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 March 31, 2000
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 offices)
(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 March 31, 2000
Common Stock, par value $.001 per share 8,738,246
--------------------------------------- ------------------
(Class) (Number of Shares)
NIAGARA CORPORATION
INDEX TO MARCH 2000 FORM 10-Q
- ----------------------------------------------------------------------------
PAGE
PART I - FINANCIAL INFORMATION
FINANCIAL STATEMENTS (UNAUDITED):
NIAGARA CORPORATION
BALANCE SHEETS......................................... 3
STATEMENTS OF OPERATIONS............................... 4
STATEMENT OF STOCKHOLDERS' EQUITY...................... 5
STATEMENTS OF CASH FLOWS............................... 6
NOTES TO FINANCIAL STATEMENTS.......................... 7-11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS..................................... 12-17
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ...... 17
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES REFORM ACT OF 1995....... 18
PART II - OTHER INFORMATION........................................ 18
SIGNATURES......................................................... 22
<TABLE>
<CAPTION>
NIAGARA CORPORATION
AND SUBSIDIARIES
BALANCE SHEETS
==========================================================================================
December 31, March 31,
1999 2000
- ------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT:
Cash and cash equivalents $ 2,234,181 $ 5,412,046
Trade accounts receivable, net of allowance for
doubtful accounts of $925,000 and $981,000 53,126,071 63,977,544
Accounts receivable, other 2,255,687 -
Inventories 59,441,872 62,958,693
Deferred income taxes 957,000 957,000
Other current assets 3,112,453 5,638,286
- ------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 121,127,264 138,943,569
Property, plant and equipment, net of accumulated
depreciation of $21,160,043 and $23,606,178 102,983,882 101,101,506
Goodwill, net of accumulated amortization of
$300,077 and $319,460 2,022,061 2,002,678
Deferred financing costs, net of accumulated
amortization of $295,168 and $322,840 479,832 452,160
Intangible pension asset 474,000 474,000
Other assets, net of accumulated amortization of
$414,213 and $445,513 847,260 725,714
- ------------------------------------------------------------------------------------------
$ 227,934,299 $ 243,699,627
==========================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT:
Accounts payable $ 50,191,265 $ 61,555,009
Accrued expenses 9,506,238 15,440,403
Current maturities of long-term debt 6,410,741 6,891,888
- ------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 66,108,244 83,887,300
OTHER:
Long-term debt, less current maturities 87,387,943 84,790,943
Accrued pension cost 2,690,987 2,411,490
Accrued other postretirement benefits 5,331,586 5,240,110
Deferred income taxes 9,849,000 9,849,000
Other noncurrent liabilities 105,261 92,520
- ------------------------------------------------------------------------------------------
TOTAL LIABILITIES 171,473,021 186,271,363
- ------------------------------------------------------------------------------------------
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 12,141,460 14,277,149
Accumulated other comprehensive loss (175,644) (369,373)
- ------------------------------------------------------------------------------------------
62,087,489 64,029,449
Treasury stock, at cost, 1,034,509 and 1,259,209
shares (5,626,211) (6,601,185)
- ------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 56,461,278 57,428,264
- ------------------------------------------------------------------------------------------
$ 227,934,299 $ 243,699,627
==========================================================================================
See accompanying notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
NIAGARA CORPORATION
AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
(UNAUDITED)
===================================================================================
Three months ended March 31, 1999 2000 (a)
- -----------------------------------------------------------------------------------
<S> <C> <C>
NET SALES $ 49,380,153 $ 89,999,423
COST OF PRODUCTS SOLD 42,139,536 76,896,650
- -----------------------------------------------------------------------------------
GROSS PROFIT 7,240,617 13,102,773
OPERATING EXPENSES:
Selling, general and administrative 4,104,668 7,889,529
- -----------------------------------------------------------------------------------
INCOME FROM OPERATIONS 3,135,949 5,213,244
OTHER INCOME (EXPENSE):
Interest income 7,327 187
Interest expense (895,780) (1,867,929)
Other income 71,258 68,187
- -----------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 2,318,754 3,413,689
INCOME TAXES 900,000 1,278,000
NET INCOME $ 1,418,754 $ 2,135,689
- -----------------------------------------------------------------------------------
EARNINGS PER SHARE (BASIC) $ .15 $ .24
- -----------------------------------------------------------------------------------
EARNINGS PER SHARE (DILUTED) $ .15 $ .24
- -----------------------------------------------------------------------------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
BASIC 9,511,575 8,881,632
DILUTED 9,677,847 8,881,632
===================================================================================
(a) Includes the results of Niagara LaSalle (UK) Limited.
See accompanying notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
NIAGARA CORPORATION
AND SUBSIDIARIES
STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
===========================================================================================================================
Three Months ended March 31, 2000
- ---------------------------------------------------------------------------------------------------------------------------
Common Stock Accumulated
------------------ Additional other Treasury
Number of paid-in Retained comprehensive stock
shares Amount capital earnings loss at cost Total
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 2000 9,997,455 $9,998 $50,111,675 $12,141,460 $(175,644) $(5,626,211) $56,461,278
Net income for the
period - - - 2,135,689 - - 2,135,689
Foreign currency
translation adjustments
(Note 2) - - - - (193,729) - (193,729)
Purchase of treasury
stock, at cost (a) - - - - - (974,974) (974,974)
============================================================================================================================
BALANCE, MARCH 31, 2000 9,997,455 $9,998 $50,111,675 $14,277,149 $(369,373) $(6,601,185) $57,428,264
============================================================================================================================
(a) During the three months ended March 31, 2000, Niagara Corporation repurchased 224,700 of its Common Stock at a cost of
$974,974. The shares repurchased are held as treasury stock.
See accompanying notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
NIAGARA CORPORATION
AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(UNAUDITED)
==========================================================================================
Three months ended March 31, 1999 2000(a)
- ------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,418,754 $ 2,135,689
- ------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,799,284 2,524,490
Provision for doubtful accounts 26,105 56,211
Deferred income taxes 674,000 -
Accrued pension costs 350 (279,498)
Accrued other postretirement benefits (215) (91,477)
Changes in assets and liabilities:
Increase in accounts receivable (10,724,140) (10,907,683)
Decrease in accounts receivable - other - 2,255,687
Increase in inventories (2,228,345) (3,516,821)
Increase in other assets, net (951,101) (2,435,588)
Increase in accounts payable and accrued
expenses 9,536,579 17,297,911
- ------------------------------------------------------------------------------------------
TOTAL ADJUSTMENTS (1,867,483) 4,903,232
- ------------------------------------------------------------------------------------------
NET CASH (USED IN) PROVIDED BY OPERATING
ACTIVITIES (448,729) 7,038,921
- ------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (1,954,891) (563,759)
- ------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (1,954,891) (563,759)
- ------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 2,074,243 -
Repayment of long-term debt - (2,128,594)
Payments to acquire treasury stock - (974,974)
- ------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 2,074,243 (3,103,568)
- ------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS - (193,729)
- ------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (329,377) 3,177,865
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 440,654 2,234,181
- ------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 111,277 $ 5,412,046
===========================================================================================
(a) Includes the cash flows of Niagara LaSalle (UK) Limited.
See accompanying notes to financial statements.
</TABLE>
NIAGARA CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - INFORMATION AS OF
MARCH 31, 2000 AND FOR THE PERIODS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED.
- ------------------------------------------------------------------------------
1. BASIS OF PRESENTATION The accompanying financial statements are
unaudited; however, in the opinion of management,
all adjustments necessary for a fair statement of
financial position and results for the stated
periods have been included. These adjustments are
of a normal recurring nature. Selected
information and footnote disclosures normally
included in financial statements prepared in
accordance with generally accepted accounting
principles have been condensed or omitted.
Results for interim periods are not necessarily
indicative of the results to be expected for an
entire fiscal year. It is suggested that these
condensed financial statements be read in
conjunction with the audited financial statements
and accompanying notes for the year ended
December 31, 1999.
2. FOREIGN CURRENCY Niagara LaSalle (UK) Limited ("Niagara UK"), an
TRANSLATION AND English company and a subsidiary of Niagara
TRANSACTIONS Corporation ("Niagara," and together with its
subsidiaries, the "Company"), uses British pounds
sterling ("(pound)") as its functional currency
and its accounts are translated to United States
dollars in conformity with Statement of Financial
Accounting Standards ("SFAS") No. 52, "Foreign
Currency Translation." Assets and liabilities of
this subsidiary are translated at the exchange
rate in effect on March 31, 2000 and the related
revenues and expenses have been translated at
rates prevailing at the transaction date, which
approximates average rates for the period.
Translation adjustments arising from the use of
different exchange rates from period to period
are included as accumulated other comprehensive
income within the Statement of Stockholders'
Equity. Gains and losses resulting from foreign
currency transactions are included in other
income within the Statements of Operations.
3. ACQUISITION OF U.K. On May 21, 1999, Niagara UK purchased the
STEEL BAR BUSINESSES equipment, inventory and certain other assets of
the eight steel bar businesses of Glynwed Steels
Limitied ("Glynwed Steels"), an English company
and a subsidiary of Glynwed International plc
("Glynwed"). In consideration for the sale of
such assets, Niagara UK paid Glynwed Steels
(pound)21,202,000 (approximately $34 million) in
cash at the closing, (pound)3,015,500
(approximately $4.9 million) of which was
returned to Niagara UK during the third quarter
of 1999 as an adjustment to reflect the value of
the net assets transferred. These steel bar
businesses, which are engaged in hot rolling,
cold finishing and distribution, currently
consist of the following unincorporated
trading units: Ductile Wesson, Gadd Dudley
Port, GB Longmore, Macreadys, Midland
Engineering Steels and W Wesson.
The financial statements include the results of
Niagara UK from May 22, 1999. Accordingly,
Niagara UK's results are included in the first
quarter of 2000 but not in the first quarter of
1999.
The acquisition of the U.K. steel bar businesses
was accounted for as a purchase. The purchase
price for these businesses was approximately
(pound)21,275,000 (approximately $34.4 million)
which amount includes approximately
(pound)1,302,000 (approximately $2.1 million) of
acquisition costs and approximately
(pound)1,787,000 (approximately $2.9 million) of
estimated costs relating to the intended closure
of certain facilities and intended consolidation
of certain operations.
In connection with the acquisition of the U.K.
steel bar businesses, Niagara and Niagara UK
entered into agreements with subsidiaries of
Glynwed providing for the lease or sublease by
Niagara UK of 10 operating facilities and the
assignments of 5 sales office leases. Pursuant to
these agreements (i) the initial term of the
lease is 10 years for 9 of the operating
facilities and 5 years for the remaining
operating facility at aggregate rents of
(pound)50,000 (approximately $80,000) for the
first two years; (pound)850,000 (approximately
$1.3 million) for years 3-6; and (pound)1,000,000
(approximately $1.6 million) for years 7-10, (ii)
each operating facility lease can be terminated
by Niagara UK on one year's notice and (iii)
Niagara UK has the option to purchase any or all
of the 7 primary operating facilities at prices
fixed for 10 years (which prices total
(pound)9,468,000 (approximately $15.1 million)),
or to renew the leases with respect thereto for
an additional term of 15 years at commercial
market rates.
The purchase of the U.K. steel bar businesses was
financed by (i) borrowings under a bank
facilities agreement entered into on May 21, 1999
by Niagara UK providing for a (pound)10 million
(approximately $16 million) seven-year term loan
and a (pound)9.8 million (approximately $15.7
million) three-year revolving credit facility,
(ii) a (pound)3.75 million (approximately $6
million) equity investment by Niagara in Niagara
UK, (iii) a (pound)3.75 million (approximately $6
million) subordinated loan from Niagara to
Niagara UK and (iv) a (pound)2.5 million
(approximately $4 million) short-term loan from
Niagara to Niagara UK. The equity investment and
subordinated and short-term loans were financed
by borrowings under a revolving credit and term
loan agreement dated April 18, 1997, as amended,
with Niagara's U.S. subsidiaries, Niagara LaSalle
Corporation ("Niagara LaSalle") and LaSalle Steel
Company ("LaSalle," and together with Niagara
LaSalle, "Niagara US").
On August 23, 1999, Niagara UK entered into a
three-year invoice discounting agreement with
Lombard Natwest Discounting Limited providing for
up to (pound)20 million (approximately $32.2
million) of advances to Niagara UK based upon a
formula tied to the receivables purchased by such
institution. In connection with the execution of
this agreement, the revolving credit facility
under Niagara UK's bank facilities agreement was
reduced to (pound)4.9 million (approximately $7.9
million). This facility was further reduced to
(pound)2.5 million (approximately $4.0 million)
as of December 31, 1999.
Pro forma results of operations, assuming the
acquisition of the U.K. steel bar businesses had
occurred on January 1, 1999 are unaudited and
detailed below. Pro forma adjustments primarily
include reductions in depreciation and
amortization based on changes in the useful lives
of the assets acquired, additional interest
expense relating to the debt incurred in
connection with the acquisition, and changes in
rent expense based on property leases entered
into in connection with the acquisition.
March 31, March 31,
Three Months ended 1999 2000
-------------------------------------------------
Net Sales $92,568,000 $89,999,423
Net Income (Loss) $(3,921,000) $2,135,689
Net Income (Loss) per
share (basic) $(.41) $.24
Net Income (Loss) per
share (diluted) $(.41) $.24
-------------------------------------------------
4. INVENTORIES Inventories consisted of the following at
December 31, 1999 and March 31, 2000:
December 31, March 31,
1999 2000
----------------------------
Raw materials $25,231,191 $26,636,701
Work-in-process 5,260,767 6,689,454
Finished goods 28,949,914 29,632,538
----------------------------
$59,441,872 $62,958,693
At March 31, 2000, inventories totaling
$39,393,461 and owned by Niagara US are stated
using the LIFO method and inventories totaling
$23,565,232 and owned by Niagara UK are stated
using the FIFO method.
5. CONTINGENCIES Niagara US and Niagara UK are subject to
environmental laws and regulations concerning,
among other things, water and air emissions and
waste disposal. Under such laws, including the
Comprehensive Environmental Response,
Compensation and Liability Act of 1980 as amended
("CERCLA"), Niagara US and Niagara UK 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 the locations which they arranged
for disposal of such materials. The costs
expended through March 31, 2000 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 or operations.
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. In connection with these programs,
Niagara US has provided certain insurance
carriers with irrevocable standby letters of
credit totaling $350,000 as of March 31, 2000. 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.
6. SEGMENTS AND RELATED The Company operates in two reportable segments:
INFORMATION (i) Niagara US which has operations in the United
States and (ii) Niagara UK which has operations
in the United Kingdom. The Company operates these
segments as separate strategic business units and
measures the segment performance based on
earnings before interest, taxes, depreciation and
amortization ("EBITDA"). Niagara UK uses British
pounds sterling as its functional currency and
its accounts are translated to United States
dollars in conformity with SFAS No. 52, "Foreign
Currency Translations." Assets and liabilities
have been translated at the exchange rate in
effect on March 31, 2000 and the related revenues
and expenses have been translated at rates
prevailing at the transaction date, which
approximates average rates for the period.
The following table sets forth certain
performance and other information by reportable
segment.
Three months ended
March 31, 2000 Niagara US Niagara UK
-------------------------------------------------
Net sales $54,649,088 $35,350,335
Segment profit (EBITDA) 6,149,852 2,091,123
Depreciation and
amortization 1,960,045 552,765
Interest expense 1,191,499 676,430
Segment assets 159,838,442 82,736,809
Acquisition of property
and equipment 164,941 380,669
-------------------------------------------------
Certain of the foregoing segment information
(profit, depreciation and amortization, assets
and acquisition of property and equipment) does
not include components attributable to Niagara or
incurred by Niagara on behalf of its operating
subsidiaries. Prior to the acquisition of the
U.K. steel bar businesses, the Company had one
segment as all of its operations were in the
United States.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Niagara was organized in April of 1993. In August 1995, Niagara
acquired Niagara LaSalle . With plants in Buffalo, New York and
Chattanooga, Tennessee, Niagara LaSalle was an established cold finished
steel bar producer in the northeast and southeast regions of the United
States.
In January 1996, Niagara LaSalle acquired Southwest Steel Company,
Inc.("Southwest"), the leading cold drawn steel bar producer servicing the
southwest region of the United States. During 1996, Southwest completed
construction of a new plant in Midlothian, Texas and relocated its Tulsa,
Oklahoma operations to this new facility.
In April 1997, Niagara LaSalle acquired LaSalle, which had 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 this acquisition, Niagara US became the largest
independent producer of cold drawn steel bars in the United States.
On May 21, 1999, Niagara UK purchased the equipment, inventory and
certain other assets of the eight steel bar businesses of Glynwed Steels.
These steel bar businesses are engaged in hot rolling, cold finishing and
distribution and represent the largest independent steel bar concern in the
United Kingdom.
The Company has announced a restructuring plan for its hot rolling
operations in the United Kingdom. Under the plan, Niagara UK will close its
Ductile Hot Mill facility in Willenhall, transfer most of the production
from this facility to its W Wesson facility in Moxley ( which has been
renamed Ductile Wesson) and invest approximately $1.6 million in its
remaining hot rolling businesses. The Company has also determined to
consolidate certain additional U.K. operations. These restructurings are
scheduled to be completed during 2000 and are expected to expand Niagara
UK's product range, improve its product quality and enhance its customer
service capabilities.
The results of operations for the quarter ended March 31, 2000
include the results of Niagara UK.
Three Months ended March 31, 2000 compared with March 31, 1999
Net sales for the three months ended March 31, 2000 were $89,999,423,
representing an increase of $40,619,270, or 82.3%, over the same period in
1999. This increase was primarily attributable to the inclusion of
$35,350,335 of Niagara UK sales.
Cost of sales for the three months ended March 31, 2000 increased by
$34,757,114 to $76,896,650, representing an increase of 82.5% over the same
period in 1999. This increase was primarily attributable to the inclusion
of $29,697,816 of Niagara UK's cost of products sold, with the balance
primarily attributable to increased sales volume from the Company's U.S.
operations.
Gross margins for the three months ended March 31, 2000 remained
stable as compared to the same period in 1999.
Selling, general and administrative expenses for the three months
ended March 31, 2000 increased by $3,784,861 to $7,889,529, or 8.8% of
sales, compared to 8.3% of sales for the same period in 1999. Both the
increase in dollar amount and increase as a percentage of sales were due to
the inclusion of $4,265,007 of Niagara UK's expenses for the quarter, which
was offset in part by reduced selling, general and administration expenses
from the Company's U.S. operations.
Interest expense for the three months ended March 31, 2000 increased
by $972,149 to $1,867,929, due primarily to increased levels of borrowing
resulting from the acquisition of the steel bar businesses in the U.K.
Net income for the three months ended March 31, 2000 was $2,135,689,
an increase of $716,935, or 50.5%, as compared to the net income for the
three months ended March 31, 1999. Approximately 60% of this increase was
attributable to the Company's U.K. operations and the balance, 40%, was
attributable to the Company's U.S. operations. Net income for the three
months ended March 31, 2000 included income of $418,075 at Niagara UK for
the period.
On a pro forma basis, and as disclosed in Note 3 to the financial
statements, net income for the three months ended March 31, 2000 was
$2,135,689 compared to a net loss of $3,921,000 for the same period in
1999. The pro forma results for the first quarter of 1999 were negatively
impacted by an inventory adjustment of approximately $5,700,000 to
estimated net realizable value at Niagara UK.
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
cash provided by operations, borrowings under its revolving credit
facilities and advances under its invoice discounting agreement. 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 three months ended March 31, 2000 totaled
$563,759 as compared to $1,954,891 for the same period in 1999. This
decrease was attributable to an increase in equipment leases by U.S.
operations.
Cash flows provided by operating activities were $7,038,921 for the
three months ended March 31, 2000, an increase of $7,487,650 as compared to
cash flows used by operating activities of $448,729 for the same period in
1999. This increase is largely attributable to an increase in net income of
$716,935 and an increase in accounts payable and accrued expenses of
$17,297,911 ($8,122,956 attributable to Niagara UK), which was offset in
part by an increase in accounts receivable of $10,907,683 ($5,140,000
attributable to Niagara UK). Cash and cash equivalents at March 31, 2000
was $5,412,046, an increase of $3,177,865 as compared to December 31, 1999.
Such funds are used for working capital and other corporate purposes.
On April 18, 1997 and in connection with the acquisition of LaSalle,
Niagara US 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 four-year revolving credit facility and a $40,000,000
eight-year term loan. The obligations of Niagara US 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 US.
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 US
from time to time) plus 210 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, 2001. Interest on such loans is payable in monthly
installments and is either 175 basis points above the LIBOR rate (for a
period specified by Niagara US 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 US 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 US was in
compliance with all of these requirements as of March 31, 2000.
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. On
October 6, 1999, Niagara's Board authorized the repurchase of an additional
one million Niagara shares. Such repurchases are subject to market and
other conditions and financed with internally generated funds, borrowings
under the Company's revolving credit facilities or advances under Niagara
UK's invoice discounting agreement. 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. As of March 31,
2000, Niagara had repurchased 1,259,209 shares of its Common Stock at a
cost of $6,601,185, of which 224,700 shares were repurchased at a cost of
$974,974 during the three months ended March 31, 2000.
On May 21, 1999 and in connection with the acquisition of the steel
bar businesses from Glynwed Steels, Niagara UK entered into a bank
facilities agreement (the "Facilities Agreement") with National Westminster
Bank Plc ("National Westminster"). The Facilities Agreement provides for a
(pound)10 million (approximately $16 million) seven-year term loan and a
(pound)9.8 million (approximately $15.7 million) three-year revolving
credit facility. The obligations of Niagara UK under the Facilities
Agreement are secured by standby letters of credit issued by M&T to
National Westminster (respectively, the "Term Letter of Credit" and the
"Revolving Letter of Credit," and, together, the "Letters of Credit") and
substantially all of the assets of Niagara UK (for the benefit of M&T).
Niagara UK's agreement to reimburse M&T for drawdowns under the Letters of
Credit is guaranteed by Niagara and Niagara US, which guarantees are
secured by substantially all of the assets of Niagara US on a second
priority basis. As consideration for the issuance of the Letters of Credit,
Niagara UK paid M&T a total of (pound)178,400 (approximately $285,440) at
the time of issuance and agreed to pay further annual fees (in monthly
installments) of 3% and 2.75% in respect of the Revolving and Term Letters
of Credit, respectively.
Principal of the term loan under the Facilities Agreement amortizes
in monthly installments commencing on May 31, 2000 and ending on April 30,
2006. The principal repayment installments on the term loan escalate
throughout its term. Revolving credit loans made pursuant to the Facilities
Agreement are based upon a percentage of eligible inventory and will mature
on May 21, 2002. Interest of the term and revolving credit loans under the
Facilities Agreement accrue at the LIBOR rate (for periods specified by
Niagara UK from time to time) plus 15 basis points and is payable at the
conclusion of such interest periods.
The purchase of the U.K. steel bar businesses was also financed
pursuant to (i) a (pound)3.75 million (approximately $6 million) equity
investment by Niagara in Niagara UK (the "Equity Investment"), (ii) a
(pound)3.75 million (approximately $6 million ) subordinated loan from
Niagara to Niagara UK which accrues interest at 7.5% per annum (the
"Subordinated Loan") and (iii) a (pound)2.5 million (approximately $4
million) non-interest bearing short-term loan from Niagara to Niagara UK
(the "Short-Term Loan"). The Equity Investment, the Subordinated Loan and
the Short-Term Loan were financed by borrowings under the Credit Agreement.
The Short-Term Loan was repaid during the third quarter of 1999.
On August 23, 1999, Niagara UK entered into a three-year Invoice
Discounting Agreement (the "Discount Agreement") with Lombard Natwest
Discounting Limited ("Lombard") providing for up to (pound)20 million
(approximately $32.2 million) of advances to Niagara UK based upon a
formula tied to the receivables purchased by Lombard. Interest on such
advances accrues at the National Westminster base rate plus 2.25%. The
obligations of Niagara UK under the Discount Agreement are guaranteed by
Niagara and secured by substantially all of the assets of Niagara UK. In
connection with the execution of the Discount Agreement, the Revolving
Letter of Credit and the revolving credit facility under the Facilities
Agreement were reduced to (pound)4.9 million (approximately $7.9 million)
and subsequently reduced to (pound)2.5 million (approximately $4.0 million)
as of December 31, 1999.
The Facilities and Discount Agreements carry restrictions on, among
other things, security interests, borrowed money, asset dispositions,
dividends, transactions with affiliates, capital expenditures, changes in
control and mergers and acquisitions. Also included in these agreements are
requirements regarding tangible net worth, the ratio of profit before
interest and taxes to interest and the ratio of current assets to current
liabilities. Niagara UK was in compliance with all of these requirements as
of March 31, 2000.
In connection with the execution of the Facilities and Discount
Agreements, Niagara and Niagara UK entered into intercreditor agreements
which, among other things (i) restrict the payment of dividends in respect
of the Niagara UK shares, (ii) prohibit the repayment of the Subordinated
Loan until after the discharge of all of Niagara UK's liabilities under the
Facilities and Discount Agreements and (iii) permit the repayment of the
Short-Term Loan upon demand unless payments of principal or interest under
these agreement are owing, certain financial covenants in these agreements
have not been met or an event of default thereunder has occurred and is
continuing.
At March 31, 2000, the Company had borrowed or been advanced
$44,785,000 under its revolving credit facilities and the Discount
Agreement and had approximately $33,000,000 in available credit thereunder,
and the outstanding balance of its term loans was $46,057,000. Working
capital of the Company at March 31, 2000 was $55,056,269 as compared to
$55,019,020 on December 31, 1999.
YEAR 2000
The Company could be adversely affected if the information technology
or operating systems which it or its suppliers, customers or service
providers use do not properly accommodate the "Year 2000" dating changes
necessary to permit the recording of year dates for 2000 and later years.
During the fourth quarter of 1999, the Company completed its Year
2000 readiness program. Under this program, the Company's personnel,
together with outside consultants and engineers, assessed the Company's
information technology and operating systems for Year 2000 readiness.
Management took steps to correct any problems identified by this assessment
or to minimize the impact of any interruptions or performance degradations
caused by the Year 2000. In addition, the Company inquired into the Year
2000 readiness status of its suppliers, customers and essential service
providers and formulated contingency plans to prepare for any Year 2000
issues.
Since December 31, 1999, the Company has not experienced any
significant Year 2000 interruptions or performance degradations in any of
its internal systems. In addition, the Company has not experienced or been
notified of any such problems from its suppliers, customers or service
providers. However, because of the reliance on and involvement of a great
many third parties, and since it may take additional time for Year 2000
problems to emerge, disruptions in the Company's operations could still
occur which may have a material effect on the Company's results of
operations.
Total costs associated with the Company's Year 2000 readiness program
have not been material to the Company's results of operations. Based on
current conditions and assessments as well as third party assurances,
management does not expect that such costs will be material to the
Company's results of operations in the future.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risks include fluctuations in interest
rates, variability in interest rate spreads (i.e., prime to LIBOR spreads)
and exchange rate variability. The Company does not trade in derivative
financial instruments. Substantially all of the Company's non-trade
indebtedness relates to loans made pursuant to the Credit and Facilities
Agreements and advances under the Discount Agreement. Interest on the term
loan under the Credit Agreement accrues at either the LIBOR rate (for a
period specified by Niagara US from time to time) plus 210 basis points, or
M&T's prime rate plus 50 basis points. Interest on revolving credit loans
made pursuant to such agreement accrues at either 175 basis points above
the LIBOR rate (for a period specified by Niagara US from time to time) or
M&T's prime rate plus 25 basis points. Interest on the term and revolving
credit loans under the Facilities Agreement accrues at the LIBOR rate (for
a period specified by Niagara UK from time to time) plus 15 basis points.
Interest on advances under the Discount Agreement accrues at National
Westminster's base rate plus 2.25%. Management attempts to reduce market
risks associated with the fluctuations in interest rates through the
selection of LIBOR periods under the Credit and Facilities Agreements and
advance amounts under the Discount Agreement.
The Company sells its products primarily to customers in North
America and Europe. Niagara UK's revenues are generally collected in the
local currency of its customers. To reduce the Company's sensitivity to
fluctuations in exchange rates, Niagara UK purchases foreign exchange
contracts in amounts and with expiration dates in line with customer
orders. Revenues from sales by Niagara US are collected exclusively in U.S.
dollars.
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 "safe harbor"
for certain forward-looking statements. Some of the statements in this Form
10-Q, including, without limitation, in "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," may constitute
forward-looking statements. When used in this Form 10-Q, the words "may,"
"will," "should," "could," "expects," "plans," "anticipates," "intends,"
"believes," "estimates," "predicts," "projects," "potential," "likely" or
"continue" and other similar expressions are intended to identify such
forward-looking statements. These statements involve known and unknown
risks, uncertainties and other factors, many of which are beyond the
control of the Company, that may cause the Company's actual results to be
materially different from those expressed or implied by such forward-
looking statements or in future filings by Niagara with the Securities and
Exchange Commission, in the Company's press releases and in oral statements
made by authorized officers of the Company. The factors discussed under
"CAUTIONARY STATEMENTS FOR PURPOSES OF THE 'SAFE HARBOR' PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995" in Niagara's Report on
Form 10-K for the fiscal year ended December 31, 1999, among others, could
cause actual results to differ materially from those contained in
forward-looking statements made in this Form 10-Q.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Niagara US and Niagara UK are subject to extensive environmental laws
and regulations concerning, among other matters, water and air emissions
and waste disposal. Under such laws, including the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), Niagara US and Niagara UK 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 five such third-party sites.
Management believes that, in four 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 three of these sites, LaSalle has entered into de
minimis settlement agreements resolving the pending claims of liability,
one of which awaits further governmental approval. In the fifth 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 largely covers the financial contributions it
has been required to make for these sites through March 31, 2000. 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.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
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 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").
+++4.3 First Amendment to the Credit Agreement, dated as of
September 4, 1997.
+++4.4 Second Amendment to the Credit Agreement, effective as of
December 31, 1997.
!!!4.5 Third Amendment to the Credit Agreement, effective May 15, 1998.
**4.6 Fourth Amendment to the Credit Agreement, effective as of
December 1, 1998.
****4.7 Fifth Amendment to the Credit Agreement, effective as of
May 21, 1999.
+++++4.8 Sixth Amendment to the Credit Agreement, effective as of
December 31, 1999.
!!!!!4.9 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.
**4.10 Amended and Restated Promissory Note, dated December 15, 1998,
made by Gilbert D. Scharf in favor of Niagara Corporation.
****4.11 Bank Facilities Agreement, dated May 21, 1999 between National
Westminster Bank Plc and Niagara LaSalle (UK) Limited.
****4.12 Intercreditor Agreement, dated May 21, 1999, between National
Westminster Bank Plc, Niagara Corporation and Niagara LaSalle
(UK) Limited.
++++4.13 Invoice Discounting Agreement, dated August 23, 1999, between
Niagara LaSalle (UK) Limited and Lombard Natwest Discounting
Limited.
++++4.14 Intercreditor Agreement, dated August 23, 1999, between Lombard
Natwest Discounting Limited, Niagara Corporation and Niagara
LaSalle (UK) Limited.
++++4.15 Deed of Priority, dated August 23, 1999, between Lombard
Natwest Discounting Limited, National Westminster Bank Plc,
Manufacturers and Traders Trust Company, Niagara LaSalle (UK)
Limited and Niagara Corporation.
***10.1 Employment Agreement, dated as of January 1, 1999, by and
among Niagara Corporation, Niagara LaSalle Corporation and
Michael Scharf.
**10.2 Employment Agreement, dated August 16, 1995, between
International Metals Acquisition Corporation, Niagara Cold
Drawn Corp. and Frank Archer.
**10.3 Employment Agreement, dated August 16, 1995, between
International Metals Acquisition Corporation, Niagara Cold
Drawn Corp. and Raymond Rozanski.
!10.4 Amended and Restated Promissory Note made by Southwest Steel
Company, Inc. in favor of the Cohen Family Revocable Trust,
u/t/a dated June 15, 1988, in the principal amount of $898,000,
dated January 31, 1996.
!10.5 Guaranty, made by the Registrant in favor of the Cohen Family
Revocable Trust, u/t/a dated June 15, 1988, dated January 31,
1996.
!!10.6 International Metals Acquisition Corporation 1995 Stock Option
Plan.
!!!!10.7 First Amendment to the International Metals Acquisition
Corporation 1995 Stock Option Plan, dated October 5, 1996.
++10.8 Second Amendment to the Niagara Corporation 1995 Stock Option
Plan, dated June 8, 1998.
++10.9 Niagara Corporation Employee Stock Purchase Plan.
**10.10 First Amendment to Lease, dated May 4, 1998, between Niagara
LaSalle Corporation and North American Royalties, Inc.
*****10.11 Sale of Business Agreement, dated April 16, 1999, between
Glynwed Steels Limited, Glynwed International plc,
Niagara LaSalle (UK) Limited and Niagara Corporation
*****10.12 Property Agreement, dated April 16, 1999, between Glynwed
Property Management Limited, Glynwed Properties Limited,
Niagara LaSalle (UK) Limited, Niagara Corporation and Glynwed
International plc.
*****10.13 Agreement For Lease of Unit 6-8 Eagle Industrial Estate, dated
April 16, 1999, between Glynwed Property Management Limited,
Glynwed Properties Limited, Niagara LaSalle (UK) Limited and
Niagara Corporation.
+++++10.14 Form of Niagara LaSalle (UK) Limited Lease.
+++++10.15 Form of Niagara LaSalle (UK) Limited Side Deed.
+++++10.16 Form of Niagara LaSalle (UK) Limited Option Agreement.
+++++10.17 Form of Niagara LaSalle (UK) Limited Lease Renewal Deed.
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 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-Q for the quarter ended September 30, 1999.
+++++ Incorporated by reference to exhibits filed with the Registrant's
Report on Form 10-K for the fiscal year ended December 31, 1999.
* Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-1, Registration No. 33-64682.
** Incorporated by reference to exhibits filed with the Registrant's
Report on Form 10-K for the fiscal year ended December 31, 1998.
*** Incorporated by reference to exhibit 10.1 filed with the
Registrant's Report on Form 10-K/A for the fiscal year ended
December 31, 1998.
**** Incorporated by reference to exhibits filed with the Registrant's
Report on Form 8-K, dated June 4, 1999.
***** Incorporated by reference to exhibits filed with the Registrant's
Report on Form 8-K, dated April 27, 1999.
! 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 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.
(b) Reports on Form 8-K
None.
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: May 12, 2000 NIAGARA CORPORATION
-------------------------------
(Registrant)
/s/ Michael Scharf
-------------------------------
Michael Scharf, President
Date: May 12, 2000 /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 THREE MONTHS ENDED MARCH 31,
2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 5,412,046
<SECURITIES> 0
<RECEIVABLES> 64,958,544
<ALLOWANCES> 981,000
<INVENTORY> 62,958,693
<CURRENT-ASSETS> 138,943,569
<PP&E> 124,707,684
<DEPRECIATION> 23,606,178
<TOTAL-ASSETS> 243,699,627
<CURRENT-LIABILITIES> 83,887,300
<BONDS> 84,790,943
<COMMON> 9,998
0
0
<OTHER-SE> 57,418,266
<TOTAL-LIABILITY-AND-EQUITY> 243,699,627
<SALES> 89,999,423
<TOTAL-REVENUES> 89,999,423
<CGS> 76,896,650
<TOTAL-COSTS> 76,896,650
<OTHER-EXPENSES> 7,889,529
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,867,929
<INCOME-PRETAX> 3,413,689
<INCOME-TAX> 1,278,000
<INCOME-CONTINUING> 2,135,689
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,135,689
<EPS-BASIC> .24
<EPS-DILUTED> .24
</TABLE>
