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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Fee Required)
For the fiscal year ended December 31, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(No Fee Required)
For the transition period from ---------- to ----------
Commission File No. 333-46607-12 Commission File No. 333-46607
WERNER HOLDING CO. (PA), INC. WERNER HOLDING CO. (DE), INC.
(EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN (EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN
ITS CHARTER) ITS CHARTER)
PENNSYLVANIA 25-0906875 DELAWARE 25-1581345
(STATE OR OTHER (IRS EMPLOYER (STATE OR OTHER (IRS EMPLOYER
JURISDICTION OF IDENTIFICATION NO.) JURISDICTION OF IDENTIFICATION NO.)
INCORPORATION OR INCORPORATION OR
ORGANIZATION) ORGANIZATION)
93 WERNER RD. 16125 1105 NORTH MARKET ST., 19899
GREENVILLE, PENNSYLVANIA (ZIP CODE) SUITE 1300 (ZIP CODE)
(ADDRESS OF PRINCIPAL WILMINGTON, DELAWARE
EXECUTIVE OFFICES) (ADDRESS OF PRINCIPAL
EXECUTIVE OFFICES)
(724) 588-2550 (302) 478-5723
(CO-REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE) (CO-REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether each of the co-registrants (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.
[X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (sec. 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of each of the co-registrants' knowledge,
in definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [ ]
Not applicable
State the aggregate market value of the voting stock held by non-affiliates
of each of the co-registrants. The aggregate market value shall be computed by
reference to the price at which the stock was sold, or the average bid and asked
prices of such stock, as of a specified date within 60 days prior to the date of
filing. (See definition of affiliate in Rule 405, 17 CFR 230.405).
Not applicable
Indicate the number of shares outstanding of each of the co-registrants'
classes of common stock, as of December 31, 1999:
Werner Holding Co. (PA), Inc. 1,964.1630 shares of Class A Common
Stock
21,942.6838 shares of Class B Common Stock
4,656.7850 shares of Class C Common Stock
1,000 shares of Class D Common Stock
45,000 shares of Class E Common Stock
Werner Holding Co. (DE), Inc. 1,000 shares of Common Stock
DOCUMENTS INCORPORATED BY REFERENCE.
NONE
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INDEX TO ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 1999
PAGE NO.
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PART I
Item 1. Business 1
Item 2. Properties 5
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security Holders 6
PART II
Item 5. Market for Company's Common Equity and Related Stockholder
Matters 7
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 8. Financial Statements and Supplementary Data 17
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 46
PART III
Item 10. Directors and Executive Officers of the Company 46
Item 11. Executive Compensation 49
Item 12. Security Ownership of Certain Beneficial Owners and
Management 55
Item 13. Certain Relationships and Related Transactions 58
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K 58
Signatures 64
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FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains certain forward-looking statements
which include, among other things, discussions of the Company's (as defined)
business and results of operations, position in its industries, future
operations, liquidity and capital resources, as well as, the impact of the Year
2000 and the Company's plans to address the Year 2000 issue. These
forward-looking statements are based upon estimates and assumptions made by
management of the Company that although believed to be reasonable, are
inherently uncertain. Therefore, undue reliance should not be placed upon such
statements and estimates. No assurance can be given that any of such statements
or estimates will be realized and it is likely that actual results will differ
materially from those contemplated by such forward-looking statements.
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The information presented in this Annual Report on Form 10-K relates to Werner
Holding Co. (PA), Inc., a Pennsylvania corporation ("Holding (PA)"), its
wholly-owned subsidiary, Werner Holding Co. (DE), Inc. ("Holding (DE)") and
Werner Co., a Pennsylvania corporation and Holding (DE)'s wholly-owned
subsidiary ("Werner"). Holding (PA) has no substantial operations or assets
other than its investment in Holding (DE) and Holding (DE) has no substantial
operations or assets other than its investments in its subsidiaries. As used
herein and except as the context otherwise may require, the "Company" means
Holding (PA), Holding (DE), Werner and all of their consolidated subsidiaries.
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PART I
ITEM 1. BUSINESS.
OVERVIEW
Holding (PA), incorporated in 1945 and Holding (DE), incorporated in 1988,
are the holding companies of Werner Co., a corporation engaged in the
manufacture and sale of climbing products and aluminum extruded products.
Management believes that Werner is the nation's largest manufacturer and
marketer of ladders and other climbing products. Werner's climbing products
include aluminum, fiberglass and wood ladders, scaffolding, stages and planks.
The Werner brand name has over a 50-year history, and management believes Werner
is the most recognized name by both professional and consumer end-users of
climbing products. In addition to climbing products, Werner manufactures and
sells aluminum extruded products and more complex fabricated components to a
number of industries, including the automotive, electronics, and architectural
and construction industries.
DESCRIPTION OF THE BUSINESS
The Company operates in two business segments, Climbing Products and
Extruded Products.
Climbing Products
Werner manufactures approximately 1,500 stock keeping units of fiberglass,
aluminum, and wood climbing products and accessories primarily under the Werner,
Keller and Columbia brand names. The Company produces five principal categories
of climbing equipment: (i) single and twin stepladders; (ii) extension,
straight, and multipurpose ladders; (iii) attic ladders; (iv) stages, planks,
work platforms, and scaffolds; and (v) assorted ladder accessories. The majority
of the Company's climbing products sales are of either aluminum or fiberglass
ladders. Through its development of proprietary aluminum extrusion and
fiberglass pultrusion technology, the Company is a leader in the climbing
products industry.
The Company's sales and marketing network is directed by an experienced
in-house sales team of national and regional sales managers. The Company's
climbing products are sold directly and through approximately 50 independent,
commissioned manufacturers representative organizations, which sell to three
major distribution channels: (i) home improvement and other retail, (ii)
hardware and (iii) professional. The Company's sales organization is further
supported by field merchandisers who assist customers with product
merchandising, point-of-purchase signage and sales techniques.
Extruded Products
The Company is also a manufacturer of lineal extruded products and
highly-engineered fabricated parts. The Company targets extruded products
customers who require special metallurgy, tight tolerances, unusual shapes,
painting, finishing and fabrication requirements. Werner has implemented
sophisticated quality systems, and has been awarded ISO-9002 and QS-9000
certifications by Underwriters Laboratories.
Werner sells aluminum extrusions to customers in the automotive,
electronics, architectural and construction industries who use them in a broad
range of products including garage door openers, bicycle frames, pneumatic
cylinders, material handling systems, electrical connectors, curtain walls and
office partitions.
The Company's extruded products sales organization is supplemented by
approximately 15 independent manufacturer's representative organizations. The
Company operates on a "make-to-order" basis with most extruded products
customers.
SEGMENTS
See Note O entitled "Segment Information" in the Notes to Consolidated
Financial Statements which is incorporated herein by reference.
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RAW MATERIALS AND SUPPLIERS
The Company is a major consumer of aluminum and has implemented various
hedging strategies to mitigate the impact of raw material price fluctuations.
The Company has contracts to provide most of its estimated aluminum requirements
with four principal suppliers. These contracts include stipulated prices with
provisions for price adjustments based on market prices. Two of these contracts
will be renegotiable in 2000, one will be renegotiable in 2001, and one will be
renegotiable in 2003. The Company has several alternative sources for its
aluminum requirements and does not believe that any one of these contracts is
material to the Company's operations.
To hedge the risk associated with price fluctuations for a certain
percentage of its forecasted aluminum raw material requirements, the Company
utilizes futures and option contracts. The Company's practice is not to hold
derivative commodity instruments, including aluminum futures and option
contracts, for trading purposes. These futures and option contracts are placed
with established metal brokers and can range up to two years in duration. The
Company has several alternative brokers and does not believe that any one of
these contracts is material to the operations of the Company.
The Company also has contracts to purchase the basic materials required for
fiberglass pultrusion with its principal suppliers, which contracts are
typically one to three years in length. The Company has several alternative
sources for these basic materials and does not believe that any one of these
contracts is material to the operations of the Company.
PATENTS, TRADEMARKS AND LICENSES
No business segment is dependent, to any significant degree, on patents,
licenses, franchises or concessions and the loss of these patents, licenses,
franchises or concessions would not have a material adverse effect on any
business segment. The Company owns numerous patents worldwide, none of which are
material to the Company's operations as a whole. These patents expire from time
to time over the next 20 years. The Company holds licenses, franchises and
concessions, none of which individually or in the aggregate is material to the
Company's operations as a whole. These licenses, franchises and concessions vary
in duration from one to 15 years.
The Company has numerous trademarks that are utilized in its businesses
worldwide. The Werner logo trademark is material to both of the Company's
business segments. This well-known trademark enjoys a reputation for quality and
value, and in the climbing products industry, is among the world's most trusted
brand names. While the Company believes its other trademarks are important to
its business operations, the loss of any of these other trademarks would not
have a material adverse effect on the Company's operations as a whole.
SENSITIVITY TO ECONOMIC CYCLES AND WEATHER CONDITIONS
A significant percentage of the Company's sales of climbing products is
attributable to new residential and nonresidential construction in the United
States, which are affected by such cyclical factors as interest rates,
inflation, consumer spending habits and employment. Similarly, a significant
percentage of the Company's sales of extruded products is attributable to the
new and used automobile and automotive parts markets, which are also affected by
such cyclical factors. Sales of climbing equipment are also sensitive to
prevailing weather conditions. Unusually severe weather can reduce or defer
sales of climbing products by delaying elective home maintenance and
discouraging do-it-yourself projects, which account for a growing portion of the
Company's sales.
BACKLOG
Due to the Company's ability to quickly meet production orders and its
production forecasting systems, the Company has no significant backlog in
climbing products. Most extruded products are produced on a make-to-order basis.
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COMPETITION
Management estimates that, while it is the largest U.S. producer of
climbing products, there were approximately 14 principal competitors in 1999.
The Company competes in its climbing products segment on the basis of its
reputation for product quality, its well-known brands, its emphasis on customer
service, the breadth of its product lines and its commitment to product
innovation.
In its extruded products business, the Company competes with integrated
primary aluminum producers, large independent producers and numerous small
independent producers located throughout the United States. The Company competes
in its extruded products segment on the basis of its specialized extrusion
capabilities, customer service and price.
Some of the Company's competitors in the climbing products and the extruded
products markets have greater financial resources and are less leveraged than
the Company. Some of the Company's extruded products competitors are larger than
the Company.
EMPLOYEES
The Company had approximately 3,400 salaried and hourly employees as of
December 31, 1999. Of the 2,343 hourly employees, approximately 2,000 are
covered by seven collective bargaining agreements, six of which expire in 2000
and one of which expires in 2002. The Company plans to renegotiate and renew
union contracts as they expire. The Company believes that its labor relations
are satisfactory at all of its facilities.
DEPENDENCE ON KEY CUSTOMERS
The Company's 10 largest customers accounted for approximately 55% of the
Company's 1999 total net sales. The Company's two largest climbing products
customers, The Home Depot and Lowe's, accounted for approximately 23% and 13%,
respectively, of the Company's 1999 total net sales. The Company does not have
contractual agreements for the supply of products with most of its climbing
products customers. The loss of certain key customers or a significant decrease
in the volume of products supplied to any of such customers could have a
material adverse effect on the Company. No extruded products customer accounted
for more than 10% of the Company's 1999 total net sales.
ENVIRONMENTAL REGULATION
The Company's operations are subject to a wide variety of federal, state
and local laws and regulations governing, among other things, emissions to air,
discharge to waters, the generation, handling, storage, transportation,
treatment and disposal of hazardous substances and other materials, and employee
health and safety matters. Also, as an owner and/or operator of real property or
a generator of hazardous substances, the Company may be subject to environmental
cleanup liability, regardless of fault, pursuant to the Comprehensive
Environmental Response Compensation and Liability Act or analogous state laws.
The Company believes that its operations and facilities have been and are being
operated in compliance in all material respects with applicable environmental
and health and safety laws and regulations. However, the operation of
manufacturing plants entails risks of financial exposure for environmental
noncompliance and cleanup liabilities. Capital and operating expenditures for
environmental compliance in 1999 were not material. There can be no assurance
that the Company will not incur costs in the future for cleanup and other
remedial activities that will have a material adverse effect on the Company. In
addition, potentially significant expenditures could be required in order to
comply with evolving environmental and health and safety laws, regulations or
requirements that may be adopted or imposed in the future.
RECENT TRANSACTIONS
The Recapitalization. On October 8, 1997, Holding (PA) entered into a
recapitalization agreement, which was amended and restated on October 27, 1997
(the "Recapitalization Agreement") with certain
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affiliates of INVESTCORP S.A. ("Investcorp") and certain other international
investors organized by Investcorp (such affiliates and investors are
collectively referred to as the "Investors"). Pursuant to the Recapitalization
Agreement on November 24, 1997 (the "Recapitalization Closing Date"), Holding
(PA) amended and restated its Articles of Incorporation pursuant to which all of
Holding (PA)'s issued and outstanding capital stock was reclassified. On the
Recapitalization Closing Date, Holding (PA) then redeemed certain shares of the
reclassified stock (representing approximately 85% of the then outstanding
shares of Holding (PA)) for cash totaling in the aggregate approximately $330.7
million and the right to receive upon certain conditions, an additional,
one-time, lump sum payment (the "Market Participation Right"). In addition, on
the Recapitalization Closing Date, Holding (PA) sold to the Investors shares of
the newly created Class C, D and E Common Stock of Holding (PA) for
approximately $122.7 million (the "Cash Equity Investment"). The foregoing
transactions are collectively referred to herein as the "Recapitalization". As a
result of the Recapitalization, the pre-Recapitalization shareholders continue
to own approximately 33% of the outstanding voting equity of Holding (PA) and
the Investors own approximately 67% of the outstanding voting equity of Holding
(PA). Financing for the Recapitalization, together with the repayment of certain
existing indebtedness of the Company was funded by (i) the Cash Equity
Investment, (ii) the offering of $135.0 million principal of 10% Senior
Subordinated Notes due 2007 of Holding (DE) (the "Notes") and (iii) $186.5
million of borrowings under a $320.0 million secured senior credit facility with
a syndicate of banks and financial institutions which included two term loans, a
revolving credit loan and a receivables line of credit (collectively, the
"Senior Credit Facility").
The MIICA Insurance Transfer. Prior to March 31, 1998, the Company operated
Manufacturers Indemnity and Insurance Company of America, a Colorado corporation
("MIICA"), as a captive insurance company to provide product liability, workers'
compensation and environmental insurance to Holding (PA) and its subsidiaries.
In the first quarter of 1998, the Company undertook an extensive evaluation of
the cost and efficiency of providing such insurance through MIICA and determined
to obtain coverage from an external commercial insurance company. On March 31,
1998, the Company entered into an arrangement with a commercial insurance
provider under which MIICA transferred its outstanding product and workers'
compensation liabilities for losses incurred on or prior to March 31, 1998 to a
commercial insurance provider in exchange for the payment of approximately $42.4
million (collectively, the "MIICA Insurance Transfer"). The Company paid this
amount from the proceeds of the liquidation of a substantial portion of MIICA's
insurance fund investments. Under the terms of the agreements governing the
MIICA Insurance Transfer, the commercial insurance provider assumed all MIICA's
product and workers' compensation liabilities for losses incurred prior to March
31, 1998 up to an aggregate limit of $75 million. Holding (PA) has agreed to
indemnify the commercial insurance company for losses in excess of this limit.
In conjunction with the MIICA Insurance Transfer, the Company obtained product
liability and workers' compensation insurance coverage for such losses which
occur on or after April 1, 1998 from an external commercial insurance company.
The Company believes that this insurance coverage is adequate for its current
and future anticipated business needs. As a result of the MIICA Insurance
Transfer, on July 8, 1998 the Company discontinued the operations of and
dissolved MIICA.
Subsidiary Consolidation. In the second quarter of 1998, the Company
undertook a review of the desirability and necessity of operating through all of
Holding (DE)'s direct and indirect subsidiaries, including certain of those
subsidiaries who have guaranteed the Notes (the "Subsidiary Guarantors"). As a
result of this review, Holding (DE) determined to consolidate a number of its
direct and indirect subsidiaries through mergers into Holding (DE) or Werner. On
May 14, 1998, R.D. Arizona Ladder Corp. was merged with Werner, with Werner
remaining as the surviving corporation. On June 30, 1998, Ardee Investment Co.,
Inc. merged with Werner Financial Inc., with Werner Financial Inc. remaining as
the surviving corporation. Werner Financial Inc. was then merged with Holding
(DE) with Holding (DE) remaining as the surviving corporation. In addition, on
June 30, 1998, the following subsidiaries of Holding (DE) were merged with
Werner, with Werner remaining as the surviving corporation: Phoenix Management
Services, Inc.; Werner Management Co.; Florida Ladder Company; Kentucky Ladder
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Company; and Gold Medal Ladder Company. On December 31, 1998, Olympus
Properties, Inc. was merged with Werner, with Werner remaining as the surviving
corporation. This consolidation of Holding (DE)'s subsidiaries was permitted
under the Senior Credit Facility and the Indenture governing the Notes and has
no impact upon holders of the Notes or the consolidated results of operations of
the Company.
Business Acquisition. In October 1999, Werner acquired certain assets of
Keller Ladders, Inc. ("KLI") for a purchase price of approximately $12.2
million. The purchased assets consisted of three climbing products manufacturing
facilities located in Merced, CA, Swainsboro, GA and Goshen, IN; the Keller,
Columbia and Blue Ribbon brand names; and certain equipment, inventory,
intellectual property and other assets used in KLI's climbing products business.
No product or other significant liabilities were assumed in connection with this
acquisition.
ITEM 2. PROPERTIES.
The Company believes its manufacturing, warehouse and office facilities are
suitable, adequate and have sufficient manufacturing capacity for its current
requirements. The Company also believes that its facilities are being utilized
consistently with the Company's plans and do not have substantial excess
capacity. Werner's corporate headquarters offices are located at 93 Werner Rd.,
Greenville, Pennsylvania 16125. The Company's principal facilities consist of
the following:
OWNED/ APPROX.
LOCATION PRINCIPAL USE LEASE EXPIRATION SQUARE FOOTAGE
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Greenville, PA.............. Office, Manufacturing, Distribution Owned 640,000
Franklin Park, IL........... Office, Manufacturing, Distribution Owned 672,000
Anniston, AL................ Manufacturing, Distribution Owned 410,000
Carrolton, KY............... Manufacturing, Distribution Owned(1) 200,000
Swainsboro, GA.............. Manufacturing, Distribution 10/31/02 240,000
Merced, CA.................. Manufacturing, Distribution 12/31/35(2) 185,115
Goshen, IN.................. Manufacturing, Distribution 8/31/00 98,200
Portland, OR................ Distribution 3/31/00 16,500
Union City, CA.............. Warehouse 10/31/00 38,600
Bell, CA.................... Warehouse 4/30/01 39,100
Phoenix, AZ................. Warehouse 9/30/00 18,500
Dallas, TX.................. Warehouse 6/30/04 16,480
Houston, TX................. Warehouse 2/28/01 40,000
Jefferson, LA............... Warehouse 4/30/03 7,800
Greensboro, NC.............. Warehouse 4/30/01 15,200
Maryland Hgts., MO.......... Warehouse 9/30/00 8,700
Franklin Park, IL........... Warehouse 1/31/00 100,000
Minneapolis, MN............. Warehouse 8/31/05 11,900
Anniston, AL................ Warehouse 2/28/00 75,000
Greenville, PA.............. Warehouse 11/30/02 50,000
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(1) Subject to Variable Rate Industrial Building Revenue Bonds due 2015 issued
by the County of Carroll, Kentucky.
(2) Building and improvements owned by Werner, real property leased under 15
year ground lease with four 5 year renewals.
The Company's facilities at Greenville, PA, Franklin Park, IL, and
Anniston, AL serve both the climbing products and extruded products segments of
its business. All other facilities primarily serve the climbing products segment
of the Company's business.
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ITEM 3. LEGAL PROCEEDINGS.
The Company is involved from time to time in various legal proceedings and
claims incident to the normal conduct of its business. Although it is impossible
to predict the outcome of any pending legal proceeding, the Company believes
that such legal proceedings and claims, individually and in the aggregate, are
either without merit, covered by insurance or adequately reserved for, and will
not have a material adverse effect on its results of operations, financial
position, or cash flows.
In March 1998, an action was filed in the United States District Court for
the Western District of Pennsylvania entitled Elizabeth Werner, et al v. Eric J.
Werner, et al (Civil Action No. 98-503). The plaintiffs of the action are
Elizabeth Werner, Jeffrey R. Ackerman, individually and as trustee under a trust
for the benefit of Elizabeth Werner; Matthew W. Weiss (by his parent Elizabeth
Werner); Timothy F. Burke, Jr., as executor of the estate of Anne L. Werner and
as trustee of certain trusts under Anne L. Werner's last will and testament;
Edward A. Pollock; and all of such plaintiffs derivatively on behalf of Holding
(PA). Defendants include Donald M. Werner, Howard L. Solot, Michael E. Werner,
Eric J. Werner, Michael J. Solot, Craig R. Werner and Bruce D. Werner
(collectively, the "Management Shareholders"), former company officers Richard
L. Werner, Robert I. Werner, Marc L. Werner, certain non-management
shareholders, Holding (PA), Holding (DE) and certain of its subsidiaries
including Werner. The action purports, in part, to be brought derivatively on
behalf of Holding (PA) and, in part, to be brought on behalf of plaintiffs
individually against the Company and certain current and former officers and
directors of the Company. The aspect of the case purportedly brought on behalf
of Holding (PA) alleges breaches of fiduciary duty by various members of the
Company's management arising out of, among other things, the issuance of
restricted stock to management of the Company in 1992 and 1993. Holding (PA)'s
Board of Directors referred the matter to a special committee of disinterested
directors to investigate the merits of the claim and to take appropriate actions
on behalf of Holding (PA). After a detailed investigation, the special committee
recommended that the derivative claims not be pursued by or on behalf of Holding
(PA). Accordingly, all the defendants made motions to dismiss the derivative
claims. Pursuant to an amendment to the complaint filed by plaintiffs on March
29, 1999, the only remaining corporate defendant in this action is Holding (PA).
Pursuant to the same amendment, the only remaining derivative claim asserted by
the plaintiffs is a claim for excessive compensation, not relating to the
restricted stock issuances. The aspect of the case purportedly brought on behalf
of plaintiffs individually against the Company appears to arise out of the 1992
and 1993 restricted stock issuances as well as certain alleged
misrepresentations by representatives of the Company. The plaintiffs seek
monetary damages in an unspecified amount. In May 1999, the magistrate judge
issued a report and recommendation ruling that all of the plaintiffs' claims be
dismissed. The District Court issued a Memorandum Order on August 4, 1999
granting the motion to dismiss all remaining claims against all defendants
without prejudice and adopted the magistrate judge's report as the opinion of
the District Court. The plaintiffs have appealed such decision. Management
believes that the ultimate resolution of this lawsuit will not have a material
adverse effect on the Company's results of operations, financial position, or
cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
There is no established public trading market for the common stock of
either Holding (PA) or Holding (DE). As of December 31, 1999, all of the issued
and outstanding shares of Holding (DE)'s common stock were held by Holding (PA).
The number of shareholders of record of each class of common stock of Holding
(PA) as of December 31, 1999 is as follows:
Class A Common Stock: 25 holders
Class B Common Stock: 106 holders
Class C Common Stock: 31 holders
Class D Common Stock: 11 holders
Class E Common Stock: 12 holders
No dividends have been paid to shareholders of Holding (PA) in the last two
years and no dividends are expected to be declared in the near future. Holding
(DE) declares and pays from time to time, certain cash dividends to its sole
shareholder, Holding (PA), in order to allow Holding (PA) to pay certain
obligations such as taxes and ordinary course operating expenses not exceeding
$2,000,000 in any fiscal year. The Senior Credit Facility and the Indenture
governing the Notes limit the Company's ability to pay dividends on its capital
stock.
Holding (DE) has not issued or sold any equity securities within the past
three years that were not registered under the Securities Act of 1933, as
amended (the "Securities Act"). Holding (PA) has not issued or sold any equity
securities within the past three years that were not registered under the
Securities Act, except as follows:
(a) On the Recapitalization Closing Date, and as part of the
Recapitalization, Holding (PA) sold to the Investors shares of Class C, D
and E Common Stock at a price per share of $2,421.29, or an aggregate
offering price of $122,700,000. See Business -- "The Recapitalization".
(b) On the Recapitalization Closing Date, and as part of the
Recapitalization, Holding (PA) issued and sold a Class E Stock Purchase
Warrant to Investcorp Bank E.C. for $10.00, which allows Investcorp Bank
E.C. the right to purchase a number of shares of Common Stock from Holding
(PA) upon the occurrence of a sale or initial public offering of the
Company.
(c) On various dates from the Recapitalization Closing Date through
December 31, 1999, pursuant to Holding (PA)'s Stock Option Plan, Holding
(PA) has granted to key employees of Werner non-qualified incentive stock
options, exercisable at $2,421.29 per share, to purchase up to an aggregate
of 7,600 shares of Class C Common Stock. See Note H entitled "Stock
Incentive Plans" in the Notes to Consolidated Financial Statements in this
report.
(d) On various dates from January 1, 1999 to December 31, 1999,
certain members of Werner's management purchased shares of Holding (PA)'s
Class C Common Stock at a purchase price of $2,421.29 per share, or an
aggregate of approximately $1,932,189 pursuant to Management Stock Purchase
Agreements. Certain of these individuals received secured loans from the
Company pursuant to its Stock Loan Plan to finance a portion of the
purchase price paid for the shares of Class C Common Stock in an aggregate
amount of approximately $685,000. See Note H entitled "Stock Incentive
Plans" in the Notes to Consolidated Financial Statements in this report.
The transactions set forth in paragraphs (a), (b) and (d) above were
undertaken in reliance upon the exemption from the registration requirements of
the Securities Act afforded by Section 4(2) thereof and/or Regulation D
promulgated thereunder, as sales not involving a public offering. The
transactions set forth in paragraph (c) above were undertaken in reliance upon
the exemption from the registration requirements of the Securities Act afforded
by Rule 701 promulgated thereunder, as sales by an issuer to employees,
directors or officers pursuant to written compensatory benefit plans or written
contracts relating to the compensation of such persons. The Company believes
that exemptions other than those specified above may exist with respect to the
transactions set forth above.
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ITEM 6. SELECTED FINANCIAL DATA.
The following selected consolidated financial data is that of Holding (PA).
Holding (PA) is a guarantor of the Notes and has no substantial operations or
assets other than its investment in Holding (DE). As a result, the consolidated
financial condition and results of operations of Holding (PA) are substantially
the same as those of Holding (DE). This table contains selected financial data
and is qualified by the more detailed Consolidated Financial Statements and
Notes thereto of Holding (PA). The selected financial data should be read in
conjunction with the Consolidated Financial Statements and Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere herein.
FISCAL YEARS ENDED DECEMBER 31
------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE
AMOUNTS)
OPERATING DATA:
Net sales.................................. $484.6 $436.1 $416.3 $366.9 $336.0
Cost of sales.............................. 348.6 322.5 303.4 268.0 251.4
------ ------ ------ ------ ------
Gross profit............................ 136.0 113.6 112.9 98.9 84.6
General and administrative expenses(a)..... 29.9 31.6 27.6 23.8 22.2
Selling and distribution expenses.......... 58.0 50.2 49.1 47.9 47.2
Recapitalization expense(b)................ -- -- 22.7 -- --
Non-cash compensation charge(c)............ -- -- 78.5 -- --
------ ------ ------ ------ ------
Operating profit (loss).................... 48.1 31.8 (65.0) 27.2 15.2
MIICA investment gains (losses)(d)......... -- (1.5) (14.6) 9.5 1.3
Other income (expense), net................ (2.0) 2.2 (1.2) 0.2 2.7
------ ------ ------ ------ ------
Income (loss) before interest and taxes.... 46.1 32.5 (80.8) 36.9 19.2
Interest expense(e)........................ 27.1 30.6 9.0 7.5 7.2
------ ------ ------ ------ ------
Income (loss) before provision for income
taxes................................... 19.0 1.9 (89.8) 29.4 12.0
Income taxes............................... 7.7 1.8 0.7 10.0 5.1
------ ------ ------ ------ ------
Income (loss) before extraordinary
charge.................................. 11.3 0.1 (90.5) 19.4 6.9
Extraordinary charge(f).................... -- -- -- -- 0.6
------ ------ ------ ------ ------
Net income (loss).......................... $ 11.3 $ 0.1 $(90.5) $ 19.4 $ 6.3
====== ====== ====== ====== ======
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and equivalents....................... $ 0.9 $ 9.4 $ 3.1 $ 1.0 $ 0.6
Insurance fund investments(g).............. -- -- 58.6 80.9 68.2
Working capital............................ 61.5 53.6 30.1 49.2 59.4
Total assets............................... 255.4 212.8 288.2 261.2 234.6
Reserve for product liability and workers'
compensation claims (including
current)(g)............................. 29.8 14.3 49.6 45.3 41.5
Total debt (including current
maturities)............................. 278.9 279.9 322.5 83.4 83.5
Common shareholders' equity (deficit)(h)... (143.9) (154.4) (153.7) 75.1 62.1
OTHER FINANCIAL DATA:
Cash flow provided by (used in) operating
activities.............................. $ 27.6 $ 51.8 $ 17.2 $ 19.5 $ (1.4)
Cash flows used in investing activities.... (32.5) (2.6) (3.6) (15.8) (18.9)
Cash flows (used in) provided by financing
activities.............................. (3.6) (42.9) (11.5) (3.3) 20.8
Depreciation and amortization(i)........... 13.3 17.5 11.2 9.1 7.7
Capital expenditures....................... 20.5 8.9 11.7 13.0 12.5
Dividends declared per share............... -- -- 10.50 11.25 10.20
EBITDA(j).................................. 60.8 51.5 (69.6) 46.0 26.9
See Notes to Selected Consolidated Historical Financial Data.
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ITEM 6. SELECTED FINANCIAL DATA. (CONTINUED)
NOTES TO SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
(DOLLARS IN MILLIONS)
(a) General and administrative expenses in 1999 and 1998 include
$1.0 and $6.6, respectively, of amortization of certain
non-recurring expenses associated with the Recapitalization.
(b) Represents Recapitalization expense of $22.7 consisting of
investment banker fees, transaction fees, legal and
accounting fees, transaction bonuses paid to certain Company
employees and other miscellaneous costs incurred in
connection with the Recapitalization.
(c) Reflects the non-recurring non-cash compensation charge (and
a corresponding credit to shareholders' equity) of $78.5
associated with (a) the accelerated vesting, as a result of
the Recapitalization, of outstanding restricted
Pre-Recapitalization Class B Stock previously granted to
certain key management employees; (b) the accelerated
vesting, as a result of the Recapitalization, of outstanding
restricted Pre-Recapitalization Class B Stock previously
granted to a former key management employee upon his
separation from the Company; and (c) changes in the terms of
the plan under which such stock was granted.
(d) 1998 includes three months of MIICA investment losses
(January 1, 1998 through March 31, 1998, the date of the
MIICA Insurance Transfer).
(e) Reflects a full year of interest expense in 1999 and 1998 on
the debt incurred to finance the Recapitalization.
(f) Reflects expenses incurred in regard to the early
extinguishment of debt, net of income tax benefits of $0.4.
(g) Decreases in 1998 are primarily due to the MIICA Insurance
Transfer which occurred on March 31, 1998.
(h) The shareholders' deficit at December 31, 1997 was the
result of the Recapitalization and the recording of related
expenses, net of income tax benefits. In connection with the
Recapitalization, the Investors made an equity investment of
approximately $122.7, representing approximately 67% of the
outstanding capital stock and voting power of the Company.
(i) Depreciation and amortization is comprised of the following
components in 1999 and 1998: depreciation of property, plant
and equipment, $8.9 and $8.5, respectively; amortization of
certain non-recurring expenses associated with the
Recapitalization, $1.0 and $6.6, respectively; and other
amortization, $3.4 and $2.4, respectively. Depreciation and
amortization excludes amortization of deferred financing
fees and original issue discount.
(j) EBITDA represents earnings before interest, income taxes,
depreciation and amortization. EBITDA is presented because
it is commonly used by certain investors to analyze and
determine a company's ability to service and/or incur debt.
However, EBITDA should not be considered in isolation or as
a substitute for net income, cash flows or other income or
cash flows data prepared in accordance with generally
accepted accounting principles or as a measure of a
company's profitability or liquidity. EBITDA for both 1999
and 1998 excludes $1.5 of accounts receivable securitization
expense. EBITDA for 1999 includes: (a) non-recurring
recruiting, relocation and other costs of $2.2 due to the
transition in chief executive officers of the Company, (b)
costs of $2.1 related to the Keller business described in
Note R to the Consolidated Financial Statements and, (c)
other non-recurring expenses of $1.2 primarily related to a
former employee and the discontinued operations of a former
subsidiary. EBITDA for 1998 includes non-recurring expenses
of $.5 to shutdown an extrusion paint and thermal production
line. EBITDA for 1997 includes: (a) the non-recurring,
non-cash compensation charge of $78.5; and (b)
recapitalization expense of $22.7 and other non-recurring
adjustments.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the "Selected
Consolidated Historical Financial Data," and the Consolidated Financial
Statements of the Company and the notes thereto included elsewhere in this
Annual Report on Form 10-K.
GENERAL
Werner is a manufacturer and marketer of ladders and other climbing
products. Werner also manufactures and sells aluminum extruded products and more
complex fabricated components.
The Recapitalization. Pursuant to the Recapitalization Agreement, on
November 24, 1997, the Company (a) amended and restated its Articles of
Incorporation pursuant to which the Company's capital stock was reclassified,
(b) redeemed for cash certain shares of the reclassified stock totaling $330.7
million and (c) sold to the Investors shares of newly created Class C, D and E
Common Stock of the Company totaling $122.7 million. As a result of the
Recapitalization, the Pre-Recapitalization shareholders continue to own
approximately 33% of the outstanding voting equity of the Company and the
Investors own approximately 67% of the outstanding voting equity of the Company.
Recapitalization Financing. The Recapitalization was funded by (a) $186.5
million of borrowings under the Senior Credit Facility, (b) the issuance of
$135.0 million of Notes and (c) proceeds from the sale of certain shares of the
Company's stock to the Investors.
Recapitalization Accounting. The transaction was accounted for as a
recapitalization and as such, the historical basis of the Company's assets and
liabilities was not affected. Recapitalization related costs totaling $22.7
million were expensed and reflected as a component of operating income in 1997.
The MIICA Insurance Transfer. In the first quarter of 1998, the Company
obtained commercial insurance coverage for its product liability and workers'
compensation claims as opposed to providing insurance for such claims through
MIICA, the Issuer's captive insurance subsidiary. On March 31, 1998 the Company
entered into the MIICA Insurance Transfer pursuant to which a commercial
insurance provider agreed to assume product liability and workers' compensation
losses which occurred on or before March 31, 1998 and to extinguish the
Company's liability in regard to such losses. The Company paid approximately
$42.4 million for this insurance coverage from the proceeds of the liquidation
of certain of MIICA's insurance fund investments. Immediately prior to the MIICA
Insurance Transfer, the Company had a reserve for such losses of approximately
$47.5 million. As a result of the MIICA Insurance Transfer the Company
recognized a gain of approximately $4.5 million, which is included in other
income (expense), net. Such gain is net of costs incurred to discontinue the
operations of MIICA. MIICA was dissolved in the third quarter of 1998. The
Company has also obtained third party insurance coverage, subject to certain
deductible provisions, for product liability and workers' compensation claims
which occur on or after April 1, 1998.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 AS COMPARED TO YEAR ENDED DECEMBER 31, 1998
Net Sales. Net sales increased $48.5 million, or 11.1%, to $484.6 million
for 1999 from $436.1 million for 1998.
Net sales of climbing products increased $50.2 million, or 15.2%, to $380.2
million in 1999 from $330.0 million in 1998. This increase was primarily due to
increased sales volume in both fiberglass and aluminum climbing products, which
was achieved through the ongoing successful growth of the Com-
10
13
pany's customer base, the addition of new customers, including $6.6 million
related to the acquisition of certain assets of Keller Ladders, Inc., new
product development and increased marketing efforts, particularly to large home
improvement retailers.
Net sales of extruded products of $104.4 million for 1999 declined by $1.7
million or 1.6% compared to 1998 primarily due to lower aluminum prices.
Gross Profit. Gross profit increased to $136.0 million for 1999 from
$113.6 million for 1998. Gross profit margin was 28.1% for 1999 and 26.1% for
1998. The increase was primarily due to greater sales of higher margin climbing
products and the benefits of spreading fixed costs over higher production
volumes.
General and Administrative Expense. General and administrative expense
decreased $1.8 million, or 5.7%, to $29.8 million for 1999 from $31.6 million
for 1998. The decrease was primarily due to certain non-recurring costs in 1998
associated with the Recapitalization, partially offset by increases in
recruiting and relocation expenses and increases in consulting expenses related
to certain cost reduction initiatives.
Selling and Distribution Expense. Selling and distribution expense
increased $7.8 million, or 15.7%, to $58.0 million for 1999 from $50.2 million
for 1998. The increase was primarily due to increases in advertising and
distribution expenses.
Operating Profit (Loss). Operating profit increased $16.3 million to $48.1
million for 1999 from $31.8 million in 1998. Operating profit of the Climbing
Products segment increased $6.9 million or 19.0% to $43.3 million in 1999 from
$36.4 million in 1998. This increase was primarily attributable to the increased
sale of higher margin climbing products partially offset by related increases in
advertising and distribution expenses. Operating profit of the Extruded Products
segment increased $2.0 million or 30.9% to $8.5 million from $6.5 million in
1998. This increase was primarily attributable to improvements in the
profitability of the product mix. Corporate and Other expenses decreased $7.4
million from $11.1 million in 1998 to $3.7 million in 1999. This decrease was
primarily due to certain non-recurring expenses in 1998 associated with the
Recapitalization.
Other (Expense) Income, Net. Other (expense) income, net decreased by $2.7
million from net income of $0.6 million for 1998 to net expense of $2.1 million
in 1999. The increase in expense is primarily attributable to a decrease in
1999, compared to 1998, of $1.5 million in MIICA investment losses, the gain
recognized on the MIICA Insurance Transfer offset by provisions for remaining
MIICA assets in 1998, and other expenses in 1999, primarily attributable to
certain non-recurring expenses with respect to a former employee and expenses
associated with the discontinued operations of a former subsidiary.
Interest Expense. Interest expense decreased $3.5 million to $27.1 million
for 1999 from $30.6 million for 1998. The decrease was primarily due to lower
interest rates.
Income Taxes. Income taxes increased $5.8 million to $7.6 million for 1999
from $1.8 million for 1998. This increase was primarily due to an increase in
taxable income in 1999 as compared to the year ended 1998.
Net Income. Net income was $11.3 million for 1999 compared to a net income
of $0.1 million for 1998. The change was due to a combination of the above
factors.
YEAR ENDED DECEMBER 31, 1998 AS COMPARED TO YEAR ENDED DECEMBER 31, 1997
Net Sales. Net sales increased $19.8 million, or 4.8%, to $436.1 million
for 1998 from $416.3 million for 1997.
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14
Net sales of climbing products increased $15.8 million, or 5.0%, to $330.0
million in 1998 from $314.2 million in 1997. This increase was primarily due to
increased sales volume in both fiberglass and aluminum climbing products, which
was achieved through the ongoing successful growth of the Company's customer
base, new product development and increased marketing efforts, particularly to
large home improvement retailers.
Net sales of extruded products increased $4.0 million, or 3.9%, to $106.1
million for 1998 from $102.1 million for 1997. The increase is due to growth of
extrusions sold to customers in the building products and transportation
sectors.
Gross Profit. Gross profit increased slightly to $113.6 million for 1998
from $112.9 million for 1997. Gross profit margin was 26.1% for 1998 and 27.1%
for 1997, reflecting general market conditions.
General and Administrative Expense. General and administrative expense
increased $4.0 million, or 14.4%, to $31.6 million for 1998 from $27.6 million
for 1997. This increase was primarily due to the amortization of certain
non-recurring costs associated with the Recapitalization of $6.6 million offset
by decreases in certain costs of $2.6 million.
Selling and Distribution Expense. Selling and distribution expense
increased $1.1 million, or 2.2%, to $50.2 million for 1998 from $49.1 million
for 1997.
Non-Cash Compensation Charge. A non-cash compensation charge of $78.5
million, primarily relating to the accelerated vesting of Pre-Recapitalization
Class B Stock in connection with the Recapitalization, was recorded in 1997.
Operating Profit (Loss). Operating profit increased $96.8 million to $31.8
million for 1998 from an operating loss of $65.0 million in 1997. Operating
profit of the Climbing Products segment decreased $1.8 million or 4.7% to $36.4
million in 1998 from $38.2 million in 1997. This decrease was primarily
attributable to increases in sales-based advertising and promotional expense.
Operating profit of the Extruded Products segment increased $0.6 million or
11.1% to $6.5 million from $5.9 million in 1997. This increase was primarily
attributable to the growth of extrusions sold to customers in the building and
transportation sectors. The remaining increase in operating profit of $98.0
million between 1998 and 1997 was primarily the result of the Recapitalization
expense and the non-cash compensation charge incurred in 1997.
Other Income (Expense), Net. Other income (expense), net decreased by
$16.5 million from net expense of $15.8 million for 1997 to net income of $0.7
million in 1998. The decrease in expense is primarily attributable to a decrease
of $13.1 million in MIICA investment losses, between 1998 and 1997, and the gain
of $4.5 million recognized on the MIICA Insurance Transfer offset by provisions
for remaining MIICA assets and other expenses.
Interest Expense. Interest expense increased $21.6 million to $30.6
million for 1998 from $9.0 million for 1997. The increase was primarily due to
the additional interest on the debt resulting from the Recapitalization.
Income Taxes. Income taxes increased $1.1 million to $1.8 million for 1998
from $0.7 million for 1997. This increase was primarily due to: an increase in
taxable income in 1998 as compared to the year ended 1997 due to the inclusion
in 1997 of charges associated with the Recapitalization; the inclusion in 1997
of the non-cash compensation charge of $78.5 million which was not deductible
for income tax purposes; and an increase of $1.7 million in the valuation
allowance in 1998 relating to the realization of certain deferred tax assets.
Net Income. Net income was $0.1 million for 1998 compared to a net loss of
$90.5 million for 1997. The change was due to a combination of the above
factors.
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LIQUIDITY AND CAPITAL RESOURCES
The Company incurred a significant amount of indebtedness in connection
with the Recapitalization. At December 31, 1999, the Company had approximately
$278.9 million of consolidated indebtedness, including $131.8 million of
indebtedness, net of the original issue discount, pursuant to the Notes, and
$142.1 million of borrowings under the Senior Credit Facility. The Senior Credit
Facility provides for $145.0 million of Term Loan Facilities, and a $100.0
million Revolving Facility. At December 31, 1999 $93.9 million was available for
borrowing under the Revolving Facility.
In May 1998, the Company entered into a five-year $50.0 million receivables
purchase agreement with a financial institution and its affiliate (the
"Receivables Purchase Agreement") and refinanced outstanding amounts borrowed
under the receivables portion of the Senior Credit Facility. As of December 31,
1999, the Company sold $89.5 million of accounts receivable in exchange for
$20.0 million in cash and an undivided interest in the accounts receivable of
$69.5 million. As of December 31, 1999, an additional $30.0 million of financing
was available under the Receivables Purchase Agreement.
The Company satisfies its debt service requirements and meets its
operating, working capital and capital expenditure needs through a combination
of operating cash flow and funds available under the Senior Credit Facility and
the Receivables Purchase Agreement.
In connection with the Recapitalization, the Company refinanced all of its
existing debt except for the Variable Rate Demand Industrial Building Revenue
Bonds due 2015 (the "IRBs") with the proceeds from the Notes and the Senior
Credit Facility.
Net cash flows from operating activities decreased $24.2 million to $27.6
million for the year ended December 31, 1999 from $51.8 million for the year
ended 1998. The decrease is primarily attributable to the net proceeds from the
sale of accounts receivable under the Receivables Purchase Agreement of $20.0
million in 1998. Net cash flows from operating activities increased $34.6
million to $51.8 million for the year ended December 31, 1998 from $17.2 million
for the year ended 1997. This is primarily attributable to: the decrease in
operating working capital (receivables, inventory, accounts payable and accrued
expenses) of $9.3 million; the decrease in the payment of product liability and
workers' compensation claims of $7.3 million; and the net proceeds from the sale
of accounts receivable under the Receivables Purchase Agreement of $20.0
million. Operating working capital also primarily decreased as a result of this
sale of receivables. The payment of product liability and workers' compensation
claims decreased as a result of the MIICA Insurance Transfer. Cash flow used in
investing activities increased $29.9 million to $32.5 million in 1999 from $2.6
million in 1998. This increase was due primarily to an increase in capital
expenditures of $11.5 million and the acquisition of certain assets of Keller
Ladders, Inc. for $12.2 million.
The Company's ability to make scheduled payments of principal ($1.5 million
for each of the years 2000 through 2002), or to pay interest (expected to range
from $25.1 million to $25.3 million annually for years 2000 to 2002, assuming
current interest rates and debt levels, net of scheduled principal payments),
on, or to refinance its indebtedness (including the Notes), or to fund planned
capital expenditures or finance acquisitions, will depend on its future
financial and operating performance, which to a certain extent is subject to
general economic, financial, competitive, legislative, regulatory and other
factors that are beyond its control. Based on the current and anticipated level
of operations, management believes that cash flow from operations and available
cash, together with available borrowings under the Senior Credit Facility and
sales of accounts receivable under the Receivables Purchase Agreement, will be
adequate to meet the Company's anticipated future requirements for working
capital, budgeted capital expenditures, and scheduled payments of principal and
interest on its indebtedness, including the Notes, for the next twelve months.
The Company, however, may need to refinance all or a portion of the principal of
the Notes on or prior to maturity. There can be no assurance that the Company's
business will generate sufficient cash flows from operations or that future
borrowings will be available under the Senior Credit Facility and the
Receivables Purchase Agreement in an amount sufficient to enable the Company to
service its indebtedness, including the Notes, or make anticipated
13
16
capital expenditures and fund potential future acquisitions. In addition, there
can be no assurance that the Company will be able to effect any refinancing on
commercially reasonable terms, or at all.
Capital Expenditures
The Company's capital expenditures were $20.5 million, $8.9 million and
$11.7 million, in 1999, 1998 and 1997, respectively. Approximately $5 million of
the amount expended in each of such years has been for the renewal and
replacement of existing facilities and equipment; thus in an economic downturn,
the Company believes it will be able to adjust the amount spent on capital
expenditures without compromising the base need of its operations. The Company
expects to spend approximately $35 million in 2000 for various capital projects,
including information systems, quality enhancement, cost improvement, efficiency
improvement, and increased capacity.
Seasonality, Working Capital and Cyclicality
Sales of certain products of the Company are subject to seasonal variation.
Demand for the Company's ladder products is affected by residential housing
starts and existing home sales, commercial construction activity, and overall
home improvement expenditures. Due to seasonal factors associated with the
construction industry, sales of products and working capital are typically
higher during the second and third quarters than at other times of the year. The
Company expects to use the Senior Credit Facility and the Receivables Purchase
Agreement to meet any seasonal variations in its working capital requirements.
The residential and commercial construction markets are sensitive to cyclical
changes in the economy.
Raw Material Costs and Inflation
The rate of inflation over recent years has been relatively low and has not
had a significant effect on the Company's results of operations. The Company
purchases aluminum, glass and other raw materials from various suppliers. While
all such materials are available from numerous independent suppliers, commodity
raw materials are subject to price fluctuations. There have been historical
periods of rapid and significant movements in the price of aluminum, both upward
and downward. Historically, the Company has entered into futures contracts with
respect to its purchases of aluminum to minimize or hedge commodity price
fluctuations. See "Business -- Raw Materials and Suppliers".
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133 (SFAS No. 133), Accounting
for Derivative Instruments and Hedging Activities, which was originally required
to be adopted by the Company in 2000. In September 1999, the FASB issued SFAS
No. 137 (SFAS No. 137), Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of SFAS No. 133. SFAS No. 137
deferred the date by which the Company is required to adopt SFAS No. 133 to
2001. SFAS No. 133 requires that the Company recognize all derivatives on the
balance sheet at fair value. Derivatives that are not hedges must be adjusted to
fair value through income. If the derivative is a hedge, depending on the nature
of the hedge, changes in the fair value of such derivatives will either be
offset against the change in fair value of the hedged assets, liabilities, or
firm commitments through earnings or recognized in accumulated other non-owner
equity changes until the hedged item is recognized in earnings. The portion of a
derivative's change in fair value, if unrelated to a hedge, will be immediately
recognized in earnings. The Company has not yet determined what the effect of
SFAS No. 133 will be on the earnings and financial position of the Company.
YEAR 2000 READINESS PROGRAM
The Year 2000 issue arose because many computer hardware and software
systems used only the last two digits to represent a year. As a result, these
systems may not have properly processed dates
14
17
beyond 1999 which could have caused errors in information or system failures. If
the Company's computer systems did not correctly recognize and process date
information beyond the year 1999, the Year 2000 issue could have had a material
adverse impact on the operations of the Company.
Based on all current information, the Company has not experienced any
significant events in connection with Year 2000 issues. The Company will
continue to monitor for potential issues with its own internal computer systems,
as well as those of its customers and suppliers, in order to minimize any
potential risk. The Company now believes that any potential Year 2000 issue that
might arise would not have a significant impact on its operations and would most
likely be an isolated, short-term event.
Program Completion. In 1996, the Company commenced a program intended to
mitigate and prevent the adverse effect of the Year 2000 issue. This program
consisted of the following phases:
AWARENESS PHASE -- development of a detailed strategic approach to
address the Year 2000 issue;
ASSESSMENT PHASE -- an assessment of all computer systems, software,
building infrastructure components and equipment with embedded technology
to identify each item that requires date code remediation and an assessment
and certification of third parties' Year 2000 compliance;
REMEDIATION PHASE -- implementation of code enhancements, hardware and
software upgrades, system replacements, vendor and customer assurances,
contingency planning and other associated changes; and
VALIDATION PHASE -- testing of systems for Year 2000 readiness.
The Company completed all phases of the program in advance of December 31,
1999.
Costs. The Company primarily utilized internal resources to reprogram,
replace and test its computer systems, software, equipment and building
infrastructure components for Year 2000 modifications. The Company's Year 2000
expenditures approximated $1.6 million and were funded by normal operating cash
flow. All Year 2000 expenditures were expensed as incurred and did not have a
material effect on results of operations, liquidity or capital resources.
Approximately $0.5 million and $0.9 million of the project costs were incurred
in 1999 and 1998, respectively. The Company does not expect to incur any
additional significant direct costs related to the Year 2000 issue during the
current year.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk Disclosures. The following discussion about the Company's
market risk disclosures involves forward looking statements. Actual results
could differ materially from those projected in the forward looking statements.
The Company is exposed to market risk related to changes in interest rates,
foreign currency exchange rates and commodity prices. The Company does not use
derivative financial instruments for speculative or trading purposes.
The Company is exposed to market risk from changes in interest rates on
long-term debt obligations. The Company manages such risk through the use of a
combination of fixed and variable rate debt. Currently, the Company does not use
derivative financial instruments to manage its interest rate risk.
The following table provides information about the Company's debt
obligations and financial instruments that are sensitive to changes in interest
rates. For debt obligations, the table presents principal
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cash flows and related weighted-average interest rates by expected maturity
dates or applicable floating rate index.
DECEMBER 31,
--------------------------------------------------- FAIR VALUE
2000 DECEMBER 31,
THROUGH -------------------
2002 2003 2004 THEREAFTER TOTAL 1999 1998
------- ------- ------- ---------- -------- -------- --------
(DOLLARS IN THOUSANDS)
Liabilities
Long-term debt, including Current Portion
Fixed Rate.................................... $135,000 $135,000 $132,300 $133,650
Average Interest Rate......................... 10.00%
Variable Rate................................. $1,450 $30,550 $56,050 $ 56,150 $147,100 $147,100 $148,550
Average Interest Rate......................... LIBOR+ LIBOR+ LIBOR+ LIBOR+
2.00% 2.00% 2.00% 2.00%
to to to to
2.25% 2.25% 2.25% 2.25%
The Company has no operations in foreign countries. International sales
were not material to the Company's operations for the year ended December 31,
1999. Accordingly, the Company is not subject to material foreign currency
exchange rate risk. To date, the Company has not entered into any foreign
currency forward exchange contracts or other derivative financial instruments
relative to foreign currency exchange rates.
The Company is exposed to market risk from changes in the price of
aluminum. The Company manages such risk through the use of aluminum futures and
option contracts. At December 31, 1999, the Company had purchased futures
contracts, maturing in 2000, for the delivery of 15.2 million pounds of aluminum
at a weighted average settlement price of $.6215 per pound. The fair value of
such futures contracts was $11.4 million at December 31, 1999. At December 31,
1998, the Company had purchased futures contracts, maturing in 1999, for the
delivery of 64.9 million pounds of aluminum at a weighted average settlement
price of $.6573 per pound and contracts, maturing in 2000, for 2.7 million
pounds of aluminum at a weighted average settlement price of $.5990 per pound.
The fair value of such futures contracts was $38.7 million at December 31, 1998.
At December 31, 1999, the Company had purchased call option contracts and sold
put option contracts, maturing in 2000, covering 59.1 million pounds of aluminum
at strike prices ranging from $.6463 to $.7484 per pound. The fair value of such
option contracts was $1.8 million at December 31, 1999. The Company did not
utilize option contracts during 1998.
16
19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Accountants.......................... 18
Consolidated Balance Sheets................................. 19
Consolidated Statements of Operations....................... 21
Consolidated Statements of Changes in Shareholders' Equity
(Deficit)................................................. 22
Consolidated Statements of Cash Flows....................... 23
Notes to Consolidated Financial Statements.................. 24
17
20
REPORTS OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
of Werner Holding Co. (PA), Inc.:
In our opinion, the accompanying consolidated balance sheet as of December
31, 1999 and the related consolidated statements of operations, of changes in
shareholders' equity (deficit) and of cash flows present fairly, in all material
respects, the financial position of Werner Holding Co. (PA), Inc. and
subsidiaries at December 31, 1999, and the results of their operations and their
cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with auditing standards generally accepted in
the United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
As discussed in Note B, the Company changed its method of computing
depreciation prospectively as of January 1, 1999.
/s/ PRICEWATERHOUSECOOPERS LLP
Pittsburgh, PA
February 25, 2000
Shareholders and Board of Directors
Werner Holding Co. (PA), Inc.
Greenville, Pennsylvania
We have audited the accompanying consolidated balance sheet of Werner
Holding Co. (PA), Inc. and subsidiaries as of December 31, 1998, and the related
consolidated statements of operations, changes in shareholders' equity (deficit)
and cash flows for each of the two years in the period ended December 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Werner Holding
Co. (PA), Inc. and subsidiaries at December 31, 1998, and the consolidated
results of their operations and their cash flows for each of the two years in
the period ended December 31, 1998, in conformity with accounting principles
generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Cleveland, Ohio
February 28, 1999
18
21
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31
--------------------
1999 1998
-------- --------
ASSETS
Current assets:
Cash and equivalents...................................... $ 866 $ 9,387
Undivided interest in accounts receivable................. 68,393 46,298
Allowance for doubtful accounts........................... (1,900) (1,600)
Refundable income taxes................................... 697 1,132
Inventories............................................... 58,348 46,777
Deferred income taxes..................................... 2,420 2,830
Other..................................................... 1,907 1,520
-------- --------
Total current assets........................................ 130,731 106,344
Other assets:
Deferred income taxes..................................... 10,972 5,355
Deferred financing fees, net.............................. 11,474 13,745
Other..................................................... 18,756 21,642
-------- --------
41,202 40,742
Property, plant and equipment:
Land and improvements..................................... 7,307 7,262
Buildings................................................. 42,470 34,077
Machinery and equipment................................... 114,422 102,019
-------- --------
164,199 143,358
Less accumulated depreciation and amortization............ 91,504 83,455
-------- --------
72,695 59,903
Capital projects in progress.............................. 10,812 5,790
-------- --------
83,507 65,693
-------- --------
TOTAL ASSETS................................................ $255,440 $212,779
======== ========
19
22
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31
--------------------
1999 1998
-------- --------
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 31,065 $ 22,742
Accrued liabilities....................................... 36,679 28,583
Current maturities of long-term debt...................... 1,450 1,450
-------- --------
Total current liabilities................................... 69,194 52,775
Long-term obligations:
Long-term debt -- less current maturities (net of
unamortized original issue discount of $3,216 in 1999
and $3,617 in 1998).................................... 277,434 278,483
Reserve for product liability and workers' compensation
claims................................................. 29,247 13,639
Other long-term obligations............................... 23,441 22,279
-------- --------
330,122 314,401
Shareholders' deficit:
Common stock:
Class A -- $.01 par value; voting; 5,000 shares
authorized;
1,964 shares issued and outstanding in 1999 and
2,059 shares issued and outstanding in 1998....... -- --
Class B -- $.01 par value; voting; 25,000 shares
authorized;
21,943 shares issued and outstanding in 1999 and
22,438 shares issued and outstanding in 1998...... -- --
Class C -- $.01 par value; non-voting; 45,000 shares
authorized;
4,657 shares issued and outstanding in 1999 and
4,682 shares issued and outstanding in 1998....... -- --
Class D -- $.01 par value; voting; 1,000 shares
authorized;
1,000 shares issued and outstanding............... -- --
Class E -- $.01 par value; non-voting; 50,000 shares
authorized; 45,000 shares issued and outstanding.... 1 1
Additional paid-in capital................................ 198,786 198,847
Accumulated deficit....................................... (341,718) (351,607)
Accumulated other non-owner changes in equity............. (260) (1,638)
Notes receivable arising from stock loan plan............. (685) --
-------- --------
Total shareholders' deficit................................. (143,876) (154,397)
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT................. $255,440 $212,779
======== ========
See notes to consolidated financial statements.
20
23
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31
--------------------------------
1999 1998 1997
-------- -------- --------
Net sales............................................... $484,646 $436,091 $416,321
Cost of sales........................................... 348,643 322,451 303,354
-------- -------- --------
Gross profit............................................ 136,003 113,640 112,967
General and administrative expense...................... 29,839 31,626 27,652
Selling and distribution expense........................ 58,029 50,165 49,075
Recapitalization expense................................ -- -- 22,714
Non-cash compensation charge............................ -- -- 78,527
-------- -------- --------
Operating profit (loss)................................. 48,135 31,849 (65,001)
Other (expense) income, net............................. (2,067) 645 (15,813)
-------- -------- --------
Income (loss) before interest and taxes................. 46,068 32,494 (80,814)
Interest expense........................................ 27,102 30,591 8,979
-------- -------- --------
Income (loss) before provision for income taxes......... 18,966 1,903 (89,793)
Income taxes............................................ 7,649 1,757 714
-------- -------- --------
NET INCOME (LOSS)....................................... $ 11,317 $ 146 $(90,507)
======== ======== ========
See notes to consolidated financial statements.
21
24
WERNER HOLDING CO. (PA), INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE THREE YEARS ENDED DECEMBER 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRE-RECAPITALIZATION
COMMON STOCK POST-RECAPITALIZATION COMMON STOCK
-------------------------------------- -----------------------------------
CLASS A CLASS B CLASS A CLASS B
----------------- ------------------ ---------------- ----------------
SHARES DOLLARS SHARES DOLLARS SHARES DOLLARS SHARES DOLLARS
------ ------- ------ ------- ------ ------- ------ -------
Balance at January 1, 1997........................ 13,227 $13 148,473 $148 $ $
Net (loss)........................................
Unrealized losses on investments (net of deferred
tax benefit of $5,934)...........................
Reclassification adjustment for losses realized
included in net loss (net of tax)................
Adjustment to minimum pension liability...........
Total other non-owner changes in equity...........
Amortization of deferred compensation.............
Repurchase of common stock........................ (55) -- (574) --
Dividends declared ($10.50 per share).............
Redemption and reclassification of common stock in
connection with the Recapitalization............. (13,172) (13) (147,899) (148) 2,059 -- 22,438 --
Issuance of common stock in connection with the
Recapitalization, net of issuance costs of
$2,196...........................................
Non-cash compensation charge......................
------- --- -------- ---- ----- --- ------ ---
Balance at December 31, 1997...................... -- -- -- -- 2,059 -- 22,438 --
Net income........................................
Unrealized losses on investments (net of deferred
tax benefit of $1,243)...........................
Reclassification adjustment for losses realized
included in net income (net of tax)..............
Adjustment to minimum pension liability (net of
deferred tax of $980)............................
Total other non-owner changes in equity...........
------- --- -------- ---- ----- --- ------ ---
Balance at December 31, 1998...................... -- -- 2,059 -- 22,438 --
Net income
Unrealized gains on investments (net of deferred
tax of $46)......................................
Reclassification adjustment for gains realized in
net income (net of tax)..........................
Adjustment to minimum pension liability (net of
deferred tax of $827)............................
Total other non-owner changes in equity...........
Repurchase of common stock........................ (95) (495)
Notes receivable arising from stock loan plan.....
------- --- -------- ---- ----- --- ------ ---
Balance at December 31, 1999...................... $-- $ -- 1,964 $-- 21,943 $--
======= === ======== ==== ===== === ====== ===
POST-RECAPITALIZATION COMMON STOCK
------------------------------------------------------
CLASS C CLASS D CLASS E ADDITIONAL
---------------- ---------------- ---------------- PAID-IN RETAINED
SHARES DOLLARS SHARES DOLLARS SHARES DOLLARS CAPITAL EARNINGS
------ ------- ------ ------- ------ ------- ---------- --------
Balance at January 1, 1997........................ $ $ $ $ 1,316 $ 70,402
Net (loss)........................................ (90,507)
Unrealized losses on investments (net of deferred
tax benefit of $5,934)...........................
Reclassification adjustment for losses realized
included in net loss (net of tax)................
Adjustment to minimum pension liability...........
Total other non-owner changes in equity...........
Amortization of deferred compensation.............
Repurchase of common stock........................ (731)
Dividends declared ($10.50 per share)............. (1,691)
Redemption and reclassification of common stock in
connection with the Recapitalization............. (1,515) (329,226)
Issuance of common stock in connection with the
Recapitalization, net of issuance costs of
$2,196........................................... 4,682 -- 1,000 -- 45,000 1 120,519
Non-cash compensation charge...................... 78,527
----- --- ----- --- ------ -- -------- ---------
Balance at December 31, 1997...................... 4,682 -- 1,000 -- 45,000 1 198,847 (351,753)
Net income........................................ 146
Unrealized losses on investments (net of deferred
tax benefit of $1,243)...........................
Reclassification adjustment for losses realized
included in net income (net of tax)..............
Adjustment to minimum pension liability (net of
deferred tax of $980)............................
Total other non-owner changes in equity...........
----- --- ----- --- ------ -- -------- ---------
Balance at December 31, 1998...................... 4,682 -- 1,000 -- 45,000 1 198,847 (351,607)
Net income 11,317
Unrealized gains on investments (net of deferred
tax of $46)......................................
Reclassification adjustment for gains realized in
net income (net of tax)..........................
Adjustment to minimum pension liability (net of
deferred tax of $827)............................
Total other non-owner changes in equity...........
Repurchase of common stock........................ (25) (61) (1,428)
Notes receivable arising from stock loan plan.....
----- --- ----- --- ------ -- -------- ---------
Balance at December 31, 1999...................... 4,657 $-- 1,000 $-- 45,000 $1 $198,786 $(341,718)
===== === ===== === ====== == ======== =========
ACCUMULATED OTHER
NON-OWNER
CHANGES IN EQUITY
----------------------------------
UNREALIZED NOTES
GAINS RECEIVABLE
MINIMUM (LOSSES) ARISING FROM
PENSION ON STOCK LOAN
LIABILITY INVESTMENTS TOTAL PLAN OTHER TOTAL
--------- ----------- ----- ------------ ----- ---------
Balance at January 1, 1997........................ $ (275) $ 3,807 $ 3,532 $ $(332) $75,079
Net (loss)........................................ (90,507)
Unrealized losses on investments (net of deferred
tax benefit of $5,934)........................... (12,962) (12,962) (12,962)
Reclassification adjustment for losses realized
included in net loss (net of tax)................ 10,609 10,609 10,609
Adjustment to minimum pension liability........... (1,946) (1,946) (1,946)
---------
Total other non-owner changes in equity........... (94,806)
Amortization of deferred compensation............. 133 133
Repurchase of common stock........................ (731)
Dividends declared ($10.50 per share)............. (1,691)
Redemption and reclassification of common stock in
connection with the Recapitalization............. 199 (330,703)
Issuance of common stock in connection with the
Recapitalization, net of issuance costs of
$2,196........................................... 120,520
Non-cash compensation charge...................... 78,527
------- -------- -------- -------- ----- ---------
Balance at December 31, 1997...................... (2,221) 1,454 (767) -- -- (153,672)
Net income........................................ 146
Unrealized losses on investments (net of deferred
tax benefit of $1,243)........................... (2,302) (2,302) (2,302)
Reclassification adjustment for losses realized
included in net income (net of tax).............. 808 808 808
Adjustment to minimum pension liability (net of
deferred tax of $980)............................ 623 623 623
---------
Total other non-owner changes in equity........... (725)
------- -------- -------- -------- ----- ---------
Balance at December 31, 1998...................... (1,598) (40) (1,638) -- -- (154,397)
Net income 11,317
Unrealized gains on investments (net of deferred
tax of $46)...................................... 84 84 84
Reclassification adjustment for gains realized in
net income (net of tax).......................... (44) (44) (44)
Adjustment to minimum pension liability (net of
deferred tax of $827)............................ 1,338 1,338 1,338
---------
Total other non-owner changes in equity........... 12,695
Repurchase of common stock........................ (1,489)
Notes receivable arising from stock loan plan..... (685) (685)
------- -------- -------- -------- ----- ---------
Balance at December 31, 1999...................... $ (260) $ -- $ (260) $ (685) $ -- $(143,876)
======= ======== ======== ======== ===== =========
See notes to consolidated financial statements.
22
25
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31
---------------------------------
1999 1998 1997
--------- --------- ---------
OPERATING ACTIVITIES
Net income (loss)........................................... $ 11,317 $ 146 $(90,507)
Reconciliation of net income (loss) to net cash provided by
operating activities:
Recapitalization expense................................ 22,714
Non-cash compensation charge............................ 78,527
Net gain on transfer of loss reserves and discontinuance
of MIICA.............................................. (4,506)
Depreciation............................................ 8,774 8,465 8,371
Amortization of deferred financing fees and original
issue discount........................................ 2,672 2,611 320
Amortization of Recapitalization costs and other........ 4,478 9,079 2,809
Provision for losses on accounts receivable............. 709 599 (115)
Provision for product liability and workers'
compensation claims................................... 17,710 17,023 15,841
Payment of product liability and workers' compensation
claims................................................ (2,102) (4,206) (11,517)
Deferred income taxes................................... (6,058) 9,640 (8,044)
Realized net (gains) losses on disposition and
impairment of investments............................. 2,520 16,407
Net purchases of trading securities..................... (1,975)
Net proceeds from sale of accounts receivable........... 20,000
Changes in operating assets and liabilities:
Accounts receivable................................... 43,811 (16,521)
Undivided interest in accounts receivable............. (22,095) (46,298)
Refundable income taxes............................... 435 (312) 1,196
Inventories........................................... (5,964) (2,107) (263)
Accounts payable...................................... 8,323 (2,162) 3,213
Accrued liabilities................................... 9,845 (3,183) (1,267)
Other (net)........................................... (487) 686 (1,957)
-------- -------- --------
Net cash provided by operating activities................... 27,557 51,806 17,232
INVESTING ACTIVITIES
Capital expenditures........................................ (20,452) (8,940) (11,710)
Acquisition of certain assets of Keller Ladders, Inc........ (12,209)
Available-for-sale securities:
Purchases of debt and equity securities................... (572) (79,484)
Sale of debt and equity securities........................ 59,497
Net sales of other investments.............................. 207 6,936 24,073
Other....................................................... 4,062
-------- -------- --------
Net cash used in investing activities....................... (32,454) (2,576) (3,562)
FINANCING ACTIVITIES
Redemption of common stock.................................. (332,899)
Issuance of common stock.................................... 122,716
Payment of Recapitalization fees and expenses............... (37,952)
Refinancing of debt......................................... (65,571)
Issuance of Senior Subordinated Notes, net.................. 130,950
Borrowings under Senior Credit Facility..................... 186,500
Net repayments under revolving credit agreements............ (6,300)
Repayment of receivables facility........................... (41,500)
Repayments of long-term debt................................ (1,450) (1,450) (6,571)
Repurchase of common stock.................................. (1,489) (731)
Dividends paid.............................................. (1,691)
Issuance of notes receivable arising from stock loan plan,
net....................................................... (685)
-------- -------- --------
Net cash used in financing activities....................... (3,624) (42,950) (11,549)
-------- -------- --------
Net (decrease) increase in cash and equivalents............. (8,521) 6,280 2,121
Cash and equivalents at beginning of year................... 9,387 3,107 986
-------- -------- --------
CASH AND EQUIVALENTS AT END OF YEAR......................... $ 866 $ 9,387 $ 3,107
======== ======== ========
CASH PAID (RECEIVED) DURING THE YEAR FOR
Interest.................................................... $ 24,732 $ 26,112 $ 7,752
======== ======== ========
Income taxes................................................ $ 13,272 $ (7,567) $ 9,955
======== ======== ========
See notes to consolidated financial statements.
23
26
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
A. DESCRIPTION OF BUSINESS
Werner Holding Co. (PA), Inc. through its subsidiaries is a manufacturer of
climbing equipment which includes aluminum, fiberglass and wood ladders,
scaffolding, stages, and planks; and aluminum extruded products. The Company
operates in two business segments, Climbing Products and Extruded Products,
which are located in the United States.
B. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation -- The consolidated financial statements of Werner
Holding Co. (PA), Inc. include its accounts and the accounts of its wholly-owned
subsidiary, Werner Holding Co. (DE), Inc., and its wholly-owned subsidiaries
(collectively the "Company"). Werner Holding Co. (PA), Inc. has no substantial
operations or assets, other than its investment in Werner Holding Co. (DE), Inc.
The consolidated financial condition and results of operations of Werner Holding
Co. (PA), Inc. are substantially the same as those of Werner Holding Co. (DE),
Inc. Intercompany accounts and transactions have been eliminated.
Revenue Recognition -- Sales are recorded when products are shipped and
title passes to the customer.
Accounts Receivable -- The Company provides credit, in the normal course of
business, to its customers. The Company's customers are not concentrated in any
specific geographic region. The Company performs ongoing credit evaluations of
its customers and maintains allowances for potential credit losses which, when
realized, have been within the range of management's expectations. Write-offs of
uncollectible accounts receivable have totaled $621, $72 and $565 in 1999, 1998
and 1997, respectively.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that effect the amounts reported in the consolidated
financial statements and accompanying notes. Actual results could differ from
those estimates.
Inventories -- Inventories are stated at the lower of cost or market (net
realizable value). Cost is determined by the last-in, first-out (LIFO) method
for approximately 93% and 95% of the inventories at December 31, 1999 and 1998,
respectively.
Derivative Commodity Instruments -- The Company utilizes commodity futures
and option contracts to hedge the market risk of changing prices associated with
a certain percentage of its anticipated aluminum raw material requirements.
These contracts obligate the Company to make or receive a payment equal to the
net change in value of the contract at its maturity. Such contracts are
designated as hedges, correspond to the commitment period and are effective in
hedging the Company's exposure to changes in aluminum prices during that cycle.
At December 31, 1999 and 1998, the Company had futures contracts to purchase
aluminum totaling $9,454 and $44,297, respectively. The fair value of these
contracts was approximately $11,388 and $38,732 at December 31, 1999 and 1998,
respectively. At December 31, 1999, the Company had purchased call option
contracts and sold put option contracts covering 59.1 million pounds of
aluminum. The fair value of these contracts was approximately $1,811 at December
31, 1999. The Company did not utilize option contracts during 1998.
All gains and losses on qualifying hedge transactions are deferred and are
reported as a component of the underlying transaction (the deferral accounting
method). Cash flows related to these
24
27
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
B. SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
transactions are recognized in the statement of cash flows in a manner
consistent with the underlying transactions.
Property, Plant and Equipment -- Property, plant and equipment is stated at
cost. The straight-line method of depreciation was adopted for all property,
plant and equipment placed into service after January 1, 1999. For property,
plant and equipment placed into service prior to January 1, 1999, depreciation
is computed using accelerated methods. The Company believes the new method will
more appropriately reflect its financial results by better allocating costs of
new property over the estimated useful lives of these assets. In addition, the
new method more closely conforms with that prevalent in the industries in which
the Company operates. The effect of this change was not material to the results
of operations or financial position of the Company for the year ended December
31, 1999. The estimated useful lives for buildings range from 40 to 45 years and
for machinery and equipment range from 3 to 14 years.
Long-lived assets are reviewed for impairment. Impairment is recognized
when events or changes in circumstances indicate that the carrying amount of the
asset, or related group of assets, may not be recoverable. If the expected
future undiscounted cash flows are less than the carrying amount of the asset,
an impairment loss is recognized at that time. Measurement of impairment may be
based upon appraisals, market values of similar assets or discounted cash flows.
Insurance Fund Investments -- Until March 31, 1998, the Company's captive
insurance subsidiary, Manufacturers Indemnity and Insurance Company of America
("MIICA"), maintained an investment fund which consisted of debt securities,
equity securities, real estate, cash and equivalents, and other investments.
MIICA's investments in debt and equity securities were available for sale;
therefore, these securities were reported at market value. Investments in real
estate were recorded at depreciated value and short-term and other investments
were stated primarily at cost which approximated market. Investments in special
expiration price options were classified as trading securities and were reported
at market value.
Realized gains and losses on the sale of investments were recognized in
operations. The cost of securities sold was based on the specific identification
method. Changes in market values of debt and equity securities were reflected as
unrealized gains or losses directly in shareholders' equity and accordingly, had
no effect on operations until sold unless such losses were other than temporary,
at which time such losses were recognized in operations. Changes in market
values of special expiration price options were reported directly in operations.
Substantially all of the MIICA insurance fund investments were liquidated as
part of the discontinuance of MIICA -- see Note M.
Reserve for Product Liability and Workers' Compensation Claims -- Until
March 31, 1998, MIICA maintained reserves for the product liability, workers'
compensation and environmental liability claims of the Company. On March 31,
1998, the Company obtained third party commercial insurance coverage for its
product liability and workers' compensation claims previously provided for by
MIICA. Under the terms of this insurance coverage, the commercial insurance
provider agreed to assume losses which occurred on or before March 31, 1998,
capped at a maximum of $75,000 in losses and extinguished the Company's
liability in regard to such losses -- see Note M. Additionally, on April 1,
1998, the Company obtained third party insurance coverage, subject to certain
deductible provisions, for product liability and workers' compensation claims
which occur on or after that date and maintains a reserve for the insurance
deductibles related to such claims. The reserve for product liability and
workers' compensation claims includes an amount determined from loss reports for
individual cases and an amount, based on past experience, for losses incurred
but not reported. Such reserve is necessarily based on estimates and, while
management believes that the amount is adequate, the ultimate liability may be
in
25
28
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
B. SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
excess of or less than the amount provided. The methods for making such
estimates and for establishing the resulting reserve are continually reviewed,
and any adjustments are reflected in earnings currently.
Deferred Financing Fees -- Amortization of deferred financing fees is
computed using the effective interest method.
Advertising -- The Company expenses all advertising as incurred. These
expenses for the years ended December 31, 1999, 1998 and 1997 totaled $12,858,
$8,606, and $8,001, respectively.
Stock-Based Compensation -- The Company accounts for stock-based
compensation in accordance with the provisions of Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees.
Statement of Cash Flows -- Cash and equivalents include cash on hand,
demand deposits and short-term highly liquid debt instruments purchased with an
original maturity of three months or less, exclusive of investments that were
held by MIICA.
Recently Issued Accounting Standards -- In June 1998, the Financial
Accounting Standards Board (FASB) issued Statement No. 133 (SFAS No. 133),
Accounting for Derivative Instruments and Hedging Activities, which was
originally required to be adopted by the Company in 2000. In September 1999, the
FASB issued SFAS No. 137 (SFAS No. 137), Accounting for Derivative Instruments
and Hedging Activities -- Deferral of the Effective Date of SFAS No. 133. SFAS
No. 137 deferred the date by which the Company is required to adopt SFAS No. 133
to 2001. SFAS No. 133 requires that the Company recognize all derivatives on the
balance sheet at fair value. Derivatives that are not hedges must be adjusted to
fair value through income. If the derivative is a hedge, depending on the nature
of the hedge, changes in the fair value of such derivatives will either be
offset against the change in fair value of the hedged assets, liabilities, or
firm commitments through earnings or recognized in accumulated other non-owner
equity changes until the hedged item is recognized in earnings. The portion of a
derivative's change in fair value, if unrelated to a hedge, will be immediately
recognized in earnings. The Company has not yet determined what the effect of
SFAS No. 133 will be on the earnings and financial position of the Company.
Comprehensive Income -- The Company adopted SFAS No. 130, Reporting
Comprehensive Income on January 1, 1998. SFAS No. 130 requires that an
enterprise classify items of other comprehensive income or "other non-owner
changes in equity" as referred to by the Company, by their nature in a financial
statement and display the accumulated other non-owner changes in equity
separately from retained earnings and additional paid-in capital in the equity
section of the balance sheet.
Fair Values of Financial Instruments -- The Company's disclosures for
financial instruments are as follows:
Cash and equivalents -- The carrying amounts reported in the balance
sheet for cash and equivalents bear interest at prevailing market rates and
therefore approximate fair value.
Long-term debt -- The carrying amounts of the Company's borrowings
under its credit agreements and the Variable Rate Demand Industrial
Building Revenue Bonds, bear interest at prevailing market rates and
therefore approximate their fair value at December 31, 1999 and 1998. The
fair value (based upon prevailing market rates) of the outstanding
borrowings of the Senior Subordinated Notes at December 31, 1999 and 1998
was $132,300 and $133,650, respectively.
26
29
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
B. SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
Internal Use Software -- In March 1998, the Accounting Standards Executive
Committee of the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use. The SOP, which has been adopted
prospectively as of January 1, 1999, requires the capitalization of certain
costs applicable to internal use software, including external direct material
and service costs, employee payroll and payroll-related costs. Prior to the
adoption of SOP 98-1, the Company expensed most of these costs as incurred. The
effect of adopting the SOP was not material to the results of operations or
financial position of the Company for the year ended December 31, 1999.
Reclassification -- Certain prior year amounts have been reclassified to
conform to the current year presentation in the consolidated financial
statements.
C. RECAPITALIZATION
In October 1997, the Company entered into a recapitalization agreement (the
"Recapitalization Agreement") with certain affiliates of INVESTCORP S.A.
("Investcorp") and certain other international investors organized by Investcorp
(collectively the "Investors"). Pursuant to the Recapitalization Agreement, on
November 24, 1997, (the "Recapitalization Closing Date") the Company (a) amended
and restated its Articles of Incorporation pursuant to which the Company's
capital stock was reclassified, (b) redeemed for cash and the Market
Participation Right (as hereinafter described) certain shares of the
reclassified stock totaling $330,700 and (c) sold to the Investors shares of
newly created Class C, D and E Common Stock of the Company totaling $122,700
(all of which actions together constituted the "Recapitalization"). As a result
of the Recapitalization, the Pre-Recapitalization shareholders continue to own
approximately 33% of the outstanding voting equity of the Company and the
Investors own approximately 67% of the outstanding voting equity of the Company.
Recapitalization Financing -- The Recapitalization was funded by (a)
$186,500 of borrowings under a senior credit facility with a syndicate of banks
which included term loans, a revolving line of credit, and a facility providing
for borrowings collateralized by accounts receivable (collectively the "Senior
Credit Facility") (b) the issuance of $135,000 in principal amount of Senior
Subordinated Notes (the "Notes") and (c) proceeds from the sale of certain
shares of the Company's stock to the Investors.
The proceeds from these financings funded: the payment of approximately
$330,700 to holders of the reclassified stock; the repayment of approximately
$66,000 of outstanding indebtedness under the then existing credit facility and
notes; and the payment of approximately $45,200 of fees and expenses associated
with the Recapitalization.
Market Participation Right -- If, prior to the tenth anniversary of the
Recapitalization Closing Date: (i) there is an initial underwritten public
offering of at least 10% of the common equity of the Company, or the Investors
sell a majority of their shares of the Company and (ii) at the time of such
initial public offering or sale of shares, the Company's equity value equals or
exceeds certain target values that imply significant annual compound rates of
return (between 20% and 40%) to the Post-Recapitalization shareholders, then
those persons who have the Market Participation Right shall be entitled to
receive an aggregate amount equal to up to 5% of the Company's equity value (the
"Payment"). The Payment will be payable in cash, provided that the Company, in
its discretion, may make up to half of the Payment in notes or similar
obligations with market terms which the Company's Board of Directors in good
faith believes are of equivalent value. The Payment will be treated as an equity
distribution to those persons who have the Market Participation Right.
27
30
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
C. RECAPITALIZATION -- CONTINUED
Voting Rights -- Holders of the Class A Common Stock and Class B Common
Stock are entitled to one vote per share and holders of the Class D Common Stock
are entitled to approximately 50.7 votes per share. Class C Common Stock and
Class E Common Stock have no voting rights. Upon the occurrence of a sale of
100% of the outstanding equity securities of the Company, a sale of
substantially all the assets of the Company or a public offering of any equity
securities of the Company ("Triggering Event"), each outstanding share of Class
A Common Stock, Class B Common Stock, Class C Common Stock, Class D Common Stock
and Class E Common Stock will convert into one share of Common Stock of the
Company. An additional class of common stock with a par value of $.01 per share
is authorized (131,000 shares), but no shares were issued or outstanding at
December 31, 1999 and 1998. When issued, this class of Common Stock of the
Company will have one vote per share.
Recapitalization Accounting -- The transaction was accounted for as a
recapitalization and as such, the historical basis of the Company's assets and
liabilities was not affected. Recapitalization related costs of $22,700
consisting of investment banker fees, transaction fees, legal and accounting
fees, cash transaction bonuses, and other miscellaneous costs were expensed in
1997. Additionally, approximately $2,200 of Recapitalization costs incurred
related to the issuance of shares of stock to the Investors was netted against
the proceeds of approximately $122,700.
Other Arrangements -- The Company also entered into employee protection
agreements whereby certain management employees received cash payments
aggregating approximately $6,600 upon completion of one year of service from the
Recapitalization Closing Date. This amount was included in other current assets
and liabilities at December 31, 1997, and was amortized to expense during 1998.
Additionally, as a result of the Recapitalization, payments totaling $3,708
related to consulting agreements entered into in December 1996 with four senior
executive officers/shareholders were accelerated and paid on the
Recapitalization Closing Date. Such amounts were expensed and were included as
part of the Recapitalization costs above.
Included in the Recapitalization related costs above is approximately
$6,000 of advisory fees paid to Investcorp International, Inc., an affiliate of
Investcorp, and $6,000 of standby commitment fees paid to Invifin S.A., an
affiliate of Investcorp. The Company also entered into an agreement for
management and consulting services for a five-year term with Investcorp
International, Inc., pursuant to which the Company prepaid Investcorp
International, Inc. $5,000 upon the consummation of the Recapitalization. This
amount is being amortized to expense over the five-year period.
D. NON-CASH COMPENSATION CHARGE
In 1997, the Company recorded a non-cash compensation charge of $78,500,
with an offsetting credit to additional paid-in capital. Such charge resulted
from changes made to the terms of the plan under which restricted
Pre-Recapitalization Class B Common Stock was issued to certain key employees of
the Company. Approximately $74,300 of this charge related to the accelerated
vesting, as a result of the Recapitalization, of restricted Pre-Recapitalization
stock previously granted to certain key employees of the Company and $4,200 of
the charge related to the accelerated vesting, as a result of the
Recapitalization, of restricted Pre-Recapitalization stock previously granted to
a former key management employee upon his separation from the Company. Such
charges represent the fair value of the shares at the date of the
Recapitalization ($2,421.29 per share) less the amount of the previously
recognized compensation under the plan.
28
31
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
E. INVENTORIES
Inventories are as follows:
DECEMBER 31
------------------
1999 1998
------- -------
Finished goods.............................................. $30,470 $26,887
Work in process............................................. 15,267 12,339
Raw materials and supplies.................................. 22,296 17,808
------- -------
Total inventories, which approximates replacement cost...... 68,033 57,034
Less excess of cost over LIFO stated values................. 9,685 10,257
------- -------
NET INVENTORIES............................................. $58,348 $46,777
======= =======
F. DEBT AND CREDIT ARRANGEMENTS
Debt and credit arrangements consist of the following:
DECEMBER 31
--------------------
1999 1998
-------- --------
Variable Rate Demand Industrial Building Revenue Bonds, due
2015..................................................... $ 5,000 $ 5,000
Secured Credit Facility:
Term loan facility....................................... 142,100 143,550
Senior Subordinated Notes, due 2007, net of unamortized
discount................................................. 131,784 131,383
-------- --------
Total debt and credit arrangements......................... 278,884 279,933
Less current maturities.................................... 1,450 1,450
-------- --------
DEBT CLASSIFIED AS LONG-TERM............................... $277,434 $278,483
======== ========
As part of the Recapitalization, the Company entered into the Senior Credit
Facility, and pursuant to an indenture dated November 24, 1997, issued the
Notes. Each of the Company's subsidiaries (except for MIICA and Werner Funding
Corporation) have guaranteed the Senior Credit Facility and the Notes. Such
guarantee of the Notes is subordinate to the guarantee of the Senior Credit
Facility.
The Notes:
The $135,000 of Notes mature on November 15, 2007. Interest at 10% on the
Notes is payable semi-annually in arrears on May 15 and November 15 and
commenced on May 15, 1998. The Notes are general unsecured obligations of the
Company ranking subordinate in right of payment to all existing and future
senior indebtedness of the Company. The Notes rank pari passu in right of
payment with all other indebtedness of the Company that is subordinated to
senior indebtedness of the Company.
The Notes are not redeemable at the Company's option prior to November 15,
2002. The Notes are redeemable at the Company's option at 105.000% during the
twelve months beginning November 15, 2002, 103.333% during the twelve months
beginning November 15, 2003, 101.667% during the twelve months beginning
November 15, 2004 and at 100% thereafter (expressed as a percentage of principal
amount). In addition, prior to November 15, 2002, up to 35% of the Notes may be
redeemed at 110% of the principal amount out of the proceeds of certain equity
offerings.
Senior Credit Facility:
The Senior Credit Facility originally consisted of $145,000 in term loan
facilities; a $100,000 revolving credit facility; and a $75,000 receivables
credit facility.
29
32
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
F. DEBT AND CREDIT ARRANGEMENTS -- CONTINUED
Term Loan Facilities. The Term Loan Facilities consists of two tranches of
term loans in an aggregate principal amount of $145,000. The Tranche B term
loans are in an aggregate principal amount of $90,000, and the Tranche C term
loans are in an aggregate principal amount of $55,000. These loans were made in
a single drawing as part of the Recapitalization. The Tranche B and C term loans
mature on November 30, 2004 and 2005, respectively. Installments of the Tranche
B term loans are due in aggregate principal amounts of $900 per annum for the
first five years, $30,000 for the sixth year, and $55,500 for the seventh year.
Installments of the Tranche C term loans are due in aggregate principal amounts
of $550 for the first seven years and $51,150 for the eighth year.
Revolving Credit Facility. The Revolving Credit Facility consists of a
revolving credit facility in an aggregate principal amount of $100,000 under
which no amounts were borrowed at December 31, 1999 or 1998 except for amounts
under the letter of credit subfacility mentioned below. The Company is entitled
to draw amounts under the Revolving Facility for general corporate purposes and
working capital requirements. The Revolving Facility includes sub-limits for
letters of credit and swing line loans available on same-day notice. The
Revolving Facility matures on November 30, 2003. Available borrowings under this
arrangement are reduced by amounts issued under a letter of credit subfacility
which totaled $6,122 and $5,755 at December 31, 1999 and 1998, respectively.
Receivables Facility. The Receivables Facility consisted of a revolving
credit facility in an aggregate principal amount of $75,000, which was subject
to a borrowing base limit not to exceed 80% of eligible accounts receivable. At
December 31, 1997 $41,500 was outstanding under the Receivables Facility and was
classified as short-term bank debt. In May 1998, the Company refinanced the
outstanding amounts borrowed under the Receivables Facility with proceeds from a
sale of its accounts receivable under the Receivables Purchase Agreement -- see
Note P. Upon such refinancing, the Receivables Facility was terminated.
Borrowings under the Senior Credit Facility bear interest at alternative
floating rate structures at management's option (ranging from 7.88% to 8.21% and
8.13% to 8.46% at December 31, 1999 on Tranche B Term Loans and Tranche C Term
Loans, respectively) and are collateralized by all of the capital stock of each
of the Company's subsidiaries and substantially all of the inventory and
property, plant and equipment of the Company and its subsidiaries, except for
Werner Funding Corporation. The Senior Credit Facility requires an annual
commitment fee of 0.3% on the average daily unused amount of the Term Loan
Facility, and the Revolving Credit Facility.
Industrial Building Revenue Bonds:
Variable Rate Demand Industrial Building Revenue Bonds were issued in order
to finance the Company's acquisition of land and equipment and the subsequent
construction of a climbing products manufacturing facility. Under a lease
agreement, the Company makes rental payments to the issuer in amounts sufficient
to meet the debt service payments on the bonds. The bonds bear interest at a
variable rate established weekly which may not exceed 15% per annum (5.7% at
December 31, 1999). The interest rate on the bonds may be converted to a fixed
rate upon the satisfaction of certain conditions. Prior to a conversion to a
fixed rate, the bonds are subject to purchase from the holder upon demand at a
price equal to principal plus accrued interest. On or prior to the date of
conversion to a fixed rate, the bonds are subject to redemption, in whole or in
part, at the option of the Company. After conversion to a fixed rate, the bonds
are subject to redemption, as a whole or in part, at the Company's option, on or
after the tenth anniversary of the conversion, at annual redemption prices
varying from 103% to 100% of the principal outstanding. Certain property and
equipment having an original cost of $3,889 are pledged as collateral for the
bonds.
30
33
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
F. DEBT AND CREDIT ARRANGEMENTS -- CONTINUED
The Senior Credit Facility and the Notes contain various restrictive
covenants including restrictions on additional indebtedness, mergers, asset
dispositions, restricted payments, prepayment and amendments of subordinated
indebtedness. These covenants also prohibit, among other things, the payment of
dividends. The financial covenants of the Senior Credit Facility require the
Company to meet specific interest coverage, maximum leverage, minimum EBITDA,
and capital expenditure requirements.
No short-term borrowings were outstanding at December 31, 1999 or 1998.
The aggregate amount of principal payments is $1,450 in each of the years
2000 through 2002, $30,550 in 2003 and $56,050 in 2004.
G. ACCRUED LIABILITIES
Accrued liabilities consisted of the following at December 31:
1999 1998
------- -------
Advertising, promotions and allowances.............. $13,777 $ 7,037
Payroll............................................. 10,546 8,128
Deferred management transaction bonuses............. -- 1,804
Interest............................................ 4,054 3,387
Other............................................... 8,302 8,227
------- -------
$36,679 $28,583
======= =======
H. STOCK INCENTIVE PLANS
In November 1997, the Company adopted the Werner Holding Co. (PA), Inc.
1997 Stock Incentive Plan which was subsequently amended (the "Stock Option
Plan"). The Stock Option Plan is administered by the Company's Board of
Directors. Pursuant to the Stock Option Plan, certain directors, employees and
officers of the Company are given an opportunity to acquire shares of the
Company's Class C Common Stock (the "Class C Stock") through the grant of
non-qualified and qualified stock options, stock appreciation rights and
restricted stock. The options granted under the Stock Option Plan are
exercisable at no less than the fair market value of the Class C Stock at the
time of grant and vest upon the seventh anniversary of the grant with the
possibility for accelerated vesting based, in part, on the achievement of
certain financial targets as provided for in the Stock Option Plan. The Stock
Option Plan also provides for vesting of certain percentages of the options in
the event of an Initial Public Offering or Approved Sale as defined in the Stock
Option Plan. Options issued pursuant to the Stock Option Plan expire on the
thirtieth day following the seventh anniversary of the grant date. A total of
7,600 shares of Class C Stock have been reserved for issuance under the Plan.
31
34
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
H. STOCK INCENTIVE PLANS -- CONTINUED
Presented below is a summary of the Stock Option Plan activity:
WEIGHTED
AVERAGE
STOCK EXERCISE
OPTIONS PRICE
------- --------
Outstanding at December 31, 1997..................... -- $ --
Granted............................................ 4,955 2,421.29
Exercised.......................................... -- --
Forfeited.......................................... -- --
----- ---------
Outstanding at December 31, 1998..................... 4,955 2,421.29
Granted............................................ 2,065 2,421.29
Exercised.......................................... -- --
Forfeited.......................................... 570 2,421.29
----- ---------
Outstanding at December 31, 1999..................... 6,450 $2,421.29
===== =========
No options were granted prior to 1998. The weighted average remaining
contractual life of the options at December 31, 1999 and 1998 was approximately
5.3 and 5.9 years, respectively. The weighted average fair value of the options
at December 31, 1999 and 1998 was $798.13 and $577.86 per share, respectively.
As of December 31, 1999, 460 options were exercisable. No options were
exercisable prior to December 31, 1999.
The Company measures compensation cost using the intrinsic value method of
accounting pursuant to APB No. 25. Had the compensation cost for options granted
in 1999 and 1998 been determined using the fair market value method of SFAS No.
123, Accounting for Stock Based Compensation, compensation expense (net of
related taxes) would have been $479 and $2 resulting in pro forma net income of
$10,838 and $144, respectively.
For purposes of fair market value disclosures, the fair market value of an
option grant is determined on the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions:
1999 1998
---- ----
Risk-free interest rate..................................... 6.54% 4.73%
Average life of options (years)............................. 6.3 5.9
Volatility.................................................. 0% 0%
Dividend yield.............................................. 0% 0%
In November 1997, the Company authorized entering into certain Management
Stock Purchase Agreements, pursuant to which, certain members of the Company's
management were given the opportunity to purchase shares of the Company's Class
C Stock from certain of the Investors (the "Stock Purchase Plan"). In 1999 and
1998, shares of Class C Stock purchased under the Stock Purchase Plan were 773
and 0, respectively. The Class C Stock purchased pursuant to the Stock Purchase
Plan carry certain restrictions. In conjunction with the adoption of the Stock
Purchase Plan, the Company also adopted the Werner Holding Co. (PA), Inc. Stock
Loan Plan (the "Stock Loan Plan") to finance a portion of the purchase price
paid for the shares acquired under the Stock Purchase Plan. At December 31, 1999
and 1998, notes outstanding under the Stock Loan Plan were $685 and $0,
respectively. The notes bear interest at rates tied to interest rates paid on
the Company's third party credit arrangements and are due no later than November
24, 2004 or upon sale of the shares. All
32
35
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
H. STOCK INCENTIVE PLANS -- CONTINUED
shares purchased pursuant to the terms of the Stock Loan Plan are pledged to the
Company. The notes are classified as a deduction to shareholders' equity in the
Company's consolidated balance sheet.
Effective August 1999, the Company adopted the Werner Co. Deferred Stock
Plan (the "Deferred Stock Plan"), pursuant to which, Dennis G. Heiner (the
"Participant") is given the opportunity on or before December 31 of each year,
to make an irrevocable election to defer all or part of his salary and/or bonus
for the ensuing year (subject to approval by a committee of the Board of
Directors of the Company) and receive Stock Units determined by dividing the
Participant's deferred salary and/or bonus by the fair market value of a share
of Class C Common Stock as of the applicable pay date. The distribution of
benefits under the Deferred Stock Plan is to be made to the Participant in
shares of Class C Common Stock following his termination from service or upon a
change in control of the Company. Under the Deferred Stock Plan as of December
31, 1999, Mr. Heiner has earned 275 Stock Units from salary and bonus
compensation. In addition, Mr. Heiner is entitled to receive 1,033 Stock Units
pursuant to his employment agreement. Such Stock Units will be vested over a
three year period from the date of his employment through June 15, 2002 and the
Company recognizes the related compensation expense over the three-year vesting
period.
Until the date of the Recapitalization, the Company maintained a restricted
stock plan. Amortization of unearned compensation was $133 in 1997. As discussed
in Note D, in connection with the Recapitalization the restricted stock awards
which were outstanding at that date became fully vested.
I. INCOME TAXES
The components of income taxes (benefit) at December 31 are presented
below:
1999 1998 1997
------- ------- -------
Current taxes:
Federal........................................ $12,655 $(8,241) $ 8,093
State and local................................ 1,052 358 665
------- ------- -------
13,707 (7,883) 8,758
Deferred taxes:
Federal........................................ (5,439) 10,527 (7,859)
State and local................................ (619) (887) (185)
------- ------- -------
(6,058) 9,640 (8,044)
------- ------- -------
TOTAL............................................ $ 7,649 $ 1,757 $ 714
======= ======= =======
Income taxes (benefit) for financial reporting purposes varied from income
taxes (benefit) at the federal statutory rate as follows:
1999 1998 1997
------- -------- --------
Income taxes (benefit) at federal statutory
rate........................................... $ 6,638 $ 667 $(31,428)
Non-cash compensation charge..................... 27,484
State and local income taxes, net of federal
benefit........................................ 341 (529) 481
Adjustments to estimated income tax accruals..... 500 (127) 3,071
Change in federal capital loss carryforward...... (972)
Change in valuation allowance.................... 972 1,746 1,106
Other -- net..................................... 170
------- -------- --------
INCOME TAXES..................................... $ 7,649 $ 1,757 $ 714
======= ======== ========
33
36
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
I. INCOME TAXES -- CONTINUED
Significant components of the Company's deferred tax assets and liabilities
as of December 31 are as follows:
1999 1998
------- -------
Deferred tax liabilities:
Depreciation.............................................. $ 5,675 $ 5,157
Estimated income tax accruals............................. 5,115 4,824
Capitalized supplies...................................... 1,539 1,325
Other..................................................... 819 409
------- -------
Total deferred tax liabilities.............................. 13,148 11,715
Deferred tax assets:
Provision for product liability and workers' compensation
claims................................................. 10,635 5,183
Accrued vacation.......................................... 1,451 1,437
Accrued employee retirement benefits...................... 2,864 3,435
Deferred compensation..................................... 4,882 4,379
Accrued expenses.......................................... 5,136 4,683
Capital losses............................................ 1,880 2,852
State net operating loss carryforward, net of federal
benefit................................................ 1,137 759
Other..................................................... 435 24
------- -------
28,420 22,752
Valuation allowance....................................... (1,880) (2,852)
------- -------
Total deferred tax assets................................... 26,540 19,900
------- -------
NET DEFERRED TAX ASSETS..................................... $13,392 $ 8,185
======= =======
SFAS No. 109, Accounting for Income Taxes, requires that deferred tax
assets be reduced by a valuation allowance if it is more likely than not that
some portion or all of the deferred tax assets will not be realized. As
realization of deferred tax assets relating to certain capital losses is
considered uncertain, a valuation allowance has been recorded. The Company
believes that it will have taxable income in future periods sufficient to fully
recognize its remaining deferred tax assets.
The Company has state net operating loss carryforwards which expire as
follows: $1,655 in 2003; $10,249 in 2008; $3,377 in 2013 and $6,597 in 2018.
J. LEASES
The Company leases certain real estate and various equipment under
long-term operating leases. Total rent expense for all leases amounted to
$5,156, $4,551 and $4,970 for 1999, 1998, and 1997, respectively.
34
37
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
J. LEASES -- CONTINUED
Future minimum rental commitments as of December 31, 1999 for all
noncancellable operating leases are as follows:
2000............................................ $ 4,031
2001............................................ 2,582
2002............................................ 1,758
2003............................................ 761
2004............................................ 461
Thereafter...................................... 2,488
-------
TOTAL........................................... $12,081
=======
K. COMMITMENTS AND CONTINGENCIES
The Company has contracts to provide most of its estimated aluminum
requirements with four principal suppliers. These contracts include stipulated
prices, with provisions for price adjustments based on market. The four
contracts are renegotiable, two in 2000, one in 2001, and one in 2003.
The Company is involved from time to time in various legal proceedings and
claims incident to the normal conduct of its business. Although it is impossible
to predict the outcome of any pending legal proceeding, the Company believes
that such legal proceedings and claims individually and in the aggregate are
either without merit, covered by insurance or adequately reserved for, and will
not have a material adverse effect on its results of operations, financial
position, or cash flows.
In March 1998, an action was filed in the United States District Court for
the Western District of Pennsylvania entitled Elizabeth Werner, et al v. Eric J.
Werner, et al (Civil Action No. 98-503). The plaintiffs of the action are
Elizabeth Werner, Jeffrey R. Ackerman, individually and as trustee under a trust
for the benefit of Elizabeth Werner; Matthew W. Weiss (by his parent Elizabeth
Werner); Timothy F. Burke, Jr., as executor of the estate of Anne L. Werner and
as trustee of certain trusts under Anne L. Werner's last will and testament;
Edward A. Pollock; and all of such plaintiffs derivatively on behalf of Holding
(PA). Defendants include the Management Shareholders, former company officers
Richard L. Werner, Robert I. Werner, Marc L. Werner, certain non-management
shareholders, Holding (PA), Holding (DE) and certain of its subsidiaries
including, Werner Co. The action purports, in part, to be brought derivatively
on behalf of Holding (PA) and, in part, to be brought on behalf of plaintiffs
individually against the Company and certain current and former officers and
directors of the Company. The aspect of the case purportedly brought on behalf
of Holding (PA) alleges breaches of fiduciary duty by various members of the
Company's management arising out of, among other things, the issuance of
restricted stock to management of the Company in 1992 and 1993. Holding (PA)'s
Board of Directors has referred the matter to a special committee of
disinterested directors to investigate the merits of the claim and to take
appropriate actions on behalf of Holding (PA). After a detailed investigation,
the special committee has recommended that the derivative claims not be pursued
by or on behalf of Holding (PA). Accordingly, all the defendants have made
motions to dismiss the derivative claims. Pursuant to an amendment to the
complaint filed by plaintiffs on March 29, 1999, the only remaining corporate
defendant in this action is Holding (PA). Pursuant to the same amendment the
only remaining derivative claim asserted by the plaintiffs is a claim for
excessive compensation, not relating to the restricted stock issuances. The
aspect of the case purportedly brought on behalf of plaintiffs individually
against the Company appears to arise out of the 1992 and 1993 restricted stock
issuances as well as certain alleged misrepresentations by representatives of
the Company. The plaintiffs seek monetary damages in an unspecified amount. In
May 1999, the magistrate judge issued a report and recommendation ruling that
all of the plaintiffs' claims be dismissed. The District Court issued a
Memorandum
35
38
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
K. COMMITMENTS AND CONTINGENCIES -- CONTINUED
Order on August 4, 1999 granting the motion to dismiss all remaining claims
against all defendants without prejudice and adopted the magistrate judge's
report as the opinion of the District Court. The plaintiffs have appealed such
decision. Management believes that the ultimate resolution of this lawsuit will
not have a material adverse effect on the Company's results of operations,
financial position, or cash flows.
L. EMPLOYEE RETIREMENT AND BENEFIT PLANS
Effective December 31, 1998, the Company adopted SFAS No. 132, Employers'
Disclosures about Pensions and Other Postretirement Benefits. SFAS No. 132
addresses disclosure requirements only and did not change the way the Company
recognizes or measures its pension and post-retirement obligations.
The Company sponsors two non-contributory defined benefit pension plans to
provide retirement benefits for substantially all of its employees. The pension
plans provide benefits based upon the participant's years of service and
compensation or stated amounts for each year of service. The Company's funding
policy is to contribute at least the amount that is sufficient to meet the
minimum funding requirements of applicable federal law. Plan assets consist
primarily of listed common stocks, corporate and government bonds and short-term
investments.
The Company also sponsors two unfunded non-qualified supplemental
retirement plans to provide to certain officers a defined pension benefit in
excess of limits imposed by federal tax law.
Additionally, the Company sponsors several unfunded postretirement life and
health-care benefits to certain of its key employees. Benefits are determined
based on varying formulas using age at retirement and years of active service.
The following provides a reconciliation of benefit obligations, plan assets
and funded status of the plans.
PENSION BENEFITS POSTRETIREMENT BENEFITS
--------------------- -----------------------
1999 1998 1999 1998
-------- -------- --------- ---------
CHANGE IN PROJECTED BENEFIT OBLIGATION
Benefit obligation at January 1............ $ 56,184 $ 54,251 $ 2,121 $ 4,622
Service cost............................... 1,825 1,878 100 130
Interest cost.............................. 3,707 3,553 141 168
Amendments................................. -- -- -- (1,112)
Actuarial (gain)/loss...................... (4,813) (1,402) 376 (1,605)
Benefits paid.............................. (2,375) (2,096) (141) (82)
-------- -------- ------- -------
Benefit obligation at December 31.......... 54,528 56,184 2,597 2,121
CHANGE IN PLAN ASSETS
Fair value of assets at January 1.......... 36,417 32,238 -- --
Actual return on plan assets............... 5,941 5,285 -- --
Employer contributions..................... 1,706 990 141 82
Benefits paid.............................. (2,375) (2,096) (141) (82)
-------- -------- ------- -------
Fair value of assets at December 31........ 41,689 36,417 -- --
-------- -------- ------- -------
36
39
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
L. EMPLOYEE RETIREMENT AND BENEFIT PLANS -- CONTINUED
PENSION BENEFITS POSTRETIREMENT BENEFITS
--------------------- -----------------------
1999 1998 1999 1998
-------- -------- --------- ---------
FUNDED STATUS (UNDER-FUNDED)............... (12,839) (19,767) (2,597) (2,121)
Unrecognized transition (asset)
obligation............................... (354) (420) 531 566
Unrecognized prior service cost............ 46 50 -- --
Unrecognized net actuarial (gain) loss..... (4,133) 3,728 287 (92)
-------- -------- ------- -------
NET AMOUNT RECOGNIZED...................... $(17,280) $(16,409) $(1,779) $(1,647)
======== ======== ======= =======
Amounts recognized in the Consolidated
Balance Sheets consist of:
Other long-term obligations.............. $(19,026) $(20,632) $(1,779) $(1,647)
Intangible asset......................... 1,334 1,646 -- --
Accumulated other non-owner changes in
equity................................ 412 2,577 -- --
-------- -------- ------- -------
NET AMOUNT RECOGNIZED...................... $(17,280) $(16,409) $(1,779) $(1,647)
======== ======== ======= =======
The combined projected benefit obligation includes the projected benefit
obligations of the unfunded plans of $12,911 in 1999 and $13,587 in 1998. The
accumulated benefit obligation of these unfunded non-qualified supplemental
pension plans was $12,276 at December 31, 1999 and $12,860 at December 31, 1998.
The remaining projected benefit obligation relates to the Company's two funded
pension plans. At December 31, 1999 and 1998, one of these plans had an
accumulated benefit obligation exceeding the fair value of the assets related to
the plan of $5,851 and $6,362, respectively. The fair value of the assets
related to this plan were $5,766 and $4,740 at December 31, 1999 and 1998,
respectively.
The change in the discount rate and the rate of compensation increase in
1999 from 1998 decreased the accumulated benefit obligation of the
non-contributory defined benefit plans and the non-qualified supplemental
retirement plans by $4,617 and $1,261, respectively, at December 31, 1999.
The assumed health care trend rate for 2000 is 7.00% decreasing ratably to
6.75% in the year 2001 and thereafter. The effect of a one percentage point
increase (decrease) in the accrued health-care cost trend rate assumption would
increase (decrease) the accumulated postretirement benefit obligation by $124
and ($118), respectively, at December 31, 1999. The effect on the postretirement
benefit cost would not be material.
37
40
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
L. EMPLOYEE RETIREMENT AND BENEFIT PLANS -- CONTINUED
Net periodic pension and other postretirement benefit costs consist of the
following components:
PENSION BENEFITS POSTRETIREMENT BENEFITS
------------------------------------- -----------------------
1999 1998 1997 1999 1998 1997
----------- ------------ ------- ----- ----- -----
COMPONENTS OF NET PERIODIC
BENEFIT COST
Service cost.................. $ 1,825 $ 1,878 $ 1,792 $100 $130 $189
Interest cost................. 3,708 3,553 3,453 141 168 326
Expected return on plan
assets...................... (2,990) (2,650) (2,858) -- -- --
Amortization of transition
obligation.................. (67) (67) (67) 35 69 147
Amortization of prior service
cost........................ 3 3 3 -- -- --
Amortization of actuarial loss
(gain)...................... 99 133 36 (3) (14) 16
Additional expense for lump
sum payments................ -- -- 3,336 -- -- --
----------- ------------ ------- ----- ----- -----
Net periodic benefit cost..... $ 2,578 $ 2,850 $ 5,695 $273 $353 $678
=========== ============ ======= ===== ===== =====
Weighted-average assumptions
as of December 31
Discount rate............... 7.75% 6.75% 7.00% 7.75% 6.75% 7.00%
Expected return on plan
assets.................... 7.5%-8.5% 7.50%-9.00% 9.00%
Rate of compensation
increase.................. 5.00% 4.00% 5.00%
Pension expense in 1997 includes $3,336 of special retirement benefits paid
to certain former key management employees.
The Company also sponsors various defined contribution plans which cover
substantially all of its employees. For certain employees covered by contract,
contributions are based on negotiated rates and hours worked; for others,
contributions are a percentage of employees' contributions. The expense related
to these plans was $1,694, $1,698 and $1,515 in 1999, 1998 and 1997,
respectively.
M. RESERVE FOR PRODUCT LIABILITY AND WORKER'S COMPENSATION CLAIMS AND INSURANCE
FUND INVESTMENTS
On March 31, 1998, the Company obtained third party commercial insurance
coverage for its product liability and workers' compensation claims. Previously,
the Company provided insurance for such claims through MIICA. Under the terms of
the commercial insurance coverage, the commercial insurance provider agreed to
assume losses which occurred on or before March 31, 1998, capped at a maximum of
$75,000 in losses, and extinguished the Company's liability in regard to such
losses (the "MIICA Insurance Transfer"). The Company paid approximately $42,400
for the commercial insurance coverage from the proceeds of liquidating certain
of MIICA's insurance fund investments. As of the date of the MIICA Insurance
Transfer, the Company had a reserve for such losses of approximately $47,500. As
a result of the MIICA Insurance Transfer, the Company recognized a gain of
approximately $4,500, which is net of costs to discontinue the operations of
MIICA. The Company has obtained third party commercial insurance coverage for
its product liability and workers' compensation claims occurring on or after
April 1, 1998, subject to certain deductible provisions, for which the Company
has provided reserves of $29,885 and $14,277 at December 31, 1999 and 1998,
respectively. Prior to the date of the MIICA Insurance Transfer, MIICA
maintained a reserve for the product liability and workers' compensa-
38
41
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
M. RESERVE FOR PRODUCT LIABILITY AND WORKER'S COMPENSATION CLAIMS -- CONTINUED
tion claims of the Company and the related claim payments were made from MIICA's
insurance fund investments.
The gross realized gains and (losses) on sales of available-for-sale
securities totaled $2,019 and $(463) for 1998, and $4,118 and $(2,949) for 1997,
respectively. During 1998 and 1997, the change in net unrealized holding gain
(loss) on available-for-sale securities that has been included as a separate
component of shareholders' equity totaled $(1,346) net of deferred taxes of $727
and $(2,636) net of deferred taxes of $1,420, respectively.
In 1998 and 1997, MIICA recorded impairment losses of $3,732 and $9,884,
respectively, relating to available-for-sale equity securities deemed by
management to be other-than-temporarily impaired.
Trading Securities
MIICA also owned special expiration price options which were classified as
trading securities. Those outstanding at December 31, 1996 were either sold,
exercised or allowed to expire in 1997. The net realized (losses) on sales of
these investments totaled $(8,798) in 1997.
N. OTHER (EXPENSE) INCOME, NET
Other (expense) income, net is comprised of the following:
YEARS ENDED DECEMBER 31
-------------------------------
1999 1998 1997
------- -------- --------
Accounts receivable securitization expense........... $(1,458) $ (1,454) $ --
MIICA investment (loss) income:
Realized losses and impairment losses........... -- (2,520) (17,513)
Other investment earnings....................... -- 1,061 2,952
------- -------- --------
Investment loss, net............................ -- (1,459) (14,561)
Net gain on transfer of loss reserves and
discontinuance of MIICA............................ -- 4,506 --
Miscellaneous expense, net........................... (609) (948) (1,252)
------- -------- --------
Total other (expense) income, net.................... $(2,067) $ 645 $(15,813)
======= ======== ========
O. SEGMENT INFORMATION
Effective December 31, 1998, the Company adopted SFAS No. 131, Disclosures
About Segments of an Enterprise and Related Information which changed the way
the Company reports information about its operating segments. Certain expenses
previously classified as corporate and other in 1998 and 1997 were allocated to
the operating segments in 1999. Accordingly, the information for 1998 and 1997
has been reclassified to conform to the 1999 presentation.
The Company classifies its business into two segments: Climbing Products,
which includes aluminum, fiberglass and wood ladders, scaffolding, stages and
planks; and Extruded Products, which includes aluminum extrusions and fabricated
components. The Company's reportable segments are based on the characteristics
of the product and the markets and distribution channels through which the
products are sold. The Company evaluates segment performance based on operating
earnings. The accounting policies of the reportable segments are the same as
those described in the summary of significant accounting policies.
39
42
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
O. SEGMENT INFORMATION -- CONTINUED
YEAR ENDED DECEMBER 31
--------------------------------
1999 1998 1997
-------- -------- --------
NET SALES
Climbing Products...................................... $380,211 $329,965 $314,216
Extruded Products...................................... 104,435 106,126 102,105
-------- -------- --------
$484,646 $436,091 $416,321
======== ======== ========
OPERATING PROFIT (LOSS)
Climbing Products...................................... $ 43,309 $ 36,383 $ 38,162
Extruded Products...................................... 8,548 6,530 5,878
Corporate & Other...................................... (3,722) (11,064) (109,041)
-------- -------- --------
$ 48,135 $ 31,849 $(65,001)
======== ======== ========
DEPRECIATION & AMORTIZATION
Climbing Products...................................... $ 10,767 $ 7,981 $ 7,361
Extruded Products...................................... 1,358 1,067 1,111
Corporate & Other...................................... 3,799 11,107 3,028
-------- -------- --------
$ 15,924 $ 20,155 $ 11,500
======== ======== ========
IDENTIFIABLE ASSETS
Climbing Products...................................... $189,636 $152,524 $162,962
Extruded Products...................................... 39,396 32,631 44,345
Corporate & Other...................................... 26,408 27,624 80,878
-------- -------- --------
$255,440 $212,779 $288,185
======== ======== ========
EXPENDITURES FOR LONG-LIVED ASSETS, NET
Climbing Products...................................... $ 14,259 $ 4,629 $ 6,972
Extruded Products...................................... 3,641 1,673 1,315
Corporate & Other...................................... 2,552 2,638 3,423
-------- -------- --------
$ 20,452 $ 8,940 $ 11,710
======== ======== ========
Corporate & Other includes various corporate expenses, Recapitalization
expense, non-cash compensation charge, and eliminations.
Climbing Products net sales to two significant customers individually
exceeded 10% of the Company's total net sales in 1999 and 1998 as follows: 23%
and 21%, and 13% and 11% of net sales, respectively. In 1997, only one Climbing
Products customer with net sales of 19% accounted for more than 10% of total net
sales. No customer included in the Extruded Products segment accounted for more
than 10% of the Company's net sales in those years.
Revenues included in the consolidated financial statements of the Company
are primarily derived from customers domiciled in the United States.
Substantially all of the Company's long-lived assets are located in the United
States.
40
43
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
P. SALE OF ACCOUNTS RECEIVABLE
In May 1998, the Company entered into a five-year Receivables Purchase
Agreement (the "Receivables Purchase Agreement") with a financial institution
and its affiliate to provide additional financing capacity (maximum availability
$50,000) and repay the outstanding amounts borrowed under the receivables
portion of the Senior Credit Facility. Under the Receivables Purchase Agreement,
the Company established a consolidated wholly-owned subsidiary, Werner Funding
Corporation ("Funding"), which is a special purpose bankruptcy-remote entity
that acquires, on a daily basis, a variable percentage interest of certain
eligible trade receivables generated by the Company. The purchases by Funding
are financed through the sale of an undivided percentage ownership interest in
such receivables to the affiliate of the financial institution. As of December
31, 1999 and 1998, the Company had transferred $88,393 and $66,298 of accounts
receivable in exchange for $20,000 in cash and an undivided interest in the
accounts receivable of $68,393 and $46,298, respectively.
In accordance with the provisions of SFAS No. 125, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities, the
transactions have been recorded as a sale of receivables to a qualified special
purpose entity. The ongoing cost associated with the Receivables Purchase
Agreement, which represents a return to investors in the purchased interests, as
well as the cost of implementation, is reported in the accompanying consolidated
statements of operations in "Other income (expense), net". The interest rates on
the purchased interests at December 31, 1999 and 1998 were 6.18% and 5.40%,
respectively.
The accompanying consolidated balance sheets at December 31, 1999 and 1998
reflect an allowance for doubtful accounts that relates, in large part, to
accounts receivable representing the undivided interest in the assets of the
financial institution affiliate.
Q. OTHER LONG-TERM OBLIGATIONS
Other long-term obligations are comprised of the following:
DECEMBER 31
------------------
1999 1998
------- -------
Accrued employee retirement benefits........................ $20,805 $22,279
Other....................................................... 2,636 --
------- -------
$23,441 $22,279
======= =======
R. BUSINESS ACQUISITION
In October 1999, the Company acquired certain assets of Keller Ladders,
Inc. in a business combination accounted for as a purchase. No product or other
significant liabilities were assumed in connection with this acquisition. The
results of operations of the Keller business are included in the accompanying
consolidated financial statements since the date of acquisition. The total cost
of the acquisition was $12,209, which approximated the fair value of the assets
acquired.
Had the acquisition been made at the beginning of 1998, the Company's pro
forma unaudited results would have been:
YEARS ENDED DECEMBER 31
------------------------
1999 1998
---------- ----------
Net sales................................................... $529,164 $484,349
Net income (loss)........................................... $ 11,047 $ (3,133)
41
44
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
R. BUSINESS ACQUISITION -- CONTINUED
The above amounts reflect adjustments for depreciation on revalued
property, plant and equipment, the use of the LIFO method to determine inventory
costs, interest related to the cost of the acquisition, and taxes at an
estimated effective tax rate of 38%. The unaudited pro forma results are not
necessarily indicative of the results that would have been attained had the
acquisition occurred at the beginning of 1998 or of results which may occur in
the future.
S. SUPPLEMENTAL GUARANTOR INFORMATION
As discussed in Note F, the Company in November 1997 refinanced
substantially all of its outstanding debt through borrowings under the Senior
Credit Facility and the Notes. The issuer of the refinanced debt is Werner
Holding Co. (DE), Inc. (the "Issuer"). The Issuer's wholly-owned subsidiaries,
except for MIICA and Funding, (collectively, the "Guarantor Subsidiaries"),
along with Werner Holding Co. (PA), Inc., its parent, have provided full,
unconditional, joint and several guarantees of the Senior Credit Facility and
the Notes.
Following is condensed consolidated financial information for Werner
Holding Co. (PA), Inc. (the "Parent Company"), the Issuer, the Guarantor
Subsidiaries and MIICA and Funding (MIICA and Funding are called collectively,
the "Non-Guarantor Subsidiaries," and individually, a "Non-Guarantor
Subsidiary"). Separate financial statements of the Guarantor Subsidiaries are
not presented because management has determined that they would not provide
additional information that is material to investors. Therefore, the Guarantor
Subsidiaries are combined in the presentation below. Further, separate financial
statements of the Issuer have not been provided as management has determined
that they would not provide information that is material to investors, as the
Issuer has no substantial operations or assets, other than its investment in its
subsidiaries.
Investments in subsidiaries are accounted for on the equity method of
accounting. Earnings at subsidiaries are, therefore, reflected in the Company's
investment account. The elimination entries eliminate investment in subsidiaries
and intercompany balances and transactions. Income taxes are allocated generally
on a separate return basis with reimbursement for losses utilized on a
consolidated basis in accordance with a tax sharing agreement between the
Company and each of its subsidiaries.
42
45
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
S. SUPPLEMENTAL GUARANTOR INFORMATION -- CONTINUED
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
----------------------------------------------------------------------------------
COMBINED
PARENT GUARANTOR NON-GUARANTOR
COMPANY ISSUER SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
--------- --------- ------------ ------------- ------------ ------------
DECEMBER 31, 1999
ASSETS
Current assets:
Undivided interest in accounts
receivable......................... $68,393 $ 68,393
Inventories, net..................... $ 58,348 58,348
Other current assets................. $ 37 $ 473 3,468 12 3,990
--------- --------- -------- ------- -------- --------
Total current assets............. 37 473 61,816 68,405 130,731
Property, plant and equipment, net..... 2 83,505 83,507
Investment in subsidiaries............. (154,535) (135,033) 5,686 $283,882
Other assets........................... 5 10,961 30,136 100 41,202
--------- --------- -------- ------- -------- --------
TOTAL ASSETS $(154,493) $(123,597) $181,143 $68,505 $283,882 $255,440
========= ========= ======== ======= ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Other current liabilities............ $ 421 $ 9,034 $ 59,577 $ 162 $ 69,194
Intercompany (receivable) payable.... (11,038) (250,530) 198,911 62,657
--------- --------- -------- ------- -------- --------
Total current liabilities........ (10,617) (241,496) 258,488 62,819 69,194
Long-term debt......................... 272,434 5,000 277,434
Other long-term liabilities............ 52,688 52,688
Total equity (deficit)........... (143,876) (154,535) (135,033) 5,686 $283,882 (143,876)
--------- --------- -------- ------- -------- --------
TOTAL LIABILITIES AND EQUITY
(DEFICIT)...................... $(154,493) $(123,597) $181,143 $68,505 $283,882 $255,440
========= ========= ======== ======= ======== ========
DECEMBER 31, 1998
ASSETS
Current assets:
Undivided interest in accounts
receivable......................... $46,298 $ 46,298
Inventories, net..................... $ 46,777 46,777
Other current assets................. $ 1 $ 2,706 10,561 1 13,269
--------- --------- -------- ------- -------- --------
Total current assets............. 1 2,706 57,338 46,299 106,344
Property, plant and equipment, net..... 2 65,691 65,693
Investment in subsidiaries............. (166,607) (154,397) 5,343 $315,661
Other assets........................... 5 6,775 33,862 100 40,742
--------- --------- -------- ------- -------- --------
TOTAL ASSETS $(166,601) $(144,914) $162,234 $46,399 $315,661 $212,779
========= ========= ======== ======= ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Other current liabilities............ $ 349 $ 3,758 $ 49,181 $ (513) $ 52,775
Intercompany (receivable) payable.... (12,553) (255,548) 226,532 41,569
--------- --------- -------- ------- -------- --------
Total current liabilities........ (12,204) (251,790) 275,713 41,056 52,775
Long-term debt......................... 273,483 5,000 278,483
Other long-term liabilities............ 35,918 35,918
Total equity (deficit)........... (154,397) (166,607) (154,397) 5,343 $315,661 (154,397)
--------- --------- -------- ------- -------- --------
TOTAL LIABILITIES AND EQUITY
(DEFICIT)...................... $(166,601) $(144,914) $162,234 $46,399 $315,661 $212,779
========= ========= ======== ======= ======== ========
43
46
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
S. SUPPLEMENTAL GUARANTOR INFORMATION -- CONTINUED
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
COMBINED
PARENT GUARANTOR NON-GUARANTOR
COMPANY ISSUER SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
-------- -------- ------------ ------------- ------------ ------------
FOR THE YEAR ENDED DECEMBER 31,
1999
Net sales......................... $484,646 $484,646
Cost of sales..................... 348,643 348,643
-------- -------- -------- -------- -------- --------
Gross profit...................... 136,003 136,003
Selling, general and
administrative expenses......... $ 15 87,853 87,868
-------- -------- -------- -------- -------- --------
Operating (loss) profit........... (15) 48,150 48,135
Other income (expense), net....... $10,727 18,202 (6,490) $ 4,541 $(29,047) (2,067)
Interest income (expense)......... 1,018 (2,361) (21,959) (3,800) (27,102)
-------- -------- -------- -------- -------- --------
Income before provision for income
taxes........................... 11,745 15,826 19,701 741 (29,047) 18,966
Income taxes...................... 428 5,132 1,675 414 7,649
-------- -------- -------- -------- -------- --------
NET INCOME (LOSS)............... $11,317 $ 10,694 $ 18,026 $ 327 $(29,047) $ 11,317
======== ======== ======== ======== ======== ========
FOR THE YEAR ENDED DECEMBER 31,
1998
Net sales......................... $436,091 $436,091
Cost of sales..................... 322,451 322,451
-------- -------- -------- -------- -------- --------
Gross profit...................... 113,640 113,640
Selling, general and
administrative expenses......... $ 54 81,737 81,791
-------- -------- -------- -------- -------- --------
Operating (loss) profit........... (54) 31,903 31,849
Other (expense) income, net....... $ (497) 7,797 (8,485) $ 2,719 $ (889) 645
Interest income (expense)......... 1,062 (2,058) (27,373) (2,222) (30,591)
-------- -------- -------- -------- -------- --------
Income (loss) before provision for
income taxes.................... 565 5,685 (3,955) 497 (889) 1,903
Income taxes...................... 419 6,182 (5,010) 166 1,757
-------- -------- -------- -------- -------- --------
NET INCOME (LOSS)............... $ 146 $ (497) $ 1,055 $ 331 $ (889) $ 146
======== ======== ======== ======== ======== ========
FOR THE YEAR ENDED DECEMBER 31,
1997
Net sales......................... $416,321 $ 2,705 $ (2,705) $416,321
Cost of sales..................... 303,354 303,354
-------- -------- -------- -------- -------- --------
Gross profit...................... 112,967 2,705 (2,705) 112,967
Selling, general and
administrative expenses......... $ 13 75,246 2,501 (1,033) 76,727
Recapitalization expense.......... 22,714 22,714
Non-cash compensation charge...... $74,335 4,192 78,527
-------- -------- -------- -------- -------- --------
Operating (loss) profit........... (74,335) (13) 10,815 204 (1,672) (65,001)
Other (loss) income, net.......... (16,224) (14,490) (1,300) (14,513) 30,714 (15,813)
Interest income (expense)......... 85 (720) (8,296) (48) (8,979)
-------- -------- -------- -------- -------- --------
(Loss) income before provision for
income taxes.................... (90,474) (15,223) 1,219 (14,357) 29,042 (89,793)
Income taxes...................... 33 1,001 3,588 (3,908) 714
-------- -------- -------- -------- -------- --------
NET (LOSS) INCOME............... $(90,507) $(16,224) $ (2,369) $(10,449) $ 29,042 $(90,507)
======== ======== ======== ======== ======== ========
44
47
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
S. SUPPLEMENTAL GUARANTOR INFORMATION -- CONTINUED
SUPPLEMENTAL CONDENSED CONSOLIDATING
STATEMENT OF CASH FLOWS
-------------------------------------------------------------------
COMBINED
PARENT GUARANTOR NON-GUARANTOR
COMPANY ISSUER SUBSIDIARIES SUBSIDIARY CONSOLIDATED
--------- --------- ------------ ------------- ------------
FOR THE YEAR ENDED DECEMBER 31, 1999
Net cash from operating activities... $ 658 $ (5,769) $ 32,661 $ 7 $ 27,557
Net cash from investing activities... 1,515 5,018 (38,987) (32,454)
Net cash from financing activities... (2,174) (1,450) (3,624)
--------- --------- -------- ------- --------
Net (decrease) increase in cash and
equivalents........................ (1) (2,201) (6,326) 7 (8,521)
Cash and equivalents at beginning of
year............................... 1 2,618 6,768 9,387
--------- --------- -------- ------- --------
Cash and equivalents at end of
year............................... $ 417 $ 442 $ 7 $ 866
========= ========= ======== ======= ========
FOR THE YEAR ENDED DECEMBER 31, 1998
Net cash from operating activities... $ 1,033 $ (1,552) $ 58,689 $(6,364) $ 51,806
Net cash from investing activities... (1,049) 47,114 (55,005) 6,364 (2,576)
Net cash from financing activities... (42,950) (42,950)
--------- --------- -------- ------- --------
Net (decrease) increase in cash and
equivalents........................ (16) 2,612 3,684 6,280
Cash and equivalents at beginning of
year............................... 17 6 3,084 3,107
--------- --------- -------- ------- --------
Cash and equivalents at end of
year............................... $ 1 $ 2,618 $ 6,768 $ 9,387
========= ========= ======== ======= ========
FOR THE YEAR ENDED DECEMBER 31, 1997
Net cash from operating activities... $ (1,734) $ 26,052 $(7,086) $ 17,232
Net cash from investing activities... $ 212,278 (277,771) 57,845 4,086 (3,562)
Net cash from financing activities... (212,605) 279,498 (81,442) 3,000 (11,549)
--------- --------- -------- ------- --------
Net (decrease) increase in cash and
equivalents........................ (327) (7) 2,455 2,121
Cash and equivalents at beginning of
year............................... 344 13 629 986
--------- --------- -------- ------- --------
Cash and equivalents at end of
year............................... $ 17 $ 6 $ 3,084 $ 3,107
========= ========= ======== ======= ========
45
48
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the name, age and principal position of each
of the directors of Holding (PA), Holding (DE) and the executive officers of the
Company. The individuals who constitute the Board of Directors of Holding (PA)
also constitute the Board of Directors of Holding (DE).
Each director of Holding (PA) and Holding (DE) will hold office until the
next annual meeting of shareholders of Holding (PA) and Holding (DE),
respectively or until his successor has been elected and qualified. Officers of
the Company are appointed by the respective Boards of Directors of Holding (PA)
and its subsidiaries and serve at the discretion of such Boards, subject to any
applicable employment agreements.
NAME AGE POSITION(S)
---- --- -----------
Donald M. Werner.......................... 66 Chairman of the Board of Directors (1)
Dennis G. Heiner.......................... 56 President and Chief Executive Officer, and
Director (2)
Robert P. Tamburrino...................... 43 Vice President, Chief Financial Officer
and Treasurer
Michael E. Werner......................... 40 President, Werner Ladder Co.
Joseph J. Despoy.......................... 60 President, Werner Extruded Products
Michael D. Isacco......................... 62 Vice President, Manufacturing
Eric J. Werner............................ 37 Chief Administrative Officer, Secretary
and General Counsel
James O. Egan............................. 51 Director
Charles K. Marquis........................ 57 Director
Charles J. Philippin...................... 49 Director
Howard L. Solot........................... 62 Director
Christopher J. Stadler.................... 35 Director
Thomas J. Sullivan........................ 37 Director
(1) Mr. Heiner assumed the position of President and Chief Executive Officer of
Holding (PA) on January 1, 2000.
(2) Until January 1, 2000, Mr. Werner was President and Chief Executive Officer
of Holding (PA).
Donald M. Werner served as President and Chief Executive Officer of Holding
(PA) from May 1997 until his retirement in January 2000. From 1995 to 1997, Mr.
Werner was President of Werner Ladder Co. Prior to 1995, Mr. Werner served in
various positions with the Company including Sales Manager, Vice President --
Marketing and Senior Vice President -- Corporate Sales and Marketing. Mr. Werner
also holds various directorships and officerships at subsidiaries of Holding
(PA). Prior to commencing his 42 year career with the Company, Mr. Werner was an
aircraft structural design engineer for Grumman Aircraft Co. Mr. Werner served
as Chairman of the American Hardware Manufacturers Association and served on the
boards of directors of the Scaffolding Industry Association and the Hardware
Group Association. Mr. Werner is the father of Eric J. Werner, the uncle of
Michael E. Werner and the cousin of Howard L. Solot.
Dennis G. Heiner has served as President and Chief Executive Officer of
Holding (PA) since January 1, 2000 and Holding (DE) and Werner since June 1999.
Prior to joining the Company Mr. Heiner served as Executive Vice President of
Black & Decker Corporation since 1989 and most recently as its
President -- Building Products Worldwide. Mr. Heiner was President -- Security
Hard-
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ware Worldwide from 1992 to 1998, President -- Household Products Worldwide from
1986 to 1992 and Group Vice President -- U.S. Household Products from 1985 to
1986. Prior to Black & Decker, Mr. Heiner served as Division President for
Beatrice Companies Inc. Window Coverings Division and as Vice
President -- Finance and then President for their Del Mar Window Coverings
Division. Mr. Heiner also holds various directorships and officerships at
subsidiaries of Holding (PA).
Robert P. Tamburrino joined the Company as Vice President, Chief Financial
Officer and Treasurer in December 1998. Mr. Tamburrino also holds various
officerships at subsidiaries of Holding (PA). Prior to joining the Company, Mr.
Tamburrino served as Chief Financial Officer for the steel service center group
of Usinor from 1997 to 1998. From 1991 to 1997, he served Usinor subsidiaries as
Senior Vice President and Chief Financial Officer of Francosteel Corporation and
Executive Vice President and Chief Financial Officer of Edgcomb Metals Company.
Mr. Tamburrino held financial and chief executive officer positions with Rome
Cable Corp., a manufacturer and distributor of copper electrical wire and cable
from 1984 to 1990 and was employed by KPMG Peat Marwick from 1978 to 1984.
Michael E. Werner has served as President of the Company's Werner Ladder
Co. business unit since 1997. Mr. Werner joined the Company in 1988 and has held
several positions including Vice President -- National Accounts and Vice
President -- Sales & Marketing. Mr. Werner also holds various officerships at
subsidiaries of Holding (PA). Prior to joining the Company, Mr. Werner served as
Vice President for Mergers, Acquisitions and Investments at Pacific Holding Co.
and, prior to that, as an associate in the Mergers & Acquisitions Department of
Goldman, Sachs & Co. Mr. Werner is the nephew of Donald M. Werner and the cousin
of Eric J. Werner.
Joseph J. Despoy has served as President of the Company's Werner Extruded
Products business unit since 1995. Mr. Despoy joined the Company in 1984 and has
served in various positions including: Marketing Manager, Extruded Products;
Sales Manager, Mill Products Division; and Vice President, Mill Products
Sales -- Northern Division. Prior to joining Werner, Mr. Despoy held several
administrative and marketing positions including Vice President -- Marketing
with the Aluminum Association in Washington, D.C.
Michael D. Isacco has served as Vice President, Manufacturing of the
Company since April 1995. Mr. Isacco joined the Company in 1981 as Engineering
Administrator and has held a variety of positions with the Company, including
Manager of Engineering Administration and Greenville Division Plant Manager.
Prior to joining the Company, Mr. Isacco spent twenty years in various positions
with the United States Army, retiring in 1979 with the rank of Lieutenant
Colonel.
Eric J. Werner joined the Company in 1988 as Secretary and Corporate
Counsel. He has served as Chief Administrative Officer of the Company since 1995
and General Counsel of the Company since 1993. Mr. Werner also holds various
officerships at subsidiaries of Holding (PA). Prior to joining the Company, Mr.
Werner was an associate at the law firm of O'Connor, Broude, Snyder and Aronson.
Mr. Werner also serves as a director of FNB Corporation. Mr. Werner is the son
of Donald M. Werner and the cousin of Michael E. Werner.
James O. Egan has served as director of Holding (PA) since May 1999. Mr.
Egan has been an executive officer of Investcorp or one of its wholly-owned
subsidiaries since January 1999. Prior to joining Investcorp, Mr. Egan was a
partner in the accounting firm of KPMG from October 1997 to December 1998. Prior
to that, Mr. Egan was a Senior Vice President and Chief Financial Officer of
Riverwood International, a paperboard, packaging and machinery company, from May
1996 to September 1997. Prior to that, Mr. Egan was a partner in the accounting
firm of Coopers & Lybrand L.L.P. (now PricewaterhouseCoopers LLP). Mr. Egan is a
director of CSK Auto Corporation and Harborside Healthcare Corporation.
Charles K. Marquis has served as director of Holding (PA) since May 1999.
Mr. Marquis has been a consultant to Investcorp or one or more of its
wholly-owned subsidiaries since January 1999. Prior to joining Investcorp, Mr.
Marquis was a partner in the law firm of Gibson, Dunn & Crutcher, LLP. Mr.
Marquis is a director of CSK Auto Corporation and Tiffany & Co.
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Charles J. Philippin has served as director of Holding (PA) since November
1997. He has been an executive of Investcorp or one or more of its wholly-owned
subsidiaries since July 1994. Prior to joining Investcorp, Mr. Philippin was a
partner of Coopers & Lybrand L.L.P. (now PricewaterhouseCoopers LLP). Mr.
Philippin is a director of Saks Incorporated, CSK Auto Corporation and The
William Carter Company.
Howard L. Solot has served as director of Holding (PA) since 1974. He
recently served as Executive Vice President and Chief Operating Officer of
Holding (PA) from 1995 to his retirement in March of 1999. He joined the Company
in 1959 and has held various planning, systems, engineering and manufacturing
related positions, including Plant Manager, Division General Manager, Vice
President -- Engineering and Corporate Planning and Senior Vice President --
Manufacturing. Mr. Solot also holds various director positions at subsidiaries
of Holding (PA). Mr. Solot served as a member of the board of directors of the
Aluminum Extruders Council. Mr. Solot is the cousin of Donald M. Werner.
Christopher J. Stadler has served as director of Holding (PA) since
November 1997. He has been an executive of Investcorp or one or more of its
wholly-owned subsidiaries since April 1996. Prior to joining Investcorp, Mr.
Stadler was a director with CS First Boston Corporation. Mr. Stadler is a
director of CSK Auto Corporation and The William Carter Company.
Thomas J. Sullivan has served as director of Holding (PA) since July 1999.
Mr. Sullivan has been an executive of Investcorp or one or more of its
wholly-owned subsidiaries since April 1996. Prior to joining Investcorp, Mr.
Sullivan was Vice President and Treasurer of the Leslie Fay Companies, Inc. (now
Leslie Fay Company, Inc.).
DIRECTOR COMPENSATION
Neither Holding (PA) nor Holding (DE) pay any additional remuneration to
its employees or to executives of Investcorp for serving as directors. Holding
(PA) and Holding (DE) do reimburse their respective directors for any expenses
incurred in attending meetings. See " -- Executive Compensation."
SHAREHOLDER RIGHTS AGREEMENT
Pursuant to the Shareholder Rights Agreement entered into on the
Recapitalization Closing Date, (i) Class D Investors have a right to designate
at least a majority of Holding (PA)'s Board, (ii) the Chief Executive Officer of
Holding (PA) shall be a director, and, (iii) the Management Shareholders are
entitled to designate a minimum of one director and up to that number of
directors equal to one third of the authorized number of directors minus one.
See "Certain Relationships and Related Transactions -- Agreements with Certain
Shareholders -- Shareholder Rights Agreement."
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ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information concerning annual and long-term
compensation for the last three fiscal years awarded to, earned by or paid to
the Chief Executive Officer of Holding (PA), the Chief Executive Officer of
Holding (DE) and Werner and each of the other four most highly compensated
executive officers whose remuneration exceeded $100,000 (collectively, the
"Named Executive Officers"). The current compensation arrangements for each of
these officers are described in " -- Employment Arrangements" below.
LONG TERM
COMPENSATION
--------------------------
ANNUAL COMPENSATION ($) SECURITIES
------------------------------ DEFERRED UNDERLYING
NAME AND PRINCIPAL OTHER ANNUAL STOCK OPTION/SARS ALL OTHER
POSITIONS YEAR SALARY BONUS COMPENSATION UNITS($)(a) (SHARES) COMPENSATION(b)
------------------ ---- ------- ------- ------------ ----------- ------------ ---------------
Donald M. Werner(1)....... 1999 412,647 373,500 114,047 -- -- --
President, Chief 1998 407,093 95,000 107,633 -- 585 630,000
Executive Officer of 1997 414,923 163,013 100,104 -- -- 2,000,000
Holding (PA) until
January 1, 2000
Dennis G. Heiner(2)....... 1999 141,346 525,000 277,140 455,000 1,250 --
President, Chief
Executive Officer of
Holding (PA) since
January 1, 2000 and
Holding (DE) and Werner
Robert P. Tamburrino(3)... 1999 250,000 200,000 7,490 -- 200 --
Vice President, 1998 5,769 -- -- -- 300 --
Chief Financial Officer
and Treasurer
Michael E. Werner(4)...... 1999 245,537 225,000 24,032 -- -- --
President of Werner 1998 234,630 75,000 34,426 -- 500 351,000
Ladder Co. 1997 222,942 73,162 182,137 -- -- --
Eric J. Werner(5)......... 1999 188,907 114,600 23,898 -- -- --
Chief Administrative 1998 183,493 45,000 36,873 -- 300 326,250
Officer, Secretary, 1997 214,961 61,906 28,775 -- -- --
General Counsel
Joseph J. Despoy(6)....... 1999 180,169 104,200 46,955 -- -- --
President of Werner 1998 175,471 20,000 56,260 -- 100 262,500
Extruded Products 1997 169,288 36,225 54,719 -- -- --
- ---------------
(a) See the following section "Deferred Stock Plan" for a detailed explanation
of amounts in this column.
(b) See the following section "Compensation Relating to the Recapitalization"
for a detailed explanation of amounts in this column.
(1) The amount shown for Mr. Werner under Other Annual Compensation reflects
payments of $74,674, $75,902 and $67,972 in respect of life insurance
premiums paid by the Company in 1999, 1998 and 1997, respectively, $5,000,
$5,000 and $4,750 in respect of matching contributions made under the 401(k)
Plan in 1999, 1998 and 1997, respectively, $12,114, $8,863 and $11,873 in
respect of accruals under postretirement benefit plans in 1999, 1998 and
1997, respectively, $3,563, $3,063 and $2,625 of imputed income arising from
the personal use of a Company provided automobile in 1999, 1998 and 1997,
respectively, $18,696, $14,805 and $6,798 for financial planning services in
1999, 1998 and 1997, respectively, and $0, $0 and $6,086 of imputed interest
in 1999, 1998 and 1997, respectively. The amount shown for Mr. Werner under
All Other Compensation reflects payments of $630,000 relating to payments
made under his Employee Protection Agreement in 1998 and $2,000,000 relating
to the acceleration of additional pension and consulting payments as part of
the Recapitalization in 1997.
(2) The amount shown for Mr. Heiner under Salary and Bonus for 1999 was not paid
but was deferred by Mr. Heiner under the Deferred Stock Plan for which he
received 275 Stock Units. The amount
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shown for Mr. Heiner under Other Annual Compensation reflects payments of $1,101
in respect of life insurance premiums paid by the Company in 1999, $1,032 of
imputed income arising from the personal use of a Company provided automobile in
1999, $67,007 for moving expenses in 1999, and $208,000 for retention
incentive compensation in 1999 as set forth in his employment contract.
(3) The amount shown for Mr. Tamburrino under Other Annual Compensation reflects
payments of $746 and $0 in respect of life insurance premiums paid by the
Company in 1999 and 1998, respectively, $2,308 and $0 in respect of matching
contributions made under the 401(k) Plan in 1999 and 1998, respectively,
$4,307 and $0 in respect of accrual under postretirement benefit plans in
1999 and 1998, respectively, and $129 and $0 of imputed income arising from
the personal use of a Company provided automobile in 1999 and 1998,
respectively.
(4) The amount shown for Mr. Werner under Other Annual Compensation reflects
payments of $8,463, $8,374 and $8,044 in respect of life insurance premiums
paid by the Company in 1999, 1998 and 1997, respectively, $4,532, $4,463 and
$3,062 in respect of matching contributions made under the 401(k) Plan in
1999, 1998 and 1997, respectively, $5,132, $6,368 and $6,382 in respect of
accruals under postretirement benefit plans in 1999, 1998 and 1997,
respectively, $2,625, $3,063 and $3,889 of imputed income arising from the
personal use of a Company provided automobile in 1999, 1998 and 1997,
respectively, $50,391 of moving expense in 1997, $107,119 of special pay in
1997 and $3,280, $12,158 and $3,250 of financial planning services in 1999,
1998 and 1997, respectively. The amount shown under All Other Compensation
reflects payments of $351,000 made under his Employee Protection Agreement
in 1998.
(5) The amount shown for Mr. Werner under Other Annual Compensation reflects
payments of $7,471, $7,811 and $6,935 in respect of life insurance premiums
paid by the Company in 1999, 1998 and 1997, respectively, $3,484, $5,000 and
$4,750 in respect of matching contributions made under the 401(k) Plan in
1999, 1998 and 1997, respectively, $4,208, $5,533 and $5,431 in respect of
accruals under postretirement benefit plans in 1999, 1998 and 1997,
respectively, $6,363, $7,399 and $4,766 of imputed income arising from the
personal use of a Company provided automobile in 1999, 1998 and 1997,
respectively, and $2,372, $11,130 and $6,893 of financial planning services
in 1999, 1998 and 1997, respectively. The amount shown under All Other
Compensation reflects payments of $326,250 made under his Employee
Protection Agreement in 1998.
(6) The amount shown for Mr. Despoy under Other Annual Compensation reflects
payments of $28,148, $28,507 and $26,841 in respect of life insurance
premiums paid by the Company in 1999, 1998 and 1997, respectively, $5,000,
$4,890 and $2,716. In respect of matching contributions made under the
401(k) Plan in 1999, 1998 and 1997, respectively, $11,361, $19,689 and
$22,319 in respect to accruals under postretirement benefit plans in 1999,
1998 and 1997, respectively, $1,713, $1,174 and $1,098 of imputed income
arising from the personal use of a Company provided automobile in 1999, 1998
and 1997, respectively, and $733, $2,000 and $1,745 of financial planning
services in 1999, 1998 and 1997, respectively. The amount shown under All
Other Compensation reflects payments of $262,500 made under his Employee
Protection Agreement in 1998.
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COMPENSATION RELATED TO THE RECAPITALIZATION
Consulting Agreements
As part of the Company's succession plan, the Company's Board determined in
December 1996 to provide to certain key executives including Donald M. Werner, a
Consulting Agreement and an additional supplemental pension to be entered into
or paid (as the case may be) at the time that each of them retires from the
Company subject to certain acceleration provisions. Pursuant to the December
1996 awards, a change of control of Holding (PA) results in the acceleration of
such payments. Pursuant to the December 1996 awards, Donald M. Werner and
another executive each became entitled to receive, at the time of the
Transactions, all amounts that they would have received had they retired as of
such time, pursuant to the terms of additional supplemental pensions and the
acceleration of their Consulting Agreements. Such amounts totalling $2,000,000
each were paid to Donald M. Werner and the other executive by Holding (PA) on
the Recapitalization Closing Date. See "-- Pension Plans." After all such
payments were made pursuant to the acceleration, the Consulting Agreements
terminated pursuant to their terms.
Employee Protection Agreements
In connection with the Recapitalization, Holding (PA) entered into Employee
Protection Agreements with approximately 50 employees, including certain of the
Named Executive Officers and the Company's other senior management. The Employee
Protection Agreements provided for payments ranging from 50% to 150% of a year's
salary to be paid to each covered employee (i) who remains employed on the first
anniversary of a change in control of Holding (PA) or (ii) prior to such
anniversary (A) whose employment is terminated by Holding (PA) other than for
cause or (B) who suffers a "material employment change" (as defined in the
Employee Protection Agreements). The Company made cash payments aggregating
approximately $6,600,000 in 1998 in accordance with the Employee Protection
Agreements.
EMPLOYMENT ARRANGEMENTS
Pursuant to the Recapitalization Agreement, Holding (PA) entered into
employment agreements with each of Donald M. Werner, Michael E. Werner, Eric J.
Werner and four other senior managers of the Company. In addition, in December
1998, the Company entered into an Employment Agreement with Robert P. Tamburrino
and in June 1999, the Company entered into an Employment Agreement with Dennis
G. Heiner. The employment agreements for all of these officers are collectively
referred to as the "Employment Agreements." Each of the Employment Agreements is
for a term of three years except for Dennis G. Heiner's agreement which is for a
term of five and one-half years. The Employment Agreements provide for a base
annual salary in the following amounts: $525,000 for Dennis G. Heiner, $406,000
for Donald M. Werner, $183,000 for Eric J. Werner, $234,000 for Michael E.
Werner and $250,000 for Robert P. Tamburrino. In addition to such executive's
salary, the Employment Agreements also provide for an annual bonus payment up to
a maximum of 100% of annual salary for Dennis G. Heiner, 90% of annual salary
for Donald M. Werner, 60% of annual salary for Eric J. Werner, 70% of annual
salary for Michael E. Werner and 60% of annual salary for Robert P. Tamburrino.
This bonus is reduced, within a range of board discretion, to the extent that
the Company falls short of EBITDA targets specified in the Employment
Agreements. The Employment Agreements further provide for an additional cash
bonus payable at the discretion of the Company Board. The employment agreement
for Dennis G. Heiner also provides for retention incentive compensation each
year up to an additional $360,000 contingent upon Mr. Heiner remaining in the
employ of the Company until the fifth anniversary of his commencement date.
Under the Employment Agreements, Holding (PA) may only terminate such
executives' employment, without obligation for severance, for cause. Except with
respect to Dennis G. Heiner, if an executive's employment is terminated without
cause or if an executive terminates his employment for good reason, the Company
must (i) pay such executive a lump sum equal to 12 months' base salary, and the
most recent annual bonus paid (or earned but not yet paid) prior to termination
of employment, and (ii) continue such executive's employee benefits for 12
months. With respect to Dennis
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G. Heiner, if Mr. Heiner's employment is terminated without cause or if he
terminates his employment for good reason, the Company must (i) pay Mr. Heiner a
lump sum equal to the sum of $1,050,000 and two times the most recent annual
bonus paid (or earned but not yet paid) prior to his termination of employment
and (ii) continue his employee benefits for a period of twenty-four months or
until Mr. Heiner receives similar benefits from subsequent employment whichever
occurs earlier. The Employment Agreements define "cause" as conviction of
embezzlement or other felony involving fraud with respect to performance of
duties and, subject to notice and opportunity to cure, willful engagement in
gross misconduct concerning duties. "Good reason" is defined as a reduction in
salary, bonus opportunities or employee benefits from the level in effect as of
the commencement date of the respective employment contract, adverse changes in
duties and forced relocation.
MANAGEMENT STOCK INCENTIVE PLAN
Pursuant to the Recapitalization Agreement, Holding (PA) adopted a stock
incentive plan, pursuant to which options to purchase Class C Common Stock may
be granted to employees and directors of the Company. On December 15, 1998 the
Company issued options representing approximately 6.6% of the outstanding
post-Recapitalization common stock to certain members of senior management,
including certain of the Named Executive Officers. The exercise price for
options granted is $2,421.29 per share. Awards granted under the plan to
employees include a provision terminating the award upon termination of
employment under certain circumstances or accelerating the receipt of benefits
upon the occurrence of specified events, including any change of control of
Holding (PA). Each option is subject to certain vesting provisions. To the
extent not earlier vested or terminated, all options will vest on the seventh
anniversary of the date of grant and will expire 30 days thereafter if not
exercised. Upon the termination of an optionee's employment with the Company,
Holding (PA) has certain rights to repurchase, and the optionee has certain
rights to require an affiliate of Investcorp to repurchase (subject to the
right, granted to Holding (PA), to repurchase such shares instead of the
Investcorp affiliate), the Class C Common Stock purchased by the optionee
pursuant to the exercise of his option(s).
OPTION/SAR GRANTS IN LAST FISCAL YEAR
NUMBER OF SECURITIES % OF TOTAL
UNDERLYING OPTIONS/SARS GRANT
OPTION/SAR GRANTED TO EMPLOYEES EXERCISE EXPIRATION DATE
NAME GRANTED IN FISCAL YEAR PRICE DATE VALUE(1)
---- -------------------- -------------------- --------- ---------- -------------
Dennis G. Heiner
President, Chief
Executive Officer
of Holding (PA)
since
January 1, 2000
and Holding (DE)
and Werner 1,250 60.5% $2,421.29 12/30/2007 $1,119,350.00
Robert P. Tamburrino
Vice President,
Chief
Financial Officer
and
Treasurer 200 9.7% $2,421.29 12/24/2004 $ 126,124.00
- --------------------------------------------------------------------------------
(1) For purposes of fair market value disclosures, the fair market value of an
option grant is determined using the Black-Scholes option pricing model. See
Note H to the Company's Consolidated Financial Statements.
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AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS/SARS THE-MONEY OPTIONS/SARS
SHARES AT FY-END (#) AT FY-END ($)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ------------ ----------- ------------- ----------- -------------
Dennis G. Heiner -- -- 250 1,000 -- --
Robert P. Tamburrino -- -- 125 375 -- --
STOCK LOAN PLAN
Pursuant to the Recapitalization Agreement, Holding (PA) adopted a Stock
Loan Plan in order to make loans to certain members of management entering into
certain stock purchase agreements between management participants and the
Investors (the "Loan Participants") in amounts that do not exceed the sum of (i)
50% of the purchase price of the shares of Class C Common Stock purchased by the
Loan Participant and (ii) the amount of the retention bonus to be paid by
Holding (PA) to the Loan Participant pursuant to the respective Employee
Protection Agreement. Loans made pursuant to the Stock Loan Plan mature in seven
years, and bear interest at the Company's effective borrowing rate using the
rates under the Revolving Facility of the Senior Credit Facility and the
Receivables Purchase Agreement. Holding (PA) will negotiate with each Loan
Participant the amount of principal to be paid from such Loan Participant's
annual bonus. The Stock Loan Plan requires each Loan Participant to enter into a
pledge agreement and to execute a secured promissory note. Shares with an
aggregate fair market value of $1,932,189 were purchased in 1999 pursuant to the
Stock Loan Plan and management stock purchase agreements.
DEFERRED STOCK PLAN
Effective August 1999, the Company adopted the Werner Co. Deferred Stock
Plan (the "Deferred Stock Plan"). The Deferred Stock Plan is administered by a
committee of the Board of Directors of the Company (the "Committee"). Pursuant
to the Deferred Stock Plan, Dennis G. Heiner (the "Participant") is given the
opportunity on or before December 31 of each year to make an irrevocable
election to defer all or part of his salary and/or bonus for the next year
subject to the approval of the Committee. If the Participant makes, and the
Committee approves, such an election, the Committee shall grant to the
Participant Stock Units (as hereinafter defined) determined by dividing the
portion of the Participant's deferred salary and/or bonus by the fair market
value of a share of Class C Common Stock as of the applicable pay date. Under
the Deferred Stock Plan, the Participant is entitled to receive Stock Units
which are defined as non-voting units of measurement which are deemed for
recordkeeping purposes to be equivalent to shares of Class C Common Stock, such
that, one Stock Unit is equal to one outstanding share of the Company's Class C
Common Stock. Distribution of benefits under the Deferred Stock Plan shall be
made to the Participant on the first business day of the first month following
his termination of service, or immediately upon a change in control, and shall
be made in an equivalent whole number of shares of Class C Common Stock. The
Company has certain rights to repurchase the shares of Class C Common Stock
distributed to the Participant upon the cessation of his employment or upon a
sale or initial public offering of the Company as defined in the Deferred Stock
Plan. Under the Deferred Stock Plan as of December 31, 1999, Mr. Heiner has
earned 275 Stock Units from salary and bonus compensation. In addition, Mr.
Heiner is entitled to receive 1,033 Stock Units pursuant to his employment
agreement. Such Stock Units will be vested over a three-year period from the
date of his employment through June 15, 2002 and the Company recognizes the
related compensation expense over the three-year vesting period. In 1999, the
Company recognized $455,000 of compensation expense related to Mr. Heiner's
Stock Units. At December 31, 1999, the fair market value of a share of Class C
Common Stock for purposes of the Deferred Stock Plan was $2,421.29.
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PENSION PLANS
The Company's salaried employees receive an annual lifetime pension (up to
$130,000, as adjusted) benefit based on years of service and salary under the
Werner Holding Co. (DE), Inc. Salaried Employees' Pension Plan, a funded,
tax-qualified defined benefit plan covering all salaried employees (the
"Retirement Plan"). Certain Named Executive Officers also receive pension
benefits under the Werner Holding Co. (DE), Inc. Supplemental Pension Plan A
and/or the Werner Holding Co. (DE), Inc. Supplemental Pension Plan B. The
following tables show the estimated aggregate annual benefits payable at age 65
to Named Executive Officers retiring at age 65 with the indicated average
compensation and years of credited service from both the Retirement Plan and the
applicable Supplemental Pension Plans.
A. PENSION PLAN TABLE: ANNUAL BENEFITS PAYABLE AT AGE 65
YEARS OF SERVICE
----------------------------------------------------------------------------------------------
REMUNERATION 5 10 15 20 25 30 35 40 45
- ------------ ------- ------- -------- -------- -------- -------- -------- -------- --------
$100,000 $ 6,322 $12,644 $ 18,966 $ 25,288 $ 31,610 $ 37,932 $ 45,081 $ 52,229 $ 59,378
200,000 13,471 26,941 40,412 53,882 67,353 80,823 95,120 109,417 123,714
300,000 20,619 41,238 61,857 82,476 103,095 123,714 145,160 166,606 188,051
400,000 27,768 55,535 83,303 111,070 138,838 166,606 195,200 223,794 252,388
500,000 34,916 69,832 104,748 139,665 174,581 209,497 245,239 280,982 316,725
B. PENSION PLAN TABLE: ANNUAL BENEFITS PAYABLE AT AGE 65
YEARS OF SERVICE AS AN OFFICER
----------------------------------------------------------------------------------------------
REMUNERATION 5 10 15 20 25 30 35 40 45
- ------------ ------- ------- -------- -------- -------- -------- -------- -------- --------
$300,000 $ 0 $14,297 $ 21,446 $ 28,594 $ 35,743 $ 42,891 $ 50,040 $ 57,188 $ 64,337
400,000 0 19,063 28,594 38,125 47,657 57,188 66,720 76,251 85,782
500,000 0 23,828 35,743 47,657 59,571 71,485 83,399 95,314 107,228
600,000 0 28,594 42,891 57,188 71,485 85,782 100,079 114,376 128,673
700,000 0 33,360 50,040 66,720 83,399 100,079 116,759 133,439 150,119
800,000 0 38,125 57,188 76,251 95,314 114,376 133,439 152,502 171,565
900,000 0 42,891 64,337 85,782 107,228 128,673 150,119 171,565 193,010
The benefits listed in the tables are not subject to any deduction for
Social Security. The benefits listed in Table A are computed on the basis of the
average salary of the employee (excluding bonuses) for the three consecutive
full calendar years out of the last 10 years prior to retirement that provide
the highest average. The benefits listed in Table B are computed on the basis of
the average salary of the employee (including bonuses) for the three consecutive
full calendar years out of the last 10 years prior to retirement that provide
the highest average. The total benefit is the sum of Table A and Table B.
Supplemental Pension Plans A and B are unfunded, non-qualified plans which
provide lifetime annual pension benefits to certain stated executives in excess
of benefits payable under the Retirement Plan, due to Retirement Plan
limitations imposed by Employee Retirement Income Saving Act (ERISA), plus
additional other benefits. Supplemental Pension Plan A covers all members of the
Company's former Management Committee and Supplemental Pension Plan B covers all
the elected corporate officers. Supplemental Pension Plan benefits are a
function of service and final average compensation. Executives must have spent
at least ten years as either an elected salaried corporate officer or a member
of the former Management Committee of the Company which includes all of the
named executive officers to be eligible. Eligibility for supplemental plans is
conditioned upon participants' compliance with a non-competition agreement.
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The compensation used for pension formula purposes is annual base pay alone
for the qualified Retirement Plan (subject to IRS limits, currently at $160,000
per year) and both base pay and annual bonus (without regard to any limits) for
the nonqualified Supplemental Plans. The base salaries and bonuses of each of
the named executive officers for 1999 are set forth in the Summary Compensation
Table.
The respective years of credited service for the Named Executive Officers
as of December 31, 1999 are: Donald M. Werner, 41; Dennis G. Heiner, 6 months;
Robert P. Tamburrino, 1; Michael E. Werner, 11; and Eric J. Werner, 11.
COMMITTEES OF THE BOARD OF DIRECTORS;
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The full Board of Directors of Werner determines the compensation for
management of Werner. Dennis G. Heiner and Donald M. Werner are members of the
Board of Directors of Werner. The compensation for the Named Executive Officers
is determined under each such officer's employment agreement.
None of the executive officers of the Company served on the Board of
Directors or on the compensation committee of any other entity, the officers of
which served on any of the Boards of Directors of the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
PRINCIPAL SHAREHOLDERS
All of the outstanding voting stock of Holding (DE) is owned by Holding
(PA). The following table sets forth certain information regarding the
beneficial ownership of the capital stock of Holding (PA).
The Class A Stock, Class B Stock and Class D Common Stock are the only
classes of Holding (PA)'s capital stock that have the power to vote. The Class A
Stock and Class B Stock each possesses the right to one vote per share. The
Class D Common Stock possesses the right to 50.6818 votes per share.
The table sets forth for such periods (i) each person known by the Company
to be the beneficial owner of more than 5% of each class of voting stock of
Holding (PA), (ii) each person who is a director of Holding (PA) or Named
Executive Officer of the Company who is expected to beneficially own shares of
voting stock of Holding (PA) and (iii) all directors of Holding (PA) and
executive officers of the Company as a group. Unless otherwise indicated, each
of the shareholders shown in the table below has sole voting and investment
power with respect to the shares beneficially owned.
Investcorp and the Investors beneficially own approximately 67% of the
outstanding voting stock of Holding (PA) and the pre-Recapitalization existing
shareholders, including certain members of management, now own approximately 33%
of the outstanding voting stock of Holding (PA). In addition, the Investors own
3,952 shares of Class C Common Stock and 45,000 shares of Class E Common Stock.
See "Certain Relationships and Related Transactions -- Agreements with Certain
Shareholders."
NUMBER %
OF SHARES(1) OF CLASS
------------ --------
CLASS A VOTING STOCK
Noel Berk-Rauch............................................. 142 7.2
Aleena R. Shapiro(2)........................................ 110 5.6
Howard L. Solot(3).......................................... 277 14.1
Donald M. Werner............................................ 388 19.7
Richard L. Werner(4)........................................ 331 16.9
Ronald E. Werner(5)......................................... 240 12.2
All directors and executive officers as a group, including
certain of the above named persons........................ 800 40.7
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NUMBER %
OF SHARES(1) OF CLASS
------------ --------
CLASS B VOTING STOCK
Howard L. Solot(6).......................................... 1,083 4.9
Bruce D. Werner Trust(7).................................... 1,399 6.4
Craig R. Werner Trust(8).................................... 1,508 6.9
Michael E. Werner Revocable Trust(9)........................ 1,496 6.8
Donald M. Werner(10)........................................ 769 3.5
Eric J. Werner(11).......................................... 1,384 6.3
Ronald E. Werner(12)........................................ 1,746 8.0
All directors and executive officers as a group, including
certain of the above named persons........................ 4,732 21.6
CLASS D VOTING STOCK
INVESTCORP S.A.(13)(14)..................................... 1,000 100.0
SIPCO Limited(15)........................................... 1,000 100.0
CIP Limited(16)(17)......................................... 920 92.0
Ballet Limited(16)(17)...................................... 92 9.2
Denary Limited(16)(17)...................................... 92 9.2
Gleam Limited(16)(17)....................................... 92 9.2
Highlands Limited(16)(17)................................... 92 9.2
Noble Limited(16)(17)....................................... 92 9.2
Outrigger Limited(16)(17)................................... 92 9.2
Quill Limited(16)(17)....................................... 92 9.2
Radial Limited(16)(17)...................................... 92 9.2
Shoreline Limited(16)(17)................................... 92 9.2
Zinnia Limited(16)(17)...................................... 92 9.2
INVESTCORP Investment Equity Limited(14).................... 80 8.0
(1) As used in the table above, a beneficial owner of a security includes any
person who, directly or indirectly, through contract, arrangement,
understanding, relationship, or otherwise has or shares (i) the power to
vote, or direct the voting of, such security or (ii) investment power which
includes the power to dispose, or to direct the disposition of, such
security. In addition, a person is deemed to be the beneficial owner of a
security if that person has the right to acquire beneficial ownership of
such security within 60 days.
(2) Ms. Shapiro does not directly own any stock in Holding (PA). The number of
shares shown as owned are held in the name of Rauch Trust of which Aleena
R. Shapiro is Trustee. Ms. Shapiro disclaims the beneficial ownership of
such shares.
(3) Includes 36.47 shares of Class A Stock held in the name of Mr. Solot's
spouse, Janet F. Solot.
(4) Includes 331.05 shares of Class A Stock held in the name of Richmond Drive
Enterprises, L.P., a limited partnership, the general partners of which are
Mr. Werner and Lois S. Werner. Lois S. Werner is the spouse of Mr. Werner.
(5) Includes 238.85 shares of Class A Stock held in the name of the Florence J.
Werner Irrevocable Trust of which Ronald E. Werner is the trustee. Mr.
Werner disclaims the beneficial ownership of such shares.
(6) Includes 826 shares of Class B Stock held in the name of Alligator
Partners, L.P., a limited partnership, the general partners of which are
Mr. Solot and Janet F. Solot, and 212.17 shares of Class B Stock held in
the name of Mr. Solot's spouse, Janet F. Solot.
(7) Includes 17.30 shares of Class B Stock held as joint tenant with Tammy H.
Werner and 391.01 shares of Class B Stock held in the name of the Bruce D.
Werner Family Limited Partnership.
(8) Includes 582.16 shares of Class B Stock owned by the Craig R. Werner Family
Limited Partnership.
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59
(9) Includes 179.98 shares of Class B Stock held in the name of the Laura W.
Werner Revocable Trust, 102.92 shares of Class B Stock held in the name of
the Jonathan C. Werner Gift Trust, 57.65 shares of Class B Stock held in
the name of the Margot A. Werner Gift Trust and 102.92 shares of Class B
Stock held in the name of the Stephanie N. Werner Gift Trust.
(10) Includes 22 shares of Class B Stock owned with Barbara Werner as joint
tenants and 88 shares of Class B Stock held in the name of Barbara Werner.
(11) Includes 29.48 shares of Class B Stock owned with Melanie R. Werner as
joint tenants, 274.56 shares of Class B Stock held in the name of Melanie
R. Werner, Custodian for Isabelle N. Werner and 274.56 shares of Class B
Stock held in the name of Melanie R. Werner, Custodian for Sophia K.
Werner.
(12) Includes 1,035.74 shares of Class B Stock held in the name of the Robert I.
Werner Irrevocable Trust and 200.17 shares of Class B Stock held in the
name of the Florence J. Werner Irrevocable Trust. Mr. Werner disclaims the
beneficial ownership of all of these shares.
(13) Investcorp does not directly own any stock in Holding (PA). The number of
shares shown as owned by Investcorp includes all of the shares owned by
INVESTCORP Investment Equity Limited (see (14) below). Investcorp owns no
stock in Ballet Limited, Denary Limited, Gleam Limited, Highlands Limited,
Noble Limited, Outrigger Limited, Quill Limited, Radial Limited, Shoreline
Limited, Zinnia Limited, or in the beneficial owners of these entities (see
(17) below). Investcorp may be deemed to share beneficial ownership of the
shares of voting stock held by these entities because the entities have
entered into revocable management services or similar agreements with an
affiliate of Investcorp, pursuant to which each such entity has granted
such affiliate the authority to direct the voting and disposition of the
Holding (PA) voting stock owned by such entity for so long as such
agreement is in effect. Investcorp is a Luxembourg corporation with its
address at 37 rue Notre-Dame, Luxembourg.
(14) INVESTCORP Investment Equity Limited is a Cayman Islands corporation, and a
wholly-owned subsidiary of Investcorp, with its address at P.O. Box 1111,
West Wind Building, George Town, Grand Cayman, Cayman Islands.
(15) SIPCO Limited may be deemed to control Investcorp through its ownership of
a majority of a company's stock that indirectly owns a majority of
Investcorp's shares. SIPCO Limited's address is P.O. Box 1111, West Wind
Building, George Town, Grand Cayman, Cayman Islands.
(16) CIP Limited ("CIP") owns no stock in Holding (PA). CIP indirectly owns less
than 0.1% of the stock in each of Ballet Limited, Denary Limited, Gleam
Limited, Highlands Limited, Noble Limited, Outrigger Limited, Quill
Limited, Radial Limited, Shoreline Limited and Zinnia Limited (see (17)
below). CIP may be deemed to share beneficial ownership of the shares of
voting stock of Holding (PA) held by such entities because CIP acts as a
director of such entities and the ultimate beneficial shareholders of each
of those entities have granted to CIP revocable proxies in companies that
own those entities' stock. None of the ultimate beneficial owners of such
entities beneficially owns individually more than 5% of Holding (PA)'s
voting stock.
(17) Each of CIP Limited, Ballet Limited, Denary Limited, Gleam Limited,
Highlands Limited, Noble Limited, Outrigger Limited, Quill Limited, Radial
Limited, Shoreline Limited and Zinnia Limited is a Cayman Islands
corporation with its address at P.O. Box 2197, West Wind Building, George
Town, Grand Cayman, Cayman Islands.
Right of First Offer; Tag-Along Rights
Pursuant to the Restated Articles, prior to an initial public offering of
the capital stock of Holding (PA), any holder of Class A Stock or Class B Stock
that intends to sell any shares of such stock will be required to furnish notice
to Holding (PA) of such holder's intent to sell such shares. Following the
receipt of such notice, Holding (PA) will have the option to purchase such stock
on the same terms as the proposed sale. In addition, if any holder of Class D
Common Stock proposes to transfer shares of such stock, holders of the other
classes of Holding (PA) capital stock will have certain tag-along rights
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60
with respect thereto. Any shares for which any holders elect to exercise such
tag-along rights but whose shares are not sold in connection therewith will have
such shares redeemed by Holding (PA), to the extent it is legally permitted to
do so.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
AGREEMENTS WITH CERTAIN SHAREHOLDERS
Consulting and Financial Services Agreements
In connection with the Recapitalization the Company entered into an
agreement for management advisory and consulting services for a five-year term
with Investcorp International, Inc. ("III"), pursuant to which the Company
prepaid III $5.0 million upon closing.
On January 1, 2000, in connection with Donald M. Werner's retirement, the
Company entered into a consulting agreement with Mr. Werner. Pursuant to this
consulting agreement, Mr. Werner will provide certain consulting services to the
Company for a period of one year in exchange for payment at a rate of $150,000
per year. The consulting agreement is automatically renewed for successive
one-year periods unless either party provides written notice thirty (30) days
prior to the expiration of the current term.
Shareholder Rights Agreement
On the Recapitalization Closing Date, Holding (PA) executed the Shareholder
Rights Agreement with each of the Management Shareholders and each holder of
Class D Common Stock ("Class D Investors"). The Shareholder Rights Agreement
contains the following provisions: (i) the right, following an initial public
offering of Holding (PA)'s capital stock, in favor of the Class D Investors to
require the Management Shareholders to sell their remaining equity interests in
Holding (PA) if the Class D Investors decide to sell as a group 85% or more of
their remaining equity interests in the Company and the Class D Investors hold
at that time (prior to giving effect to the proposed sale) more than 80% of the
shares of Class D Common Stock purchased by the Investors in the
Recapitalization, (ii) the right in favor of all holders of Holding (PA)'s
capital stock, during the period beginning immediately after the Closing Date
and continuing until, but ending prior to, an initial public offering, to
participate on a pro rata basis in equity financings by the Company (other than
issuances of equity securities in connection with stock incentive or
compensation plans approved by Holding (PA)'s Board of Directors or in
connection with business acquisitions by Holding (PA)) if the securities to be
issued by the Company are not being issued at fair market value as determined in
good faith by Holding (PA)'s Board of Directors, (iii) certain demand and
piggy-back registration rights in favor of the Class D Investors and certain
piggy-back registration rights in favor of all other shareholders of Holding
(PA), (iv) the obligation of the Management Shareholders to enter into certain
customary "lock-up" agreements with underwriters in future public offerings, and
(v) an agreement by the Class D Investors and the Management Shareholders to
vote their respective shares such that (a) at least a majority of Holding (PA)'s
Board will consist of persons designated by the Class D Investors, (b) the Chief
Executive Officer of Holding (PA) shall be a director and (c) the Management
Shareholders shall be entitled to designate a minimum of one director and up to
that number of directors equal to one third of the authorized number of
directors (rounded to the nearest whole number) minus one.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Financial Statements
The financial statements set forth in the Index are filed as part of
this Annual Report on Form 10-K.
(b) Reports on Form 8-K:
None.
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61
(c) Exhibits:
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
2 Amended and Restated Recapitalization Agreement, dated as of
October 27, 1997, by and among Holding (PA) and certain
investors organized by Investcorp S.A. (filed as Exhibit 2
to Holding (DE)'s Form S-4 Registration Statement No.
333-46607 and incorporated herein by reference).
3.1 Certificate of Incorporation of Werner Holding Co. (DE),
Inc. (filed as Exhibit 3.1 to Holding (DE)'s Form S-4
Registration Statement No. 333-46607 and incorporated herein
by reference).
3.2 By-laws of Werner Holding Co. (DE), Inc. (filed as Exhibit
3.2 to Registrant's Form S-4 Registration Statement No.
333-46607 and incorporated herein by reference).
3.2.1 Certificate of Ownership and Merger of Werner Holding Co.
(DE), Inc. regarding merger of Werner Financial Inc. with
and into Werner Holding Co. (DE), Inc. (filed as Exhibit
3.2.1 to Holding (DE)'s Annual Report on Form 10-K for the
fiscal year ended December 31, 1998 and incorporated herein
by reference).
3.3 Amended and Restated Articles of Incorporation of Werner
Holding Co. (PA), Inc. (filed as Exhibit 3.3 to Holding
(DE)'s Form S-4 Registration Statement No. 333-46607 and
incorporated herein by reference).
3.4 Amended and Restated By-laws of Werner Holding Co. (PA),
Inc. (filed as Exhibit 3.1 to Holding (DE)'s Quarterly
Report on Form 10-Q for the quarter ended March 31, 1999 and
incorporated herein by reference).
3.5 Articles of Incorporation of Werner Co. (filed as Exhibit
3.5 to Holding (DE)'s Form S-4 Registration Statement No.
333-46607 and incorporated herein by reference).
3.5.1 Articles of Merger of Werner Co. regarding merger of R.D.
Arizona Ladder Corp. with and into Werner Co. (filed as
Exhibit 3.5.1 to Holding (DE)'s Annual Report on Form 10-K
for the fiscal year ended December 31, 1998 and incorporated
herein by reference).
3.5.2 Articles of Merger of Werner Co. regarding merger of Phoenix
Management Services, Inc., Werner Management Co., Florida
Ladder Company, Kentucky Ladder Company and Gold Medal
Ladder Company with and into Werner Co. (filed as Exhibit
3.5.2 to Holding (DE)'s Annual Report on Form 10-K for the
fiscal year ended December 31, 1998 and incorporated herein
by reference).
3.5.3 Articles of Merger of Werner Co. regarding merger of Olympus
Properties, Inc. with and into Werner Co. (filed as Exhibit
3.5.3 to Holding (DE)'s Annual Report on Form 10-K for the
fiscal year ended December 31, 1998 and incorporated herein
by reference).
3.6 By-laws of Werner Co. (filed as Exhibit 3.6 to Holding
(DE)'s Form S-4 Registration Statement No. 333-46607 and
incorporated herein by reference).
3.7 Certificate of Incorporation of WIP Technologies, Inc.
(filed as Exhibit 3.19 to Holding (DE)'s Form S-4
Registration Statement No. 333-46607 and incorporated herein
by reference).
3.8 By-laws of WIP Technologies, Inc. (filed as Exhibit 3.20 to
Holding (DE)'s Form S-4 Registration Statement No. 333-46607
and incorporated herein by reference).
3.9 Certificate of Incorporation of Werner Funding Corporation
(filed as Exhibit 3.9 to Holding (DE)'s Annual Report on
Form 10-K for the fiscal year ended December 31, 1998 and
incorporated herein by reference).
3.10 By-laws of Werner Funding Corporation (filed as Exhibit 3.10
to Holding (DE)'s Annual Report on Form 10-K for the fiscal
year ended December 31, 1998 and incorporated herein by
reference).
3.11 Amendment to By-laws of WIP Technologies, Inc.
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EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
4.1 Indenture between the Company and IBJ Schroder Bank & Trust
Company, as Trustee, dated as of November 24, 1997 (filed as
Exhibit 4.1 to Holding (DE)'s Form S-4 Registration
Statement No. 333-46607 and incorporated herein by
reference).
4.2 Form of Note (included as Exhibit B to Exhibit 4.1 in
Holding (DE)'s Form S-4 Registration Statement No. 333-46607
and incorporated herein by reference).
4.3 Registration Rights Agreement among the Company, Chase
Securities Inc., Donaldson, Lufkin & Jenrette Securities
Corporation and Goldman, Sachs & Co. dated November 24, 1997
(filed as Exhibit 1.2 in Holding (DE)'s Form S-4
Registration Statement No. 333-46607 and incorporated herein
by reference).
4.4 Form of Letter of Transmittal (filed as Exhibit 1.3 in
Holding (DE)'s Form S-4 Registration Statement No. 333-46607
and incorporated herein by reference).
10.1 Form of Employee Protection Agreements between Holding (PA)
and certain employees (filed as Exhibit 10.1 to Holding
(DE)'s Amendment No. 1 to Form S-4 Registration Statement
No. 333-46607 and incorporated herein by reference).
10.2 Shareholder Agreement, dated as of November 24, 1997, by and
among Holding (PA), Investcorp Investment Equity Limited,
certain other holders of shares of Class D Common Stock of
Holding (PA) and the other individuals listed on the
signature pages thereto (filed as Exhibit 10.2 to Holding
(DE)'s Form S-4 Registration Statement No. 333-46607 and
incorporated herein by reference).
10.3 Form of Employment Agreement, dated as of November 24, 1997,
between Werner Management Co. and certain named executive
officers (filed as Exhibit 10.3 to Holding (DE)'s Form S-4
Registration Statement No. 333-46607 and incorporated herein
by reference).
10.4 Management Stock Incentive Plan, established by Werner
Holding Co. (PA), Inc. as of November 24, 1997 (filed as
Exhibit 10.4 to Holding (DE)'s Form S-4 Registration
Statement No. 333-46607 and incorporated herein by
reference).
10.5 Form of Stock Option Agreements pursuant to Stock Incentive
Plan between Werner Holding Co. (PA), Inc. and certain
employees (filed as Exhibit 10.5 to Holding (DE)'s Form S-4
Registration Statement No. 333-46607 and incorporated herein
by reference).
10.6 Trust Indenture, dated as of September 1, 1990, between the
County of Carroll, Kentucky and Dai-Ichi Kangyo Trust
Company (filed as Exhibit 10.6 to Holding (DE)'s Amendment
No. 1 to Form S-4 Registration Statement No. 333-46607 and
incorporated herein by reference).
10.7 Variable Rate Demand Industrial Building Revenue Bonds
issued by the County of Carroll, Kentucky (filed as Exhibit
10.7 to Holding (DE)'s Amendment No. 1 to Form S-4
Registration Statement No. 333-46607 and incorporated herein
by reference).
10.8 Lease Agreement, dated as of September 1, 1990, between
County of Carroll, Kentucky and Kentucky Ladder Company
(filed as Exhibit 10.8 to Holding (DE)'s Amendment No. 1 to
Form S-4 Registration Statement No. 333-46607 and
incorporated herein by reference).
10.9 Employment Agreement between Werner Co. and Robert P.
Tamburrino (filed as Exhibit 10.9 to Holding (DE)'s Annual
Report on Form 10-K for the fiscal year ended December 31,
1998 and incorporated herein by reference).
10.10 Master Registration Rights Agreement, dated as of November
24, 1997, by Werner Holding Co. (PA), Inc. for the benefit
of certain shareholders (filed as Exhibit 10.10 to Holding
(DE)'s Form S-4 Registration Statement No. 333-46607 and
incorporated herein by reference).
10.11 Werner 1997 Stock Loan Plan (filed as Exhibit 10.11 to
Holding (DE)'s Form S-4 Registration Statement No. 333-46607
and incorporated herein by reference).
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63
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
10.12 Credit Agreement, dated as of November 24, 1997, among the
Company, Bankers Trust Company, as Administrative Agent and
Co-Arranger, Merrill Lynch Capital Corporation, as
Syndication Agent and as Co-Arranger, The Chase Manhattan
Bank, as Documentation Agent, and Goldman Sachs Credit
Partners L.P., as Co-Agent (filed as Exhibit 10.12 to
Holding (DE)'s Form S-4 Registration Statement No. 333-46607
and incorporated herein by reference).
10.13 Amended and Restated Pension Plan for Certain Hourly
Bargaining Unit Employees of Werner Co.
10.14 Amended and Restated Retirement Plan for Salaried Employees
of Werner Holding Co. (DE), Inc.
10.15 Supplemental Pension Plan A Applicable to Key Executives of
Werner Holding Co. (DE), Inc., its Parent and Subsidiaries
(filed as Exhibit 10.15 to Holding (DE)'s Amendment No. 1 to
Form S-4 Registration Statement No. 333-46607 and
incorporated herein by reference).
10.16 Supplemental Pension Plan B Applicable to Elected Salaried
Corporate Officers of Werner Holding Co. (DE), Inc., its
Parent and Subsidiaries (filed as Exhibit 10.16 to Holding
(DE)'s Amendment No. 1 to Form S-4 Registration Statement
No. 333-46607 and incorporated herein by reference).
10.17 Amendment to the Supplemental Pension Plan B Applicable to
Elected Salaried Corporate Officers of Werner Holding Co.
(DE), Inc., its Parent and Subsidiaries (filed as Exhibit
10.17 to Holding (DE)'s Amendment No. 1 to Form S-4
Registration Statement No. 333-46607 and incorporated herein
by reference).
10.18 Werner Holding Co. (DE), Inc. Employee Savings Plan (filed
as Exhibit 10.18 to Holding (DE)'s Amendment No. 1 to Form
S-4 Registration Statement No. 333-46607 and incorporated
herein by reference).
10.19 Form of Management Stock Purchase Agreement between Stepup
Limited, Werner Holding Co. (PA), Inc. and certain
individuals (filed as Exhibit 10.19 to Holding (DE)'s Form
S-4 Registration Statement No. 333-46607 and incorporated
herein by reference).
10.20 Form of Loan and Pledge Agreement of Werner Holding Co.
(PA), Inc. (filed as Exhibit 10.20 to Holding (DE)'s Form
S-4 Registration Statement No. 333-46607 and incorporated
herein by reference).
10.21 Agreement for Management Advisory, Strategic Planning and
Consulting Services between the Company and Investcorp
International, Inc. (filed as Exhibit 10.21 to Holding
(DE)'s Form S-4 Registration Statement No. 333-46607 and
incorporated herein by reference).
10.22 Financing Advisory Agreement between the Company and
Investcorp International Inc. (filed as Exhibit 10.22 to
Holding (DE)'s Form S-4 Registration Statement No. 333-46607
and incorporated herein by reference).
10.23 Stand-By Commitment Letter of Invifin S.A. (filed as Exhibit
10.23 to Holding (DE)'s Form S-4 Registration Statement No.
333-46607 and incorporated herein by reference).
10.24 Reinsurance Agreement, dated March 31, 1998, among
Manufacturer's Indemnity and Insurance Company of America
and National Union Fire Insurance Company of Pittsburgh, PA.
(filed as Exhibit No. 10.24 to Holding (DE)'s Amendment No.
1 to Form S-4 Registration Statement No. 333-46607 and
incorporated herein by reference).
10.25 Agreement, dated March 31, 1998, among National Union Fire
Insurance Company of Pittsburgh, PA, Manufacturer's
Indemnity and Insurance Company of America and the
Reinsurers named therein (filed as Exhibit No. 10.25 to
Holding (DE)'s Amendment No. 1 to Form S-4 Registration
Statement No. 333-46607 and incorporated herein by
reference).
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64
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
10.26 Assumption Agreement, dated March 31, 1998, among National
Union Fire Insurance Company of Pittsburgh, PA,
Manufacturer's Indemnity and Insurance Company of America
and Werner Holding Co. (PA), Inc. (filed as Exhibit No.
10.26 to Holding (DE)'s Amendment No. 1 to Form S-4
Registration Statement No. 333-46607 and incorporated herein
by reference).
10.27 Novation and Assumption Agreement, dated March 31, 1998,
among Insurance Company of North America, National Union
Fire Insurance Company of Pittsburgh, PA and Werner Holding
Co. (PA), Inc. (filed as Exhibit No. 10.27 to Holding (DE)'s
Amendment No. 1 to Form S-4 Registration Statement No.
333-46607 and incorporated herein by reference).
10.28 Commutation Agreement, dated March 31, 1998, between
Insurance Company of North America, Pacific Employers
Insurance Company and CIGNA Insurance Company of Illinois,
and Manufacturer's Indemnity and Insurance Company (filed as
Exhibit No. 10.28 to Holding (DE)'s Amendment No. 1 to Form
S-4 Registration Statement No. 333-46607 and incorporated
herein by reference).
10.29 Indemnity Agreement, dated March 31, 1998, between National
Union Fire Insurance Company of Pittsburgh, PA and Werner
Holding Co. (PA), Inc. (filed as Exhibit No. 10.29 to
Holding (DE)'s Amendment No. 1 to Form S-4 Registration
Statement No. 333-46607 and incorporated herein by
reference).
10.30 Novation Agreement, dated March 31, 1998, among The
Travelers Indemnity Company of Hartford, Connecticut,
certain of its subsidiaries and affiliates, Werner Holding
Co. (PA), Inc. and certain of its subsidiaries, and National
Union Fire Insurance Company of Pittsburgh, PA. (filed as
Exhibit No. 10.30 to Holding (DE)'s Amendment No. 1 to Form
S-4 Registration Statement No. 333-46607 and incorporated
herein by reference).
10.31 Receivables Purchase Agreement dated as of May 29, 1998
among Werner Funding Corporation, Werner Co., Market Street
Funding Corporation and PNC Bank, National Association
(filed as Exhibit 10.1 to Holding (DE)'s Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998 and
incorporated herein by reference).
10.32 Purchase and Sale Agreement dated as of May 29, 1998 between
Werner Funding Corporation and Werner Co. (filed as Exhibit
10.2 to Holding (DE)'s Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998 and incorporated herein by
reference).
10.33 Third Amendment to the Werner Holding Co. (DE), Inc.
Employee Savings Plan (filed as Exhibit 10.1 to Holding
(DE)'s Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998 and incorporated herein by reference).
10.34 Amendment No. 1 to Stock Loan Plan (filed as Exhibit 10.1 to
Holding (DE)'s Quarterly Report on Form 10-Q for the quarter
ended March 31, 1999 and incorporated herein by reference).
10.35 Second Amendment to the Supplemental Pension Plan B
Applicable to Elected Salaried Corporate Officers of Werner
Holding Co. (DE), Inc., its Parent and its Subsidiaries
(filed as Exhibit 10.1 to Holding (DE)'s Quarterly Report on
Form 10-Q for the quarter ended June 30, 1999 and
incorporated herein by reference).
10.36 Premium Conversion Plan of Werner Holding Co. (DE), Inc.
(filed as Exhibit 10.36 to Holding (DE)'s Annual Report on
Form 10-K for the fiscal year ended December 31, 1998 and
incorporated herein by reference).
10.37 Employment Agreement dated as of May 26, 1999, between
Werner Co. and Dennis G. Heiner (filed as Exhibit 10.2 to
Holding (DE)'s Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999 and incorporated herein by reference).
62
65
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
10.38 Fourth Amendment to Werner Holding Co. (DE), Inc. Employee
Savings Plan (filed as Exhibit 10.1 to Holding (DE)'s
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999 and incorporated herein by reference).
10.39 Form of Amendment No. 1 to Employment Agreement, dated as of
January 1, 1999, by and between Werner Co., successor by
merger to Werner Management Co. and certain named executive
officers.
10.40 Amendment No. 1 to Werner Holding Co. (PA), Inc. Stock
Incentive Plan.
10.41 Werner Co. Deferred Stock Plan.
10.42 Management Stock Purchase Agreement between Investcorp
Werner Holdings, L.P., Werner Holding Co. (PA), Inc. and
Dennis G. Heiner dated December 30, 1999.
10.43 Stock Option Agreement between Werner Holding Co. (PA), Inc.
and Dennis G. Heiner dated December 30, 1999.
10.44 Amendment No. 2 to Werner Holding Co. (PA), Inc. Stock
Incentive Plan.
16 Letter from Ernst & Young LLP regarding change in
independent accountant (filed as Exhibit 1 to Holding (DE)'s
Current Report on Form 8-K on September 7, 1999 and
incorporated herein by reference).
18 Letter from Independent Auditors Regarding Preferability of
Accounting Principle Changes (filed as Exhibit 18.1 to
Holding (DE)'s Quarterly Report on Form 10-Q for the quarter
ended March 31, 1999 and incorporated herein by reference).
21 Subsidiaries of the Company (filed as Exhibit 21 to Holding
(DE)'s Annual Report on Form 10-K for the fiscal year ended
December 31, 1998 and incorporated herein by reference).
27 Financial Data Schedule.
63
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Co-registrants have duly caused this report to be
signed on their behalf by the undersigned, thereunto duly authorized.
WERNER HOLDING CO. (PA), INC.
By: /s/ DENNIS G. HEINER
------------------------------------
Dennis G. Heiner
President
WERNER HOLDING CO. (DE), INC.
By: /s/ DENNIS G. HEINER
------------------------------------
Dennis G. Heiner
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Co-registrants and in the capacities indicated on March 30, 2000.
/s/ DONALD M. WERNER Chairman of the Board of Directors of Co-registrants
- -----------------------------------------------------
Donald M. Werner
/s/ DENNIS G. HEINER Chief Executive Officer and President of Holding (PA)
- ----------------------------------------------------- and Holding (DE) (Principal Executive Officer of
Dennis G. Heiner Co-registrants), Director
/s/ ROBERT P. TAMBURRINO Vice President, Chief Financial Officer and Treasurer
- ----------------------------------------------------- (Principal Financial Officer and Principal Accounting
Robert P. Tamburrino Officer of Co-registrants)
/s/ HOWARD L. SOLOT Director
- -----------------------------------------------------
Howard L. Solot
/s/ JAMES O. EGAN Director
- -----------------------------------------------------
James O. Egan
/s/ CHARLES K. MARQUIS Director
- -----------------------------------------------------
Charles K. Marquis
/s/ CHARLES J. PHILIPPIN Director
- -----------------------------------------------------
Charles J. Philippin
/s/ CHRISTOPHER J. STADLER Director
- -----------------------------------------------------
Christopher J. Stadler
/s/ THOMAS J. SULLIVAN Director
- -----------------------------------------------------
Thomas J. Sullivan
64