SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended September 30, 1998
Commission File Number 0-22206
NIAGARA CORPORATION
----------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 59-3182820
------------------------------ ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
667 Madison Avenue
New York, New York 10021
-------------------------------------
(Address of principal executive office)
(212) 317-1000
----------------------
(Registrant's telephone
number, including area code)
N/A
------------------------------------------------------
(Former name, former address and former fiscal year, if
changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES X . NO .
Number of shares of Common Stock outstanding at September 30, 1998
Common Stock, par value $.001 per share 9,671,575
--------------------------------------- ------------------
(Class) (Number of Shares)
NIAGARA CORPORATION
Index to September 30, 1998 Form 10-Q
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Page
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Part I - Financial Information (Unaudited)
Financial Statements (Unaudited):
Niagara Corporation
Balance Sheets............................................ 3
Statements of Operations.................................. 4-5
Statement of Stockholders' Equity......................... 6
Statements of Cash Flows.................................. 7
Notes to Financial Statements............................. 8-11
Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................ 12-17
Part II - Other Information........................................... 18
Signatures............................................................ 22
<TABLE>
<CAPTION>
Niagara Corporation
and Subsidiaries
Balance Sheets
==========================================================================================
December September
31, 1997 30, 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current:
Cash and cash equivalents $ 13,207,077 $ 1,738,475
Trade accounts receivable, net of allowance for
doubtful accounts of $727,000
and $804,000 21,660,230 19,120,892
Inventories 35,189,568 33,125,312
Deferred income taxes 1,401,000 1,122,474
Other current assets 1,822,354 1,761,535
- ------------------------------------------------------------------------------------------
Total current assets 73,280,229 56,868,688
Property, plant and equipment, net of accumulated
depreciation of $7,104,699 and $11,880,894 89,162,776 89,708,246
Goodwill, net of accumulated amortization of
$145,013 and $203,162 2,177,125 2,118,976
Deferred financing costs, net of accumulated
amortization of $73,792 and $156,808 701,208 618,192
Other assets, net of accumulated amortization of
$277,361 and $328,615 1,198,528 761,155
- ------------------------------------------------------------------------------------------
$ 166,519,866 $ 150,075,257
==========================================================================================
Liabilities and Stockholders' Equity
Current:
Accounts payable $ 20,984,715 $ 16,542,355
Accrued expenses 8,679,723 9,778,148
Due to Quanex Corporation 1,371,000 -
Current maturities of long-term debt 3,498,069 4,496,678
- ------------------------------------------------------------------------------------------
Total current liabilities 34,533,507 30,817,181
Other:
Long-term debt, less current maturities 59,184,388 44,880,659
Accrued pension cost 1,845,900 2,391,310
Accrued post-retirement welfare benefits 12,691,000 9,515,207
Deferred income taxes 5,726,000 6,463,000
Other noncurrent liabilities 542,669 264,071
- -----------------------------------------------------------------------------------------
Total other liabilities 79,989,957 63,514,247
- -----------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock, $.001 par value - 500,000 shares
authorized; none outstanding - -
Common stock, $.001 par value - 15,000,000 shares
authorized; 9,997,455 issued 9,998 9,998
Additional paid-in capital 50,111,675 50,111,675
Retained earnings 1,874,729 7,642,586
- -----------------------------------------------------------------------------------------
51,996,402 57,764,259
Treasury stock, at cost, 325,880 shares - (2,020,430)
- ------------------------------------------------------------------------------------------
Total stockholders' equity 51,996,402 55,743,829
- ------------------------------------------------------------------------------------------
$ 166,519,866 $ 150,075,257
==========================================================================================
See accompanying notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Niagara Corporation
and Subsidiaries
Statements of Operations
(Unaudited)
=========================================================================================
<S> <C> <C>
Three months ended September 30, 1997 1998
- -----------------------------------------------------------------------------------------
Net sales $ 60,244,152 $ 47,813,680
Cost of products sold 52,349,809 40,284,096
- -----------------------------------------------------------------------------------------
Gross profit 7,894,343 7,529,584
Operating expenses:
Selling, general and administrative 3,581,487 4,316,712
- -----------------------------------------------------------------------------------------
Income from operations 4,312,856 3,212,872
Other income (expense):
Interest income 7,630 8,240
Interest expense (1,920,662) (958,442)
Other income 183,538 66,360
- -----------------------------------------------------------------------------------------
Income before taxes on income 2,583,362 2,329,030
Taxes on income 1,007,352 885,000
- -----------------------------------------------------------------------------------------
Net income $ 1,576,010 $ 1,444,030
- -----------------------------------------------------------------------------------------
Earnings per share (basic) $ .40 $ .15
- -----------------------------------------------------------------------------------------
Earnings per share (diluted) $ .28 $ .14
- -----------------------------------------------------------------------------------------
Weighted average common shares outstanding:
Basic 3,954,465 9,890,616
Diluted 5,721,330 10,237,091
=========================================================================================
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
Niagara Corporation
and Subsidiaries
Statements of Operations
(Unaudited)
========================================================================================
Nine months ended September 30, 1997 (a) 1998 (b)
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $147,750,693 $165,834,123
Cost of products sold 129,946,053 140,872,652
- ----------------------------------------------------------------------------------------
Gross profit 17,804,640 24,961,471
Operating expenses:
Selling, general and administrative 9,117,093 12,595,861
- ----------------------------------------------------------------------------------------
Income from operations 8,687,547 12,365,610
Other income (expense):
Interest income 34,101 165,305
Interest expense (4,067,481) (3,259,595)
Other income 183,538 181,537
- ----------------------------------------------------------------------------------------
Income before taxes on income 4,837,705 9,452,857
Taxes on income 1,875,784 3,685,000
- ----------------------------------------------------------------------------------------
Net income $ 2,961,921 $ 5,767,857
- ----------------------------------------------------------------------------------------
Earnings per share (basic) $ .77 $ .58
- ----------------------------------------------------------------------------------------
Earnings per share (diluted) $ .72 $ .55
- ----------------------------------------------------------------------------------------
Weighted average common shares outstanding:
Basic 3,843,354 9,961,835
Diluted 4,106,216 10,399,182
- ----------------------------------------------------------------------------------------
</TABLE>
(a) Includes the results of LaSalle Steel Company from April 1, 1997.
(b) Includes the results of LaSalle Steel Company for the entire period.
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
Niagara Corporation
and Subsidiaries
Statement of Stockholders' Equity
==================================================================================================================
Nine Months ended September 30, 1998
- ------------------------------------------------------------------------------------------------------------------
Common Stock
------------------
Number Additional
of paid-in
shares Amount capital Retained earnings Treasury stock Total
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998 9,997,455 $9,998 $50,111,675 $1,874,729 - $ 51,996,402
Purchase of treasury
shares, at cost - - - - ($2,020,430) (2,020,430)
Net income for the period - - - 5,767,857 - 5,767,857
- ------------------------------------------------------------------------------------------------------------------
Balance, September 30,
1998 9,997,455 $9,998 $50,111,675 $7,642,586 ($2,020,430) $ 55,743,829
==================================================================================================================
See accompanying notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Niagara Corporation
and Subsidiaries
Statements of Cash Flows
(Unaudited)
===============================================================================================
<S> <C> <C>
Nine months ended September 30, 1997 (a) 1998 (b)
- -----------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 2,961,921 $ 5,767,857
- -----------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,194,396 4,968,615
Accrued post-retirement welfare benefits - (3,175,793)
Provision for doubtful accounts 76,454 76,905
Deferred income taxes 120,000 1,015,526
Accrued pension costs - 545,410
Changes in assets and liabilities:
Decrease (increase) in accounts receivable (1,400,888) 2,462,433
Decrease (increase) in inventories 443,031 2,064,256
Decrease in other assets, net (16,078) 389,290
Increase (decrease) in trade accounts
payable and accrued expenses 1,535,492 (3,343,933)
- -----------------------------------------------------------------------------------------------
Total adjustments 4,952,407 5,002,709
- -----------------------------------------------------------------------------------------------
Net cash provided by operating
activities 7,914,328 10,770,566
- -----------------------------------------------------------------------------------------------
Cash flows from investing activities:
Acquisition of LaSalle, net of cash acquired (67,240,635) -
Repayment of amount to Quanex - (1,371,000)
Acquisition of treasury stock - (2,020,430)
Acquisition of fixed assets (2,395,621) (5,264,011)
- ----------------------------------------------------------------------------------------------
Net cash used in investing activities (69,636,256) (8,655,441)
- ----------------------------------------------------------------------------------------------
Cash flows from (used in) financing activities:
Proceeds from long-term debt 62,769,285 -
Financing costs (1,565,081) -
Repayment of long-term debt - (13,583,727)
- ----------------------------------------------------------------------------------------------
Net cash provided by (used in) financing
activities 61,204,204 (13,583,727)
- ----------------------------------------------------------------------------------------------
Net Increase (decrease) in cash and cash equivalents (517,724) (11,468,602)
Cash and cash equivalents, beginning of period 1,587,927 13,207,077
- ----------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 1,070,203 $ 1,738,475
==============================================================================================
(a) Includes the cash flows of LaSalle Steel Company from April 1, 1997.
(b) Includes the cash flows of LaSalle Steel Company for the entire period.
See accompanying notes to financial statements.
</TABLE>
Niagara Corporation
and Subsidiaries
Notes to Financial Statements - Information as of
September 30, 1998 and for the periods ended
September 30, 1997 and 1998 is unaudited.
============================================================================
1. Basis of The accompanying financial statements are unaudited;
Presentation 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 accompanying notes for the year ended
December 31, 1997.
Certain reclassifications, primarily related to
delivery costs, have been made to prior year
amounts to conform to current year presentation.
Net sales for the three months and nine months
ended September 30, 1997 are stated after
reduction for delivery costs. Previously, such
costs had been included as a component of
selling, general and administrative expenses.
This reclassification resulted in no change to
income from operations for this period.
Effective January 1, 1998, the Company (as
defined below) adopted Statement of Financial
Accounting Standards No. 130, "Reporting
Comprehensive Income," which establishes
standards for reporting and display of
comprehensive income, its components and
accumulated balances. Comprehensive income is
defined to include all changes in equity except
those resulting from investments by owners and
distributions to owners. Adoption of the standard
has had no effect on financial statement
disclosures.
2. Acquisition of On April 18, 1997, Niagara LaSalle Corporation
LaSalle (formerly Niagara Cold Drawn Corp.) ("Niagara
LaSalle"), a subsidiary of Niagara Corporation
("Niagara"), purchased from Quanex Corporation
("Quanex") all outstanding shares of capital
stock of LaSalle Steel Company ("LaSalle," and,
collectively with Niagara and Niagara LaSalle,
the "Company"), one of the largest domestic
producers of cold drawn steel bars. In
consideration for the sale of such shares,
Niagara LaSalle paid Quanex $65,500,000 in cash
at the closing and an additional $1,371,000,
which amount was paid on January 26, 1998, based
on changes in LaSalle's stockholder's equity
between October 31, 1996 and March 31, 1997.
Niagara LaSalle also paid Quanex an amount based
on cash activity in the intercompany account
between Quanex and LaSalle from April 1, 1997
through April 18, 1997.
The financial statements include the results of
LaSalle from April 1, 1997. Accordingly,
LaSalle's results are included in the third
quarter of 1997 and 1998 and the nine months
ended September 30, 1998 but are only included
from April 1, 1997 for the nine months ended
September 30, 1997.
The acquisition of LaSalle was accounted for as a
purchase. The purchase price, including
acquisition costs and other estimated liabilities
as of the acquisition date, was approximately
$68,000,000. 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 LaSalle indebtedness was
financed pursuant to (i) a revolving credit and
term loan agreement with Niagara LaSalle and
LaSalle (guaranteed by Niagara), providing for a
$50,000,000 three-year revolving credit facility
and a $40,000,000 eight-year term loan and (ii)
the issuance and sale of $20,000,000 aggregate
principal amount of 12.5% senior subordinated
notes of Niagara LaSalle due April 18, 2005 (the
"Subordinated Notes"). In connection with the
subordinated debt portion of this financing, the
purchasers of the Subordinated Notes were issued
285,715 shares of Niagara Common Stock.
Pro forma results of operations, assuming the
acquisition of LaSalle had occurred on January 1,
1997, are unaudited and detailed below. Pro forma
adjustments primarily include additional
depreciation and amortization on the excess
purchase price allocated to property, plant and
equipment and additional interest expense related
to debt incurred for the acquisition. This pro
forma data does not purport to be indicative of
the results that would have been obtained had
such transaction been completed as of the assumed
date or of the results which may be obtained in
the future.
Nine months ended September 30, 1997
-------------------------------------------------------
Net Sales $ 191,999,693
Net Income $ 2,747,055
Net Income per share (basic) $ .71
Net Income per share (diluted) $ .67
-------------------------------------------------------
3. Inventories Inventories consisted of the following:
December 31, September 30,
1997 1998
-------------------------------------------------------
Raw materials $ 13,179,052 $ 10,034,285
Work-in-process 5,984,649 6,470,032
Finished goods 16,025,867 16,620,995
-------------------------------------------------------
$ 35,189,568 $ 33,125,312
=======================================================
Inventories are stated using the LIFO method.
4. Collective On July 20, 1998, following a nine-week strike,
Bargaining LaSalle reached a three-year agreement with
Agreement the hourly workers at its Hammond, Indiana facility
that provided, among other things, for a
curtailment of certain post-retirement welfare
benefits and pension costs. The net effect of
these curtailments was to reduce the Company's
obligations by $1,746,015 resulting in an
increase to net income of $1,065,069 for the
quarter ended September 30, 1998.
5. Stock Repurchase On May 20, 1998, Niagara's Board of Directors
authorized the repurchase, from time to time, of
up to one million shares of Niagara Common Stock
in open market and privately negotiated
transactions. During the quarter ended September
30, 1998, Niagara repurchased 325,880 shares of
its Common Stock at a cost of $2,020,430. The
shares repurchased are held as treasury stock.
6. Contingencies Niagara LaSalle and LaSalle are subject to
federal, state and local environmental laws and
regulations concerning, among other matters,
water emissions and waste disposal. Management
believes that Niagara LaSalle and LaSalle are
currently in material compliance with all
applicable environmental laws and regulations.
Under applicable state and federal laws,
including the Comprehensive Environmental
Response, Compensation and Liability Act of 1980
as amended ("CERCLA"), Niagara LaSalle and
LaSalle may be responsible for parts of the costs
required to remove or remediate previously
disposed wastes or hazardous substances at the
locations they own or operate or at which they
arranged for disposal of such materials. The
costs incurred through September 30, 1998 have
been covered by insurance. Management believes
any resolution of these matters will not have a
material adverse effect on the Company's
financial position.
Under the Company'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 the Company 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 the Company'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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Niagara was organized in April of 1993. With the acquisition of
Niagara LaSalle in August 1995, Niagara entered the cold drawn steel bar
industry. With plants in Buffalo, New York and Chattanooga, Tennessee,
Niagara LaSalle had an established position in the northeast and southeast
regions of the United States cold drawn steel bar market.
In January 1996, Niagara LaSalle acquired Southwest Steel Company,
Inc. ("Southwest"). During 1996, Southwest completed construction of a new
plant outside of Dallas, Texas, relocated its Tulsa, Oklahoma operations to
this new facility and was merged into Niagara LaSalle. With this
acquisition, Niagara gained an established position in the southwest region
of the United States because Southwest was the leading cold drawn steel bar
producer servicing that area.
In April 1997, Niagara LaSalle acquired LaSalle, which has plants in
Hammond and Griffith, Indiana. This acquisition gave Niagara LaSalle a
strong market position in the midwest region of the United States and
broadened Niagara LaSalle's product range by adding thermal treated and
chrome plated bars.
With the acquisition of LaSalle, Niagara became the largest independent
producer of cold drawn steel bars in the United States. The geographic
position of Niagara's plants creates competitive advantages because of
freight savings and the ability to supply efficiently multiple locations of
steel service centers.
During the fourth quarter of 1997, nearly all of Niagara's 6,050,000
Redeemable Common Stock Purchase Warrants ("Warrants") were exercised
resulting in approximately $33.2 million in gross proceeds to the Company.
This significantly strengthened the Company's balance sheet at December 31,
1997 by enabling it to prepay, with approximately $21.8 million of such
proceeds, the Subordinated Notes in their entirety and by increasing total
stockholders' equity to approximately $52 million at year end. During the
first quarter of 1998, the Company used another $10 million of such
proceeds to reduce the balance due under its revolving credit facility.
Results of Operations
The following comparisons reflect certain reclassifications, primarily
relating to delivery costs, for the three months and nine months ended
September 30, 1997. Net sales for the three months and nine months ended
September 30, 1997 are stated after reduction for delivery costs.
Previously, such costs had been included as a component of selling, general
and administrative expenses. These reclassifications resulted in no change
to income from operations for these periods and were made to conform to
current year presentation.
Results of operations for the three months and nine months ended
September 30, 1998 were impacted by a nine-week strike by the hourly
workers at LaSalle's Hammond, Indiana facility that began on May 18, 1998.
Although the Hammond facility continued production during the strike
through the efforts of supervisors and replacement workers, output was at a
significantly reduced level, and sales from this facility were at
approximately 50% of pre-strike levels. The strike ended on July 20, 1998
following a vote by the striking workers to accept LaSalle's last proposal
for a new three-year collective bargaining agreement. Management believes
that, under the new agreement, operating costs at the Hammond facility will
be reduced, primarily through the implementation of a two-tier wage system,
changes in work rules leading to greater manpower flexibility, and the
decrease of certain post-retirement welfare benefits and pension costs.
Three Months ended September 30, 1998 compared with September 30, 1997
Net sales for the three months ended September 30, 1998 were
$47,813,680, representing a decrease of $12,430,472, or 20.6%, over the
same period in 1997. Approximately two-thirds of this decrease was
attributable to reduced production at the Company's Hammond facility during
the strike and the gradual increase of production levels thereafter due to
a lengthy training period for new employees. The remainder of the decrease
was attributable primarily to a reduction in the production of commodity
products and an increased emphasis on production of higher margin
value-added products.
Cost of sales for the three months ended September 30, 1998 decreased
by $12,065,713 to $40,284,096, representing a decrease of 23% over the same
period in 1997. Approximately 85% of this decrease resulted from the
decrease in sales, and the remainder resulted from the reduction in certain
post-retirement welfare benefits and pension costs.
Gross margins for the three months ended September 30, 1998 increased
by 2.7% over the same period in 1997, due to greater emphasis on higher
margin value-added products and the reduction in labor expenses relating to
certain post-retirement welfare benefits and pension costs.
Selling, general and administrative expenses for the three months
ended September 30, 1998 increased by $735,225 to $4,316,712, or 9.0% of
sales, compared to 5.9% of sales for the same period in 1997. This increase
was largely attributable to increased administrative expenses associated
with the strike and the upgrade of the Company's computer systems.
Net interest expense for the three months ended September 30, 1998
decreased by $962,830 to $950,202, due primarily to the reduced levels of
borrowing.
Net income for the three months ended September 30, 1998 was
$1,444,030, a decrease of $131,980, or 8.4%, as compared to the net income
for the three months ended September 30, 1997. This decrease was due
primarily to the decrease in sales caused by the strike, which was offset,
in part, by the $1,065,069 increase in net income resulting from the
curtailment of certain post-retirement welfare benefits and pension costs.
Nine months ended September 30, 1998 compared with September 30, 1997
Net sales for the nine months ended September 30, 1998 were
$165,834,123, representing an increase of $18,083,430, or 12.2%, over the
same period in 1997. This increase was due primarily to the addition of
sales attributable to LaSalle for the entire period in 1998 as compared to
only the second and third quarters in 1997. Sales were adversely affected
by an estimated $8 million to $11 million during the second and third
quarters of 1998 by reduced production at the Company's Hammond, Indiana
facility due to a nine-week strike and a lengthy training period for new
employees.
Cost of sales for the nine months ended September 30, 1998 increased
by $10,926,599 to $140,872,652, representing an increase of 8.4% over the
same period in 1997. This increase was primarily attributable to the
increase in volume.
Gross margins for the nine months ended September 30, 1998 increased
by 3.0% over the same period in 1997, due to greater emphasis on higher
margin value-added products and the reduction in labor expenses relating
primarily to post-retirement benefits.
Selling, general and administrative expenses for the nine months ended
September 30, 1998 increased by $3,478,768 to $12,595,861, or 7.6% of
sales, compared to 6.2% of sales for the same period in 1997. This increase
was due to the inclusion of LaSalle selling, general and administrative
expenses for the full period in 1998 as compared to only the second and
third quarters in 1997, the additional administrative expenses associated
with the strike, and the upgrade of the Company's computer systems.
Net interest expense for the nine months ended September 30, 1998
decreased by $939,090 to $3,094,290, due primarily to the reduced levels of
borrowing.
Net income for the nine months ended September 30, 1998 was
$5,767,857, an increase of $2,805,936, or 95%, as compared to the net
income for the nine months ended September 30, 1997. This increase was due
primarily to the addition of LaSalle's results for the entire period in
1998 as compared to only the second and third quarters in 1997. This
increase was due also to an increase in net income resulting from the
curtailment of certain post-retirement welfare benefits and pension costs,
which was offset, in part, by a decrease in net income by an estimated $1.6
million to $2.6 million due to the effect of the strike. Net income for the
nine months ended September 30, 1998 increased by $3,020,802 as compared to
the pro-forma net income (see Note 2 to the Financial Statements) for the
nine months ended September 30, 1997. This increase resulted primarily from
the reduced earnings of LaSalle in the first quarter of 1997 as compared to
previous quarters (which was offset, in part, by reduced earnings in 1998
as a result of the strike), interest savings resulting from the warrant
redemption in December of 1997 and the subsequent reduction of debt,
decreased costs as a result of consolidating selling and administrative
functions at Niagara LaSalle and LaSalle, and improved margins resulting
from an emphasis on higher margin value-added products.
Liquidity and Capital Resources
The Company's short-term liquidity requirement for day-to-day
operating expenses has been, and is expected to continue to be, funded by
operations and borrowings under its revolving credit facility. The
Company's principal long-term liquidity requirement has been, and is
expected to continue to be, the funding of capital expenditures to
modernize, improve and expand its facilities, machinery and equipment.
Capital expenditures for the nine months ended September 30, 1998 totaled
$5,264,011 as compared to $2,395,621 for the same period in 1997. This
increase in expenditures was largely due to the installation of new
production equipment and the upgrading of the Company's computer systems.
Cash flows provided by operations were $10,770,566 for the nine months
ended September 30, 1998, an increase of $2,856,238 compared to the same
period in 1997. This increase is attributable to the increase in net
income. At September 30, 1998, the Company had $1,738,475 in cash and cash
equivalents. Such funds are used for working capital and other corporate
purposes.
On April 18, 1997 and in connection with the acquisition of LaSalle,
Niagara LaSalle and LaSalle entered into a revolving credit and term loan
agreement (the "Credit Agreement") with Manufacturers and Traders Trust
Company ("M&T"), CIBC Inc., National City Bank, National Bank of Canada and
the Prudential Insurance Company of America, and Niagara LaSalle terminated
its previously existing credit agreements with M&T. The Credit Agreement
provides for a $50,000,000 three-year revolving credit facility and a
$40,000,000 eight-year term loan. The obligations of Niagara LaSalle and
LaSalle under the Credit Agreement are guaranteed by Niagara and secured by
substantially all of the assets and a pledge of all outstanding capital
stock of Niagara LaSalle and LaSalle.
Principal of the term loan under the Credit Agreement amortizes in
monthly installments that commenced on November 1, 1997 and end on April 1,
2004. The principal repayment installments on the term loan escalate
throughout its term. Interest on the term loan is payable in monthly
installments either at the LIBOR rate (for a period specified by Niagara
LaSalle from time to time) plus 235 basis points, or M&T's prime rate plus
50 basis points. Revolving credit loans made pursuant to the Credit
Agreement are 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 is either 200 basis points above the
LIBOR rate (for a period specified by Niagara LaSalle from time to time) or
M&T's prime rate plus 25 basis points.
The Credit Agreement carries restrictions on, among other things,
indebtedness, liens, capital expenditures, dividends, asset dispositions
and changes in control of Niagara LaSalle and LaSalle, and requires minimum
levels of net worth through maturity. Also included in this agreement 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 LaSalle was in compliance with all of these requirements as of
September 30, 1998.
On October 31, 1997, Niagara exercised its right to redeem all of its
then outstanding and unexercised Warrants. Each outstanding Warrant
entitled the holder to purchase from Niagara, prior to the exercise
deadline, one share of Niagara Common Stock at an exercise price of $5.50.
Of the 6,050,000 Warrants outstanding prior to the call for redemption,
6,042,990 were exercised resulting in $33,236,445 in gross proceeds to
Niagara and the issuance of 6,042,990 shares of Niagara Common Stock. The
Company used approximately $21.8 million of such proceeds during the fourth
quarter of 1997 to prepay in their entirety, at 107% plus accrued interest,
the Subordinated Notes. During the first quarter of 1998, the Company used
another $10 million of such proceeds to reduce the balance due under its
revolving credit facility.
On May 20, 1998, Niagara's Board of Directors authorized the
repurchase, from time to time, of up to one million shares of Niagara
Common Stock in open market and privately negotiated transactions. Such
repurchases are subject to market and other conditions and financed with
internally generated funds or borrowings under the revolving credit
facility. Shares of Niagara Common Stock repurchased are held as treasury
stock and are available for use in the Company's benefit plans and for
general corporate purposes. During the quarter ended September 30, 1998,
Niagara repurchased 325,880 shares of its Common Stock at a cost of
$2,020,430.
At September 30, 1998, Niagara LaSalle had borrowed $11,000,000 under
its revolving credit facility and had approximately $26,000,000 in
available credit thereunder, and the outstanding balance of its term loan
was $37,581,570. Working capital of the Company at September 30, 1998 was
$26,051,507 as compared to $38,746,722 on December 31, 1997.
Year 2000 Compliance
The Company is in the process of modifying and upgrading its computer
software applications and systems and anticipates spending approximately
$1,000,000 in connection therewith. Approximately $800,000 of such funds
had been expended as of September 30, 1998. The Company expects these new
applications and systems to accommodate the "Year 2000" dating changes
necessary to permit correct recording of year dates for 2000 and later
years. The Company anticipates these new applications and systems to be in
place by the end of 1998, and, accordingly, to be able to achieve Year 2000
compliance by such date. In addition, the Company is in the process of
assessing the Year 2000 compliance status of its suppliers and customers
and non-information technology systems, following which, the Company
intends to develop a contingency plan should it or any such material
supplier, customer or system experience Year 2000-related disruptions in
operations. The Company does not anticipate any material disruption in its
operations as a result of any failure by it to be Year 2000 compliant.
Foreign Imports and Excess Capacity
In recent months, business conditions in Asia, Latin America and the
former Eastern bloc countries have been characterized by instability and
decline resulting in an increase of both low-priced imports of competing
products and imports of low-priced manufactured products which utilize the
Company's products. In addition, raw material capacity expansion in the
United States and abroad has increased during this period. While management
believes that, to date, such conditions have not materially affected the
Company, they have negatively impacted prices and weakened demand for the
Company's products. Should such developments continue and increase, they
could have a material adverse effect on the Company's results of
operations.
CAUTIONARY STATEMENT FOR PURPOSES OF THE" SAFE HARBOR" PROVISIONS
OF THE PRIVATE SECURITIES REFORM ACT OF 1995
The Private Securities Reform Act of 1995 provides a new "safe harbor"
for certain forward-looking statements. The factors discussed under "Risk
Factors" in Niagara's Post-Effective Amendment No. 3 to its Registration
Statement No. 33-64682 (other than "Expiration of Union Contracts (with
respect to the Hammond contract), "High Degree of Leverage" and "Shares
Eligible for Future Sale"), together with these discussed under "Foreign
Imports and Excess Capacity" above, among others, could cause actual
results to differ materially from those contained in forward-looking
statements made in this Form 10-Q, including without limitation, in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in future filings by Niagara with the Commission, in the
Company's press releases and in oral statements made by authorized officers
of the Company. When used in this Form 10-Q, the words "estimate,"
"project," "anticipate," "expect," "intend," believe" and other similar
expressions are intended to identify forward looking statements.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Under applicable state and federal laws, including the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), Niagara LaSalle and LaSalle may be responsible for costs
required to remove or remediate previously disposed wastes or hazardous
substances at locations owned or operated by them or at locations owned or
operated by third parties where they, or a company from which they acquired
assets, arranged for the disposal of such materials. Claims for such costs
have been made against LaSalle with respect to four such third-party sites.
Management believes that, in three cases, the volumes of the waste
allegedly attributable to LaSalle and the share of costs for which it may
be liable are de minimis. At two of these sites, LaSalle has entered into
de minimis settlement agreements resolving the pending claims of liability,
which settlement agreements are awaiting judicial or administrative
approval. In the fourth case, LaSalle has entered into an agreement with a
group of other companies alleged to be responsible for remediation of the
site in an effort to share proportionately the cost of remediation. LaSalle
and this group of companies have also signed an Administrative Order on
Consent with the United States Environmental Protection Agency and agreed
to perform a limited remediation at the site. LaSalle has received an
insurance settlement in an amount that covers the financial contributions
it has been required to make for these sites through September 30, 1998.
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 additional funds. However,
based on its volumetric share of wastes disposed and the participation of
other potentially liable parties, management does not believe that
LaSalle's share of the additional costs will have a material adverse effect
on the Company's financial position or results of operations.
Item 2. Changes in Securities and Use of Proceeds.
Not applicable.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to Vote of Security Holders.
(a) An Annual Meeting of Niagara Stockholders was held on July 7,
1998.
(b) Michael J. Scharf, Gilbert D. Scharf, Frank Archer, Gerald L.
Cohn, Andrew R. Heyer and Douglas T. Tansill were elected as directors of
Niagara at the Annual Meeting.
(c) The matters voted upon at the Annual Meeting were (i) the election
of Michael J. Scharf, Gilbert D. Scharf, Frank Archer, Gerald L. Cohn,
Andrew R. Heyer and Douglas T. Tansill 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 9,349,994 for and 8,800
withheld for each of the nominees other than Mr. Tansill, and 9,349,894 for
and 8,900 withheld for Mr. Tansill, (ii) an amendment to the Niagara
Corporation 1995 Stock Option Plan to (a) increase the number of shares of
Niagara Common Stock reserved for issuance thereunder by 1,000,000 shares
and (b) increase by 200,000 the limit on the number of shares of Niagara
Common Stock with respect to which options may be granted to any individual
in any year, the vote as to which was 4,564,074 for, 188,585 against,
209,000 abstentions and 4,397,135 not voted, (iii) the approval of the
Niagara Corporation Employee Stock Purchase Plan, the vote as to which was
4,708,589 for, 107,870 against, 145,200 abstentions and 4,397,135 not voted
and (iv) the ratification and approval of BDO Seidman LLP as independent
accountants for 1998, the vote as to which was 9,305,594 for, 17,700
against and 35,500 abstentions.
Item 5. Other Information.
On September 24, 1998, Niagara's Board of Directors suspended the
Niagara Corporation Employee Stock Purchase Plan.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
+3.1 Registrant's Restated Certificate of Incorporation, as
amended on May 16, 1996.
*3.2 Registrant's By-laws.
*4.1 Form of Common Stock Certificate.
*4.2 Form of Redeemable Common Stock Purchase Warrant Certificate.
**4.3 Warrant Agreement between Continental Stock Transfer & Trust
Company and the Registrant, dated as of August 13, 1993.
***4.4 Notice of Redemption of Redeemable Common Stock Purchase
Warrant
###4.5 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 (the "Credit
Agreement").
++++4.6 First Amendment to the Credit Agreement, dated as of
September 4, 1997.
++++4.7 Second Amendment to the Credit Agreement, effective as of
December 31, 1997.
#4.8 Third Amendment to the Credit Agreement, effective May 15, 1998.
###4.9 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.
###4.10 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.
+++++4.11 Promissory Note, dated December 5, 1997, made by Gilbert D.
Scharf in favor of Niagara Corporation.
!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 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.
!!10.3 Guaranty, made by the Registrant in favor of the Cohen Family
Revocable Trust, u/t/a dated June 15, 1988, dated January
31, 1996.
!!!10.4 UPO Exchange Agreement, dated May 15, 1996, 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.
!!!10.5 International Metals Acquisition Corporation 1995 Stock
Option Plan.
##10.6 First Amendment to the International Metals Acquisition
Corporation 1995 Stock Option Plan, dated October 5, 1996.
@10.7 Second Amendment to the Niagara Corporation 1995 Stock
Option Plan, dated June 8, 1998.
@10.8 Niagara Corporation Employee Stock Purchase Plan.
###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 exhibit 3.1 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 exhibit 4.4 filed with the
Registrant's Report on Form 10-K for the fiscal year ended December
31, 1993.
*** Incorporated by reference to exhibit 4.1 filed with the
Registrant's Report on Form 8-K, dated November 6, 1997.
! 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 4.8 to the Registrant's Report
on Form 10-Q for the quarter ended June 30, 1998.
## 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.
@ Incorporated by reference to Annexes to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders held on
July 7, 1998.
++++ Incorporated by reference to exhibits filed with the Registrant's
Report on Form 10-K for the fiscal year ended December 31, 1997.
+++++ Incorporated by reference to exhibits filed with the Registrant's
Report on Form 10-K/A for the fiscal year ended December 31, 1997.
(b) Reports on Form 8-K.
The Registrant filed its Report on Form 8-K, dated July 29, 1998,
reporting under Items 5 and 7 the conclusion of the strike at the Company's
Hammond, Indiana facility.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 13, 1998 NIAGARA CORPORATION
-----------------------------------------
(Registrant)
/s/ Michael Scharf
----------------------------------------
Michael Scharf, President
Date: November 13, 1998 /s/ Raymond Rozanski
----------------------------------------
Raymond Rozanski, Vice President
and Treasurer
EXHIBIT INDEX
Exhibit No. Description Page No.
- ----------- ----------- --------
27 Financial Data Schedule 24
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE UNAUDITED QUARTERLY
FINANCIAL STATEMENTS OF NIAGARA CORPORATION AND
SUBSIDIARIES FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,738,475
<SECURITIES> 0
<RECEIVABLES> 19,924,892
<ALLOWANCES> 804,000
<INVENTORY> 33,125,312
<CURRENT-ASSETS> 56,868,688
<PP&E> 101,589,140
<DEPRECIATION> 11,880,894
<TOTAL-ASSETS> 150,075,257
<CURRENT-LIABILITIES> 30,817,181
<BONDS> 44,880,659
<COMMON> 9,998
0
0
<OTHER-SE> 55,733,831
<TOTAL-LIABILITY-AND-EQUITY> 150,075,257
<SALES> 165,834,123
<TOTAL-REVENUES> 165,834,123
<CGS> 140,872,652
<TOTAL-COSTS> 140,872,652
<OTHER-EXPENSES> 12,595,861
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,259,595
<INCOME-PRETAX> 9,452,857
<INCOME-TAX> 3,685,000
<INCOME-CONTINUING> 5,767,857
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,767,857
<EPS-PRIMARY> .58
<EPS-DILUTED> .55
</TABLE>
