SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For Quarterly Period Ended June 30, 2004

Commission File No. 333-46607-12

WERNER HOLDING CO. (PA), INC.

(724) 588-2550
(Co-registrant’s telephone number including area code)

Commission File No. 333-46607

WERNER HOLDING CO. (DE), INC.

(302) 478-5723
(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 o No

Indicate by check mark whether each of the Co-registrants is an accelerated filer (as defined in Rule 12b-2 of the Act). o Yes [x] No

     Indicate the number of shares outstanding of each of the Co-registrants’ classes of common stock, as of June 30, 2004:

INDEX

WERNER HOLDING CO. (PA), INC.

WERNER HOLDING CO. (DE), INC.

FORM 10-Q
Period Ended June 30, 2004

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

See notes to unaudited condensed consolidated financial statements.

1

WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES

See notes to unaudited condensed consolidated financial statements.

2

WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES

See notes to unaudited condensed consolidated financial statements.

3

WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES

See notes to unaudited condensed consolidated financial statements.

4

WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES

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 and six months ended June 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. 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.

     Certain prior period amounts have been reclassified to conform with the current year presentation.

B. Inventories

     Components of inventories are as follows:

     During the three months ended June 30, 2004 the reserve for the excess of inventory costs over LIFO stated values was reduced by $1,064 stemming from the reductions in manufacturing costs resulting from the Company’s restructuring and other cost reduction initiatives.

5

WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – Continued
(Dollars in Thousands, except Per Share Amounts)

C. Debt

     The Company’s senior credit facility, which consists of a Term Loan currently totaling $165,000 and a $50,000 Revolving Credit Facility (the “Senior Credit Facility”), was amended effective May 6, 2004 (the “Amendment”) to modify certain financial covenants and provide for other changes. The Amendment changed the debt leverage and interest coverage ratio covenants for years 2004 and 2005 to be less restrictive. The Company is in compliance with its amended debt covenants as of June 30, 2004. The Amendment provides for an increase in certain fees including an increase of 0.75% in the annual rate charged on the Term Loan and an increase of 0.25% in the annual commitment fee that is charged on the unused portion of the Revolving Credit Facility. The Company incurred costs totaling $842 in connection with the Amendment. The costs have been deferred and will be amortized over the remaining life of the facility using the effective interest method along with previously existing unamortized costs.

D. 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 June 30, 2004 and December 31, 2003, the Company had sold, on a recurring basis, $79,826 and $84,549 of accounts receivable in exchange for $20,000 in cash and an undivided interest in accounts receivable of $59,743 and $64,483, 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.”

     Effective during May 2004, the Company and the financial institution amended the Receivables Purchase Agreement. The amendment provides for an increase in liquidity from that which would otherwise have been available. Certain fees associated with the facility increased. The agreement extends through May 2006 subject to the approval of annual renewals by both the Company and the financial institution.

E. Preferred Stock

     In June 2003, the Company issued $65,000 of Series A Preferred Stock which is more fully described in Note G of the Company’s Annual Report on Form 10-K for year ended December 31, 2003. During the six months ended June 30, 2004, quarterly preferred dividends in the amount of $4,959 were payable and, in lieu of cash dividend payments, the liquidation preference of the Series A Preferred Stock was increased by the amount of the dividends. The dividends were recorded by reducing additional paid-in capital and increasing the balance of convertible preferred stock. The dividends, which increased the liquidation preference of preferred stock to $74,589 as of June 30, 2004, are presented as an adjustment to arrive at net income attributable to common shareholders in the consolidated statements of income. If all the Series A Preferred shares had been converted as of June 30, 2004, 15,131 shares of Class F Common Stock would have been issued.

     As a result of an elective put available to its holders, the Series A Preferred Stock will have a redemption price equal to 106% of the liquidation preference effective on January 1, 2007. At the date of issuance, the preferred stock was recorded net of associated issuance costs of $6,841. The recorded value of the preferred stock is being accreted to its redemption value through December 31, 2006 using the effective interest method. Accretion recorded during the six months ended June 30, 2004 was $1,527. The accretion of preferred stock is subtracted from net income in calculating net income attributable to common shareholders for purposes of presenting the consolidated statements of income.

6

WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — Continued
(Dollars in Thousands, except Per Share Amounts)

F. Shipping and Handling Fees and Expenses

     All shipping and handling fees billed to customers are classified as revenues. Shipping and handling costs represent costs associated with shipping products to customers and handling finished goods. Shipping and handling costs of $12,559 and $13,590 are included in the caption entitled, “Selling and distribution expenses” in the condensed consolidated statements of income for the three months ended June 30, 2004 and 2003, respectively, and $24,679 and $26,501 are included for the six months ended June 30, 2004 and 2003, respectively.

G. Employee Retirement and Benefit Plans

     The following provides the components of net periodic benefit cost for the three and six months ended June 30, 2004 and 2003:

     The Company expects to contribute $5,532 during 2004 to a trust established for its noncontributory defined benefit plan. During the six months ended June 30, 2004 contributions to the trust totaled $443 and an additional $306 was contributed on July 15, 2004. The Company disclosed in its most recent Annual Report on Form 10-K that it expected to contribute $8,000 during 2004 to the trust established for the noncontributory defined benefit plan. This estimate has been reduced by $2,468 which reflects the impact of the provisions of the Pension Funding Equity Act of 2004 which was enacted in April 2004.

7

WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – Continued
(Dollars in Thousands, except Per Share Amounts)

H. 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. In connection with a recapitalization that occurred on June 11, 2003, the Company accelerated the vesting of certain options and cancelled a portion of the vested options and all of the unvested options. The modification of the options resulted in a noncash compensation charge totaling $4,590 that was recorded in the second quarter of 2003.

     Stock options were granted during the three months ended June 30, 2004 to purchase 3,082 shares of Class C Common Stock at an exercise price of $500 per share. 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 (loss) would not have been significant for any periods presented herein.

I. 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.

     In March 2004, the Company executed a lease contract relating to a large manufacturing facility currently being constructed in Juarez, Mexico. Under the contract, the obligations of an unrelated third party lessee are guaranteed by the Company. The Company will occupy the facility upon its completion and assume all obligations under the lease. The lease requires that monthly rent payments be paid for a minimum period of ten years beginning on the date that construction is completed which is expected to be late 2004. The Company has the option to purchase the leased property at the end of the initial term and there are also two options to extend the lease beyond its initial term of five years each. The lease meets the accounting criteria to be categorized as a capital lease which will result in an asset recorded in property, plant and equipment and an offsetting amount recorded as debt upon completion of construction. The amount to be recorded, exclusive of any leasehold improvements, will approximate $11,100 and will be based upon the lower of the fair value of the facility or the present value of future minimum lease payments.

8

WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-Continued
(Dollars in Thousands, except Per Share Amounts)

J. Segment Information

     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 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 and six months ended June 30, 2004 and 2003 are as follows:

     Operating profit (loss) for Corporate and Other includes various corporate expenses not allocated to the reportable segments, certain costs not associated with the ongoing operations of the reportable segments and eliminations. “Other income (expense), net” reflected in the consolidated statements of income is also not allocated to the reportable segments.

     Operating profit (loss) for the three and six months ended June 30, 2004 for the Climbing Products segment includes $1,537 and $3,731, respectively, of costs related to restructuring and other cost reduction initiatives and $2,848 and $3,751, respectively, of associated startup and realignment costs. Operating profit (loss) for the three and six months ended June 30, 2003 for the Climbing Products segment includes $975 of costs related to restructuring and other cost reduction initiatives and $795 of associated startup and realignment costs.

     Operating profit (loss) for the Extruded Products segment for the three and six months ended June 30, 2004 includes $202 and $484, respectively, of costs related to restructuring and other cost reduction initiatives and includes $555 of associated startup and realignment costs for both the three and six months ended June 30, 2004.

     Operating profit (loss) for Corporate and Other for the three and six months ended June 30, 2003 includes expenses of $10,117 incurred in connection with a recapitalization of the Company that occurred on June 11, 2003.

9

WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-Continued
(Dollars in Thousands, except Per Share Amounts)

K. Restructuring and Other Cost Reduction Initiatives

     A restructuring and downsizing program was initiated in early 2004 which, in part, accelerates and expands the manufacturing and distribution optimization activities initiated in 2003. During the second quarter of 2003, the Company transferred all ladder fabrication and assembly operations in Greenville, Pennsylvania to other lower cost Company facilities and began an initiative to focus the Greenville facility on the Extruded Products segment of the Company’s business. Substantially all production related to climbing products at the Greenville facility was discontinued during 2003 and the remaining operations related to climbing products are expected to cease during 2005. In addition, the Company announced on October 23, 2003 that it plans to close its manufacturing facility located in Carrollton, Kentucky that manufactures wood climbing products. The Company is presently considering expanding this facility for use as a regional distribution center; however, no decision has yet been made. The Company intends to sell this facility if an acceptable alternative use is not identified. Wood stepladder customers are being served by outsourcing production to a third party. In February 2004, the Company announced that it plans to gradually phase-out production at its Anniston, Alabama manufacturing and distribution facility. All operations at this facility are expected to end not later than mid-2005. The Company intends to sell this facility. In early 2004, the Company also initiated a program to reduce costs by re-engineering its selling, general and administrative functions. Costs incurred in connection with the above-described activities during the three and six months ended June 30, 2004 and 2003 are included in the income statement caption entitled, “Restructuring and other cost reduction initiatives” and consist of the following:

     A reconciliation of the beginning and ending liability balances showing the costs incurred for restructuring and other cost reduction initiatives and charged to expense, and related amounts paid or otherwise settled during the six months ended June 30, 2004 is as follows:

10

WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-Continued
(Dollars in Thousands, except Per Share Amounts)

     The costs reflected above are costs associated with exit or disposal activities as defined by FASB Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities or costs incurred in connection with exit activities recorded pursuant to Statement No. 112, Employers’ Accounting for Postemployment Benefits. Management believes there are other costs related to the restructuring activities that are both nonrecurring and incremental. These costs include start-up and wind-down costs associated with manufacturing facilities and duplicate freight and handling costs. These costs, which are recorded in the income statement captions, “Cost of sales” and “Selling and distribution expenses”, were as follows:

     Costs associated with the above-described restructuring activities, including costs related to start-up and wind-down of manufacturing facilities and duplicate freight and handling costs, are expected to range from $20,000 to $25,000 mostly during 2004 and the remainder in 2005. The costs are expected to relate primarily to the Company’s Climbing Products segment. Although management believes that these estimates are reasonable, no assurances can be given that the estimated costs will ultimately be incurred. Costs to date total $8,521 and were incurred in the six months ended June 30, 2004.

L. 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 in consolidation. 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.

11

WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-Continued
(Dollars in Thousands, except Per Share Amounts)

L. Supplemental Guarantor Information-Continued

12

WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-Continued
(Dollars in Thousands, except Per Share Amounts)

L. Supplemental Guarantor Information-Continued

13

WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-Continued
(Dollars in Thousands, except Per Share Amounts)

L. Supplemental Guarantor Information-Continued