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, 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 June 30, 1998
Common Stock, par value $.001 per share 9,997,455
--------------------------------------- ------------------
(Class) (Number of Shares)
NIAGARA CORPORATION
INDEX TO JUNE 30, 1998 FORM 10-Q
- ----------------------------------------------------------------------------
PAGE
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........................................................... 21
NIAGARA CORPORATION
AND SUBSIDIARIES
BALANCE SHEETS
=============================================================================
December 31, June 30,
1997 1998
- -----------------------------------------------------------------------------
(unaudited)
ASSETS
CURRENT:
Cash and cash equivalents $ 13,207,077 $ 2,892,653
Trade accounts receivable, net of
allowance for doubtful accounts
of $727,000 and $779,000 21,660,230 19,734,969
Inventories 35,189,568 33,888,120
Deferred income taxes 1,401,000 1,234,093
Other current assets 1,822,354 1,576,793
- -----------------------------------------------------------------------------
TOTAL CURRENT ASSETS 73,280,229 59,326,628
PROPERTY, PLANT AND EQUIPMENT, NET OF
ACCUMULATED DEPRECIATION OF
$7,104,699 AND $10,228,024 89,162,776 89,755,741
GOODWILL, NET OF ACCUMULATED AMORTIZATION
OF $145,013 AND $183,779 2,177,125 2,138,359
DEFERRED FINANCING COSTS, NET OF
ACCUMULATED AMORTIZATION OF $73,792
AND $129,136 701,208 645,864
OTHER ASSETS, NET OF ACCUMULATED
AMORTIZATION OF $277,361 AND $343,906 1,198,528 944,439
- -----------------------------------------------------------------------------
$ 166,519,866 $ 152,811,031
=============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT:
Accounts payable $ 20,984,715 $ 18,341,938
Accrued expenses 8,679,723 8,596,406
Due to Quanex Corporation 1,371,000 -
Current maturities of long-term debt 3,498,069 4,087,962
- -----------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 34,533,507 31,026,306
OTHER:
Long-term debt, less current maturities 59,184,388 44,997,324
Accrued pension cost 1,845,900 1,221,414
Accrued post-retirement welfare benefits 12,691,000 12,689,826
Deferred income taxes 5,726,000 6,286,000
Other noncurrent liabilities 542,669 269,932
- -----------------------------------------------------------------------------
TOTAL OTHER LIABILITIES 79,989,957 65,464,496
- -----------------------------------------------------------------------------
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 outstanding 9,998 9,998
Additional paid-in capital 50,111,675 50,111,675
Retained earnings 1,874,729 6,198,556
- -----------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 51,996,402 56,320,229
- -----------------------------------------------------------------------------
$ 166,519,866 $ 152,811,031
=============================================================================
See accompanying notes to financial statements.
NIAGARA CORPORATION
AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
(UNAUDITED)
=============================================================================
Three months ended June 30, 1997 1998
- -----------------------------------------------------------------------------
NET SALES $ 67,043,781 $ 55,249,764
COST OF PRODUCTS SOLD 59,323,687 47,263,580
- -----------------------------------------------------------------------------
GROSS PROFIT 7,720,094 7,986,184
OPERATING EXPENSES:
Selling, general and administrative 4,283,981 4,070,811
- -----------------------------------------------------------------------------
INCOME FROM OPERATIONS 3,436,113 3,915,373
OTHER INCOME (EXPENSE):
Interest income 11,990 20,548
Interest expense (1,750,031) (1,022,794)
- -----------------------------------------------------------------------------
INCOME BEFORE TAXES ON INCOME 1,698,072 2,913,127
TAXES ON INCOME 662,612 1,158,000
- -----------------------------------------------------------------------------
NET INCOME $ 1,035,460 $ 1,755,127
- -----------------------------------------------------------------------------
EARNINGS PER SHARE (BASIC) $ .27 $ .18
- -----------------------------------------------------------------------------
EARNINGS PER SHARE (DILUTED) $ .27 $ .17
- -----------------------------------------------------------------------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
BASIC 3,901,090 9,997,455
DILUTED 3,901,090 10,505,281
=============================================================================
See accompanying notes to financial statements.
NIAGARA CORPORATION
AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
(UNAUDITED)
=============================================================================
Six months ended June 30, 1997 (a) 1998 (b)
- -----------------------------------------------------------------------------
NET SALES $ 87,506,541 $ 118,020,443
COST OF PRODUCTS SOLD 77,596,244 100,588,556
- -----------------------------------------------------------------------------
GROSS PROFIT 9,910,297 17,431,887
OPERATING EXPENSES:
Selling, general and administrative 5,535,606 8,279,149
- -----------------------------------------------------------------------------
INCOME FROM OPERATIONS 4,374,691 9,152,738
OTHER INCOME (EXPENSE):
Interest income 26,471 157,065
Interest expense (2,146,819) (2,301,153)
Other income - 115,177
- -----------------------------------------------------------------------------
INCOME BEFORE TAXES ON INCOME 2,254,343 7,123,827
TAXES ON INCOME 868,432 2,800,000
- -----------------------------------------------------------------------------
NET INCOME $ 1,385,911 $ 4,323,827
- -----------------------------------------------------------------------------
EARNINGS PER SHARE (BASIC) $ .37 $ .43
- -----------------------------------------------------------------------------
EARNINGS PER SHARE (DILUTED) $ .37 $ .41
- -----------------------------------------------------------------------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
BASIC 3,785,562 9,997,455
DILUTED 3,785,562 10,475,821
=============================================================================
(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
(UNAUDITED)
====================================================================================================
Six Months ended June 30, 1998
- ----------------------------------------------------------------------------------------------------
Common Stock
------------------- Additional
Number of paid-in Retained
shares Amount capital earnings 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
Net income for the period - - - 4,323,827 4,323,827
- ----------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1998 9,997,455 $ 9,998 $ 50,111,675 $ 6,198,556 $ 56,320,229
====================================================================================================
See accompanying notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
NIAGARA CORPORATION
AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(UNAUDITED)
==========================================================================================
Six months ended June 30, 1997 (a) 1998 (b)
- ------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,385,911 $ 4,323,827
- ------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash
provided by
operating activities:
Depreciation and amortization 2,304,092 3,283,980
Accrued post-retirement welfare benefits - (1,174)
Provision for doubtful accounts 40,903 51,270
Deferred income taxes 80,000 726,907
Accrued pension costs - (624,486)
Changes in assets and liabilities:
Decrease (increase) in accounts receivable (2,601,675) 1,873,990
Decrease (increase) in inventories (63,092) 1,301,448
Decrease in other assets, net 211,803 433,105
Increase (decrease) in trade accounts
payable and accrued expenses 5,349,038 (2,726,092)
- ------------------------------------------------------------------------------------------
TOTAL ADJUSTMENTS 5,321,069 4,318,948
- ------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,706,980 8,642,775
- ------------------------------------------------------------------------------------------
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 fixed assets (1,362,269) (3,716,290)
- ------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (68,602,904) (5,087,290)
- ------------------------------------------------------------------------------------------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Proceeds from long-term debt 65,701,213 -
Financing costs (1,565,081) -
Repayment of long-term debt - (13,869,909)
- ------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 64,136,132 (13,869,909)
- ------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,240,208 (10,314,424)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,587,927 13,207,077
- ------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,828,135 $ 2,892,653
==========================================================================================
(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
JUNE 30, 1998 AND FOR THE PERIODS ENDED
JUNE 30, 1997 AND 1998 IS UNAUDITED
=============================================================================
1. BASIS OF The accompanying financial statements are
PRESENTATION 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 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 six months
ended June 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 second
quarter of 1997 and 1998 and the six months
ended June 30, 1998 but are only included from
April 1, 1997 for the six months ended June 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 these 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.
SIX MONTHS ENDED June 30, 1997
-------------------------------------------------
NET SALES $ 131,755,541
NET INCOME $ 1,171,045
NET INCOME PER SHARE $ .30
(BASIC AND DILUTED)
-------------------------------------------------
3. INVENTORIES Inventories consisted of the following:
December 31, June 30,
1997 1998
--------------------------------------------------
Raw materials $ 13,179,052 $ 13,958,623
Work-in-process 5,984,649 4,585,230
Finished goods 16,025,867 15,344,267
--------------------------------------------------
$ 35,189,568 $33,888,120
--------------------------------------------------
Inventories are stated using the LIFO method.
4. 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 to date have been largely 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 six months
ended June 30, 1997. Net sales for the three months and six months ended
June 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 six months ended
June 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
(with a new-hire rate of 70% of that for existing employees), changes in
work rules leading to greater manpower flexibility and the reduction in
certain vacation benefits.
Three Months ended June 30, 1998 compared with June 30, 1997
Net sales for the three months ended June 30, 1998 were
$55,249,764, representing a decrease of $11,794,017, or 18%, 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
with the remainder attributable to the greater emphasis on higher margin
and value-added products which entail greater processing time.
Cost of sales for the three months ended June 30, 1998 decreased by
$12,060,107 to $47,263,580, representing a decrease of 20% over the same
period in 1997. This decrease was primarily attributable to the decrease in
volume.
Gross margins for the three months ended June 30, 1998 increased by
2.9% over the same period in 1997, due to greater emphasis on higher margin
and value-added products.
Selling, general and administrative expenses for the three months
ended June 30, 1998 decreased by $213,170 to $4,070,811, or 7.4% of sales,
compared to 6.4% of sales for the same period in 1997. The dollar decrease
was attributable to certain cost reductions achieved at LaSalle following
its acquisition. The increase as a percent of sales was due to the decrease
in sales.
Net interest expense for the three months ended June 30, 1998
decreased by $735,795 to $1,002,246, due primarily to the reduced levels of
borrowing.
Net income for the three months ended June 30, 1998 was $1,755,127,
an increase of $719,667, or 70%, as compared to the net income for the
three months ended June 30, 1997. This increase was due primarily to
reduced interest, decreased selling, general and administrative costs, and
increased gross margins.
Six Months ended June 30, 1998 compared with June 30, 1997
Net sales for the six months ended June 30, 1998 were $118,020,443,
representing an increase of $30,513,902, or 35%, 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
quarter in 1997.
Cost of sales for the six months ended June 30, 1998 increased by
$22,992,312 to $100,588,556, representing an increase of 30% over the same
period in 1997. This increase was primarily attributable to the increase in
volume.
Gross margins for the six months ended June 30, 1998 increased by
3.4% over the same period in 1997, due to greater emphasis on higher margin
and value-added products.
Selling, general and administrative expenses for the six months
ended June 30, 1998 increased by $2,743,543 to $8,279,149, or 7.0% of
sales, compared to 6.3% of sales for the same period in 1997. The dollar
increase was due to the inclusion of LaSalle selling, general and
administrative expenses for the full period in 1998, and the increase as a
percentage of sales was primarily caused by the decrease in sales for the
second quarter of 1998 as compared to the second quarter of 1997.
Net interest expense for the six months ended June 30, 1998
increased by $23,740 to $2,144,088.
Net income for the six months ended June 30, 1998 was $4,323,827,
an increase of $2,937,916, or 212%, as compared to the net income for the
six months ended June 30, 1997. This increase was due primarily to the
addition of LaSalle's results for the entire period in 1998. Net income for
the six months ended June 30, 1998 increased by $3,152,782 as compared to
the pro-forma net income (see note 2 to the financial statements) for the
six months ended June 30, 1997. This increase resulted primarily from the
reduced earnings of LaSalle in the first quarter of 1997 as compared to
previous quarters, interest savings resulting from the warrant redemption
in December of 1997, decreased costs as a result of consolidating of
selling and administrative functions at Niagara LaSalle and LaSalle and
improved margins resulting from an emphasis on value-added products.
LIQUIDITY AND CAPITAL RESOURCES
The Company's short-term liquidity requirement or day-to-day
operating expenses have 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 six months ended June 30, 1998 totaled
$3,716,000 as compared to $1,360,000 for the same period in 1997. This
increase in expenditures was largely due to the completion of a new
production line at the Midlothian facility, expenditures relating to the
modification and upgrade of the Company's computer software applications
and systems and the installation of a new crane at the Buffalo facility.
Cash flows provided by operations were $8,642,775 for the six
months ended June 30, 1998, an increase of $1,935,795 compared to the same
period in 1997. This increase is attributable to the increase in net
income. At June 30, 1998, the Company had $2,892,653 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 commence 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 250 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 June
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
purchases would be subject to market and other conditions and financed with
internally generated funds, and, if necessary, borrowings under the
revolving credit facility. Shares of Niagara Common Stock repurchased would
be available for use in the Company's benefit plans and for general
corporate purposes.
At June 30, 1998, Niagara LaSalle had borrowed $9,700,000 under its
revolving credit facility and had approximately $30,000,000 in available
credit thereunder. Working capital of the company at June 30, 1998 was
$28,300,322 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 $600,000 of
such funds had been expended as of June 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 material suppliers and
customers, following which, the Company intends to develop a contingency
plan should it or such suppliers or customers 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
In recent months, business conditions in Asia have been
characterized by instability. While Management believes that, to date, such
instability has not adversely and materially affected the Company, there
can be no assurance that the instability in this region will not continue
and result in low-priced imports of competing products or imports of
low-priced manufactured products which utilize the Company's products, each
of which could weaken demand for the Company's products. Such developments
could have a material adverse effect on the Company's financial position or
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" 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.
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
+3.1 Registrant's Restated Certificate of Incorporation, as amended
on May 16, 1996.
*3.2 Registrant's By-laws.
*4.1 Form of Common Stock Certificate.
*4.2 Form of 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 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.
@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 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 June 3,
1998, reporting under Items 5 and 7 (i) the commencement of the
strike at the Hammond facility, (ii) an addition to its Board of
Directors and (iii) the authorization of its Board of Directors, to
purchase from time to time, of up to one million shares of its Common
Stock.
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 10, 1998 NIAGARA CORPORATION
(Registrant)
/s/ Michael Scharf
-----------------------------------
Michael Scharf, President
Date: August 10, 1998 /s/ Raymond Rozanski
-----------------------------------
Raymond Rozanski, Vice President
and Treasurer
EXHIBIT INDEX
Exhibit No. Description Page No.
- ----------- ----------- --------
4.8 Third Amendment to the Credit Agreement, 23
effective Mary 15, 1998.
27 Financial Data Schedule 28
EXHIBIT 4.8
THIRD AMENDMENT
TO
REVOLVING CREDIT AND TERM LOAN AGREEMENT
DATED AS OF APRIL 18, 1997
BY AND AMONG
NIAGARA LASALLE CORPORATION
(FORMERLY NIAGARA COLD DRAWN CORP.),
LASALLE STEEL COMPANY
AND
MANUFACTURERS AND TRADERS TRUST COMPANY,
CIBC INC.
AND
NATIONAL CITY BANK
AND
MANUFACTURERS AND TRADERS TRUST COMPANY, AS AGENT
------------------------------------------
Effective as of May 15, 1998
WHEREAS, NIAGARA LASALLE CORPORATION (formerly NIAGARA COLD
DRAWN CORP.), a Delaware corporation, having its principal office at 110
Hopkins Street, Buffalo, New York, ("NCDC"), LASALLE STEEL COMPANY, a
Delaware corporation, having its principal office at 1412 150th Street,
Hammond, Indiana ("LaSalle") (NCDC and LaSalle being collectively referred
to as the "Borrowers", and individually as a "Borrower"), MANUFACTURERS AND
TRADERS TRUST COMPANY, a New York banking corporation having its principal
office at One M&T Plaza, Buffalo, New York ("M&T"), CIBC INC., a Delaware
banking corporation having its principal office at 425 Lexington Avenue,
New York, New York ("CIBC") and NATIONAL CITY BANK, a national banking
association having its principal office at National City Center, 1900 East
Ninth Street, Cleveland, Ohio ("National"), and M&T, as administrative,
collateral and documentation agent (M&T to be referred to in such capacity
as "Agent"), are parties to a Revolving Credit and Term loan Agreement
dated as of April 18, 1997 (the "Original Agreement"); and
WHEREAS, THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New
Jersey mutual insurance company having an office at One Gateway Center,
Newark, New Jersey ("Prudential") and THE NATIONAL BANK OF CANADA, a
Canadian chartered bank having a domestic branch at 125 West 55th Street,
New York, New York ("NBC"), became parties to the Original Agreement by
assignment of portions of the credit commitments of various parties thereto
(M&T, CIBC, National, Prudential and NBC being collectively referred to
herein as the "Banks", and individually as a "Bank"); and
WHEREAS, the Borrowers, the Banks and the Agent amended the
Original Agreement with a First Amendment dated as of September 4, 1997
(the "First Amendment") for the purpose, among other things, of providing
"Swingline Loans" (as described in the First Amendment) under the credit
facilities provided in the Original Agreement; and
WHEREAS, the Borrowers, the Banks and the Agent amended the
Original Agreement with a Second Amendment dated as of December 31, 1997
(the "Second Amendment") (the Original Agreement together with the First
Amendment and the Second Amendment to be collectively referred to as the
"Credit Agreement") for the purpose, among other things, of permitting the
Borrowers to apply the "1993 Warrant Forced Exercise Net Proceeds Amount"
to the repayment of the outstanding and unpaid principal amount of the
"Revolving Credit Note" (as such terms are defined in the Credit
Agreement), and to revise the terms of the Credit Agreement with respect to
dividends; and
WHEREAS, the Borrowers have requested that the Agent and the
Banks amend certain provisions of the Credit Agreement, the Revolving
Credit Note and the Term Loan Note in order to reduce the interest payable
with respect to "LIBOR Rate Loans" (as defined in the Credit Agreement),
and to provide for the further reduction of the interest payable with
respect to LIBOR Rate Loans upon the conclusion of a new union agreement
covering employees in Hammond, Indiana, and the Banks and the Agent have
agreed to amend the Credit Agreement accordingly.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. The definition of "LIBOR Increment" shall be deleted in its
entirety and replaced with the following:
"LIBOR Increment": with respect to (a) the Revolving Credit
Loan, 200 basis points, and (b) the Term Loan, 235 basis points; provided,
however, that in the event the Borrowers shall provide the Agent with
evidence satisfactory in the Agent's sole discretion that both LaSalle and
the Progressive Steelworker's of Hammond, Inc. have executed a collective
bargaining agreement covering LaSalle's employees employed at LaSalle's
Hammond, Indiana facility, the LIBOR Increment with respect to (1) the
Revolving Credit Loan shall mean 175 basis points, and (2) the Term Loan
shall mean 210 basis points, as of the date of the acceptance of such
evidence by the Agent.
2. This Third Amendment shall be effective as of May 15, 1998.
3. All capitalized terms used herein, unless otherwise defined
herein, have the same meaning provided therefor in the Credit
Agreement.
4. The amendments set forth herein are limited precisely as
written and shall not be deemed to (a) be a consent to or a waiver of
any other term or condition of the Credit Agreement or any of the
documents referred to therein, or (b) prejudice any right or rights
which the Agent or any Bank may now have or may have in the future
under or in connection with the Credit Agreement or any documents
referred to therein. Whenever the Credit Agreement is referred to in
the Credit Agreement or in any of the instruments, agreements or
other documents or papers executed and delivered in connection
therewith, it shall be deemed to mean the Credit Agreement as
modified by this Third Amendment.
5. The Borrowers hereby represent and warrant, jointly and
severally, that upon giving effect to the terms and provisions of
this Third Amendment no default or Event of Default shall have
occurred and be continuing under the terms of the Credit Agreement.
6. This Third Amendment may be executed by one or more the
parties to this Third Amendment on any number of separate
counterparts and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Third Amendment to be duly executed and delivered by their respective duly
authorized officers.
NIAGARA LASALLE CORPORATION
By: /s/ Raymond Rozanski
------------------------------------
Name: Raymond Rozanski
Title: Executive Vice President
LASALLE STEEL COMPANY
By: /s/ Raymond Rozanski
-----------------------------------
Name: Raymond Rozanski
Title: Executive Vice President
MANUFACTURERS AND TRADERS TRUST
COMPANY
By: /s/ Robert J. Kush
-----------------------------------
Name Robert J. Kush
Title: Vice President
CIBC INC.
By: /s/ E.L. Gordon
-----------------------------------
Name: E.L. Gordon, Executive Director
Title: CIBC Oppenheimer, AS AGENT
NATIONAL CITY BANK
By: /s/ Brian Cullina
-----------------------------------
Name: Brian J. Cullina
Title: Vice President
THE PRUDENTIAL INSURANCE COMPANY OF
AMERICA
By: /s/ Kevin J. Kraska
-----------------------------------
Name: Kevin J. Kraska
Title: Vice President
THE NATIONAL BANK OF CANADA
By: /s/ R. Uhrig
-----------------------------------
Name: R. Uhrig
Title: Vice President and Manager
By: /s/ Mark Nigro
-----------------------------------
Name: Mark Nigro
Title: Vice President
MANUFACTURERS AND TRADERS TRUST
COMPANY, AS AGENT
By: /s/ Robert J. Kush
-----------------------------------
Name: Robert J. Kush
Title: Vice President
<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 SIX MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,892,653
<SECURITIES> 0
<RECEIVABLES> 20,513,969
<ALLOWANCES> 779,000
<INVENTORY> 33,888,120
<CURRENT-ASSETS> 59,326,628
<PP&E> 99,983,765
<DEPRECIATION> 10,228,024
<TOTAL-ASSETS> 152,811,031
<CURRENT-LIABILITIES> 31,026,306
<BONDS> 44,997,324
<COMMON> 9,998
0
0
<OTHER-SE> 56,310,231
<TOTAL-LIABILITY-AND-EQUITY> 152,811,031
<SALES> 118,020,443
<TOTAL-REVENUES> 118,020,443
<CGS> 100,588,556
<TOTAL-COSTS> 100,588,556
<OTHER-EXPENSES> 8,279,149
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,301,153
<INCOME-PRETAX> 7,123,827
<INCOME-TAX> 2,800,000
<INCOME-CONTINUING> 4,323,827
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,323,827
<EPS-PRIMARY> .43
<EPS-DILUTED> .41
</TABLE>
