UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended June 30, 1997
Commission File Number 0-22206
NIAGARA CORPORATION
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 59-3182820
------------------------------ ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
667 Madison Avenue
New York, New York 10021
--------------------------------------
(Address of principal executive office)
(212) 317-1000
---------------------------
(Registrant's telephone
number, including area code)
N/A
----------------------------------------------
(Former name, former address and former fiscal
year, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES X NO______
------
Number of shares of Common Stock outstanding at June 30, 1997
Common Stock, $.001 par value 3,954,465
----------------------------- -----------------
(Class) (Number of Shares)
NIAGARA CORPORATION
INDEX TO JUNE 30, 1997 FORM 10-Q
- ---------------------------------------------------------------------------
PAGE
PART I - FINANCIAL INFORMATION (UNAUDITED)
FINANCIAL STATEMENTS (UNAUDITED):
NIAGARA CORPORATION
BALANCE SHEETS....................................... 3
STATEMENTS OF INCOME................................. 4-5
STATEMENT OF STOCKHOLDERS' EQUITY.................... 6
STATEMENTS OF CASH FLOWS............................. 7
NOTES TO FINANCIAL STATEMENTS........................ 8-12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS...................................... 13-16
PART II - OTHER INFORMATION......................................... 17
SIGNATURES.......................................................... 21
<TABLE>
<CAPTION>
NIAGARA CORPORATION
AND SUBSIDIARIES
BALANCE SHEETS
- ------------------------------------------------------------------------------------------------------------
December 31, June 30,
1996 (a) 1997 (b)
- ------------------------------------------------------------------------------------------------------------
(unaudited)
ASSETS
CURRENT:
<S> <C> <C>
Cash and cash equivalents $ 1,587,927 $ 3,828,135
Trade accounts receivable, net of allowance for doubtful accounts 5,952,896 27,543,946
Inventories 14,446,473 38,768,009
Other current assets 253,078 499,668
- ------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 22,240,374 70,639,758
PROPERTY, PLANT AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION 21,649,219 91,227,403
INTANGIBLE ASSETS 2,543,294 12,232,095
OTHER ASSETS, NET 914,928 2,087,321
- ------------------------------------------------------------------------------------------------------------
$ 47,347,815 $ 176,186,577
- ------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT:
Trade accounts payable $ 4,109,731 $ 26,041,173
Accrued expenses and other current 4,380,691 16,060,823
Current maturities of long-term debt 1,662,039 1,139,491
- ------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 10,152,461 43,241,487
- ------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT, LESS CURRENT MATURITIES 18,075,147 83,277,692
- ------------------------------------------------------------------------------------------------------------
DEFERRED POST RETIREMENT AND PENSION 27,919,848
- ------------------------------------------------------------------------------------------------------------
DEFERRED INCOME TAXES 3,594,000 3,514,000
- ------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value - shares authorized 500,000;
none outstanding - -
Common stock, $.001 par value - shares authorized 15,000,000;
outstanding 3,668,750 and 3,954,465 3,669 3,955
Additional paid-in capital 15,560,127 16,881,273
Retained earnings (deficit) (37,589) 1,348,322
- ----------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 15,526,207 18,233,550
- ----------------------------------------------------------------------------------------------------------------
$ 47,347,815 $ 176,186,577
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes the balance sheets of Niagara Corporation and Niagara Cold
Drawn Corp.
(b) Includes the balance sheets of Niagara Corporation, Niagara Cold
Drawn Corp. and LaSalle Steel Company.
See accompanying notes to financial statements.
NIAGARA CORPORATION
AND SUBSIDIARIES
STATEMENTS OF INCOME
(UNAUDITED)
- ----------------------------------------------------------------------------
Three months ended June 30, 1996 (a) 1997 (b)
- ----------------------------------------------------------------------------
NET SALES $ 21,618,202 $ 69,397,329
COST OF PRODUCTS SOLD 18,579,650 59,468,687
- ----------------------------------------------------------------------------
GROSS PROFIT 3,038,552 9,928,642
OPERATING EXPENSES:
Selling, general and administrative 2,173,658 6,492,529
- ----------------------------------------------------------------------------
INCOME FROM OPERATIONS 864,894 3,436,113
OTHER INCOME (EXPENSE):
Interest income 19,281 11,990
Interest expense (338,197) (1,750,031)
- ----------------------------------------------------------------------------
INCOME BEFORE TAXES ON INCOME 545,978 1,698,072
TAXES ON INCOME 197,000 662,612
- ----------------------------------------------------------------------------
NET INCOME FOR THE PERIOD $ 348,978 $ 1,035,460
- ----------------------------------------------------------------------------
NET INCOME PER SHARE $ .10 $ .27
- ----------------------------------------------------------------------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 3,668,750 3,901,090
- ----------------------------------------------------------------------------
(a) Includes the results of Niagara Corporation, Niagara Cold Drawn Corp.
and Southwest Steel Company, Inc. from April 1, 1996. On November 1,
1996, Southwest Steel Company, Inc. was merged into Niagara Cold
Drawn Corp.
(b) Includes the results of Niagara Corporation, Niagara Cold Drawn Corp.
and LaSalle Steel Company from April 1, 1997.
See accompanying notes to financial statements.
NIAGARA CORPORATION
AND SUBSIDIARIES
STATEMENTS OF INCOME
(UNAUDITED)
- -------------------------------------------------------------------------
Six months ended June 30, 1996 (a) 1997 (b)
- -------------------------------------------------------------------------
NET SALES $ 40,421,929 $ 90,582,209
COST OF PRODUCTS SOLD 34,633,352 77,636,244
- -------------------------------------------------------------------------
GROSS PROFIT 5,788,397 12,945,965
OPERATING EXPENSES:
Selling, general and administrative 4,186,558 8,571,274
- -------------------------------------------------------------------------
INCOME FROM OPERATIONS 1,601,839 4,374,691
OTHER INCOME (EXPENSE):
Interest income 44,572 26,471
Interest expense (636,197) (2,146,819)
- -------------------------------------------------------------------------
INCOME BEFORE TAXES ON INCOME 1,010,214 2,254,343
TAXES ON INCOME 364,000 868,432
- -------------------------------------------------------------------------
NET INCOME FOR THE PERIOD $ 646,214 $ 1,385,911
- -------------------------------------------------------------------------
NET INCOME PER SHARE $ .18 $ .37
- -------------------------------------------------------------------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 3,668,750 3,785,562
- -------------------------------------------------------------------------
(a) Includes the results of Niagara Corporation and Niagara Cold Drawn
Corp. from January 1, 1996 and the results of Southwest Steel Company,
Inc. from February 1, 1996.
(b) Includes the results of Niagara Corporation and Niagara Cold Drawn
Corp. from January 1, 1997 and the results of LaSalle Steel Company from
April 1, 1997.
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
NIAGARA CORPORATION
AND SUBSIDIARIES
STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------------------
Period January 1, 1997 to June 30, 1997
- ---------------------------------------------------------------------------------------------------------------------------
Common Stock
-----------------------------
Number of Additional paid-in Retained earnings
shares Amount capital (deficit) Total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997 3,668,750 $3,669 $15,560,127 $ (37,589) $ 15,526,207
Shares issued (a) 285,715 286 1,321,146 - 1,321,432
Net income for the period - - - 1,385,911 1,385,911
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1997 3,954,465 $3,955 $16,881,273 $ 1,348,322 $ 18,233,550
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) On April 18, 1997, Niagara Corporation issued 285,715 shares of common
stock in connection with the subordinated debt portion of the financing
for the acquisition of LaSalle Steel Company. (See note 1)
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
NIAGARA CORPORATION
AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(UNAUDITED)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Six months ended June 30, 1996 (a) 1997 (b)
- ---------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 646,214 $ 1,385,911
- ---------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 847,736 2,304,092
Deferred income taxes (112,000) 80,000
Provision for doubtful accounts 37,000 40,903
Changes in assets and liabilities, net of effect
from purchase of Southwest in 1996 and LaSalle
in 1997:
Increase in accounts receivable (1,403,136) (2,601,675)
Decrease (increase) in inventories 3,643,111 (63,092)
Increase in other current assets (93,781) (125,598)
Increase (decrease) in other assets, net (305,392) 337,401
Increase (decrease) in trade accounts payable
and accrued expenses (182,918) 5,349,038
- ----------------------------------------------------------------------------------------------------
TOTAL ADJUSTMENTS 2,430,620 5,321,069
- ----------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 3,076,834 6,706,980
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Southwest, net of cash acquired (3,004,999) -
Acquisition of LaSalle, net of cash acquired - (67,240,635)
Acquisitions of fixed assets, net (2,422,091) (1,362,269)
- ----------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (5,429,090) (68,602,904)
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from financing 1,630,574 65,701,213
Financing fees (1,565,081)
- ----------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITY 64,136,132
- ----------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (719,682) 2,240,208
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,186,897 1,587,927
- ----------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,467,215 $ 3,828,135
- ----------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes the cash flows of Niagara Corporation and Niagara Cold Drawn
Corp. from January 1, 1996 and the cash flows of Southwest Steel Company,
Inc. from February 1, 1996.
(b) Includes the cash flows of Niagara Corporation and Niagara Cold Drawn
Corp. from January 1, 1997 and the cash flows of LaSalle Steel Company
from April 1, 1997.
See accompanying notes to financial statements.
NIAGARA CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - INFORMATION AS OF
JUNE 30, 1997 AND FOR THE PERIODS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED.
- ----------------------------------------------------------------------------
1. BASIS OF PRESENTATION The accompanying financial statements are
unaudited; however, in the opinion of
management, all adjustments necessary for a
fair statement of financial position and
results for the stated periods have been
included. These adjustments are of a
normal recurring nature. Selected
information and footnote disclosures
normally included in financial statements
prepared in accordance with generally
accepted accounting principles have been
condensed or omitted. Results for interim
periods are not necessarily indicative of
the results to be expected for an entire
fiscal year. It is suggested that these
condensed financial statements be read in
conjunction with the audited financial
statements and notes thereto as of and for
the year ended December 31, 1996.
2. ACQUISITION OF LASALLE On April 18, 1997, Niagara Corporation
("Niagara") and Niagara Cold Drawn Corp
("Niagara Cold Drawn") entered into a stock
purchase agreement with Quanex Corporation
("Quanex"), pursuant to which, and at a
closing occurring simultaneously therewith,
Niagara Cold Drawn purchased from Quanex
all of the outstanding shares of capital
stock of LaSalle Steel Company ("LaSalle").
Pursuant to the LaSalle stock purchase
agreement and in consideration for the sale
of the LaSalle shares (i) Niagara Cold
Drawn paid Quanex $65,500,000 in cash at
the closing and (ii) Quanex or Niagara Cold
Drawn, as the case may be, will pay the
other an amount based on changes in
LaSalle's stockholder's equity between
October 31, 1996 and March 31, 1997. The
LaSalle stock purchase agreement also
provides that Quanex or Niagara Cold Drawn,
as the case may be, pay the other an amount
based on cash activity in the intercompany
account between Quanex and LaSalle from
April 1, 1997 through April 18, 1997.
The acquisition was accounted for as a
purchase and the financial statements
include the results of LaSalle from April
1, 1997. The transaction purchase price
including acquisition costs and other
estimated liabilities at acquisition date
was approximately $70,000,000. The purchase
price exceeded LaSalle's stockholder's
equity by approximately $56,000,000, and
based on an appraisal, the excess was
primarily allocated to property, plant and
equipment.
The acquisition of LaSalle and the
refinancing of existing Niagara Cold Drawn
indebtedness was financed pursuant to (i) a
revolving credit and term loan agreement
with Niagara Cold Drawn and LaSalle
(guaranteed by Niagara), providing for a
$50,000,000 three-year revolving credit
facility and a $40,000,000 term loan and
(ii) the issuance and sale of $20,000,000
aggregate principal amount of 12.5% senior
subordinated notes of Niagara Cold Drawn
due April 18, 2005. In connection with the
subordinated debt portion of this
financing, the purchasers of these notes
were issued 285,715 shares of Niagara
common stock.
Pro forma results of operations, assuming
the acquisition had occurred on January 1,
1996, are unaudited and detailed below. Pro
forma adjustments primarily include
additional depreciation and amortization on
excess purchase price allocated to
property, plant, equipment and intangible
assets, additional interest expense related
to debt incurred for the acquisition, and
estimated salary reductions resulting from
the elimination of overlapping job
functions.
This pro forma data does not purport to be
indicative of the results which actually
would have been obtained had such
transactions been completed as of the
assumed dates or of the results which may
be obtained in the future.
SIX MONTHS ENDED June 30, 1996 June 30, 1997
---------------------------------------------------
NET SALES $126,095,929 $134,831,209
NET INCOME $ 1,596,152 $ 1,567,545
NET INCOME PER SHARE $ .40 $ .40
---------------------------------------------------
3. INVENTORIES Inventories consisted of the following:
December 31, June 30,
1996 1997
------------------------------------------------------
Raw materials $6,302,827 $18,468,743
Work-in-process 1,252,278 6,494,761
Finished goods 6,891,368 13,592,454
------------------------------------------------------
$14,446,473 $38,768,009
------------------------------------------------------
Inventories are stated using the LIFO method.
4. CONTINGENCIES On January 31, 1996, Niagara Cold Drawn
entered into a stock purchase agreement
with the stockholders of Southwest Steel
Company, Inc. ("Southwest"), pursuant to
which, and simultaneously therewith,
Niagara Cold Drawn purchased all of the
outstanding capital stock of Southwest for
$1,920,000 in cash and $1,156,773 principal
amount of Niagara Cold Drawn promissory
notes guaranteed by Niagara. On May 8,
1996, pursuant to the provisions of the
Southwest stock purchase agreement, Niagara
Cold Drawn asserted indemnification claims
in the aggregate amount of approximately
$1,300,000 against the former Southwest
stockholders. On May 22, 1996, Niagara Cold
Drawn brought an action against such
stockholders relating to these claims. The
defendants have denied liability in their
answer. On January 17, 1997, Niagara Cold
Drawn notified the former Southwest
stockholders that in light of the ongoing
claim for indemnification, Niagara Cold
Drawn was asserting its common law right of
offset and would not be making principal
and interest payments (the first of which
was due on January 31, 1997) under the
terms of the promissory notes issued to
such individuals in connection with the
acquisition.
Under applicable state and federal laws,
including the Comprehensive Environmental
Response, Compensation and Liability Act of
1980 as amended ("CERCLA"), LaSalle may be
responsible for parts of the costs required
to remove or remediate previously disposed
wastes or hazardous substances at the
locations LaSalle owns or operates or at
which it arranged for disposal of such
materials. The costs are largely covered by
insurance, in certain cases LaSalle is
classified as a de minimis contributor and
a reserve has been established for these
matters which management believes is
adequate. Niagara believes any settlement
of these matters will not have a material
adverse effect on its financial position.
Niagara Cold Drawn and LaSalle are also
subject to federal, state and local
environmental laws and regulations
concerning, among other matters, water
emissions and waste disposal. Management
believes that both companies currently are
in material compliance with all applicable
environmental laws and regulations.
Under Niagara Cold Drawn's 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.
5. SUBSEQUENT EVENTS Pursuant to the LaSalle stock purchase
agreement, Quanex or Niagara Cold Drawn, as
the case may be, will pay the other an
amount based on changes in LaSalle's
stockholder's equity between October 31,
1996 and March 31, 1997. On July 2, 1997,
Niagara and Niagara Cold Drawn submitted to
Quanex a statement disputing the amounts
reflected on the balance sheet of LaSalle
as of March 31, 1997 for inventory
reserves, doubtful account allowances and
certain accrued expenses and reserves, in
the aggregate amount of $2,136,584. Any
dispute between Niagara and Quanex
concerning such financial statements is
subject to binding arbitration by an
independent accounting firm. There is no
assurance that these disputed items will be
resolved in favor of Niagara and Niagara
Cold Drawn.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Niagara was organized in April of 1993. With the acquisition of
Niagara Cold Drawn in August 1995, Niagara entered the cold finished
steel bar industry. With plants in Buffalo, New York and Chattanooga,
Tennessee, Niagara Cold Drawn had an established position in the
northeast and southeast regions of the United States cold finished steel
bar market.
In January 1996, Niagara Cold Drawn acquired Southwest. During
1996, Southwest completed construction of a new plant outside of Dallas,
Texas and closed existing facilities in Tulsa, Oklahoma. With this
acquisition, Niagara gained an established position in the southwest
region of the United States because Southwest was the leading cold
finished steel bar producer servicing that area.
In April 1997, Niagara Cold Drawn completed its acquisition of
LaSalle, which has plants in Hammond and Griffith, Indiana. This
acquisition gave Niagara Cold Drawn a strong market position in the
midwest region of the United States and broadened Niagara Cold Drawn's
product range by adding thermal treated and chrome plated bars to its
product range.
After the acquisition of LaSalle, Niagara became the largest
independent producer of cold finished steel bars in the United States.
The geographic position of Niagara's plants create competitive advantages
because of freight savings and the ability to supply efficiently multiple
locations of steel service center companies.
THREE MONTHS ENDED JUNE 30, 1997 COMPARED WITH JUNE 30, 1996
Net sales for the three months ended June 30, 1997 were
$69,397,239, representing an increase of $47,779,127, or 221%, over the
same period in 1996. This increase resulted primarily from the
acquisition of LaSalle.
Cost of sales for the three months ended June 30, 1997 increased
by $40,889,037 to $59,468,687, representing an increase of 220% over the
same period in 1996. This increase was primarily attributable to the
increase in sales. Gross margins for the second quarter of 1997 were
unchanged.
Selling, general and administrative expenses for the three months
ended June 30, 1997 increased by $4,318,871 to $6,492,529, or 9.4% of
sales, compared to 10.1% of sales for the same period in 1996. This
dollar increase was due to the increased sales and the decline as a
percentage of sales was caused by the consolidation of the LaSalle and
Niagara Cold Drawn sales forces and other personnel reductions at
LaSalle.
Net interest expense for the three months ended June 30, 1997
increased $1,419,125 to $1,738,041, due primarily to the increased level
of debt incurred in connection with the acquisition of LaSalle.
Net income for the three months ended June 30, 1997 was
$1,035,460, an increase of $686,482, or approximately 197%, as compared
to the net income for the three months ended June 30, 1996. Of this
increase, 154% was attributable to the acquisition of LaSalle and 43% was
attributable to pre-existing operations.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH JUNE 30, 1996
Net sales for the six months ended June 30, 1997 were
$90,582,209, representing an increase of $50,160,280, or 124%, over the
same period in 1996. This increase resulted primarily from the
acquisition of LaSalle
Cost of sales for the six months ended June 30, 1997 increased by
$43,002,892 to $77,636,244, representing an increase of 124% over the
same period in 1996. This increase was primarily attributable to the
increase in sales. Gross margins for the first half of 1997 were
unchanged from those in 1996.
Selling, general and administrative expenses for the six months
ended June 30, 1997 increased by $4,384,716 to $8,571,274, or 9.5% of
sales, compared to 10.4% of sales for the same period in 1996. This
increase was primarily due to the increased sales, and the decline as a
percentage of sales was caused by the consolidation of the LaSalle and
Niagara Cold Drawn sales forces and other personnel reductions at
LaSalle.
Net interest expense for the six months ended June 30, 1997
increased $1,528,723 to $2,120,348, due primarily to the increased level
of debt incurred in connection with the acquisition of LaSalle.
Net income for the six months ended June 30, 1997 was $1,385,911,
an increase of $739,697, or approximately 115%, over the net income for
the six months ended June 30, 1996. Of this increase, 154% was
attributable to the acquisition of LaSalle and 43% was attributable to
pre-existing operations.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, Niagara had a $3,828,135 in cash and cash
equivalents. Such funds are used for working capital and other corporate
purposes.
Niagara's principal long-term liquidity requirement has been and
is expected to be the funding of capital expenditures to modernize,
improve and expand its facilities, machinery and equipment. Capital
expenditures for the six months ended June 30, 1997 totaled approximately
$1,360,000 compared to approximately $2,422,000 for the same period in
1996.
On April 18, 1997 and in connection with the acquisition of
LaSalle, Niagara Cold Drawn and LaSalle entered into a revolving credit
and term loan agreement (the "Credit Agreement") with Manufacturers and
Traders Trust Company ("M&T"), CIBC Inc. and National City Bank. The
Credit Agreement provides for a $50,000,000 revolving credit facility and
a $40,000,000 term loan. The obligations of Niagara Cold Drawn and
LaSalle under the Credit Agreement are guaranteed by Niagara and secured
by substantially all of the assets of Niagara Cold Drawn and LaSalle. In
addition, all of the outstanding capital stock of Niagara Cold Drawn and
LaSalle was pledged to M&T, as Agent. In connection with the execution of
the Credit Agreement, Niagara Cold Drawn terminated its previously
existing term loan and revolving credit agreements with M&T.
Principal of the term loan under the Credit Agreement amortizes
in monthly installments commencing on November 1, 1997 and ending on
April 1, 2004. The principal repayment installments on the term loan
escalate throughout the term of such loan. Interest on the term loan is
payable in monthly installments either at the LIBOR rate (for a period
specified by Niagara Cold Drawn from time to time) plus 285 basis points,
or M&T's prime rate plus 50 basis points. Revolving credit loans made
pursuant to the Credit Agreement will be based on a percentage of
eligible accounts receivable and inventory and will mature on April 17,
2000. Interest on such loans is payable in monthly installments and will
be either 250 basis points above the LIBOR rate (for a period specified
by Niagara Cold Drawn from time to time) or M&T's prime rate plus 25
basis points.
Note and stock purchase agreements were entered into on April 18,
1997, by and among Niagara, Niagara Cold Drawn, LaSalle and,
respectively, The Prudential Insurance Company of America, The Equitable
Life Assurance Society of the United States and United States Fidelity
and Guaranty Company (collectively, the "Note and Stock Purchase
Agreements") providing for, among other things, the issuance and sale of
$20,000,000 aggregate principal amount of 12.5% senior subordinated notes
of Niagara Cold Drawn due April 18, 2005 (the "Notes"). In connection
with this financing, the purchasers of the Notes were issued 285,715
shares of Niagara common stock.
The Note and Stock Purchase Agreements also provide for the
payment of interest on the outstanding principal amount of the Notes on
each April 18 and October 18 until such principal has been paid in full.
Niagara Cold Drawn may at any time on or after August 13, 2000 prepay all
or part of the amount owing under the Notes at amounts ranging from
112.5% to 100% of the outstanding principal amount. Niagara Cold Drawn is
obligated to prepay the Notes at 107% of the outstanding principal amount
with the net proceeds from any exercise of Niagara's warrants.
The Credit Agreement and the Note and Stock Purchase Agreements
carry restrictions on, among other things, indebtedness, liens, capital
expenditures, dividends, asset dispositions and changes in control of
Niagara and Niagara Cold Drawn, and require minimum levels of net worth
through maturity. Also included in these agreements are requirements
regarding the ratio of consolidated current assets to consolidated
current liabilities and the ratio of net income before interest, taxes,
depreciation and amortization to cash interest expense. Niagara was in
compliance with all of these requirements as of June 30, 1997.
At June 30, 1997, Niagara Cold Drawn had borrowed $23,000,000
under its revolving credit facility and had $25,419,000 in available
credit thereunder. Working capital of Niagara and its subsidiaries at
June 30, 1997 was $27,398,271 as compared to $12,087,913 on December 31,
1996.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Under applicable state and federal laws, including CERCLA,
LaSalle may be responsible for costs required to remove or remediate
previously disposed wastes or hazardous substances at locations owned or
operated by LaSalle or at locations owned or operated by third parties
where LaSalle, or a company from which LaSalle acquired assets, arranged
for the disposal of such materials. Claims for such costs have been made
against LaSalle with respect to three such third-party sites. Niagara
believes that, in two cases, the volumes of waste allegedly attributable
to LaSalle and the share of costs for which it may be liable are de
minimis. In the third case, LaSalle has received an insurance settlement
in an amount that exceeds the financial contribution it has been required
to make to date. Because liability under CERCLA and analogous state laws
is generally joint and several and because further remediation work may
be required at these sites, LaSalle may be required to contribute addi-
tional funds. However, based on its volumetric share of wastes disposed
and the participation of other potentially liable parties, Niagara does
not believe that its share of additional costs will have a material
adverse effect on its business or financial position.
ITEM 2. CHANGES IN SECURITIES
In connection with the acquisition of LaSalle and the refinancing
of existing Niagara Cold Drawn indebtedness, Niagara, Niagara Cold Drawn
and LaSalle entered into the Note and Stock Purchase Agreements with,
respectively, The Prudential Insurance Company of America, The Equitable
Life Assurance Society of the United States and United States Fidelity
and Guaranty Company (collectively, the "Purchasers"). The Note and Stock
Purchase Agreements provided, among other things, for the issuance on
April 18, 1997 of 285,715 shares (the "Shares") of Niagara common stock
to the Purchasers, which Shares were valued at $4.625 per Share, the then
market price, or $1,321,432 in the aggregate. The sale of the Shares was
exempt from registration under the Securities Act of 1993, as amended,
pursuant to Section 4(2) thereof, as a transaction not involving a public
offering. CIBC Wood Gundy Securities Corp. ("CIBC") served as placement
agent in connection with the issuance of the Shares and the Notes.
Niagara and Niagara Cold Drawn paid CIBC $790,081 in fees and expenses as
consideration for such services. The Note and Stock Purchase Agreements
carry certain restrictions on Niagara and Niagara Cold Drawn. See
"MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Liquidity and Capital Resources."
In connection with the execution of the Note and Stock Purchase
Agreements, Niagara, Niagara Cold Drawn, Michael Scharf and each of the
Purchasers entered into a Stockholders Agreement dated as of April 18,
1997 (the "Stockholders Agreement"). The Stockholders Agreement provides,
among other things, for restrictions on the transfer of, and registration
rights with respect to, the Shares, as well as drag-along and tag-along
rights in connection with certain transactions effected by Mr. Scharf or
certain trusts of which he is a trustee.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
(a) An Annual Meeting of Niagara Stockholders was held
on May 29, 1997.
(b) Michael J. Scharf, Gilbert D. Scharf, Gerald L. Cohn
and Andrew R. Heyer were re-elected as directors of Niagara.
(c) The matters voted upon at the Annual Meeting were (i) the
election of Michael J. Scharf, Gilbert D. Scharf, Gerald L. Cohn and
Andrew R. Heyer to hold office until the next Annual Meeting of
Stockholders or until their respective successors have been duly elected
and qualified, the vote as to which was 3,345,218 for and 3,000 withheld
in connection with each of the four nominees and (ii) the ratification
and approval of the appointment of BDO Seidman LLP as independent
accountants for 1997, the vote as to which was 3,346,018 for, 2,000
against and 200 abstentions.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 10-Q
(a) Exhibits
+3.1 Registrant's Restated Certificate of Incorporation, as
amended on May 16, 1996.
*3.2 Registrant's By-laws.
*4.1 Form of Common Stock Certificate.
*4.2 Form of Warrant Certificate.
**4.3 Warrant Agreement between Continental Stock Transfer & Trust
Company and the Registrant.
+++4.4 Revolving Credit and Term Loan Agreement, dated as of April
18, 1997, by and among Niagara Cold Drawn Corp., LaSalle Steel
Company, Manufacturers and Traders Trust Company (individually
and as Agent), CIBC Inc. and National City Bank.
+++4. Form of Note and Stock Purchase Agreement, dated as of April 18,
1997, by and among the Registrant, Niagara Cold Drawn Corp.,
LaSalle Steel Company and each of The Prudential Insurance
Company of America, The Equitable Life Assurance Society of
the United States and United States Fidelity and Guaranty
Company.
+++4.6 Stockholders Agreement, dated as of April 18, 1997, among the
Registrant, Niagara Cold Drawn Corp., Michael J. Scharf, The
Prudential Insurance Company of America, The Equitable Life
Assurance Society of the United States and United States
Fidelity and Guaranty Company.
+10.1 Stock Purchase Agreement by and among Niagara Cold Drawn Corp.
and the stockholders of Southwest Steel Company, Inc., dated
January 31, 1996.
++10.2 Form of Promissory Note made by Niagara Cold Drawn Corp.,
dated January 31, 1996.
++10.3 Form of Guaranty made by the Registrant, dated January 31, 1996.
++10.4 Amended and Restated Promissory Note made by Southwest Steel
Company, Inc. in favor of the Cohen Family Revocable Trust,
u/t/a dated June 15, 1988, in the principal amount of
$898,000, dated January 31, 1996.
++10.5 Guaranty, made by the Registrant in favor of the Cohen Family
Revocable Trust, u/t/a dated June 15, 1988, dated January 31, 1996.
+++10.6 UPO Exchange Agreement by and among the Registrant and GKN
Securities Corp., Roger Gladstone, David M. Nussbaum, Robert
Gladstone, Richard Buonocore, Debra L. Schondorf, Andrea B.
Goldman, Ira S. Greenspan and Barington Capital Corp., L.P.
++++10.7 International Metals Acquisition Corporation 1995 Stock Option
Plan.
++++10.8 First Amendment to the International Metals Acquisition
Corporation 1995 Stock Option Plan, dated October 5, 1996.
+++10.9 Stock Purchase Agreement, dated April 18, 1997, by and among
the Registrant, Niagara Cold Drawn Corp. and Quanex
Corporation.
27 Financial Data Schedule.
- --------------------------
+ Incorporated by reference to exhibits filed with the Registrant's
Report on Form 10-Q for the quarter ended June 30, 1996.
* Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-1, Registration No. 33-64682.
** Incorporated by reference to exhibits filed with the Registrant's
Report on Form 10-K for the fiscal year ended December 31, 1993.
+ Incorporated by reference to exhibits filed with the Registrant's
Report on Form 8-K, dated February 13, 1996.
++ Incorporated by reference to exhibits filed with the Registrant's
Report on Form 10-K for the year ended December 31, 1995.
+++ Incorporated by reference to exhibit 10.1 to the Registrant's Report
on Form 8-K, dated May 30, 1996.
++++ Incorporated by reference to Annex A to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders held on May 16, 1996.
++ Incorporated by reference to exhibit 10.10 to the Registrant's Report
on Form 10-K for the fiscal year ended December 31, 1996.
+++ Incorporated by reference to exhibits filed with the Registrant's
Report on Form 8-K, dated May 2, 1997.
(b) Reports on Form 8-K
The Registrant filed its Report on Form 8-K, dated May 2 1997 (the
"8-K"), reporting under Item 2 (i) the acquisition of LaSalle, (ii) the
execution of the Credit Agreement, (iii) the execution of the Note and
Stock Purchase Agreements (and the issuance of securities thereunder)
and (iv) the execution of the Stockholders Agreement; and reporting
under Item 7, the financial statements of LaSalle. The pro forma
financial information was filed by an 8-K amendment on July 2, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 8, 1997 NIAGARA CORPORATION
--------------------
(Registrant)
/s/ Gilbert D. Scharf
----------------------------------
Gilbert D. Scharf, Vice President
Date: August 8, 1997 /s/ Gilbert D. Scharf
----------------------------------
Gilbert D. Scharf, Principal
Accounting Officer
EXHIBIT INDEX
Exhibit No. Description Page No.
27 Financial Data Schedule 23
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF NIAGARA CORPORATION AND
SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,828,135
<SECURITIES> 0
<RECEIVABLES> 28,215,029
<ALLOWANCES> 671,083
<INVENTORY> 38,768,009
<CURRENT-ASSETS> 70,639,758
<PP&E> 95,457,990
<DEPRECIATION> 4,230,587
<TOTAL-ASSETS> 176,186,577
<CURRENT-LIABILITIES> 43,241,487
<BONDS> 83,277,692
<COMMON> 3,955
0
0
<OTHER-SE> 18,229,595
<TOTAL-LIABILITY-AND-EQUITY> 176,186,577
<SALES> 90,582,209
<TOTAL-REVENUES> 90,582,209
<CGS> 77,636,244
<TOTAL-COSTS> 77,636,244
<OTHER-EXPENSES> 8,571,274
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,146,819
<INCOME-PRETAX> 2,254,343
<INCOME-TAX> 868,432
<INCOME-CONTINUING> 1,385,911
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,385,911
<EPS-PRIMARY> .37
<EPS-DILUTED> .37
</TABLE>
