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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTERLY PERIOD ENDED MARCH 31, 2003
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 ITS CHARTER) (EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN ITS CHARTER)
PENNSYLVANIA 25-0906895 DELAWARE 25-1581345
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER (STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
93 WERNER RD. 16125 1105 NORTH MARKET ST., 19899
GREENVILLE, PENNSYLVANIA (ZIP CODE) SUITE 1300 (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) WILMINGTON, DELAWARE
(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)
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 each of the Co-registrants 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 whether each of the Co-registrants is an accelerated
filer (as defined in Rule 12b-2 of the Act). |_|Yes |X| No
Indicate the number of shares outstanding of each of the
Co-registrants' classes of common stock, as of March 31, 2003:
Werner Holding Co. (PA), Inc. 1,879.5454 shares of Class A Common Stock
21,774.9346 shares of Class B Common Stock
5,515.7790 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
INDEX
WERNER HOLDING CO. (PA), INC.
WERNER HOLDING CO. (DE), INC.
FORM 10-Q
PERIOD ENDED MARCH 31, 2003
PART I FINANCIAL INFORMATION
Item 1. Financial Statements of Werner Holding Co. (PA), Inc. and Subsidiaries (Unaudited)
Condensed Consolidated Balance Sheets--March 31, 2003 and
December 31, 2002.................................................................... 1
Condensed Consolidated Statements of Income--Three Months Ended
March 31, 2003 and 2002.............................................................. 2
Condensed Consolidated Statements of Changes in Shareholders'
Equity (Deficit)--Three Months Ended March 31, 2003 and 2002.......................... 3
Condensed Consolidated Statements of Cash Flows--Three Months Ended
March 31, 2003 and 2002.............................................................. 5
Notes to Condensed Consolidated Financial Statements................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................................. 14
Item 3. Quantitative and Qualitative Disclosures about Market Risk............................... 17
Item 4. Controls and Procedures.................................................................. 17
PART II OTHER INFORMATION
Item 1. Legal Proceedings........................................................................ 18
Item 6. Exhibits and Reports on Form 8-K......................................................... 18
SIGNATURES ......................................................................................... 19
CERTIFICATIONS ......................................................................................... 20
The financial statements included herein are that of Werner Holding Co. (PA),
Inc. ("Holding (PA)"). The Co-registrants are Holding (PA) and Werner Holding
Co. (DE), Inc. (the "Issuer"), which is a wholly-owned subsidiary of Holding
(PA). Holding (PA) has no substantial operations or assets other than its
investment in the Issuer. The consolidated financial condition and results of
operations of Holding (PA) are substantially the same as those of the Issuer. As
used herein and except as the context otherwise may require, the "Company" or
"Werner" means, collectively, Holding (PA), the Issuer and all of their
consolidated subsidiaries.
PART I - FINANCIAL INFORMATION
ITEM 1.
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
MARCH 31 DECEMBER 31
2003 2002
------------------ -------------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 28,945 $ 43,161
Accounts receivable 49,462 54,219
Allowance for doubtful accounts (1,500) (1,800)
Prepaid income taxes 1,073 1,748
Inventories 65,127 52,530
Deferred income taxes 725 1,062
Other 1,611 1,598
- ---------------------------------------------------------------------------------------------------------------
Total current assets 145,443 152,518
Property, plant and equipment, net 111,369 112,416
Other assets:
Deferred income taxes 18,492 18,521
Deferred financing fees, net 3,583 4,078
Other 11,082 10,710
- ---------------------------------------------------------------------------------------------------------------
33,157 33,309
- ---------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 289,969 $ 298,243
===============================================================================================================
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 16,585 $ 16,173
Accrued liabilities 27,235 33,655
Current maturities of long-term debt 33,292 27,622
- ---------------------------------------------------------------------------------------------------------------
Total current liabilities 77,112 77,450
Long-term obligations:
Long-term debt 221,543 233,954
Reserve for product liability and workers' compensation claims 50,096 48,205
Other long-term obligations 41,049 40,959
- ---------------------------------------------------------------------------------------------------------------
Total liabilities 389,800 400,568
Shareholders' deficit:
Common stock 1 1
Additional paid-in-capital 200,872 200,872
Accumulated deficit (284,687) (287,078)
Accumulated other non-owner changes in equity (13,838) (13,694)
Notes receivable arising from stock loan plan (2,179) (2,426)
- ---------------------------------------------------------------------------------------------------------------
Total shareholders' deficit (99,831) (102,325)
- ---------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 289,969 $ 298,243
===============================================================================================================
See notes to unaudited condensed consolidated financial statements.
1
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(DOLLARS IN THOUSANDS)
Three Months Ended
March 31
-------------------------------------
2003 2002
-------------------------------------
Net sales $ 106,235 $ 110,641
Cost of sales 70,712 77,277
- ----------------------------------------------------------------------------------------
Gross profit 35,523 33,364
General and administrative expenses 6,340 7,492
Selling and distribution expenses 20,571 17,853
- ----------------------------------------------------------------------------------------
Operating profit 8,612 8,019
Other income (expense), net 222 (344)
- ----------------------------------------------------------------------------------------
Income before interest and taxes 8,834 7,675
Interest expense 5,094 5,776
- ----------------------------------------------------------------------------------------
Income before income taxes 3,740 1,899
Income taxes 1,349 671
- ----------------------------------------------------------------------------------------
NET INCOME $ 2,391 $ 1,228
========================================================================================
See notes to unaudited condensed consolidated financial statements.
2
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY (DEFICIT) (Unaudited)
(DOLLARS IN THOUSANDS)
ACCUMULATED
ADDITIONAL OTHER NON- TOTAL
COMMON PAID-IN ACCUMULATED OWNER EQUITY SHAREHOLDERS'
STOCK CAPITAL DEFICIT CHANGES OTHER EQUITY (DEFICIT)
- -------------------------------------------------------------------------------------------------------------------------------
Balance at January 1, 2003 $ 1 $ 200,872 $(287,078) $ (13,694) $ (2,426) $(102,325)
Non-owner equity changes:
Net income 2,391 2,391
Derivative instruments-amounts
reclassified to income (net of
deferred tax of $89) (152) (152)
Change in fair value of
derivative commodity instruments
(net of deferred tax of $4) 8 8
---------
Total non-owner equity changes 2,247
Reduction in notes receivable arising from
stock loan plan 247 247
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 2003 $ 1 $ 200,872 $(284,687) $ (13,838) $ (2,179) $ (99,831)
===============================================================================================================================
See notes to unaudited condensed consolidated financial statements.
3
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY (DEFICIT) (UNAUDITED)
(DOLLARS IN THOUSANDS)
ACCUMULATED
ADDITIONAL OTHER NON- TOTAL
COMMON PAID-IN ACCUMULATED OWNER EQUITY SHAREHOLDERS'
STOCK CAPITAL DEFICIT CHANGES OTHER EQUITY (DEFICIT)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at January 1, 2002 $ 1 $ 200,947 $(314,506) $ (7,882) $ (2,383) $(123,823)
Non-owner equity changes:
Net income 1,228 1,228
Derivative instruments-amounts reclassified
to income (net of deferred tax of $251) 428 428
Change in fair value of derivative commodity
instruments (net of deferred tax of $182) 311 311
---------
Total non-owner equity changes 1,967
Reduction in notes receivable arising from
stock loan plan 140 140
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 2002 $ 1 $ 200,947 $(313,278) $ (7,143) $ (2,243) $(121,716)
===================================================================================================================================
Non-owner equity changes:
Net income 7,333 7,333
Derivative instruments-amounts reclassified
to income (net of deferred tax of $201) 342 342
Change in fair value of derivative commodity
instruments (net of deferred tax of $4) (6) (6)
---------
Total non-owner equity changes 7,669
Notes receivable arising from stock loan
plan (23) (23)
Issuance of common stock 30 30
Repurchase of common stock (855) (855)
Reduction in notes receivable arising from
stock loan plan 402 402
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 2002 $ 1 $ 200,122 $(305,945) $ (6,807) $ (1,864) $(114,493)
===================================================================================================================================
Non-owner equity changes:
Net income 8,779 8,779
Derivative instruments-amounts reclassified
to income (net of deferred tax of $212) 360 360
Change in fair value of derivative commodity
instruments (net of deferred tax of $778) (1,326) (1,326)
---------
Total non-owner equity changes 7,813
Notes receivable arising from stock loan
plan (450) (450)
Issuance of common stock 600 600
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 2002 $ 1 $ 200,722 $(297,166) $ (7,773) $ (2,314) $(106,530)
===================================================================================================================================
Non-owner equity changes:
Net income 10,088 10,088
Derivative instruments-amounts reclassified
to income (net of deferred tax of $143) 243 243
Change in fair value of derivative commodity
instruments (net of deferred tax of $311) 529 529
Adjustment to minimum pension liability
(net of deferred tax of $3,930) (6,693) (6,693)
---------
Total non-owner equity changes 4,167
Notes receivable arising from stock loan
plan (112) (112)
Issuance of common stock 150 150
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2002 $ 1 $ 200,872 $(287,078) $ (13,694) $ (2,426) $(102,325)
===================================================================================================================================
See notes to unaudited condensed consolidated financial statements.
4
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31
--------------------------------
2003 2002
-------------- -------------
OPERATING ACTIVITIES
Net income $ 2,391 $ 1,228
Reconciliation of net income to net cash provided by operating activities:
Depreciation 3,025 2,709
Amortization of deferred financing fees and original issue discount 597 1,019
Amortization of deferred costs 1,123 775
Provision for losses on accounts receivable (227) 150
Provision for product liability and workers' compensation claims 3,788 4,021
Payment of product liability and workers' compensation claims (1,897) (2,259)
Deferred income taxes 451 (764)
Loss on disposition of property, plant and equipment - 310
Changes in operating assets and liabilities:
Accounts receivable 4,757 8,348
Prepaid income taxes 675 -
Inventories (12,597) (7,518)
Accounts payable 412 1,476
Income taxes payable - 1,422
Other assets and liabilities, net (8,164) (10,381)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash (used) provided by operating activities (5,666) 536
INVESTING ACTIVITIES
Capital expenditures (1,928) (3,195)
Proceeds from liquidation of investments 23 128
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (1,905) (3,067)
FINANCING ACTIVITIES
Repayment of notes receivable arising from stock loan plan 247 140
Repayments of long-term debt (6,892) (15,512)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used by financing activities (6,645) (15,372)
- ---------------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (14,216) (17,903)
Cash and cash equivalents at beginning of period 43,161 30,473
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 28,945 $ 12,570
===========================================================================================================================
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Capital lease obligations incurred $ 50 $ 431
See notes to unaudited condensed consolidated financial statements.
5
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLARS IN THOUSANDS)
A. BASIS OF PRESENTATION AND RECENTLY ISSUED ACCOUNTING STANDARDS
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
of Werner Holding Co. (PA), Inc., ("Holding (PA)") include its accounts and the
accounts of its wholly-owned subsidiary, Werner Holding Co. (DE), Inc.
("Issuer") and the Issuer's wholly-owned subsidiaries (collectively the
"Company"). Holding (PA) has no substantial operations or assets, other than its
investment in the Issuer. The consolidated financial condition and results of
operations of Holding (PA) are substantially the same as those of the Issuer.
Intercompany accounts and transactions have been eliminated. The unaudited
condensed consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting only of normal recurring accruals)
considered necessary for a fair financial presentation have been included.
Operating results for the three months ended March 31, 2003 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2003. For further information, refer to the consolidated financial statements
and notes thereto included in the Company's most recent Annual Report on Form
10-K.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions in certain circumstances that affect amounts reported in the
consolidated financial statements and notes. Actual results could differ from
those estimates.
Recently Issued Accounting Standards
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement No. 143, Accounting for Asset Retirement Obligations, which provides
accounting requirements for retirement obligations associated with tangible
long-lived assets. The obligations affected are those for which there is a legal
obligation to settle as a result of existing or enacted law. The adoption of
Statement No. 143 effective as of January 1, 2003 did not have a material impact
on the Company's results of operations, financial position or cash flows.
In April 2002, the FASB issued Statement No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. Statement No. 145 rescinds previous accounting guidance which
required all gains and losses from extinguishment of debt to be classified as an
extraordinary item in the income statement. As a result, the criteria contained
in Accounting Principles Board Opinion No. 30 will be used to classify those
gains and losses. This statement also amends other existing authoritative
pronouncements to make various technical corrections, eliminate inconsistencies,
clarify meanings, or describe their applicability under changed conditions. The
adoption of Statement No. 145 effective as of January 1, 2003 did not have a
material impact on the Company's results of operations, financial position or
cash flows.
In June 2002, the FASB issued Statement No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. This statement requires companies
to recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
Examples of costs covered by the standard include lease termination costs and
certain employee severance costs that are associated with a restructuring,
discontinued operation, plant closing, or other exit or disposal activity.
Statement No. 146 applies to all exit or disposal activities initiated on or
after January 1, 2003. The adoption of Statement No. 146 will impact the timing
of liability recognition associated with such activities.
6
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
(DOLLARS IN THOUSANDS)
In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. The interpretation elaborates on the
disclosures to be made in interim and annual financial statements about
obligations under certain guarantees. It also requires the recognition of a
liability at the inception of a guarantee equal to the fair value of the
obligation undertaken in issuing the guarantee. The disclosure requirements are
effective for financial statements of interim and annual periods ending after
December 15, 2002 (see Note D). The initial measurement and recognition
provisions are required to be applied on a prospective basis to guarantees
issued or modified effective as of January 1, 2003. The adoption of the
requirements of the interpretation did not have a material impact on the
Company's results of operations, financial position or cash flows.
In December 2002, the FASB issued Statement No. 148, Accounting for
Stock-Based Compensation - Transition and Disclosure, which amended Statement
No. 123, Accounting for Stock-Based Compensation. The new standard provides
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. Additionally, the
statement amends the disclosure requirements of Statement No. 123 to require
prominent disclosures in the annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. This statement is effective for financial
statements for fiscal years ending after December 15, 2002. In compliance with
Statement No. 148, the Company elected to continue to apply the intrinsic value
method in accounting for its stock-based employee compensation arrangement as
defined by Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employee, and has made the applicable disclosures in Note G.
B. SHIPPING AND HANDLING FEES AND EXPENSES
Pursuant to the FASB's Emerging Issues Task Force ("EITF") Issue 00-10,
Accounting for Shipping and Handling Fees and Costs, all shipping and handling
fees billed to customers are classified as revenues and all shipping and
handling costs are removed from revenues when presenting the income statement.
Shipping and handling costs represent costs associated with shipping products to
customers and handling finished goods. Shipping and handling costs of $12,911
and $10,663 are included in the caption entitled, "Selling and distribution
expenses" in the condensed consolidated statements of income for the three
months ended March 31, 2003 and 2002, respectively.
C. INVENTORIES
Components of inventories are as follows:
MARCH 31 DECEMBER 31
2003 2002
----------------------------
Finished goods $38,565 $33,525
Work-in-process 13,593 11,770
Raw materials and supplies 22,644 17,085
- -------------------------------------------------------------------------------
74,802 62,380
Less excess of cost over LIFO stated values 9,675 9,850
- -------------------------------------------------------------------------------
NET INVENTORIES $65,127 $52,530
===============================================================================
7
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
(DOLLARS IN THOUSANDS)
D. COMMITMENTS AND CONTINGENCIES
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.
Letters of credit are issued to guarantee the Company's performance
under certain contractual obligations. A letter of credit in the amount of $17.5
million has been issued to an insurance company to guarantee the payment of
certain claims under the Company's product liability and workers' compensation
programs. Repayment of principal plus certain accrued interest of the Company's
outstanding Variable Rate Demand Industrial Building Revenue Bonds is guaranteed
by a letter of credit in the amount of $5.1 million. Letters of credit, which
have a term of one year or less, total $22.6 million at March 31, 2003.
Management believes the likelihood of demand for payment under these instruments
is minimal and expects no material cash outlays to occur in connection with
these instruments.
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 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 filed an appeal on September 2,
1999. On September 27, 2001, the Court of Appeals for the Third Circuit affirmed
the dismissal of all claims except for a claim relating to the Company's
redemption of stock from the Elizabeth Werner trust and the Anne Werner estate.
The Court of Appeals has remanded the claim relating to the stock redemption to
the District Court with directions to allow the plaintiffs to file a second
amended complaint with respect to that claim only. On December 18, 2001, the
Estate and the Trust filed an amended complaint. Count I of the complaint
alleges that Holding (PA) made material misrepresentations in connection with
the redemption of shares of stock held by the Trust and the Estate. The action
has proceeded to the discovery phase. 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.
8
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
(DOLLARS IN THOUSANDS)
E. SEGMENT INFORMATION
The Company classifies its business in 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 composition of segments and measure of segment
profitability are consistent with that used by the Company's management. The
Company evaluates segment performance based on operating profit. There has not
been a change in the basis of segmentation or the basis of measurement of
segment profit or loss from that disclosed in the Company's most recent Annual
Report on Form 10-K. Net sales and operating profit (loss) of the Company's
segments for the three months ended March 31, 2003 and 2002 are as follows:
THREE MONTHS ENDED
MARCH 31
-------------------------------
2003 2002
-------------------------------
NET SALES
Climbing Products $ 88,435 $ 91,875
Extruded Products 17,800 18,766
- ---------------------------------------------------------------------
$106,235 $110,641
=====================================================================
OPERATING PROFIT (LOSS)
Climbing Products $ 9,291 $ 8,951
Extruded Products 115 (607)
Corporate and Other (794) (325)
- ---------------------------------------------------------------------
$ 8,612 $ 8,019
=====================================================================
Operating profit (loss) for Corporate and Other includes various
corporate expenses not allocated to the reportable segments and eliminations.
"Other income (expense), net" reflected in the condensed consolidated statements
of income is also not allocated to the reportable segments. Operating profit
(loss) for the quarter ended March 31, 2002 for the Climbing Products and
Extruded Products segment includes the impact of severance costs of
approximately $1,300 and $300, respectively, associated with the separation of a
former executive officer.
F. SALES OF ACCOUNTS RECEIVABLE
The Company maintains a Receivables Purchase Agreement with a financial
institution and its affiliate to provide additional financing capacity with a
maximum availability of $50,000 depending upon the level of accounts receivable
and certain other factors. As of March 31, 2003 and December 31, 2002, the
Company had sold, on a recurring basis, $72,562 and $78,765 of accounts
receivable in exchange for $20,000 in cash and an undivided interest in accounts
receivable of $52,498 and $58,704, respectively. 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 and the loss
on the sale of accounts receivable, is reported in the accompanying condensed
consolidated statements of income in "Other income (expense), net."
9
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
(DOLLARS IN THOUSANDS)
G. STOCK-BASED COMPENSATION
The Company measures stock-based compensation costs associated with its Stock
Option Plan using the intrinsic value method of accounting pursuant to
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees and related interpretations. Had compensation costs for stock options
been determined using the fair market value method of FASB Statement No. 123,
Accounting for Stock-Based Compensation, the effect on net income would have
been as follows:
THREE MONTHS ENDED
---------------------------
MARCH 31
---------------------------
2003 2002
Net income, as reported $ 2,391 $ 1,228
Less total stock-based employee compensation
costs determined using fair value method, net
of related tax effects 103 99
--------------------------------------------------------------------------------------------
PRO FORMA NET INCOME $ 2,288 $ 1,129
============================================================================================
H. SUPPLEMENTAL GUARANTOR INFORMATION
The Company's debt includes borrowings under the Senior Credit Facility
and 10% Senior Subordinated Notes maturing November 15, 2007 (the "Notes"). The
issuer of this debt is Werner Holding Co. (DE), Inc. (the "Issuer"). Werner
Holding Co. (PA), Inc. (the "Parent Company") has provided a full,
unconditional, joint and several guaranty of the Issuer's obligations under the
Senior Credit Facility and the Notes. In addition, the Issuer's wholly-owned
subsidiaries, except for Werner Funding Corporation, (collectively, the
"Guarantor Subsidiaries") have provided full, unconditional, joint and several
guarantees of the Senior Credit Facility and the Notes.
Following is condensed consolidated information for the Parent Company,
the Issuer, the Guarantor Subsidiaries, and Werner Funding Corporation (the
"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,
each of the Guarantor Subsidiaries is 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 of subsidiaries are, therefore, reflected in the respective
investment accounts of the Parent Company and the Issuer. The investments in
subsidiaries and intercompany balances and transactions have been eliminated.
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.
10
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
(DOLLARS IN THOUSANDS)
H. SUPPLEMENTAL GUARANTOR INFORMATION--CONTINUED
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEETS
-----------------------------------------------------------------------------------------
COMBINED NON-
PARENT GUARANTOR GUARANTOR
COMPANY ISSUER SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
-----------------------------------------------------------------------------------------
MARCH 31, 2003
ASSETS
Current assets:
Accounts receivable $ -- $ -- $ -- $ 49,462 $ -- $ 49,462
Inventories, net -- -- 65,127 -- -- 65,127
Other current assets 23 68 30,758 5 -- 30,854
- --------------------------------------------------------------------------------------------------------------------------------
Total current assets 23 68 95,885 49,467 -- 145,443
Property, plant and equipment, net -- 1 111,368 -- -- 111,369
Investment in subsidiaries (112,725) (85,135) 7,601 -- 190,259 --
Other assets -- -- 33,149 8 -- 33,157
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $(112,702) $ (85,066) $ 248,003 $ 49,475 $ 190,259 $ 289,969
================================================================================================================================
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Other current liabilities $ (799) $ 41,323 $ 36,806 $ (218) $ -- $ 77,112
Intercompany payable (receivable) (12,072) (229,424) 199,404 42,092 -- --
- --------------------------------------------------------------------------------------------------------------------------------
Total current liabilities (12,871) (188,101) 236,210 41,874 -- 77,112
Long-term debt -- 215,760 5,783 -- -- 221,543
Other long-term liabilities -- -- 91,145 -- -- 91,145
Total equity (deficit) (99,831) (112,725) (85,135) 7,601 190,259 (99,831)
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND EQUITY
(DEFICIT) $(112,702) $ (85,066) $ 248,003 $ 49,475 $ 190,259 $ 289,969
================================================================================================================================
DECEMBER 31, 2002
ASSETS
Current assets:
Accounts receivable $ -- $ -- $ -- $ 54,219 $ -- $ 54,219
Inventories, net -- -- 52,530 -- -- 52,530
Other current assets 127 280 45,356 6 -- 45,769
- --------------------------------------------------------------------------------------------------------------------------------
Total current assets 127 280 97,886 54,225 -- 152,518
Property, plant and equipment, net -- 1 112,415 -- -- 112,416
Investment in subsidiaries (114,826) (87,728) 7,656 -- 194,898 --
Other assets -- 5 33,294 10 -- 33,309
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $(114,699) $ (87,442) $ 251,251 $ 54,235 $ 194,898 $ 298,243
================================================================================================================================
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Other current liabilities $ (899) $ 32,344 $ 46,186 $ (181) $ -- $ 77,450
Intercompany payable (receivable) (11,475) (233,049) 197,764 46,760 -- --
- --------------------------------------------------------------------------------------------------------------------------------
Total current liabilities (12,374) (200,705) 243,950 46,579 -- 77,450
Long-term debt -- 228,089 5,865 -- -- 233,954
Other long-term liabilities -- -- 89,164 -- -- 89,164
Total equity (deficit) (102,325) (114,826) (87,728) 7,656 194,898 (102,325)
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND EQUITY
(DEFICIT) $(114,699) $ (87,442) $ 251,251 $ 54,235 $ 194,898 $ 298,243
================================================================================================================================
11
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
(DOLLARS IN THOUSANDS)
H. SUPPLEMENTAL GUARANTOR INFORMATION--CONTINUED
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF INCOME
-----------------------------------------------------------------------------------------
COMBINED NON-
PARENT GUARANTOR GUARANTOR
COMPANY ISSUER SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
-----------------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED
MARCH 31, 2003
Net sales $ -- $ -- $ 106,235 $ -- $ -- $ 106,235
Cost of sales -- -- 70,712 -- -- 70,712
- --------------------------------------------------------------------------------------------------------------------------------
Gross profit -- -- 35,523 -- -- 35,523
Selling, general and administrative
expenses -- 3 26,908 -- -- 26,911
- --------------------------------------------------------------------------------------------------------------------------------
Operating (loss) profit -- (3) 8,615 -- -- 8,612
Other income (expense), net 2,279 2,619 (405) 658 (4,929) 222
Interest income (expense) 214 (635) (3,930) (743) -- (5,094)
- --------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes
(benefit) 2,493 1,981 4,280 (85) (4,929) 3,740
Income taxes (benefit) 102 (265) 1,542 (30) -- 1,349
- --------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 2,391 $ 2,246 $ 2,738 $ (55) $ (4,929) $ 2,391
================================================================================================================================
FOR THE THREE MONTHS ENDED
MARCH 31, 2002
Net sales $ -- $ -- $ 110,641 $ -- $ -- $ 110,641
Cost of sales -- -- 77,277 -- -- 77,277
- --------------------------------------------------------------------------------------------------------------------------------
Gross profit -- -- 33,364 -- -- 33,364
Selling, general and administrative
expenses -- 1 25,344 -- -- 25,345
- --------------------------------------------------------------------------------------------------------------------------------
Operating (loss) profit -- (1) 8,020 -- -- 8,019
Other income (expense), net 1,109 1,492 (971) 734 (2,708) (344)
Interest income (expense) 210 (666) (4,581) (739) -- (5,776)
- --------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes
(benefit) 1,319 825 2,468 (5) (2,708) 1,899
Income taxes (benefit) 91 (275) 857 (2) -- 671
- --------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 1,228 $ 1,100 $ 1,611 $ (3) $ (2,708) $ 1,228
================================================================================================================================
12
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
(DOLLARS IN THOUSANDS)
H. SUPPLEMENTAL GUARANTOR INFORMATION--CONTINUED
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
-----------------------------------------------------------------------------
COMBINED NON-
PARENT GUARANTOR GUARANTOR
COMPANY ISSUER SUBSIDIARIES SUBSIDIARY CONSOLIDATED
-----------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED
MARCH 31, 2003
Net cash from operating activities $ 340 $ (142) $ (5,864) $ -- $ (5,666)
Net cash from investing activities (597) 6,918 (8,226) -- (1,905)
Net cash from financing activities 247 (6,776) (116) -- (6,645)
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents (10) -- (14,206) -- (14,216)
Cash and cash equivalents at
beginning of period -- 1 43,158 2 43,161
- --------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at
end of period $ (10) $ 1 $ 28,952 $ 2 $ 28,945
==========================================================================================================================
FOR THE THREE MONTHS ENDED
MARCH 31, 2002
Net cash from operating activities $ 531 $ 2,681 $ (2,676) $ -- $ 536
Net cash from investing activities (671) 12,679 (15,075) -- (3,067)
Net cash from financing activities 140 (15,361) (151) -- (15,372)
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents -- (1) (17,902) -- (17,903)
Cash and cash equivalents at
beginning of period -- 4 30,465 4 30,473
- --------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at
end of period $ -- $ 3 $ 12,563 $ 4 $ 12,570
==========================================================================================================================
13
WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
Unaudited Condensed Consolidated Financial Statements of the Company and the
Notes thereto included elsewhere in this document and the Company's most recent
Annual Report on Form 10-K as filed with the Securities and Exchange Commission.
This document contains, in addition to historical information, forward-looking
statements that are subject to risks and other uncertainties. The Company's
actual results may differ materially from those anticipated in these
forward-looking statements. In the text below, financial statement amounts have
been rounded and the percentage changes are based on the financial statements.
RESULTS OF OPERATIONS--QUARTER ENDED MARCH 31, 2003 AS COMPARED TO QUARTER ENDED
MARCH 31, 2002
Net Sales. Net sales were down $4.4 million, or 4.0%, to $106.2 million
for the quarter ended March 31, 2003 from $110.6 million for the quarter ended
March 31, 2002. Net sales of climbing products decreased by $3.5 million, or
3.7%, to $88.4 million for the quarter ended March 31, 2003 from $91.9 million
for the quarter ended March 31, 2002. The sales decline primarily reflects lower
unit sales volumes due, in part, to adverse weather conditions during the first
quarter of this year, especially in February. Net sales of extruded products of
$17.8 million for the quarter ended March 31, 2003 declined by $1.0 million, or
5.1%, compared to the quarter ended March 31, 2002 primarily reflecting lower
unit sales volumes due to the continued softness in the markets served by this
segment of the Company's business.
Gross Profit. Gross profit improved by $2.1 million, or 6.5%, to $35.5
million for the quarter ended March 31, 2003 from $33.4 million for the quarter
ended March 31, 2002 despite lower net sales. Gross profit as a percentage of
net sales in the quarter ended March 31, 2003 improved to 33.4% from 30.2% for
the quarter ended March 31, 2002. The higher gross profit is largely due to
on-going manufacturing productivity improvements and other manufacturing cost
reduction initiatives offsetting the effects of lower production volumes.
On March 27, 2003, the Company announced that it will gradually phase
out its ladder, stages, scaffold and plank assembly, fabrication and
distribution operations in Greenville, Pennsylvania. The Company will continue
to maintain its corporate headquarters, remelt, aluminum extrusion, extruded
products fabrication and fiberglass pultrusion operations in Greenville. The
Company's wage and benefit costs at its Greenville manufacturing facility are
higher than at its other facilities. This initiative, which is part of the
Company's continuous improvement program to optimize its operations and reduce
manufacturing costs, will result in the permanent layoff of approximately 500
employees at the Greenville facility. Discussions with the unions representing
the majority of the affected employees have been initiated to address the effect
of this decision on those employees.
General and Administrative Expenses. General and administrative
expenses were $6.3 million for the quarter ended March 31, 2003 compared to $7.5
million for the quarter ended March 31, 2002, a decrease of $1.2 million or
15.4%. The decrease is primarily due to the severance cost recognized in the
first quarter 2002 of $1.6 million associated with the separation of a former
executive officer. Excluding this one-time severance cost, general and
administrative expenses increased by $0.4 million in the current quarter
reflecting higher depreciation related to capitalized computer hardware and
software costs and higher professional and consulting fees related, in part, to
new product development.
Selling and Distribution Expenses. Selling and distribution expenses
increased by $2.7 million, or 15.2%, to $20.6 million for the quarter ended
March 31, 2003 compared to $17.9 million for the quarter ended March 31, 2002
primarily reflecting higher freight rates and higher shipping and handling
expenses to support supply chain initiatives to continue reducing cycle times
and improving order fill rates. These cost increases more than offset the impact
of lower unit sales volumes.
Operating Profit. Operating profit improved by $0.6 million, or 7.4%,
to $8.6 million for the quarter ended March 31, 2003 from $8.0 million for the
quarter ended March 31, 2002. Operating profit of the Climbing Products
14
segment increased $0.3 million, or 3.8%, to $9.3 million in the first quarter of
2003. Operating profit of the Climbing Products segment in the first quarter of
2002 included the impact of a charge of $1.3 million for an allocated portion of
severance costs. Excluding the one-time severance cost allocation, operating
profit of the Climbing Products segment would have declined by $1.0 million from
$10.3 million in the first quarter of 2002. The decline primarily reflects the
negative impact of higher selling and distribution expenses which more than
offset the improvement in gross profit. Operating profit of the Extruded
Products segment was $0.1 million for the quarter ended March 31, 2003 compared
to an operating loss of $0.6 million for the quarter ended March 31, 2002. The
improvement in operating profit of $0.7 million is primarily due to improvements
in the profitability of the segment's sales mix and lower allocated severance
costs more than offsetting the effects of lower aluminum extrusion production
volumes. Corporate and Other expenses increased by $0.5 million for the quarter
ended March 31, 2003 compared to the quarter ended March 31, 2002 primarily due
to higher management advisory and consulting fees and higher legal and
professional expenses.
Other Income (Expense), Net. Other income (expense), net was net income
of $0.2 million for the quarter ended March 31, 2003, an increase in income of
$0.5 million compared to the first quarter 2002. The increase in income is
primarily due to the absence of a charge recorded in the first quarter of the
prior year related to a loss on the disposal of an asset of $0.3 million.
Interest Expense. Interest expense declined by $0.7 million to $5.1
million for the quarter ended March 31, 2003 from $5.8 million for the quarter
ended March 31, 2002. The decline is primarily due to lower levels of debt and
lower interest rates in the current quarter. In addition, the first quarter of
2002 included a charge of $0.4 million related to the accelerated amortization
of deferred financing fees as a result of a $15 million voluntary repayment of
term loans under the Senior Credit Facility made by the Company in March 2002.
Income Taxes. In accordance with APB Opinion 28, at the end of each
interim period the Company makes its best estimate of the annual effective tax
rate expected to be applicable for the full fiscal year. The rate so determined
is used in providing for income taxes on a current year-to-date basis. The
effective tax rate includes the effect of any valuation allowance expected to be
necessary at the end of the year for deferred tax assets related to originating
deductible temporary differences and loss carryforwards during the year. The
effective tax rate for the quarter ended March 31, 2002 is approximately 36%
compared to 35% for the first quarter of the prior year. The difference between
the statutory and effective tax rates at both March 31, 2003 and 2002 was
primarily due to state taxes (net of federal benefit).
Net Income. Net income improved by $1.2 million to $2.4 million for the
quarter ended March 31, 2003 from net income of $1.2 million for the quarter
ended March 31, 2002 as a result of all the above factors.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2003, the Company had $254.8 million of consolidated
indebtedness, including $133.1 million of Senior Subordinated Notes reflected
net of unamortized original issue discount; $115.4 million of Term Loans under
the Senior Credit Facility; and $6.3 million of other debt. The Senior Credit
Facility provides for Term Loans and a $70 million Revolving Facility of which
$47.4 million was available for borrowing at March 31, 2003. The available
borrowings under the Revolving Facility, which expires on November 30, 2003, are
reduced by amounts issued under a letter of credit subfacility which totaled
$22.6 million at March 31, 2003.
The Company maintains a Receivables Purchase Agreement with a financial
institution and its affiliate which originally was to expire in May 2003.
Effective in April 2003, the Company and the financial institution agreed to
extend the Receivables Purchase Agreement subject to negotiating final terms and
conditions. The agreement provides additional financing capacity with a maximum
availability of $50 million depending upon the level of accounts receivable and
certain other factors. As of March 31, 2003, the Company sold $72.6 million of
accounts receivable in exchange for $20.0 million in cash and an undivided
interest in the accounts receivable of $52.5 million. An additional $28.1
million of financing was available under the Receivables Purchase Agreement at
March 31, 2003.
15
The Company satisfies its working capital needs and capital expenditure
requirements primarily through a combination of operating cash flow, borrowings
under the Senior Credit Facility and sales of accounts receivable under the
Receivables Purchase Agreement. The Company believes it has sufficient funds
available in the next twelve months to support debt service requirements,
projected capital expenditures and working capital needs based on projected
results of operations and availability under both the Senior Credit Facility and
the Receivables Purchase Agreement. The $70 million Revolving Facility expires
in November 2003. The Company may need to replace this facility to satisfy its
future working capital needs. The Company currently anticipates that it will be
able to replace the Revolving Credit Facility and it intends to do so; however,
there can be no assurance that the Company will be able to effect a replacement
on commercially reasonable terms, or at all.
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. The Company is in compliance with all its
debt covenants effective March 31, 2003. The Company anticipates that it will
continue to comply with its debt covenants in 2003, however, continued
compliance is primarily based 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.
Net cash flows used by operating activities were $5.7 million for the
three months ended March 31, 2003 compared to net cash provided by operating
activities of $0.5 million for the three months ended March 31, 2002. The
increase in net income in the current period improved operating cash flows;
however, more cash was used in the current period to increase year-over-year
inventory and accounts receivable levels. Net cash used for investing activities
was $1.9 million for the three months ended March 31, 2003 compared to $3.1
million for the prior year period which primarily reflects lower capital
expenditures during the current period. Net cash used for financing activities
was $6.6 million for the three months ended March 31, 2003 compared to net cash
used of $15.4 million for the prior year period. During the quarter ended March
31, 2002, the Company elected to voluntarily repay $15 million of term loans
issued in connection with the Senior Credit Facility.
The Company's ability to make scheduled payments of principal on
existing indebtedness or to refinance its indebtedness (including the Notes), or
to fund planned capital expenditures or to finance acquisitions (although the
Company has not entered into any pending agreements for 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 capital expenditures and fund potential future acquisitions, if any.
In addition, there can be no assurance that the Company will be able to effect
any refinancing on commercially reasonable terms, or at all.
SEASONALITY, WORKING CAPITAL AND CYCLICALITY
Sales of certain products of the Company are subject to seasonal
variation. Demand for the Company's climbing products is affected by residential
housing starts and existing home sales, commercial construction activity and
overall home improvement expenditures. The residential and commercial
construction markets are sensitive to cyclical changes in the economy. Due to
seasonal factors associated with the construction industry, sales of climbing
products and working capital requirements 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.
16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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. There have
been no material changes in market risk from changes in interest rates from that
disclosed in the Company's most recent Annual Report on Form 10-K.
The Company does not have material operations in foreign countries.
International sales were not material to the Company's operations for the three
months ended March 31, 2003. Accordingly, the Company is not subject to material
foreign currency exchange 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 also exposed to market risk from changes in the price of
aluminum. The Company manages such risk through the use of aluminum futures and
options contracts. There have been no material changes in market risk from
changes in the price of aluminum from that disclosed in the Company's most
recent Annual Report on Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
Within ninety days prior to the filing of this quarterly report, an
evaluation was performed under the supervision and with the participation of the
Company's management, including the President and Chief Executive Officer (the
"CEO") and the Vice President, Chief Financial Officer and Treasurer (the
"CFO"), of the effectiveness of the design and operation of the Company's
disclosure controls and procedures. Based on that evaluation, the Company's
management, including the CEO and CFO, concluded that the Company's disclosure
controls and procedures were effective. There have been no significant changes
in the Company's internal controls or in other factors that could significantly
affect internal controls subsequent to the evaluation.
17
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved from time to time in various legal proceedings
and claims incident to the normal conduct of its business. In the opinion of
management, the amount of any ultimate liability with respect to these
proceedings and claims will not have a material adverse effect on its results of
operations, financial position or cash flows.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
3.1 Certificate of Incorporation of Werner Holding Co. (DE), Inc.
(filed as Exhibit 3.1 to Issuer'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
Issuer's Form S-4 Registration Statement No. 333-46607 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 Issuer's Quarterly Report
on Form 10-Q for the quarter ended June 30, 2000 and incorporated
herein by reference).
3.4 Amended and Restated By-laws of Werner Holding Co. (PA), Inc.
(filed as Exhibit 3.4 to Issuer's Quarterly Report on Form 10-Q
for the quarter ended June 30, 2002 and incorporated herein by
reference).
10.1 Agreement between PNC Capital Markets, Inc. and Werner Co. dated
March 26, 2003 to amend the Receivables Purchase Agreement among
Werner Co., Werner Funding Corporation, PNC Bank, National
Association, and Market Street Funding Corporation.
10.2 Amendment No. 4 to Werner Holding Co. (PA), Inc. Stock Incentive
Plan.
(b) Reports on Form 8-K:
None.
18
SIGNATURES
Pursuant to the requirements 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.
Date: May 5, 2003 /s/ LARRY V. FRIEND
------------------------------------------------------
Larry V. Friend
Vice President, Chief Financial Officer and Treasurer
(Principal Financial Officer and Principal Accounting
Officer)
WERNER HOLDING CO. (DE), INC.
Date: May 5, 2003 /s/ LARRY V. FRIEND
------------------------------------------------------
Larry V. Friend
Vice President, Chief Financial Officer and Treasurer
(Principal Financial Officer and Principal Accounting
Officer)
19
CERTIFICATIONS
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Dennis G. Heiner, the Chief Executive Officer of Werner Holding Co. (PA),
Inc. and Werner Holding Co. (DE), Inc. (the "Co-registrants"), certify that:
1. I have reviewed this quarterly report on Form 10-Q of the
Co-registrants;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Co-registrants as of, and for, the periods presented
in this quarterly report;
4. The Co-registrants' other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the
Co-registrants and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the Co-registrants,
including their consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the Co-registrants' disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The Co-registrants' other certifying officer and I have disclosed,
based on our most recent evaluation, to the Co-registrants' auditors
and the audit committee of Co-registrants' board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
Co-registrants' ability to record, process, summarize, and
report financial data and have identified for the
Co-registrants' auditors any material weaknesses in internal
controls;
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
Co-registrants' internal controls; and
6. The Co-registrants' other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
WERNER HOLDING CO. (PA), INC.
Date: May 5, 2003 /s/ DENNIS G. HEINER
----------------------------------
Chief Executive Officer
WERNER HOLDING CO. (DE), INC.
Date: May 5, 2003 /s/ DENNIS G. HEINER
----------------------------------
Chief Executive Officer
20
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, Larry V. Friend, the Chief Financial Officer of Werner Holding Co. (PA), Inc.
and Werner Holding Co. (DE), Inc. (the "Co-registrants"), certify that:
1. I have reviewed this quarterly report on Form 10-Q of the
Co-registrants;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Co-registrants as of, and for, the periods presented
in this quarterly report;
4. The Co-registrants' other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the
Co-registrants and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the Co-registrants,
including their consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the Co-registrants' disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date");
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The Co-registrants' other certifying officer and I have disclosed,
based on our most recent evaluation, to the Co-registrants' auditors
and the audit committee of Co-registrants' board of directors (or
persons performing the equivalent function):
a all significant deficiencies in the design or operation of
internal controls which could adversely affect the Co-
registrants' ability to record, process, summarize, and report
financial data and have identified for the Co-registrants'
auditors any material weaknesses in internal controls;
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
Co-registrants' internal controls; and
6. The Co-registrants' other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
WERNER HOLDING CO. (PA), INC.
Date: May 5, 2003 /s/ LARRY V. FRIEND
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Chief Financial Officer
WERNER HOLDING CO. (DE), INC.
Date: May 5, 2003 /s/ LARRY V. FRIEND
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Chief Financial Officer
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