Metals
Acquisition Corporation 1995 Stock Option Plan,
dated October 5, 1996.
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 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.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the 31st day of March, 1997.
NIAGARA CORPORATION
By /s/ Michael J. Scharf
Michael J. Scharf
Chairman of the Board
Chief Executive Officer
and President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
Chairman of the Board,
/s/Michael J. Scharf Chief Executive Officer March 31, 1997
- ------------------------------ and President
Michael J. Scharf
Vice President,
Chief Financial and
/s/Gilbert D. Scharf Principal Accounting March 31, 1997
- ------------------------------ Officer, Treasurer,
Gilbert D. Scharf Secretary and Director
/s/Gerald L. Cohn Director March 31, 1997
- ------------------------------
Gerald L. Cohn
/s/Andrew R. Heyer Director March 31, 1997
- ------------------------------
Andrew R. Heyer
NIAGARA CORPORATION
INDEX
FINANCIAL STATEMENT SCHEDULE
FORM 10K - ITEM 14
-------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1995 AND 1996
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS S-2
FINANCIAL STATEMENT SCHEDULE I:
Condensed financial information of registrant:
Balance sheets S-3
Statements of income S-4
Statements of stockholders' equity S-5
Statements of cash flows S-6
Notes to condensed financial statements S-7
All other schedules have been omitted because they are inapplicable or
not required or the information is included in the consolidated
fina ncial statements or the notes thereto. Further, Schedule I
information is not applicable for periods prior to 1995 since the
acquisition of subsidiary Niagara Cold Drawn Corp. (Niagara Cold
Drawn) was made during 1995.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Niagara Corporation
New York, New York
The audits referred to in our report dated March 27, 1997 relating to the
financial statements of Niagara Corporation and subsidiary (the "Company"),
which is contained in Item 8 of Form 10-K, included the audits of the
financial statement schedule listed in the accompanying index. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement schedule
based upon our audits.
In our opinion, such financial statement schedule presents fairly, in all
material respects, the information set forth therein.
BDO Seidman, LLP
New York, New York
March 27, 1997
NIAGARA CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
December 31, 1995 1996
- -----------------------------------------------------------------------------
ASSETS
CURRENT:
Cash and cash equivalents $2,143,172 $1,370,981
Other current assets 74,100 74,100
- -----------------------------------------------------------------------------
TOTAL CURRENT ASSETS 2,217,272 1,445,081
INVESTMENT IN AND NET ADVANCES TO
SUBSIDIARY 12,515,026 14,448,444
OTHER ASSETS, NET 63,082 204,507
- -----------------------------------------------------------------------------
$14,795,380 $16,098,032
- -----------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT:
Accrued expenses $333,033 $571,825
- -----------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (SEE NOTES
10, 11, 14 AND 16 TO THE CONSOLIDATED
FINANCIAL STATEMENTS)
STOCKHOLDERS' EQUITY (SEE NOTES 2, 8 AND
9 TO THE CONSOLIDATED FINANCIAL
STATEMENTS):
Preferred stock, $.001 par value - shares
authorized 500,000, none outstanding - -
Common stock, $.001 par value - shares
authorized 15,000,000, outstanding
3,500,000 and 3,668,750 3,500 3,669
Additional paid-in capital 15,560,296 15,560,127
Deficit (1,101,449) (37,589)
- -----------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 14,462,347 15,526,207
- -----------------------------------------------------------------------------
$14,795,380 $16,098,032
- -----------------------------------------------------------------------------
See accompanying notes to condensed financial statements.
NIAGARA CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF INCOME
Year ended December 31, 1995 1996
- -----------------------------------------------------------------------------
Revenues:
Management fees from subsidiary (Note 2) $168,750 $450,000
Expenses:
Selling, general and administrative
expenses (see Note 17 to the
consolidated financial statements) 984,833 1,014,496
- -----------------------------------------------------------------------------
(816,083) (564,496)
Other income:
Equity in net income of subsidiary 535,946 1,314,218
Interest income 594,555 74,338
- -----------------------------------------------------------------------------
Income before income tax recoveries 314,418 824,060
Income tax recoveries 30,000 239,800
- -----------------------------------------------------------------------------
Net income $344,418 $1,063,860
- -----------------------------------------------------------------------------
Net income per share $.10 $.30
- -----------------------------------------------------------------------------
Weighted average common shares outstanding 3,500,000 3,602,818
- -----------------------------------------------------------------------------
See accompanying notes to condensed financial statements.
NIAGARA CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Years ended December 31, 1995 and 1996
Common stock
------------------------ Retained
Number of Additional earnings
shares Amount paid-in capital (deficit) Total
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 2,925,001 $2,925 $12,524,073 $(1,344,423) $11,182,575
Accretion to redemption value of common stock
subject to possible redemption through
August 16, 1995 - - - (101,444) (101,444)
Reclassification of common stock subject
to possible redemption 574,999 575 3,036,223 - 3,036,798
Net income for the year - - - 344,418 344,418
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 3,500,000 3,500 15,560,296 (1,101,449) 14,462,347
Shares issued 168,750 169 (169) - -
Net income for the year - - - 1,063,860 1,063,860
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 3,668,750 $3,669 $15,560,127 $(37,589) $15,526,207
- ------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to condensed financial statements.
</TABLE>
<TABLE>
<CAPTION>
NIAGARA CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
Year ended December 31, 1995 1996
- ----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $344,418 $1,063,860
- ----------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash used in operating
activities:
Amortization 5,364 17,112
Equity in net income of subsidiary (535,946) (1,314,218)
Interest on U.S. Government securities in trust fund (507,473) -
Increase in other assets (123,100) (158,537)
Increase (decrease) in accrued expenses (1,189,352) 238,792
- -----------------------------------------------------------------------------------------------------------
TOTAL ADJUSTMENTS (2,350,507) (1,216,851)
- -----------------------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (2,006,089) (152,991)
- -----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Niagara Cold Drawn, net of advances (11,979,080) -
Advances, Niagara Cold Drawn - (619,200)
Cumulative maturities of U.S. Government securities deposited in
trust fund 89,592,484 -
Cumulative maturities of U.S. Government securities reinvested in
trust fund (74,400,900) -
- -----------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIV- ITIES 3,212,504 (619,200)
- -----------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,206,415 (772,191)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 936,757 2,143,172
- -----------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $2,143,172 $1,370,981
- -----------------------------------------------------------------------------------------------------------
See accompanying notes to condensed financial statements.
</TABLE>
NIAGARA CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. STATEMENT OF ACCOUNTING The accompanying condensed financial
POLICY statements have been prepared by
Niagara Corporation ("Niagara")
pursuant to the rules and
regulations of the Securities and
Exchange Commission. Certain
information and footnote disclosures
normally included in financial
statements prepared in accordance
with generally accepted accounting
principles have been condensed or
omitted pursuant to these rules and
regulations. It is, therefore,
suggested that these condensed
financial statements be read in
conjunction with the consolidated
financial statements and notes
thereto.
2. RESTRICTIONS ON DISTRIBU- Niagara's subsidiary, Niagara Cold
TIONS Drawn Corp. ("Niagara Cold Drawn"),
which was acquired on August 16,
1995, has a revolving line of credit
and term loan agreements with a bank
which contain certain restrictions
on the payment of dividends. Niagara
is entitled, however, to receive
management fees from Niagara Cold
Drawn and, in the years ended
December 31, 1995 and 1996, $168,750
and $450,000, respectively, of such
management fees were included as
revenues in the accompanying
condensed financial statements, but
have been eliminated in the
consolidated financial statements.
3. SUBSEQUENT EVENT See Note 20 to the consolidated
financial statements.
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 Warrant Agreement between Continental Stock Transfer
& Trust Company and the Registrant.
+10.1 Term Loan Agreement between Manufacturers and Traders
Trust Company and Niagara Cold Drawn Corp. dated
January 31, 1996.
+10.2 Amended and Restated Revolving Credit Agreement
between Manufacturers and Traders Trust Company and
Niagara Cold Drawn Corp. dated January 31, 1996.
+10.3 Stock Purchase Agreement by and among Niagara Cold
Drawn Corp. and the stockholders of Southwest Steel
Company, Inc. dated January 31, 1996.
++10.4 Form of Promissory Note made by Niagara Cold Drawn
Corp., dated January 31, 1996.
++10.5 Form of Guaranty made by the Registrant, dated
January 31, 1996.
++10.6 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.
++10.7 Guaranty, made by the Registrant in favor of the
Cohen Family Revocable Trust, u/t/a dated June 15,
1988, dated January 31, 1996.
+++10.8 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.
++++10.9 International Metals Acquisition Corporation 1995
Stock Option Plan.
10.10 First Amendment to the International Metals
Acquisition Corporation 1995 Stock Option Plan, dated
October 5, 1996.
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 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.
EXHIBIT 10.10
FIRST AMENDMENT
TO THE
INTERNATIONAL METALS ACQUISITION CORPORATION
1995 STOCK OPTION PLAN
Pursuant to resolutions of the Board of Directors of Niagara
Corporation (formerly International Metals Acquisition Corporation)
adopted on September 13, 1996, the International Metals Acquisition
Corporation 1995 Stock Option Plan (the "Plan") is hereby amended,
effective September 13, 1996, as follows:
FIRST
The name of the Plan shall hereafter be the "Niagara Corporation
1995 Stock Option Plan."
SECOND
Section 1 of the Plan is hereby amended and restated in its
entirety as follows:
1. Purpose.
The purpose of the Niagara Corporation 1995 Stock Option Plan
(the "Plan") is to align the interests of officers, directors, key
employees and independent contractors of Niagara Corporation, a
Delaware corporation ("Niagara") and its subsidiaries (collectively
with Niagara, the "Company") with those of the stockholders of
Niagara, and to reward the performance of such individual officers,
directors, key employees and independent contractors.
THIRD
Section 2(i) of the Plan is hereby amended and restated in its
entirety as follows:
(i) "Niagara" shall mean Niagara Corporation, a Delaware
corporation.
FOURTH
Section 2(m) of the Plan is hereby amended and restated in
its entirety as follows:
(m) "Participant" shall mean an officer, director, employee or
independent contractor of the Company who is, pursuant to
Section 4 of the Plan, selected to participate herein.
FIFTH
Section 2(n) of the Plan is hereby amended and restated in
its entirety as follows:
(n) "Plan" shall mean the Niagara Corporation 1995 Stock
Option Plan.
SIXTH
Section 4 of the Plan is hereby amended by deleting the first
sentence thereof and replacing it with the following:
Options may be granted to officers, directors, employees and
independent contractors of the Company in the sole discretion of the
Committee.
SEVENTH
Section 6(f) of the Plan is hereby amended and restated in
its entirety as follows:
(f) Termination. If a Participant's employment by the Company
or service as a director or independent contractor of the Company,
as applicable, terminates, the Committee shall have the exclusive
authority to determine if, and for how long, and under what
conditions such Option may be exercised after such termination;
provided, however, that in no event will an option continue to be
exercisable beyond the expiration date of such option.
EIGHTH
Sections 2(a), 2(f), 2(o), 2(p), 5, 6(e), 7(a), 7(e), 7(f) and
7(j) are each hereby amended to delete therefrom each reference to "IMAC"
and to substitute in place thereof "Niagara."
IN WITNESS WHEREOF, the undersigned has hereby executed this
First Amendment on behalf of Niagara Corporation this 5th day of October,
1996.
NIAGARA CORPORATION
/s/Michael J. Scharf
By: Michael J. Scharf
Title: President
ATTEST:
/s/Gilbert D. Scharf
Gilbert D. Scharf
EXHIBIT 21
SUBSIDIARY OF THE REGISTRANT
Niagara Cold Drawn Corp.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM NIAGARA CORPORATION
AND SUBSIDIARIES AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,587,927
<SECURITIES> 0
<RECEIVABLES> 6,185,896
<ALLOWANCES> 233,000
<INVENTORY> 14,446,473
<CURRENT-ASSETS> 22,240,374
<PP&E> 23,762,720
<DEPRECIATION> 2,113,501
<TOTAL-ASSETS> 47,347,815
<CURRENT-LIABILITIES> 10,152,461
<BONDS> 0
<COMMON> 3,669
0
0
<OTHER-SE> 15,560,127
<TOTAL-LIABILITY-AND-EQUITY> 47,347,815
<SALES> 76,827,165
<TOTAL-REVENUES> 76,827,165
<CGS> 65,824,190
<TOTAL-COSTS> 65,824,190
<OTHER-EXPENSES> 8,013,589
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,536,717
<INCOME-PRETAX> 1,679,060
<INCOME-TAX> 615,200
<INCOME-CONTINUING> 1,063,860
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,063,860
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
</TABLE>
