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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
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
For the transition period from _____________ to _________________
Commission file number 0-22206
NIAGARA CORPORATION
-------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 59-3182820
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
667 MADISON AVENUE, NEW YORK, NEW YORK 10021
-------------------------------------- -----
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) ZIP CODE
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 317-1000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $.001 PER SHARE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL
REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER
PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS
BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO__.
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS
PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL
NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S 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. YES X NO__.
AS OF MARCH 24, 2000, THE AGGREGATE MARKET VALUE OF THE VOTING
STOCK HELD BY NON-AFFILIATES OF THE REGISTRANT WAS APPROXIMATELY $28,102,734
(ASSUMES THE REGISTRANT'S OFFICERS, DIRECTORS AND ALL STOCKHOLDERS
HOLDING 5% OF OUTSTANDING SHARES ARE AFFILIATES).
THERE WERE 8,738,246 SHARES OF THE REGISTRANT'S COMMON STOCK
OUTSTANDING AS OF MARCH 24, 2000.
DOCUMENTS INCORPORATED BY REFERENCE: THE ITEMS COMPRISING PART
III HEREOF (ITEMS 10, 11, 12 AND 13) ARE INCORPORATED BY REFERENCE FROM THE
REGISTRANT'S PROXY STATEMENT FOR ITS 2000 ANNUAL MEETING OF STOCKHOLDERS OR
WILL BE FILED BY AMENDMENT TO THIS FORM 10-K.
PART I
ITEM 1. BUSINESS.
CORPORATE HISTORY
Niagara Corporation ("Niagara") was organized on April 27, 1993
as a Delaware corporation under the name International Metals Acquisition
Corporation. When formed, its objective was to acquire an operating
business in the metals processing and distribution industry or in a
metals-related manufacturing industry. Between 1995 and 1999, Niagara
completed acquisitions of three cold finished steel bar producers in the
United States and one group of businesses in the United Kingdom engaged in
hot rolling, cold finishing and distributing steel bars. These acquisitions
were financed with proceeds from Niagara's initial public offering and bank
and subordinated debt financings. See Notes 2 and 3 to the Financial
Statements and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- Liquidity and Capital Resources." Since they
were acquired by Niagara, these businesses have invested more than $22
million in capital expenditures to modernize, improve and expand their
facilities, machinery and equipment.
On August 16, 1995, Niagara purchased for $10,744,045 in cash
all of the outstanding shares of Niagara Cold Drawn Corp., which
subsequently changed its name to Niagara LaSalle Corporation ("Niagara
LaSalle"). With plants in Buffalo, New York and Chattanooga, Tennessee,
Niagara LaSalle was an established cold finished steel bar producer in the
northeast and southeast regions of the United States.
On January 31, 1996, Niagara LaSalle purchased all of the
outstanding shares of Southwest Steel Company, Inc. ("Southwest"), the
leading cold drawn steel producer servicing the southwest region of the
United States. As consideration for such shares, Niagara LaSalle paid
$1,920,000 in cash and $1,156,773 principal amount of Niagara LaSalle
promissory notes guaranteed by Niagara. In connection with this
acquisition, Niagara LaSalle discharged $8,518,691 of Southwest
indebtedness and Niagara guaranteed $898,000 of Southwest indebtedness.
During 1996, Southwest completed construction of a new plant in Midlothian,
Texas and relocated its Tulsa, Oklahoma operations to this new facility. On
November 1, 1996, Southwest was merged into Niagara LaSalle. On November
24, 1997, Niagara LaSalle paid $525,000 to the former Southwest
stockholders in full satisfaction of all amounts owing under the $1,156,773
principal amount of promissory notes issued to such individuals in
connection with the acquisition.
On April 18, 1997, Niagara LaSalle purchased from Quanex
Corporation ("Quanex") all of the outstanding shares of LaSalle Steel
Company ("LaSalle," and together with Niagara LaSalle, "Niagara US"), which
has plants in Hammond and Griffith, Indiana. In consideration for the sale
of such shares, Niagara LaSalle paid Quanex $65,500,000 in cash at the
closing and an additional $1,371,000, which amount was paid on January 26,
1998, based on changes in LaSalle's stockholder's equity between October
31, 1996 and March 31, 1997. Niagara LaSalle also paid Quanex an amount
based on cash activity in the intercompany account between Quanex and
LaSalle from April 1 through April 18, 1997. The acquisition of LaSalle
gave Niagara LaSalle a strong market position in the midwest region of the
United States and broadened Niagara LaSalle's product range by adding
thermal treated and chrome plated bars. With this acquisition, Niagara US
became the largest independent producer of cold drawn steel bars in the
United States.
On May 21, 1999, Niagara LaSalle (UK) Limited ("Niagara UK," and
together with Niagara and Niagara US, the "Company"), a newly formed
English company and subsidiary of Niagara, purchased the equipment,
inventory and certain other assets of the eight steel bar businesses of
Glynwed Steels Limited ("Glynwed Steels"), an English company and a
subsidiary of Glynwed International plc ("Glynwed"). In consideration for
the sale of such assets, Niagara UK paid Glynwed Steels (pound)21,202,000
(approximately $34 million) in cash at the closing, (pound)3,015,500
(approximately $4.9 million) of which was returned to Niagara UK during the
third quarter of 1999 as an adjustment to reflect the value of the net
assets transferred. These businesses are engaged in hot rolling, cold
finishing and distribution and represent the largest independent steel bar
concern in the United Kingdom.
The Company has announced a restructuring plan for its hot
rolling operations in the United Kingdom. Under the plan, Niagara UK will
close its Ductile Hot Mill facility in Willenhall, transfer most of the
production from this facility to its W Wesson facility in Moxley (which has
been renamed Ductile Wesson), and invest approximately $1.6 million in its
remaining hot rolling businesses. The Company has also determined to
consolidate certain additional U.K. operations. These restructurings are
scheduled to be completed during 2000 and are expected to expand Niagara
UK's product range, improve its product quality and enhance its customer
service capabilities.
PRODUCTS
Niagara US
Following the acquisition of LaSalle, Niagara US became the
largest independent producer of cold drawn steel bars in the United States.
This acquisition brought to Niagara a technological leader in the
development of specialized cold drawn steel products. LaSalle, which has
obtained numerous foreign and domestic patents throughout its history,
pioneered the large drawbenches commonly used in cold finishing today and
developed the principle of stress-relieving cold finished steel bars.
The manufacture of cold drawn steel bars involves several steps.
Hot rolled steel bars are cleaned of mill scale by a process that involves
shotblasting the surface of the bars with hardened steel shot. After
shotblasting, the bars are mechanically drawn, or pulled, through a
tungsten carbide die containing an orifice one-sixteenth of an inch smaller
in cross-section than the size of the hot rolled bar. Drawing the hot
rolled steel bar in this manner elongates the bar and creates a quality
micro-finished surface. The bars are then cut to length and straightened.
As an additional step, bars may be turned and/or ground to very close
tolerance levels. This process produces steel bars with (i) a smooth and
shiny surface, (ii) uniform shape, with close size tolerance, (iii)
enhanced strength characteristics and (iv) improved machinability. These
characteristics are essential for many industrial applications.
Niagara US manufactures round bars, ranging from 1/4 inch to 6
inches in diameter, and rectangular, square and hexagonal bars in a variety
of sizes, the majority of which are drawn in sizes 1/4 inch to 6 inches
thick and up to 15 inches wide. The bars are produced in lengths from 10 to
20 feet, with most being 10 to 12 feet in length. Niagara US's products
include (i) cold drawn bars which are used in machining applications,
automotive and appliance shafts, screw machine parts and machinery guides,
(ii) turned, ground and polished bars which are used in precision shafting
and (iii) drawn, ground and polished bars which are used in chrome-plated
hydraulic cylinder shafts.
Niagara US employs a number of advanced processing techniques in
the manufacture of value-added steel bars including thermal treatment and
chrome plating. In addition to cold drawn bars, Niagara US's products
include (i) custom-cut bars shipped on a "just-in-time" basis which are
used in steering columns and shock absorbers, (ii) stress- relieved bars
which are used in high strength shafting, gears and drive mechanisms, (iii)
quench and tempered bars which are used in high strength bolting and high
impact rod cylinders and (iv) chrome-plated bars which are used in
hydraulic and pneumatic cylinders.
During 2000, Niagara US will add a new quench and tempering line
to its Hammond facility and a new continuous shape straightening and
weighing line to its Buffalo plant. Management expects this new equipment
to increase capacity and improve the quality and efficiency of Niagara US's
operations.
Niagara UK
With the acquisition of the eight U.K. steel bar businesses in
May 1999, Niagara UK became the largest independent steel bar producer in
the United Kingdom with hot rolling, cold finishing and distribution
operations. These operations represented 51%, 27% and 22%, respectively, of
Niagara UK's total revenues from unaffiliated customers for the period May
22 through December 31, 1999.
Niagara UK's hot rolling operations, which operate under the
names Gadd Dudley Port and Ductile Wesson, offers one of the most
comprehensive ranges of round, hexagon, flat, square and special profile
bars and sections to the manufacturing industry worldwide. These
engineering bars include value-added products that involve the use of
various alloys, customized equipment and special production procedures. The
manufacture of hot rolled steel involves several steps. Semi-finished steel
in the form of billets, blooms or slabs is heated in a furnace to between
1100 and 1200 degrees centigrade to make the steel suitable for reshaping.
The heated semi-finished product is then passed through up to 14 pairs of
large diameter, water-cooled iron rolls which create the size and shape of
bar desired. After cooling, the bars are straightened, tested for quality
and cut to desired length. Niagara UK's hot rolling facilities produce
round, hexagon and square bars up to 4 1/16 inches in diameter, rectangular
bars up to 20 inches wide and a variety of special shapes and sections for
the cold drawn, construction and engineering markets, among others.
Niagara UK's cold finishing operations, which operate under the
names GB Longmore, Midland Engineering Steels and W Wesson, represent the
largest independent cold drawn bar producer in the United Kingdom and one
of the largest producers of cold finished rectangular bars in Europe. These
operations produce cold drawn, machined and turned bars in sizes up to 16
inches in diameter for rounds, 6 1/4 inches for squares, 20 inches wide for
rectangles and up to 4 inches across for hexagons. These products are
available in a wide range of specifications including carbon alloy and are
generally sold in lengths varying from 10 to 20 feet. These cold finished
bars are predominantly used in machining applications, automotive and
appliance shafts, screw machine parts, hydraulic applications, machinery
guides and precision shafting.
Niagara UK's distribution operations operate under the name
Macreadys and represent one of the leading distributors in the U.K. of cold
finished and hot rolled engineering bars. Macreadys distributes throughout
the United Kingdom with warehousing at three sites and sales offices at an
additional five locations in the U.K.
CUSTOMERS
Niagara US sells its products primarily to steel service
centers, which accounted for approximately 75% of its sales during 1999,
with the balance of its sales to original equipment manufacturers ("OEMs")
and the screw machine industry. Steel service centers purchase and
warehouse large quantities of standardized steel products which are then
sold directly to OEMs. OEMs use cold drawn steel bars in a wide range of
products. Niagara US concentrates its sales efforts on steel service
centers, which purchase relatively standardized products on a regular
basis. By focusing on this market, Niagara US attempts to minimize the risk
of holding obsolete inventory.
Niagara US has approximately 650 active customers in the United
States and Canada and is not dependent upon any one geographical market.
For 1999, Niagara US's 10 largest customers (by tons shipped) represented
approximately 63% of its sales, and its 3 largest customers, Alro Steel
Corporation, Earle M. Jorgensen Co. and Joseph T. Ryerson and Sons, Inc.
represented approximately 45% of its sales. The loss of any of these three
largest customers would have a material adverse effect on Niagara US's
sales.
Niagara UK sells to a wide customer base in the United Kingdom,
Europe and the rest of the world. Its customer base includes original
equipment manufacturers, component manufacturers, other cold finishers and
a large number of steel service centers. The volume of individual orders
varies significantly. For example, 100,000 lbs is not unusual for the hot
rolling businesses and Macreadys fills orders as small as 20 lbs.
Niagara UK has approximately 10,500 active accounts. Its largest
account resulted in less than 5% of sales. Approximately 67% of its sales
during 1999 were within the U.K. with 16% to continental Europe and 17% to
the rest of the world. For 1999, Niagara UK's 10 largest customers
represented approximately 20% of its sales.
MARKETING
The Company markets its products through salaried in-house sales
personnel and sales representatives compensated on a commission-only basis.
RAW MATERIALS
The Company purchases raw materials from mini-mills and
integrated steel mills. Such materials consist of hot rolled steel bars and
coils and semi-finished billets, blooms or slabs for re-rolling. The cost
of products purchased from mini-mills is primarily dependent on the price
of scrap steel and energy. The cost of products purchased from integrated
steel mills is dependent on a number of factors including demand, the price
of scrap steel and the volume and price of foreign imports. Integrated
steel mills are more affected by demand levels and the level of foreign
imports than mini-mills. In both the U.S. and U.K., the Company obtains raw
material from domestic and foreign suppliers.
COMPETITION
The steel bar market is highly competitive, based on price,
product quality and customer service. Management's strategy is to seek to
remain competitive on price and surpass the Company's competitors in
product quality and customer service. The Company's principal competitors
in its home markets are other domestic companies and foreign exporters, and
in its foreign markets, local producers and other exporters. These
competitors include integrated producers, mini-mills and independent cold
drawn steel bar producers.
Management believes that, in the U.S., the ability to offer a
full line of cold finished bar products and the proximity of facilities to
major steel service center markets are key competitive factors in the
industry. Close geographic proximity to customers results in reduced
freight costs and faster delivery of customer orders. In the U.K.,
management has focused on smaller orders and orders which are more
difficult to produce such as special sections and rectangles. By
accumulating smaller orders into efficient production runs the Company can
reduce customer lead times, accept orders that larger producers cannot
accommodate and improve profit margins.
The Company competes in a narrow segment of the steel industry,
but its business is affected by conditions within the broader steel
industry and, in particular, the automotive, agricultural and machine tool
industries. Consequently, a significant downturn in any of these industries
or in the broader steel industry may result in a similar downturn in the
cold drawn steel bar market and have an adverse effect on the Company.
STRATEGY
Management's business strategy focuses on improving product
quality and customer service and on maintaining strict cost controls. In
the U.S., the Company offers a full line of cold finished products on a
national level. Through its U.K. operations, the Company offers, on a
worldwide basis, a full range of standard products and a comprehensive
range of special sections, flats (rectangles and squares) which typically
yield a higher margin. In addition, Niagara UK's distribution operations
represent one of the leading distributors of carbon, alloy and stainless
bars in the United Kingdom.
Management seeks to obtain a competitive advantage through the
Company's ability to supply customers on a timely basis with an extensive
range of sizes and shapes of high quality steel bars often at volumes that
are not attractive to larger steel processors. In this regard, the Company
maintains finished goods inventories of the most commonly ordered sizes and
shapes of cold finished bars and minimizes lead times for its hot rolled
bar customers by frequent rolling cycles from a comprehensive raw material
inventory.
In order to improve profitability, management has chosen to
specialize on higher margin and value-added products. Accordingly, the
Company has focused its capital investment on these product lines. In the
United States, the Company has implemented a system of inventory management
to supply more efficiently multiple locations of steel service center
companies. In the United Kingdom, the Company is in the process of
restructuring operations and consolidating management and administrative
functions in order to improve product range and quality, more efficiently
meet customer requirements and reduce costs.
In addition, the Company has invested in new equipment and added
to its information technology staff in order to improve customer service
and efficiency between its various operations. The Company's goal in this
regard is to fully integrate its information systems with those of its
suppliers and customers.
EMPLOYEES
As of December 31, 1999, the Company had 1,364 employees, 557
were located in the U.S. and 807 were located in the U.K. All of LaSalle's
183 hourly employees at its Hammond, Indiana facility as of such date were
covered by a collective bargaining agreement with The Progressive
Steelworker's of Hammond, Inc. which expires on July 18, 2001. All of
LaSalle's 21 hourly employees at its Griffith, Indiana facility as of such
date were covered by a collective bargaining agreement with the United
Steel Workers of America and its local affiliate which was due to expire on
February 19, 2000. On February 13, 2000, the hourly employees at LaSalle's
Griffith facility ratified a new 3-year collective bargaining agreement.
Of the 807 Niagara UK employees as of December 31, 1999, 453
were covered by collective bargaining agreements with the Iron and Steel
Trades Confederation (366 employees), the Transport and General Workers
Union (51 employees) and the General and Municipal Boilermakers Union (36
employees). These agreements extend indefinitely and contain compensation
provisions which are reviewed annually. The reviews take place at different
times throughout the year based on the facility and the status of the
employee. All other contract terms remain the same from year to year.
ITEM 2. PROPERTIES.
NIAGARA
Niagara utilizes approximately 5,000 square feet of space for
its headquarters in New York, New York under a lease expiring on December
31, 2007.
NIAGARA US
Niagara US operates manufacturing facilities in Buffalo, New
York; Chattanooga, Tennessee; Midlothian, Texas; and Hammond and Griffith,
Indiana. Niagara LaSalle owns the 207,000 square-foot Buffalo facility,
leases the 92,000 square-foot Chattanooga facility and owns the 115,000
square-foot Midlothian facility. LaSalle owns the 550,000 square-foot
Hammond facility and the 45,900 square-foot Griffith facility. The owned
facilities are mortgaged to the Company's lenders. The initial term of the
Chattanooga lease extends through November 30, 2009. Annual rent is
$189,996 through November 30, 2004 and $199,992 for the remainder of the
initial term. Niagara LaSalle has the option to extend the term of this
lease for an additional 10 years at specified rents and may terminate this
lease beginning on December 1, 2004 upon the payment of a termination fee
that varies with the date of termination.
NIAGARA UK
In connection with the acquisition of the U.K. steel bar
businesses, Niagara and Niagara UK entered into agreements with
subsidiaries of Glynwed calling for the lease or sublease by Niagara UK of
10 operating facilities in the West Midlands region of England and the
assignment of 5 sales office leases located throughout the United Kingdom.
Pursuant to these agreements, the initial term of the lease is 10 years for
9 of the operating facilities and 5 years for the remaining operating
facility (32,000 square-foot facility in Tipton) at aggregate rents of
(pound)50,000 (approximately $80,000) for the first two years;
(pound)850,000 (approximately $1.3 million) for years 3-6; and
(pound)1,000,000 (approximately $1.6 million) for years 7-10. The sales
office leases have various terms ranging to five years. Each operating
facility lease can be terminated by Niagara UK on one year's notice and
Niagara UK has the option to purchase any or all of the 7 primary operating
facilities (identified by an asterisk below) at prices fixed for 10 years
(which prices total (pound)9,468,000 (approximately $15.1 million)), or to
renew the leases with respect thereto for an additional term of 15 years at
commercial market rates.
Niagara UK's operating facilities consist of : 124,500 square
feet in Dudley (Gadd Dudley Port)*, 204,500 square feet in Moxley (Ductile
Wesson)*, 51,000 (Ductile Wesson) and 103,000 (GB Longmore) square feet in
Willenhall, 121,200 (Gadd Dudley Port)* and 32,000 (Midland Engineering
Steels) square feet in Tipton, 115,600 in Darlaston (GB Longmore)*, 88,700
square feet in Rugby (Macreadys)*, 15,500 square feet in Newport
(Macreadys)* and 28,800 square feet in Bolton (Macreadys)*. The sales
offices (Macreadys) range from 400 to 3,200 square feet and are located in
Waltham Cross, Medway, Southhampton, Leeds and Glasgow.
In connection with a restructuring plan for its hot rolling
operations, Niagara UK gave notice to terminate on February 18, 2001 its
lease of the 51,000 square-foot facility in Willenhall.
Management considers these manufacturing facilities, which
operated at approximately 70% of capacity in 1999, suitable for its current
operations.
ITEM 3. LEGAL PROCEEDINGS.
Niagara US and Niagara UK are subject to extensive environmental
laws and regulations concerning, among other matters, water and air
emissions and waste disposal. Under such laws, including the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), Niagara US and Niagara UK may be responsible for parts of the
costs required to remove or remediate previously disposed wastes or
hazardous substances at locations they own or operate or at locations owned
or operated by third parties where they, or a company from which they
acquired assets, arranged for the disposal of such materials. Claims for
such costs have been made against LaSalle with respect to five such
third-party sites. Management believes that, in four cases, the volumes of
the waste allegedly attributable to LaSalle and the share of costs for
which it may be liable are de minimis. At three of these sites, LaSalle has
entered into de minimis settlement agreements resolving the pending claims
of liability, one of which awaits further governmental approval. In
the fifth case, LaSalle has entered into an agreement with a group of other
companies alleged to be responsible for remediation of the site in an
effort to share proportionately the costs of remediation. LaSalle and this
group of companies have also signed an Administrative Order on Consent with
the United States Environmental Protection Agency and agreed to perform a
limited remediation at the site. LaSalle has received an insurance
settlement in an amount that largely covers the financial contributions it
has made for these sites through December 31, 1999. Because liability under
CERCLA and analogous state laws is generally joint and several, and because
further remediation work may be required at these sites, LaSalle may be
required to contribute additional funds. However, based on its volumetric
share of wastes disposed and the participation of other potentially liable
parties, management does not believe that LaSalle's share of the additional
costs will have a material adverse effect on the Company's financial
position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Niagara's Common Stock is traded on the Nasdaq National Market.
The following table sets forth the range of high and low sales prices by
quarter for 1998 and 1999.
HIGH LOW
1998
January 1 through March 31................ 10 1/8 7 7/8
April 1 through June 30................... 12 8 5/8
July 1 through September 30............... 10 5 3/4
October 1 through December 31............. 7 3/8 4 1/8
1999
January 1 through March 31................ 8 4 11/16
April 1 through June 30................... 8 5 1/4
July 1 through September 30............... 5 11/16 4 1/4
October 1 through December 31............. 5 3/8 3 1/2
As of March 24, 2000, there were 32 registered holders of
Niagara Common Stock.
Niagara has not declared or paid any dividends on its Common
Stock since its inception. The payment of dividends is conditioned on
Niagara's earnings, which are dependent on the earnings of its
subsidiaries, capital requirements and general financial condition.
Pursuant to its financing agreements, Niagara LaSalle and Niagara UK are
subject to restrictions on their ability to declare dividends to Niagara.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION -- Liquidity And Capital Resources."
ITEM 6. SELECTED FINANCIAL DATA.
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------
1995(1) 1996(2) 1997 (3) 1998 1999(4)
---- ---- ---- ---- ----
(in thousands, except per share data)
STATEMENT OF OPERATIONS DATA:
Net sales.............................. $ 17,035 $ 74,810 $ 204,962 $ 207,547 $ 264,222
Cost of products sold.................. 15,541 66,114 180,532 177,340 228,275
Gross profit........................... 1,493 8,695 24,430 30,207 35,947
Selling, general and administrative
expenses............................ 1,265 5,706 12,450 15,645 24,441
Interest income........................ 628 100 160 172 36
Other income........................... - 126 187 195 143
Interest expense....................... 272 1,536 5,874 4,154 5,631
Income taxes........................... 240 615 2,479 4,265 2,299
Extraordinary loss on early
extinguishment of debt.............. - -- 2,062 -- --
Net income ............................ 344 1,064 1,912 6,510 3,757
Net income per share (basic)
(before extraordinary loss)......... $ .10 $ .30 $ .94 $ .66 $ .40
Net income per share (diluted)
(before extraordinary loss)......... $ .10 $ .30 $ .78 $ .64 $ .40
Net income per share (basic)........... $ .10 $ .30 $ .45 $ .66 $ .40
Net income per share (diluted)......... $ .10 $ .30 $ .38 $ .64 $ .40
Weighted average common shares
outstanding (basic)................. 3,500 3,603 4,247 9,880 9,350
Weighted average common shares
outstanding (diluted)............... 3,500 3,603 5,095 10,250 9,357
--------------------------------------------------------------------------------------
AT DECEMBER 31,
--------------------------------------------------------------------------------------
1995 1996 1997 1998 1999
---- ----- ---- ---- ----
(in thousands)
BALANCE SHEET DATA:
Cash and cash equivalents.............. $ 2,187 $ 1,588 $ 13,207 $ 441 $ 2,234
Trade accounts receivable, net......... 4,239 5,953 21,660 13,360 53,126
Inventories............................ 14,744 14,446 35,190 30,132 59,442
Property, plant and equipment, net..... 12,745 21,649 89,163 89,749 102,984
Goodwill, net.......................... - 2,543 2,177 2,100 2,022
TOTAL ASSETS........................... 34,593 47,348 166,520 139,429 227,934
Trade accounts payable................. 4,787 4,110 20,985 14,107 50,191
Accrued expenses....................... 3,212 3,690 8,679 6,555 9,506
Current maturities of long-term debt... 733 1,662 3,498 4,797 6,411
Long-term debt, less current
maturities.......................... 6,969 18,075 59,184 41,572 87,388
Accrued pension and other
postretirement benefits............. - -- 14,537 10,303 8,023
Deferred income taxes.................. 3,914 3,805 5,726 7,357 9,849
TOTAL LIABILITIES...................... 20,131 31,822 114,524 84,898 171,473
STOCKHOLDERS' EQUITY .................. $ 14,462 $ 15,526 $ 51,996 $ 54,531 $ 56,461
- -------------------
(1) Includes the results of Niagara LaSalle for the period from August 17, 1995 to December 31, 1995.
(2) Includes the results of Southwest from February 1, 1996.
(3) Includes the results of LaSalle from April 1, 1997.
(4) Includes the results of Niagara UK from May 22, 1999.
NIAGARA LASALLE (PREDECESSOR COMPANY)
YEAR ENDED DECEMBER 31, 1995(1)
--------------------------------------------
(in thousands)
STATEMENT OF OPERATIONS DATA:
Net sales................................................. $ 50,506
Cost of products sold..................................... 44,386
Gross profit.............................................. 6,120
Selling, general and administrative
expenses............................................... 2,904
Employment expense-management options..................... 1,666
Operating income.......................................... 1,550
Other Income.............................................. 17
Interest expense.......................................... 771
Income before income taxes................................ 795
Income taxes.............................................. 270
Net income................................................ $ 525
AT AUGUST 16, 1995(2)
--------------------------------------------
(in thousands)
BALANCE SHEET DATA:
Current assets............................................ $ 18,257
Current liabilities....................................... 11,118
Working capital........................................... 7,139
Property plant and equipment, net ........................ 6,829
TOTAL ASSETS.............................................. 25,103
Long-term debt and capital lease
obligations (excluding current portion)................ 6,266
TOTAL LIABILITIES......................................... 18,584
REDEEMABLE PREFERRED STOCK................................ 251
STOCKHOLDERS' EQUITY...................................... $ 6,268
(1) Derived from combining results of operations prior to acquisition by Niagara (January 1 to August 16, 1995) with
results after such acquisition (August 17 to December 31, 1995).
(2) Acquisition date by Niagara.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
During the second half of 1998 and for all of 1999, the
Company's U.S. and U.K. operations experienced competitive pressures due to
a marked decline in prices and weakened demand for their products.
Management believes that such developments were due to overcapacity in the
industry and the continuation of low-priced imports, primarily from Asia
and Eastern European countries. Although demand for the Company's products
in the U.S. began to strengthen modestly during the second half of 1999,
prices in the U.S. remained weak during this period primarily due to
pressures from a domestic competitor. In addition, Niagara UK's export
business was negatively impacted as a result of the continued high value of
the British pound.
The results of operations for the year ended December 31, 1999
include the results of Niagara UK from May 22, 1999. The results of
operations for the year ended December 31, 1997 include the results of
LaSalle from April 1, 1997.
Year ended December 31, 1999 compared with December 31, 1998
Net sales for the year ended December 31, 1999 were
$264,221,888, representing an increase of $56,675,362, or 27.3%, over the
same period in 1998. This increase was attributable to the inclusion of
$77,789,863 of Niagara UK sales which was offset in part by a decrease in
sales from U.S. operations due to weakened demand for products and a
decline in prices.
Cost of products sold for the year ended December 31, 1999
increased by $50,934,752 to $228,274,501, representing an increase of 28.7%
over the same period in 1998. This increase was attributable to the
inclusion of $65,045,141 of Niagara UK's cost of products sold, which was
offset in part by reduced raw material costs as a result of the lower sales
volume, lower raw material prices and, to a lesser extent, reduced
operating costs in the U.S.
Gross margins for the year ended December 31, 1999 decreased by
0.9% over the same period in 1998 due to the decline in selling prices,
which was partially offset by a decrease in raw material prices and the
Company's greater emphasis on higher margin value-added products. If
adjusted for the effects of the curtailment of certain post retirement
welfare benefits and pension costs attributable to U.S. operations for
1998, gross margins for the year ended December 31, 1999 would have
improved by 0.6% over the same period in 1998.
Selling, general and administrative expenses for the year ended
December 31, 1999 increased by $8,796,088 to $24,440,790, or 9.3% of sales,
compared to 7.5% of sales for the same period in 1998. Both the increase in
dollar amount and increase as a percentage of sales were due to the
inclusion of $10,385,466 of Niagara UK's expenses for the period, which was
offset in part by reduced selling, general, administration expenses from
the Company's U.S. operations due to their decrease in sales and cost
reductions in the U.S.
Interest expense for the year ended December 31, 1999 increased
by $1,476,564 to $5,630,549. This increase was primarily due to increased
levels of borrowings attributable to the acquisition of the U.K. steel bar
businesses.
Net income for the year ended December 31, 1999 was $3,756,625,
a decrease of $2,753,481, or 42.3%, as compared to the net income for the
year ended December 31, 1998. This decrease resulted primarily from the
marked decline in prices and weakened demand for the Company's products
during the period. In addition, net income for the year ended December 31,
1998 included $3,019,000 as a result of a curtailment of certain post
retirement welfare benefits and pension costs attributable to U.S.
operations. Net income for the year ended December 31, 1999 included net
income of $388,742 for Niagara UK for the period May 22 through December
31, 1999.
On a pro forma basis, and as disclosed in Note 3(c) to the
Financial Statements, net loss for the year ended December 31, 1999 would
have been $2,122,086 compared to net income of $7,461,000 for the same
period in 1998. This decrease is attributable to reduced sales of
approximately $72,000,000 and an inventory adjustment of approximately
$5,700,000 to estimated net realizable value at Niagara UK during the first
quarter of 1999.
Year ended December 31, 1998 compared with December 31, 1997
Net sales for the year ended December 31, 1998 were
$207,546,526, an increase of $2,584,393, or 1.3%, over the same period in
1997. This increase was primarily due to the addition of sales of LaSalle
for the entire period in 1998 as compared to only the last three quarters
in 1997. Management estimates that sales were adversely affected by between
$15 and $20 million during the second half of 1998 due primarily to reduced
production at the Company's Hammond, Indiana facility during the nine-week
strike, lengthy training periods for permanent replacement workers at this
facility and the loss of market share during such period.
Cost of products sold for the year ended December 31, 1998 was
$177,339,749, a decrease of $3,192,474, or 1.8%, over the same period in
1997. This decrease was due primarily to the reduction in LaSalle's
postretirement benefit obligations (which reduced cost of products sold for
1998 by $3,320,000).
Gross margins for the year ended December 31, 1998 increased by
2.6% over the same period in 1997 due to the reduction in LaSalle's
postretirement benefit obligations and the continued greater emphasis on
higher margin value-added products. Gross margins for 1998 were adversely
affected by the reduced sales volume in the second half of the year
following the strike.
Selling, general and administrative expenses increased by
$3,195,197 to $15,644,702, or 7.5%, of sales in the year ended December 31,
1997 compared to 6.1% for the same period in 1997. This increase was due
primarily to the inclusion of LaSalle's selling, general and administrative
expenses for the full period in 1998 as compared to only the last three
quarters in 1997 (which was offset, in part, by a decrease in costs
resulting from the consolidation of selling and administration functions at
Niagara US), the additional administrative expenses associated with the
strike, and costs associated with the upgrade of the Company's computer
systems. These increases were partially offset by a reduction in expenses
relating to the reduction in LaSalle's postretirement benefit obligations
(which reduced selling, general and administrative expenses for 1998 by
$1,629,000). Selling, general and administrative expenses for 1998 were
adversely affected as a percentage of sales by the reduced sales volume in
the second half of the year following the strike.
Interest expense decreased by $1,720,209 to $4,153,985 primarily
due to reduced levels of borrowing.
Net income for the year ended December 31, 1998 was $6,510,106,
an increase of $4,597,788, or 240%, from the same period in 1997. This
increase was due primarily to the inclusion of LaSalle's results for the
full year in 1998 as compared to only the last three quarters in 1997,
the extraordinary loss in 1997 of $2,062,185 due to the early
extinguishment of debt and an increase in net income of $3,019,000 million
resulting from the curtailment of LaSalle's postretirement benefit
obligations. Net income for 1998 was also positively affected by interest
savings resulting from the reduction of debt following the redemption of
the Warrants in December 1997 and improved margins from the continued
emphasis on value-added products. Management estimates that net income for
the year ended December 31, 1998 was adversely affected by between $2.0 and
$2.6 million due to the effects of the strike. Net income for the year
ended December 31, 1998 increased by $4,812,654, or 284%, as compared to
pro-forma net income (see Note 3 to the 1998 Financial Statements) for the
year ended December 31, 1997. This increase resulted primarily from the
foregoing factors as well as the reduced earnings of LaSalle in the first
quarter of 1997 as compared to the same period in 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's short-term liquidity requirement for day-to-day
operating expenses has been, and is expected to continue to be, funded by
cash provided by operations, borrowings under its revolving credit
facilities and advances under its invoice discounting agreement. The
Company's principal long-term liquidity requirement has been, and is
expected to continue to be, the funding of capital expenditures to
modernize, improve and expand its facilities, machinery and equipment.
Capital expenditures for the year ending December 31, 1999 were $5,180,444
compared to $6,859,081 for the same period in 1998. This decrease was
attributable to an increase in equipment leases by U.S. operations. The
Company anticipates spending approximately $6,000,000 for capital
expenditures during 2000.
Cash flows used by operating activities were $5,252,947 for the
year ended December 31, 1999 as compared to $14,676,621 provided by
operating activities for the year ended December 31, 1998. This $19,929,568
decrease, or 136% decline from the prior year, was largely attributable to
an increase in accounts receivable of $41,612,485 ($34,878,254 attributable
to Niagara UK) and inventories of $7,563,220, which was offset, in part, by
an increase in accounts payable and accrued expenses of $32,718,279
($29,504,069 attributable to Niagara UK). Cash and cash equivalents at
December 31, 1999 was $2,234,181, an increase of $1,793,527 as compared to
December 31, 1998.
On April 18, 1997 and in connection with the acquisition of
LaSalle, Niagara US entered into a revolving credit and term loan agreement
(the "Credit Agreement") with Manufacturers and Traders Trust Company
("M&T"), CIBC Inc., National City Bank, National Bank of Canada and the
Prudential Insurance Company of America, and Niagara LaSalle terminated its
previously existing credit agreements with M&T. The Credit Agreement
provides for a $50,000,000 four-year revolving credit facility and a
$40,000,000 eight-year term loan. The obligations of Niagara US under the
Credit Agreement are guaranteed by Niagara and secured by substantially all
of the assets and a pledge of all outstanding capital stock of Niagara US.
The acquisition of LaSalle and the refinancing of existing
Niagara LaSalle indebtedness was also financed pursuant to the issuance and
sale of $20,000,000 aggregate principal amount of 12.5% senior subordinated
notes of Niagara LaSalle due April 18, 2005 (the "Subordinated Notes"). In
connection with the subordinated debt portion of this financing, the
purchasers of the Subordinated Notes were issued 285,715 shares of Niagara
Common Stock.
Principal of the term loan under the Credit Agreement amortizes
in monthly installments that commenced on November 1, 1997 and end on April
1, 2004. The principal repayment installments on the term loan escalate
throughout its term. Interest on the term loan is payable in monthly
installments either at the LIBOR rate (for a period specified by Niagara US
from time to time) plus 210 basis points, or M&T's prime rate plus 50 basis
points. Revolving credit loans made pursuant to the Credit Agreement are
based on a percentage of eligible accounts receivable and inventory and
will mature on April 17, 2001. Interest on such loans is payable in monthly
installments and is either 175 basis points above the LIBOR rate (for a
period specified by Niagara US from time to time) or M&T's prime rate plus
25 basis points.
The Credit Agreement carries restrictions on, among other
things, indebtedness, liens, capital expenditures, dividends, asset
dispositions and changes in control of Niagara US, and requires minimum
levels of net worth through maturity. Also included in this agreement are
requirements regarding the ratio of consolidated current assets to
consolidated current liabilities and the ratio of net income before
interest, taxes, depreciation and amortization to cash interest expense.
Niagara US was in compliance with all of these requirements as of December
31, 1999.
On October 31, 1997, Niagara exercised its right to redeem on
December 9, 1997 (which date was extended to December 11, 1997) all of its
then outstanding and unexercised Redeemable Common Stock Purchase Warrants
("Warrants") at $.01 per Warrant. As a result of such action, the Warrants
could not be exercised after the redemption date. Each outstanding Warrant
entitled the holder to purchase from Niagara, prior to the exercise
deadline, one share of Niagara Common Stock at an exercise price of $5.50.
Of the 6,050,000 Warrants outstanding prior to the call for redemption,
6,042,990 were exercised resulting in $33,236,445 in gross proceeds to
Niagara and the issuance of 6,042,990 shares of Niagara Common Stock.
During the fourth quarter of 1997, the Company used approximately $21.8
million of such proceeds to prepay, at 107% plus accrued interest, the
Subordinated Notes. During the first quarter of 1998, the Company used
another $10 million of such proceeds to reduce the balance due under a
revolving credit facility.
On May 20, 1998, Niagara's Board of Directors authorized the
repurchase, from time to time, of up to one million shares of Niagara
Common Stock in open market and privately negotiated transactions. On
October 6, 1999, Niagara's Board authorized the repurchase of an additional
one million Niagara shares. Such repurchases are subject to market and
other conditions and are financed with internally generated funds or
borrowings under the Company's revolving credit facilities or advances under
Niagara UK's invoice discounting agreement. Shares of Niagara Common Stock
repurchased are held as treasury stock and are available for use in the
Company's benefit plans and for general corporate purposes. As of December
31, 1999, Niagara had repurchased 1,034,509 shares of its Common Stock at a
cost of $5,626,211, of which 548,629 shares were repurchased at a cost of
$2,726,246 during the year ended December 31, 1999.
On May 21, 1999 and in connection with the acquisition of the
steel bar businesses from Glynwed Steels, Niagara UK entered into a bank
facilities agreement (the "Facilities Agreement") with National Westminster
Bank plc ("National Westminster") providing for a (pound)10 million
(approximately $16 million) seven-year term loan and a (pound)9.8 million
(approximately $15.7 million) three-year revolving credit facility. The
obligations of Niagara UK under the Facilities Agreement are secured by
standby letters of credit issued by M&T to National Westminster
(respectively, the "Term Letter of Credit" and the "Revolving Letter of
Credit," and, together, the "Letters of Credit") and substantially all of
the assets of Niagara UK (for the benefit of M&T). Niagara UK's agreement
to reimburse M&T for drawdowns under the Letters of Credit is guaranteed by
Niagara and Niagara US, which guarantees are secured by substantially all
of the assets of Niagara US on a second priority basis. As consideration
for the issuance of the Letters of Credit, Niagara UK paid M&T a total of
(pound)178,400 (approximately $285,440) at the time of issuance and agreed
to pay further annual fees (in monthly installments) of 3% and 2.75% in
respect of the Revolving and Term Letters of Credit, respectively.
Principal of the term loan under the Facilities Agreement
amortizes in monthly installments commencing on May 31, 2000 and ending on
April 30, 2006. The principal repayment installments on the term loan
escalate throughout its term. Revolving credit loans made pursuant to the
Facilities Agreement are based upon a percentage of eligible inventory and
will mature on May 21, 2002. Interest of the term and revolving credit
loans under the Facilities Agreement accrue at the LIBOR rate (for periods
specified by Niagara UK from time to time) plus 15 basis points and is
payable at the conclusion of such interest periods.
The purchase of the U.K. steel bar businesses was also financed
pursuant to (i) a (pound)3.75 million (approximately $6 million) equity
investment by Niagara in Niagara UK (the "Equity Investment"), (ii) a
(pound)3.75 million (approximately $6 million) subordinated loan from
Niagara to Niagara UK which accrues interest at 7.5% per annum (the
"Subordinated Loan") and (iii) a (pound)2.5 million (approximately $4
million) non-interest bearing short-term loan from Niagara to Niagara UK
(the "Short-Term Loan"). The Equity Investment, the Subordinated Loan and
the Short-Term Loan were financed by borrowings under the Credit Agreement.
The Short-Term Loan was repaid during the third quarter of 1999.
On August 23, 1999, Niagara UK entered into a three-year Invoice
Discounting Agreement (the "Discount Agreement") with Lombard Natwest
Discounting Limited ("Lombard") providing for up to (pound)20 million
(approximately $32.2 million) of advances to Niagara UK based upon a
formula tied to the receivables purchased by Lombard. Interest on such
advances accrues at the National Westminster base rate plus 2.25%. The
obligations of Niagara UK under the Discount Agreement are guaranteed by
Niagara and secured by substantially all of the assets of Niagara UK. In
connection with the execution of the Discount Agreement, the Revolving
Letter of Credit and the revolving credit facility under the Facilities
Agreement were reduced to (pound)4.9 million (approximately $7.9 million)
and were further reduced to (pound)2.5 million (approximately $4.0 million)
as of December 31, 1999.
The Facilities and Discount Agreements carry restrictions on,
among other things, security interests, borrowed money, asset dispositions,
dividends, transactions with affiliates, capital expenditures, changes in
control and mergers and acquisitions. Also included in these agreements are
requirements regarding tangible net worth, the ratio of profit before
interest and taxes to interest and the ratio of current assets to current
liabilities. Niagara UK was in compliance with all of these requirements as
of December 31, 1999.
In connection with the execution of the Facilities and Discount
Agreements, Niagara and Niagara UK entered into intercreditor agreements
which, among other things (i) restrict the payment of dividends in respect
of the Niagara UK shares, (ii) prohibit the repayment of the Subordinated
Loan until after the discharge of all of Niagara UK's liabilities under the
Facilities and Discount Agreements and (iii) permit the repayment of the
Short-Term Loan upon demand unless payments of principal or interest under
these agreement are owing, certain financial covenants in these agreements
have not been met or an event of default thereunder has occurred and is
continuing.
At December 31, 1999, the Company had borrowed or been advanced
$45,347,552 under its revolving credit facilities and the Discount
Agreement and had approximately $26,000,000 in available credit thereunder,
and the outstanding balance of its term loans was $47,508,380. Working
capital of the Company at December 31, 1999 and 1998 was $55,019,020 and
$20,414,031, respectively.
YEAR 2000
The Company could be adversely affected if the information
technology or operating systems which it or its suppliers, customers or
service providers use do not properly accommodate the "Year 2000" dating
changes necessary to permit the recording of year dates for 2000 and later
years.
During the fourth quarter of 1999, the Company completed its
Year 2000 readiness program. Under this program, the Company's personnel,
together with outside consultants and engineers, assessed the Company's
information technology and operating systems for Year 2000 readiness.
Management took steps to correct any problems identified by this assessment
or to minimize the impact of any interruptions or performance degradations
caused by the Year 2000. In addition, the Company inquired into the Year
2000 readiness status of its suppliers, customers and essential service
providers and formulated contingency plans to prepare for any Year 2000
issues.
Since December 31, 1999, the Company has not experienced any
significant Year 2000 interruptions or performance degradations in any of
its internal systems. In addition, the Company has not experienced or been
notified of any such problems from its suppliers, customers or service
providers. However, because of the reliance on and involvement of a great
many third parties, and since it may take additional time for Year 2000
problems to emerge, disruptions in the Company's operations could still
occur which may have a material effect on the Company's results of
operations.
Total costs associated with the Company's Year 2000 readiness
program have not been material to the Company's results of operations.
Based on current conditions and assessments as well as third party
assurances, management does not expect that such costs will be material to
the Company's results of operations in the future.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities," which requires entities
to recognize all derivatives as either assets or liabilities in the balance
sheet and measure those instruments at fair value. SFAS No. 133, as amended
by SFAS No. 137, is effective for all fiscal years beginning after June 15,
2000. The Company does not presently enter into any transactions involving
derivative financial instruments and, accordingly, does not anticipate that
the new standard will have any effect on its financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risks include fluctuations in
interest rates, variability in interest rate spreads (i.e., prime to LIBOR
spreads) and exchange rate variability. The Company does not trade in
derivative financial instruments. Substantially all of the Company's
non-trade indebtedness relates to loans made pursuant to the Credit and
Facilities Agreements and advances under the Discount Agreement. Interest
on the term loan under the Credit Agreement accrues at either the LIBOR
rate (for a period specified by Niagara US from time to time) plus 210
basis points, or M&T's prime rate plus 50 basis points. Interest on
revolving credit loans made pursuant to such agreement accrues at either
175 basis points above the LIBOR rate (for a period specified by Niagara US
from time to time) or M&T's prime rate plus 25 basis points. Interest on
the term and revolving credit loans under the Facilities Agreement accrues
at the LIBOR rate (for a period specified by Niagara UK from time to time)
plus 15 basis points. Interest on advances under the Discount Agreement
accrues at National Westminster's base rate plus 2.25%. Management attempts
to reduce market risks associated with the fluctuations in interest rates
through the selection of LIBOR periods under the Credit and Facilities
Agreements and advance amounts under the Discount Agreement.
The Company sells its products primarily to customers in North
America and Europe. Niagara UK's revenues are generally collected in the
local currency of its customers. To reduce the Company's exposure to
fluctuations in exchange rates, Niagara UK purchases foreign exchange
contracts in amounts and with expiration dates in line with customer
orders. Revenues from sales by Niagara US are collected exclusively in U.S.
dollars.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Private Securities Litigation Reform Act of 1995 provides a
"safe harbor" for certain forward-looking statements. Some of the
statements in this Form 10-K, including, without limitation, those made
under "BUSINESS" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" may constitute forward-looking
statements. When used in this Form 10-K, the words "may," "will," "should,"
"could," "expects," "plans," "anticipates," "intends," " believes,"
"estimates," "predicts," "projects," "likely," or "continue" and other
similar expressions are intended to identify such forward-looking
statements. These statements involve known and unknown risks, uncertainties
and other factors, many of which are beyond the control of the Company,
that may cause the Company's actual results to be materially different from
those expressed or implied by such forward-looking statements or in future
filings by Niagara with the Securities and Exchange Commission, in the
Company's press releases and in oral statements made by authorized officers
of the Company. Such factors include, among other things:
o CYCLICALITY - The Company's products are used in the automotive,
agricultural and machine tool industries, among others. As a
result, demand for such products is closely tied to the economic
cycles that drive these businesses. For this reason, the
Company's financial performance has been, and will likely
continue to be, cyclical in nature.
o COMPETITION - There is excess world capacity for many of the
products produced by the Company. In addition, the Company's
largest competitors are vertically integrated with steelmaking,
hot rolling and cold drawing capabilities. This integration
could result in lower raw material costs to these competitors.
See "BUSINESS -- Competition."
O FOREIGN IMPORTS - The presence of low-priced imports of
competing products and low-priced manufactured products which
utilize the Company's products could affect the market for the
Company's products. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Results of
Operations."
o FOREIGN CURRENCY - Approximately 33% of Niagara UK's sales are
to customers outside of the United Kingdom. Revenues in respect
of such sales are generally collected in the local currency of
the customer. While Niagara UK purchases foreign exchange
contracts to reduce its exposure to fluctuations in exchange
rates, its export sales have been and will remain subject to the
value of the British pound in relation to the value of the local
currencies. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-- Results of
Operations" and "QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK."
o EXPIRATION OF MANAGEMENT EMPLOYMENT CONTRACTS - Certain members
of management have employment contracts with the Company which
expire at various times within the next year. There is no
assurance that the Company will be able to retain these
individuals following such expiration dates.
o EXPIRATION OR REVIEW OF UNION CONTRACTS - LaSalle's hourly
employees at its Hammond and Griffith, Indiana facilities are
covered by collective bargaining agreements, which expire on
July 18, 2001 and February 19, 2003, respectively. There is no
assurance that LaSalle will be able to negotiate new agreements
on favorable economic terms. In addition, a large number of
Niagara UK's employees are covered by collective bargaining
agreements containing compensation provisions which are reviewed
annually. There is no assurance that Niagara UK will be able to
agree with the covered employees at the time of such review.
Accordingly, the Company may experience work stoppages or other
labor difficulties. See "BUSINESS-- Employees."
o ENVIRONMENTAL MATTERS - Niagara US and Niagara UK are subject to
extensive environmental laws and regulations concerning the
discharge of materials into the environment and the removal or
remediation of environmental contamination at locations owned or
operated by them or at locations owned or operated by third
parties where they, or a company from which they acquired
assets, arranged for the disposal of such materials. While the
costs of complying with the current regulations and the
Company's share of remediation expenses at locations where
Niagara's subsidiaries have been identified as a responsible
party have not adversely affected the Company in any material
respect, there is no assurance that substantial additional costs
will not be required as a result of more stringent regulations,
an increase in the Company's share of remediation costs or the
discovery of additional contamination at the Company's
facilities or at other locations for which the Company would be
responsible. See "LEGAL PROCEEDINGS."
o YEAR 2000 - The Company could be adversely affected if it
experiences a disruption in its operations due to its inability
or the inability of its suppliers, customers or service
providers to comply with the "Year 2000" dating changes
necessary to permit the recording of year dates for 2000 and
later years. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Year 2000."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Certified Public Accountants................. 18
Balance Sheets..................................................... 19
Statements of Operations........................................... 20
Statements of Stockholders' Equity................................. 21
Statements of Cash Flows........................................... 22
Notes to Financial Statements...................................... 23
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Niagara Corporation
New York, New York
We have audited the accompanying consolidated balance sheets of Niagara
Corporation and its subsidiaries (together, the "Company") as of December
31, 1998 and 1999, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the
period ended December 31, 1999. 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 generally accepted auditing
standards. 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 Niagara
Corporation and its subsidiaries as of December 31, 1998 and 1999, and the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1999, in conformity with generally
accepted accounting principles.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
New York, New York
February 18, 2000
NIAGARA CORPORATION
AND SUBSIDIARIES
BALANCE SHEETS
- ----------------------------------------------------------------------------------------------------------------------------
December 31, 1998 1999(a)
- ----------------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT:
Cash and cash equivalents $ 440,654 $ 2,234,181
Trade accounts receivable, net of allowance for doubtful
accounts of $789,000 and $925,000 (Notes 6 and 12) 13,360,290 53,126,071
Accounts receivable - other (Note 9) - 2,255,687
Inventories (Notes 4 and 6) 30,131,877 59,441,872
Deferred income taxes (Note 11) 494,000 957,000
Other current assets (Note 7) 1,446,130 3,112,453
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 45,872,951 121,127,264
PROPERTY, PLANT AND EQUIPMENT, NET (NOTES 5, 6 AND 14) 89,748,881 102,983,882
GOODWILL, NET OF ACCUMULATED AMORTIZATION OF $222,545 AND
$300,077 (NOTE 3(a)) 2,099,593 2,022,061
DEFERRED FINANCING COSTS, NET OF ACCUMULATED AMORTIZATION OF
$184,480 AND $295,168 590,520 479,832
INTANGIBLE PENSION ASSET (NOTE 7) 526,000 474,000
OTHER ASSETS, NET OF ACCUMULATED AMORTIZATION OF $414,213
AND $581,444 591,075 847,260
- ----------------------------------------------------------------------------------------------------------------------------
$ 139,429,020 $ 227,934,299
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 14,106,608 $ 50,191,265
Accrued expenses (Note 3(c)) 6,555,103 9,506,238
Current maturities of long-term debt (Note 6) 4,797,209 6,410,741
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 25,458,920 66,108,244
OTHER:
Long-term debt, less current maturities (Note 6) 41,572,250 87,387,943
Accrued pension cost (Note 7) 4,664,337 2,690,987
Accrued other postretirement benefits (Note 7) 5,638,639 5,331,586
Deferred income taxes (Note 11) 7,357,000 9,849,000
Other noncurrent liabilities 207,331 105,261
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES $ 84,898,477 $171,473,021
- ----------------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTES 9, 10 AND 14)
STOCKHOLDERS' EQUITY (NOTES 2, 7, 8 AND 10):
Preferred stock, $.001 par value - 500,000 shares
authorized; none outstanding - -
Common stock, $.001 par value - 15,000,000 shares
authorized; 9,997,455 issued 9,998 9,998
Additional paid-in capital 50,111,675 50,111,675
Retained earnings 8,384,835 12,141,460
Accumulated other comprehensive loss (1,076,000) (175,644)
- ----------------------------------------------------------------------------------------------------------------------------
57,430,508 62,087,489
Treasury stock, at cost, 485,880 and 1,034,509 shares (2,899,965) (5,626,211)
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY $ 54,530,543 $ 56,461,278
- ----------------------------------------------------------------------------------------------------------------------------
$ 139,429,020 $ 227,934,299
- -------------------
(a) Includes the balance sheet of Niagara UK.
- -----------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
NIAGARA CORPORATION
AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
- ---------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1997(a) 1998 1999(b)
- ---------------------------------------------------------------------------------------------------------------------------------
NET SALES (NOTE 12) $204,962,133 $207,546,526 $264,221,888
COST OF PRODUCTS SOLD (NOTES 7 AND 13) 180,532,223 177,339,749 228,274,501
- ---------------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 24,429,910 30,206,777 35,947,387
OPERATING EXPENSES:
Selling, general and administrative (Note 7) 12,449,505 15,644,702 24,440,790
- ---------------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 11,980,405 14,562,075 11,506,597
INTEREST INCOME 160,048 172,076 36,172
INTEREST EXPENSE (5,874,194) (4,153,985) (5,630,549)
OTHER INCOME 187,244 194,940 143,405
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY LOSS 6,453,503 10,775,106 6,055,625
INCOME TAXES (NOTE 11) 2,479,000 4,265,000 2,299,000
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE EXTRAORDINARY LOSS 3,974,503 6,510,106 3,756,625
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF
DEBT, NET OF INCOME TAX BENEFIT OF $1,264,000
(NOTE 18) (2,062,185) - -
- ---------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 1,912,318 $ 6,510,106 $ 3,756,625
- ---------------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE (BASIC):
Income before extraordinary loss $ .94 $ .66 $ .40
Extraordinary loss (.49) - -
- ---------------------------------------------------------------------------------------------------------------------------------
Net income per share (basic) $ .45 $ .66 $ .40
- ---------------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE (DILUTED):
Income before extraordinary loss $ .78 $ .64 $ .40
Extraordinary loss (.40) - -
- ---------------------------------------------------------------------------------------------------------------------------------
Net income per share (diluted) $ .38 $ .64 $ .40
- ---------------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
(NOTE 15):
Basic 4,246,925 9,879,528 9,350,189
Diluted 5,095,350 10,249,954 9,357,114
- ---------------------------------------------------------------------------------------------------------------------------------
-------------------
(a) Includes the results of LaSalle from April 1, 1997.
(b) Includes the results of Niagara UK from May 22, 1999.
- ---------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
NIAGARA CORPORATION
AND SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1997, 1998 and 1999
- -----------------------------------------------------------------------------------------------------------------------
Common stock
--------------------------------------------
Number of Additional
shares Amount paid-in capital
- ------------------------------------------------ --------------------- --------------------- ---------------------
BALANCE, JANUARY 1, 1997 3,668,750 $3,669 $15,560,127
Shares issued (a) 285,715 286 1,321,146
Shares issued (b) 6,042,990 6,043 33,230,402
Net income for the year - - -
- ------------------------------------------------ --------------------- --------------------- ---------------------
BALANCE, DECEMBER 31, 1997 9,997,455 9,998 50,111,675
- ------------------------------------------------ --------------------- --------------------- ---------------------
Comprehensive income:
Net income for the year - - -
Minimum pension liability adjustment
($1,764,000, net of tax benefit of
$688,000) - - -
- ------------------------------------------------ --------------------- --------------------- ---------------------
TOTAL COMPREHENSIVE INCOME
- ------------------------------------------------ --------------------- --------------------- ---------------------
Purchase of treasury stock, at cost (c) - - -
- ------------------------------------------------ --------------------- --------------------- ---------------------
BALANCE, DECEMBER 31, 1998 9,997,455 9,998 50,111,675
- ------------------------------------------------ --------------------- --------------------- ---------------------
Comprehensive income:
Net income for the year - - -
Foreign currency translation adjustments
(Note 1) - - -
Minimum pension liability adjustment
($1,456,000, net of tax expense of
$568,000) - - -
- ------------------------------------------------ --------------------- --------------------- ---------------------
TOTAL COMPREHENSIVE INCOME
- ------------------------------------------------ --------------------- --------------------- ---------------------
Purchase of treasury stock, at cost (d) - - -
- ------------------------------------------------ --------------------- --------------------- ---------------------
BALANCE, DECEMBER 31, 1999 9,997,455 $9,998 $50,111,675
- -----------------------------------------------------------------------------------------------------------------------
[chart continued]
- ---------------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1997, 1998 and 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Accumulated other Total
Retained earnings comprehensive Treasury stock, at stockholders'
(deficit) loss cost equity
- ------------------------------------------------ ---------------- ---------------------- -------------------- ---------------
BALANCE, JANUARY 1, 1997 $ (37,589) $ - $ - $15,526,207
Shares issued (a) - - - 1,321,432
Shares issued (b) - - - 33,236,445
Net income for the year 1,912,318 - - 1,912,318
- ------------------------------------------------ ---------------- ---------------------- -------------------- -------------
BALANCE, DECEMBER 31, 1997 1,874,729 - - 51,996,402
- ------------------------------------------------ ---------------- ---------------------- -------------------- -------------
Comprehensive income:
Net income for the year 6,510,106 - - 6,510,106
Minimum pension liability adjustment
($1,764,000, net of tax benefit of
$688,000) - (1,076,000) - (1,076,000)
- ------------------------------------------------ ---------------- ---------------------- -------------------- -------------
TOTAL COMPREHENSIVE INCOME 5,434,106
- ------------------------------------------------ ---------------- ---------------------- -------------------- -------------
Purchase of treasury stock, at cost (c) - - (2,899,965) (2,899,965)
- ------------------------------------------------ ---------------- ---------------------- -------------------- -------------
BALANCE, DECEMBER 31, 1998 8,384,385 (1,076,000) (2,899,965) 54,530,543
- ------------------------------------------------ ---------------- ---------------------- -------------------- -------------
Comprehensive income:
Net income for the year 3,756,625 - - 3,756,625
Foreign currency translation adjustments
(Note 1) - 12,356 - 12,356
Minimum pension liability adjustment
($1,456,000, net of tax expense of
$568,000) - 888,000 - 888,000
- ------------------------------------------------ ---------------- ---------------------- -------------------- -------------
TOTAL COMPREHENSIVE INCOME 4,656,981
- ------------------------------------------------ ---------------- ---------------------- -------------------- -------------
Purchase of treasury stock, at cost (d) - - (2,726,246) (2,726,246)
- ------------------------------------------------ ---------------- ---------------------- -------------------- -------------
BALANCE, DECEMBER 31, 1999 $12,141,460 $ (175,644) $(5,626,211) $56,461,278
- -------------------------------------------------------------------------------------------------------------------------------
- ---------------------
(a) On April 18, 1997, Niagara issued 285,715 shares of its Common Stock in connection with the subordinated debt
portion of the financing for the acquisition of LaSalle (Notes 2 and 3(b)).
(b) Proceeds from exercise of Warrants during December 1997 (Note 2).
(c) During the year ended December 31, 1998, Niagara repurchased 485,880 shares of its Common Stock at a cost of
$2,899,965.
(d) During the year ended December 31, 1999, Niagara repurchased 548,629 shares of its Common Stock at a cost of
$2,726,246.
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
NIAGARA CORPORATION
AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS (NOTE 17)
- ---------------------------------------------------------------------- ---------------- -------------------- ----------------
Year ended December 31, 1997(a) 1998 1999(b)
- ---------------------------------------------------------------------- ---------------- -------------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,912,318 $ 6,510,106 $ 3,756,625
- ---------------------------------------------------------------------- ---------------- -------------------- ----------------
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 5,533,603 6,615,662 8,144,210
Noncash portion of extraordinary loss 662,185 - -
Provision for doubtful accounts 88,905 61,151 135,778
Deferred income taxes 520,000 3,226,000 1,461,000
Accrued pension costs (566,100) 523,437 (740,350)
Accrued other postretirement benefits 150,000 (7,052,361) (307,053)
Loss on disposal and write-off of equipment - - 569,008
Miscellaneous (13,529) - -
Changes in assets and liabilities, net of effects from
purchases of LaSalle in 1997 and U.K. steel bar
businesses in 1999:
(Increase) decrease in accounts receivable 3,144,270 8,238,789 (39,356,798)
Increase in accounts receivable - other - - (2,255,687)
(Increase) decrease in inventories 3,433,310 5,057,691 (7,563,220)
(Increase) decrease in other current assets - 381,224 (1,391,323)
(Increase) decrease in other assets (1,868,179) 452,987 (423,416)
Increase (decrease) in accounts payable, accrued
expenses and other noncurrent liabilities (3,663,315) (9,338,065) 32,718,279
- ---------------------------------------------------------------------- ---------------- -------------------- ----------------
TOTAL ADJUSTMENTS 7,421,150 8,166,515 (9,009,572)
- ---------------------------------------------------------------------- ---------------- -------------------- ----------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 9,333,468 14,676,621 (5,252,947)
- ---------------------------------------------------------------------- ---------------- -------------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of LaSalle, net of cash acquired (67,240,000) (1,371,000) -
Acquisition of U.K. steel bar businesses - - (32,514,281)
Proceeds from disposal of equipment - - 25,864
Acquisition of property and equipment (5,572,754) (6,859,081) (5,180,444)
- ---------------------------------------------------------------------- ---------------- -------------------- ----------------
NET CASH USED IN INVESTING ACTIVITIES (72,812,754) (8,230,081) (37,668,861)
- ---------------------------------------------------------------------- ---------------- -------------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from exercise of Warrants 33,236,445 - -
Proceeds from long-term debt 81,800,000 - 57,226,432
Repayment of long-term debt (38,372,928) (16,312,998) (9,797,207)
Financing costs (1,565,081) - -
Payments to acquire treasury stock - (2,899,965) (2,726,246)
- ---------------------------------------------------------------------- ---------------- -------------------- ----------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 75,098,436 (19,212,963) 44,702,979
- ---------------------------------------------------------------------- ---------------- -------------------- ----------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS - - 12,356
- ---------------------------------------------------------------------- ---------------- -------------------- ----------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 11,619,150 (12,766,423) 1,793,527
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,587,927 13,207,077 440,654
- ---------------------------------------------------------------------- ---------------- -------------------- ----------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 13,207,077 $ 440,654 $ 2,234,181
- ---------------------------------------------------------------------- ---------------- -------------------- ----------------
- -------------------
(a) Includes the cash flows of LaSalle from April 1, 1997.
(b) Includes the cash flows of Niagara UK from May 22, 1999.
- --------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
NIAGARA CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STAEMENTS
- -----------------------------------------------------------------------------------------------------------------
1. SUMMARY OF Organization and Business Operations
SIGNIFICANT
ACCOUNTING Niagara Corporation ("Niagara") was incorporated in Delaware on April
POLICIES 27, 1993 with the objective of acquiring an operating business in the
metals processing and distribution industry or in a metals-related
manufacturing industry.
Niagara consummated an initial public offering on August 20, 1993 and
raised net proceeds of $15,295,100. Since that date, it has made
acquisitions of three cold finished steel bar producers in the United
States and one group of businesses in the United Kingdom engaged in hot
rolling, cold finishing and distributing steel bars.
Niagara's subsidiaries, Niagara LaSalle Corporation ("Niagara LaSalle")
and LaSalle Steel Company ("LaSalle," and together with Niagara
LaSalle, "Niagara US") operate from five locations in the United
States. Niagara's subsidiary, Niagara LaSalle (UK) Limited ("Niagara
UK"), operates from ten locations in the United Kingdom. Niagara LaSalle
and LaSalle are Delaware corporations. Niagara UK is an English company.
Niagara's subsidiaries (together with Niagara, the "Company") produce cold
drawn and hot rolled steel bars for distribution primarily within North
America and Europe. The Company competes in a narrow segment of the steel
industry and its business is affected by conditions within the broader steel
industry and the automotive, agricultural and machine tool industries. It
grants trade credits to its customers consistent with industry practice.
Principles of Consolidation
The consolidated financial statements include the accounts of Niagara and
its subsidiaries, all of which are wholly-owned. All material intercompany
accounts and transactions have been eliminated.
Earnings Per Share
The Company follows Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings per Share," which requires presentation of
basic earnings per share and diluted earnings per share by all entities
that have publicly traded common stock or potential common stock
issuances (options, warrants, convertible securities or contingent
stock arrangements). Basic earnings per share is computed by dividing
income available to common stockholders by the weighted average number
of common shares outstanding during the period. Diluted earnings per
share gives effect to all dilutive potential common shares outstanding
during the period. The computation of diluted earnings per share does
not assume conversion, exercise or contingent exercise of securities
that would have an antidilutive effect on earnings.
Foreign Currency Translation and Transactions
Niagara UK uses British pounds sterling ("(pound)") as its functional
currency and its accounts are translated to United States dollars in
conformity with SFAS No. 52, "Foreign Currency Translation." Assets and
liabilities have been translated at year-end exchange rates and the related
revenues and expenses have been translated at rates prevailing at the
transaction date, which approximates average rates for the period.
Translation adjustments arising from the use of different exchange rates
from period to period are included as accumulated other comprehensive income
within the Statements of Stockholders' Equity. Gains and losses resulting
from foreign currency transactions are included in other income within the
Statements of Operations.
Cash Equivalents
For purposes of the Statements of Cash Flows, the Company considers
cash equivalents to consist of all short-term highly liquid debt
instruments which are readily convertible into cash. Cash equivalent
investments were $20,098 and $20,972 at December 31, 1998 and 1999,
respectively.
Revenue Recognition
Revenue from the sale of products is recorded at the time the goods are
shipped. Net delivery costs are classified as a reduction of sales.
Inventories
Inventories are stated at the lower of cost or market, with cost being
determined using the last-in, first-out (LIFO) method for Niagara US
and the first-in, first-out ("FIFO") method for Niagara UK.
Property, Plant and Equipment
Property, plant and equipment is stated at cost.
Additions to property, plant and equipment are stated at cost and
include expenditures for new facilities and those costs which
substantially increase the useful lives of existing property, plant and
equipment. Maintenance, repairs and minor renewals are expensed as
incurred.
The Company provides for depreciation of property, plant and equipment
at rates designed to amortize such assets over their useful lives.
Depreciation is computed on the straight-line method using lives of 3
to 15 years on machinery and equipment and furniture and fixtures, and
10 to 20 years on buildings and improvements and leasehold
improvements.
Other Current Assets
Other current assets at December 31, 1998 included a $500,000 loan due
from a related party. This loan was repaid during 1999.
Intangible Assets
Niagara LaSalle has a power replacement agreement with the Power
Authority of New York which provides for low cost energy. This
agreement, which is included in other assets, is being amortized on a
straight-line basis over 10 years.
Deferred financing costs are being amortized on a straight-line basis
over the term of the related debt, which is seven years.
Goodwill represents the excess of the cost of purchased businesses over
the fair value of the net assets acquired. Amortization is computed
using the straight-line method over 30 years.
Evaluating Recoverability of Long-Lived Assets
The Company reviews the carrying values of its long-lived and
identifiable intangible assets for possible impairment whenever events
or changes in circumstances indicate that the carrying amount of the
assets may not be recoverable. The Company assesses recoverability of
these assets by estimating future nondiscounted cash flows. Any
long-lived assets held for disposal are reported at the lower of their
carrying amounts or fair value less cost to sell. No impairments have
been recorded through December 31, 1999.
Income Taxes
Deferred income taxes are recognized for the tax consequences of
temporary differences between the financial reporting bases and the tax
bases of the Company's assets and liabilities in accordance with SFAS
No. 109. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Stock-Based Compensation
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation." SFAS No. 123 encourages entities to adopt
the fair value method in place of the provisions of Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees," for all arrangements under which employees receive
shares of stock or other equity instruments of the employer or the
employer incurs liabilities to employees in amounts based on the price
of its stock. The Company has not adopted the fair value method
encouraged by SFAS No. 123 and will continue to account for such
transactions in accordance with APB No. 25.
Comprehensive Income
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income,"
which establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income
is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other
disclosures, SFAS No. 130 requires that all items that are required to
be recognized under current accounting standards as components of
comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements.
Comprehensive income is displayed in the Statements of Stockholders'
Equity.
Pension and Other Postretirement Benefits
The Company has adopted the provisions of SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits," which
standardizes the disclosure requirements for pensions and other
postretirement benefits.
Recent Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133 "Accounting for Derivative Instruments and Hedging Activities,"
which requires entities to recognize all derivative financial
instruments as either assets or liabilities in the balance sheet and
measure these instruments at fair value. SFAS No. 133, as amended by
SFAS No. 137, is effective for all fiscal years beginning after June
15, 2000. The Company does not presently enter into any transactions
involving derivative financial instruments and, accordingly, does not
anticipate that the new standard will have any effect on its financial
statements.
2 . PUBLIC OFFERING On August 20, 1993, Niagara sold 2,875,000 units ("Units") in an
AND SUBSEQUENT initial public offering (the "Offering"). Each Unit consisted of one
COMMON STOCK ISSUANCES share of Niagara Common Stock, par value $.001 per share, and two
Redeemable Common Stock Purchase Warrants ("Warrants"). Each Warrant
entitled the holder to purchase from Niagara, until the close of
business on August 13, 2000, one share of Niagara Common Stock at an
exercise price of $5.50, subject to adjustment in certain
circumstances. The Warrants were redeemable at a price of $.01 per
Warrant upon 30 days' notice in the event that the last sale price of
the Common Stock was at least $10.00 per share for 20 consecutive
trading days ending on the third day prior to the date on which notice
of redemption was given.
On May 22, 1996, Niagara issued 168,750 shares of its Common Stock in
exchange for unit purchase options (the "Purchase Options") issued to the
underwriters of the Offering. The Purchase Options were exercisable until
August 13, 1998 for an aggregate of 250,000 units at $9.00 per unit
(subject, in each case, to certain antidilution adjustments), with each unit
consisting of one share of Niagara Common Stock and two warrants, with each
warrant exercisable for one share of Niagara Common Stock at $6.60.
On April 18, 1997, Niagara issued 285,715 shares of its Common Stock in
connection with the subordinated debt portion of the financing for the
acquisition of LaSalle (see Note 3(b)).
On October 31, 1997, Niagara exercised its right to redeem on December
9, 1997 (which date was extended to December 11, 1997) all of its then
outstanding and unexercised Warrants at $.01 per Warrant. As a result
of such action, the Warrants could not be exercised after the
redemption date. Of the 6,050,000 Warrants then outstanding, 6,042,990
were exercised prior to the exercise deadline, resulting in $33,236,445
in gross proceeds to Niagara and the issuance of 6,042,990 shares of
Niagara Common Stock.
3. ACQUISITIONS OF (a) Acquisition of Southwest
SOUTHWEST,
LASALLE AND THE U.K. On January 31, 1996, Niagara LaSalle purchased all of the
STEEL BAR outstanding shares of capital stock of Southwest Steel Company,
BUSINESSES Inc. ("Southwest"), a manufacturer of cold drawn steel bars, for
$1,920,000 in cash and $1,156,773 principal amount of promissory
notes guaranteed by Niagara. In connection with this
acquisition, Niagara LaSalle discharged $8,518,691 of Southwest
indebtedness and Niagara guaranteed $898,000 of Southwest
indebtedness to a former Southwest stockholder. The acquisition
was accounted for as a purchase and financed by a $12,000,000
term loan and the utilization of a portion of Niagara LaSalle's
revolving line of credit.
The Southwest purchase price, including certain transaction
expenses of $524,270, together with assumed liabilities of
$350,063, totaled $3,951,106. Southwest's stockholders' equity
at January 31, 1996 was $1,071,782. The $2,879,324 excess has
been allocated to goodwill and is being amortized on a
straight-line basis over 30 years.
Southwest's Tulsa, Oklahoma facilities were closed during 1996,
and its operations were moved to a new facility in Midlothian,
Texas. Southwest was merged into Niagara LaSalle on November 1,
1996.
On November 24, 1997, Niagara LaSalle paid $525,000 to the
former Southwest stockholders in full satisfaction of all
amounts owing under the $1,156,773 principal amount of
promissory notes issued to such individuals in connection with
the acquisition. The difference between the principal amount of
the promissory notes and the amount paid, after related
expenses, reduced the amount of goodwill recorded relating to
the acquisition of Southwest.
(b) Acquisition of LaSalle
On April 18, 1997, Niagara LaSalle purchased from Quanex
Corporation ("Quanex") all of the outstanding shares of capital
stock of LaSalle, one of the largest domestic producers of cold
drawn steel bars. In consideration for the sale of such shares,
Niagara LaSalle paid Quanex $65,500,000 in cash at the closing
and an additional $1,371,000, which amount was paid on January
26, 1998, based on changes in LaSalle's stockholder's equity
between October 31, 1996 and March 31, 1997. Niagara LaSalle
also paid Quanex an amount based on cash activity in the
intercompany account between Quanex and LaSalle from April 1,
1997 through April 18, 1997.
The financial statements include the results of LaSalle from
April 1, 1997. Accordingly, LaSalle's results are included in
the years ended December 31, 1998 and 1999, but are only
included from April 1, 1997 for the year ended December 31,
1997.
The acquisition of LaSalle was accounted for as a purchase. The
purchase price, including acquisition costs and other estimated
liabilities as of the acquisition date, was approximately
$68,000,000. The purchase price exceeded LaSalle's stockholder's
equity by approximately $56,000,000, and based on an appraisal,
the excess was primarily allocated to property, plant and
equipment.
The acquisition of LaSalle and the refinancing of existing Niagara
LaSalle indebtedness was financed pursuant to (i) a revolving credit
and term loan agreement with Niagara US (guaranteed by Niagara),
providing for a $50,000,000 three-year revolving credit facility
(which has been extended for an additional year) and a $40,000,000
eight-year term loan and (ii) the issuance and sale of $20,000,000
aggregate principal amount of 12.5% senior subordinated notes of
Niagara LaSalle due April 18, 2005 (the "Subordinated Notes"). In
connection with the subordinated debt portion of this financing, the
purchasers of the Subordinated Notes were issued 285,715 shares of
Niagara Common Stock (see Note 2). The fair value of these shares
($1,321,000) was charged to deferred debt issuance costs (see Note
18) and credited to equity.
(c) Acquisition of U.K. Steel Bar Businesses
On May 21, 1999, Niagara UK purchased the equipment, inventory
and certain other assets of the eight steel bar businesses of
Glynwed Steels Limited ("Gynwed Steels"), an English company and
a subsidiary of Glynwed International plc ("Glynwed"). In
consideration for the sale of such assets, Niagara UK paid
Glynwed Steels (pound)21,202,000 (approximately $34 million) in
cash at the closing, (pound)3,015,500 (approximately $4.9
million) of which was returned to Niagara UK during the third
quarter of 1999 as an adjustment to reflect the value of the net
assets transferred. These steel bar businesses, which are
engaged in hot rolling, cold finishing and distribution, consist
of the following unincorporated trading units: Ductile Wesson,
Gadd Dudley Port, GB Longmore, Macreadys, Midland Engineering
Steels and W Wesson.
The financial statements include the results of Niagara UK from May
22, 1999. The acquisition of the U.K. steel bar businesses was
accounted for as a purchase. The purchase price for these businesses
was approximately (pound) 21,275,500 (approximately $ 34.4 million)
which amount includes (pound)1,302,000 (approximately $2.1 million)
of acquisition costs and (pound) 1,787,000 (approximately $2.9
million) of estimated costs relating to the intended closure of
certain facilities and intended consolidation of certain operations.
Such estimated costs include approximately (pound)810,000
(approximately $1.3 million) of severance costs in respect of
approximately 90 employees, approximately (pound)470,000
(approximately $0.8 million) of fixed asset write-offs, and
approximately (pound)210,000 (approximately $0.4 million) of site
clearance costs. At December 31, 1999, approximately (pound)1,154,000
(approximately $1.9 million) of such estimated costs were included in
accrued expenses.
In connection with the acquisition of the U.K. steel bar businesses,
Niagara and Niagara UK entered into agreements with subsidiaries of
Glynwed providing for the lease or sublease by Niagara UK of 10
operating facilities and the assignment of 5 sales office leases.
Pursuant to these agreements, (i) the initial term of the lease is 10
years for 9 of the operating facilities and 5 years for the remaining
operating facility at aggregate rents of (pound)50,000 (approximately
$80,000) for the first two years; (pound)850,000 (approximately $1.3
million) for years 3-6; and (pound)1,000,000 (approximately $1.6
million) for years 7-10, (ii) each operating facility lease can be
terminated by Niagara UK on one year's notice and (iii) Niagara UK
has the option to purchase any or all of the 7 primary operating
facilities at prices fixed for 10 years (which prices total
(pound)9,468,000 (approximately $15.1 million)), or to renew the
leases with respect thereto for an additional term of 15 years at
commercial market rates.
The purchase of the U.K. steel bar businesses was financed by
(i) borrowings under a bank facilities agreement entered into on
May 21, 1999 by Niagara UK providing for a (pound)10 million
(approximately $16 million) seven-year term loan and a
(pound)9.8 million (approximately $15.7 million) three-year
revolving credit facility, (ii) a (pound)3.75 million
(approximately $6 million) equity investment by Niagara in
Niagara UK, (iii) a (pound)3.75 million (approximately $6
million) subordinated loan from Niagara to Niagara UK and (iv) a
(pound)2.5 million (approximately $4 million) short-term loan
from Niagara to Niagara UK. The equity investment and
subordinated and short-term loans were financed by borrowings
under a revolving credit and term loan agreement dated April 18,
1997, as amended, with Niagara US. (See Note 3(b)).
On August 23, 1999, Niagara UK entered into a three-year invoice
discounting agreement with Lombard Natwest Discounting Limited
providing for up to (pound)20 million (approximately $32.2
million) of advances to Niagara UK based upon a formula tied to
the receivables purchased by such institution. In connection
with the execution of this agreement, the revolving credit
facility under Niagara UK's bank facilities agreement was
reduced to (pound)4.9 million (approximately $7.9 million). This
facility was further reduced to (pound)2.5 (approximately $4.0
million) as of December 31, 1999.
Pro forma results of operations, assuming the acquisition of the
U.K. steel bar businesses had occurred on January 1, 1998, are
unaudited and detailed below. Pro forma adjustments primarily
include reductions in depreciation and amortization based on
changes in the useful lives of the assets acquired, additional
interest expense relating to the debt incurred in connection
with the acquisition, and changes in rent expense based on
property leases entered into in connection with the acquisition.
Year ended December 31, 1998 1999
------------------------------------------------------------------------
Net sales $396,573,526 $324,511,068
Net income (loss) 7,461,106 (2,122,086)
Net income (loss) per share
(basic) .76 (.23)
Net income (loss) per share
(diluted) .73 (.23)
========================================================================
4. INVENTORIES
Inventories consisted of the following at December 31, 1998 and 1999:
December 31, 1998 1999
------------------------------------------------------------------------
Raw materials $7,924,023 $25,231,191
Work-in-process 4,588,895 5,260,767
Finished goods 17,718,959 28,949,914
------------------------------------------------------------------------
$30,131,877 $59,441,872
========================================================================
At December 31, 1999, Niagara US inventories were $36,749,445
determined using the LIFO method and Niagara UK inventories were
$22,692,427 determined using the FIFO method.
5. PROPERTY, PLANT Property, plant and equipment consisted of the following at December
AND EQUIPMENT 31, 1998 and 1999:
December 31, 1998 1999
------------------------------------------------------------------------
Land, buildings and improvements $24,446,401 $24,606,004
Leasehold improvements 1,391,909 1,825,065
Machinery and equipment 75,597,659 94,364,513
Furniture and fixtures 1,684,028 3,348,343
------------------------------------------------------------------------
Total 103,119,997 124,143,925
Less: Accumulated depreciation
and amortization 13,371,116 21,160,043
------------------------------------------------------------------------
$89,748,881 $102,983,882
------------------------------------------------------------------------
6. LONG-TERM DEBT The long-term debt consisted of the following at December 31, 1998 and 1999:
December 31, 1998 1999
------------------------------------------------------------------------
Term note payable - bank, maturing in
monthly installments of
principal plus interest
through March 2004. From
November 1, 1997 through
April 1, 1998, the monthly
installments of principal
were $166,666. From May 1,
1998 through April 1,
1999, the monthly
installments of principal
were $333,333. From May 1,
1999 through April 1,
2000, the monthly
installments of principal
are $416,666. The monthly
principal payment is
adjusted annually each
subsequent May 1, with the
final installment due and
payable on April 1, 2004.
Interest is calculated at
either the LIBOR rate plus
210 basis points or the
bank's prime rate plus 50
basis points (effective
rate of 8.27% at December
31, 1999) $36,333,340 $31,666,680
Secured bank revolving line of credit
up to $50,000,000 due April
17, 2001, limited to a portion
of the value of eligible
accounts receivable and
inventories. Interest is
payable in monthly
installments at either the
LIBOR rate plus 175 basis
points or the bank's prime
rate plus 25 basis points
(effective rates of 8.75%
on $8,000,000, 7.93% on
$20,000,000 and 7.91% on
$2,500,000 at December 31,
1999) 9,000,000 30,500,000
Term note payable - bank(facilities
agreement) maturing in
monthly installments of
principal plus interest
from May 2000 through
April 2006. The monthly
installments of principal
are(pound)50,000 from May
2000 through April 2001,
(pound)85,000 from May
2001 through April
2002,(pound)125,000 from
May 2002 through April
2003,(pound)160,000 from
May 2003 through Aril
2004,(pound)200,000 from
May 2004 through April
2005, and(pound)213,333
from May 2005 through
April 2006. Interest is
calculated at the LIBOR
rate plus 15 basis points.
The note is secured by,
among other things, a
letter of credit for the
balance outstanding with a
fee of 275 basis points
(effective rate of 8.66%
at December 31, 1999) - 15,841,700
Secured invoice discounting agreement up
to(pound)20,000,000
($32,330,000) due August
23, 2002, limited to a
portion of the purchased
accounts receivable.
Interest is payable in
monthly installments at
the National Westminster
Bank base rate plus 225
basis points (effective
rate of 8.34% at December
31, 1999) - 14,847,552
Note payable - former Southwest stock-
holder maturing $64,143
annually on January 31,
through 2010, plus
interest at 8.5%,
guaranteed by Niagara
(Note 3(a)) 769,714 705,571
Note payable - former Southwest stock-
holder maturing $33,333
annually on April 17,
through 2005, plus
interest at 10% 233,334 200,001
Other notes payable 33,071 37,180
------------------------------------------------------------------------
46,369,459 93,798,684
Less: Current maturities of long-term
debt 4,797,209 6,410,741
------------------------------------------------------------------------
$41,572,250 $87,387,943
========================================================================
The obligations of Niagara US under the revolving credit and term loan
agreement are guaranteed by Niagara and secured by substantially all of
the assets and a pledge of all outstanding capital stock of Niagara US.
This credit agreement carries restrictions on, among other things,
indebtedness, liens, capital expenditures, dividends, asset
dispositions and changes in control of Niagara US, and requires minimum
levels of net worth through maturity. Also included in this agreement
are requirements regarding the ratio of consolidated current assets to
consolidated current liabilities and the ratio of net income before
interest, taxes, depreciation and amortization to cash interest
expense.
The obligations of Niagara UK under the facilities agreement are
secured by standby letters of credit and substantially all of the
assets of Niagara UK (for the benefit of the issuer of such letters of
credit). Niagara's UK's agreement to reimburse the issuer for drawdowns
under such letters of credit is guaranteed by Niagara and Niagara US,
which guarantees are secured by substantially all of the assets of
Niagara US on a second priority basis. The obligations of Niagara UK
under the invoice discounting agreement are guaranteed by Niagara and
secured by substantially all of the assets of Niagara UK. The
facilities and invoice discounting agreements carry restrictions on,
among other things, security interests, borrowed money, asset
dispositions, dividends, transactions with affiliates, capital
expenditures, changes in control and mergers and acquisitions. Also
included in these agreements are requirements regarding tangible net
worth, the ratio of profit before interest and taxes to interest and
the ratio of current assets to current liabilities.
Approximate maturities of long-term debt are as follows:
Year ended December 31,
------------------------------------------------------------------------
2000 $ 6,411,000
2001 38,724,000
2002 24,778,000
2003 11,642,000
2004 6,718,000
Thereafter 5,526,000
------------------------------------------------------------------------
$ 93,799,000
========================================================================
7. PENSION PLANS LaSalle sponsors two contributory defined benefit pension plans which
AND OTHER cover certain employees of LaSalle, as well as various retiree health
POSTRETIREMENT and welfare programs providing postretirement benefits for eligible
BENEFITS employees hired prior to certain specified dates.
LaSalle's benefit plans were revised in 1998 to effect several changes
in benefits. The net effect of these changes, primarily curtailments,
was to reduce expenses by an aggregate of $4,949,000 in the 1998
Statement of Operations (see Note 19). This reduction is reflected as a
reduction of (i) $3,320,000 to cost of products sold and (ii)
$1,629,000 to selling, general and administrative expenses.
The following tables provide a reconciliation of the changes in these
plans' benefit obligations and fair value of assets over the two-year
period ending December 31, 1999, and a statement of the funded status
as of December 31, 1998 and 1999:
Pension benefits Other benefits
---------------------------- --------------------------
1998 1999 1998 1999
- ---------------------------------------------------------------------------------------------
Reconciliation of benefit obligation
Obligation at January 1 $19,799,000 $23,651,000 $12,463,000 $5,483,000
Service cost 449,000 517,000 107,000 76,000
Interest cost 1,559,000 1,605,000 763,000 357,000
Plan amendments 899,000 - - -
Actuarial (gain) loss 1,398,000 (1,670,000) 191,000 1,153,000
Benefit payments (1,220,000) (1,656,000) (988,000) (721,000)
Curtailments (869,000) - (7,299,000) -
Termination benefits 1,636,000 - 246,000 -
- ---------------------------------------------------------------------------------------------
Obligation at December 31 $23,651,000 $22,447,000 $5,483,000 $6,348,000
=============================================================================================
Pension benefits Other benefits
--------------------------- --------------------------
1998 1999 1998 1999
- ---------------------------------------------------------------------------------------------
Reconciliation of fair value of plan
assets
Fair value of plan assets at January 1 $18,101,000 $19,310,00 $ - $ -
Actual return on plan assets 820,000 2,426,000 988,000 -
Employer contributions 1,609,000 1,030,000 - 721,000
Benefit payments (1,220,000) (1,656,000) (988,000) (721,000)
- ----------------------------------------------------------------------------------------------
Fair value of plan assets at $19,310,000 $21,110,000 $ - $ -
December 31
=============================================================================================
Pension benefits Other benefits
------------------------------ -----------------------------
1998 1999 1998 1999
- ---------------------------------------------------------------------------------------------
Funded status
Funded status at December 31 $(4,341,000) $(1,337,000) $(5,483,000) $(6,348,000)
Unrecognized prior service cost 526,000 474,000 - -
Unrecognized (gain) loss 1,445,663 (765,987) (155,639) 1,016,414
- ---------------------------------------------------------------------------------------------
Net amount recognized $(2,369,337) $(1,628,987) $(5,638,639) $(5,331,586)
=============================================================================================
The following table provides the amounts recognized in the Company's
balance sheets at December 31, 1998 and 1999:
Pension benefits Other benefits
------------------------------- ----------------------------
1998 1999 1998 1999
- ---------------------------------------------------------------------------------------------
Prepaid benefit cost $ 5,000 $ 280,000 $ - $ -
Accrued benefit liability (4,664,337) (2,690,987) (5,638,639) (5,331,586)
Intangible asset 526,000 474,000 - -
Accumulated other comprehensive
income, pretax 1,764,000 308,000 - -
- ---------------------------------------------------------------------------------------------
Net amount recognized $(2,369,337) $ (1,628,987) $(5,638,639) $(5,331,586)
=============================================================================================
LaSalle's hourly pension plan has an accumulated benefit obligation in
excess of plan assets. The plan's accumulated benefit obligation was
$15,613,000 and $14,727,000 at December 31, 1998 and 1999, respectively.
Plan assets for this plan were $10,870,000 and $11,951,000 at December 31,
1998 and 1999, respectively. LaSalle's plans for postretirement benefits
other than pensions have no plan assets. The aggregate benefit obligations
for such plans is $5,483,000 and $6,348,000 at December 31, 1998 and 1999,
respectively.
The following table provides the components of net periodic benefit cost
for LaSalle's plans for fiscal years 1998 and 1999:
Pension benefits Other benefits
------------------------------ ---------------------------
1998 1999 1998 1999
- ---------------------------------------------------------------------------------------------
Service cost $ 449,000 $ 517,000 $ 107,000 $ 76,000
Interest cost 1,559,000 1,605,000 763,000 357,000
Expected return on plan assets (1,885,000) (1,912,000) - -
Amortization of prior service cost 24,000 52,000 - -
Amortization of unrecognized loss
(gain) - 25,000 - (19,000)
- ----------------------------------------------------------------------------------------------
Net periodic benefit cost 147,000 287,000 870,000 414,000
Curtailment/settlement/ termination
benefits loss (gain) 1,985,000 - (6,934,000) -
- ---------------------------------------------------------------------------------------------
Net periodic benefit cost after
curtailments and settlements $2,132,000 $287,000 $(6,064,000) $ 414,000
=============================================================================================
The amount included within other comprehensive income arising from a change
in the additional minimum pension liability was($1,076,000) (net of tax
benefit) and $888,000 (net of tax expense) for 1998 and 1999, respectively.
LaSalle provides certain health care and life insurance benefits for
eligible retired employees. Employees may become eligible for such benefits
if they reach the normal retirement age while working for LaSalle. LaSalle
continues to fund benefit costs on a pay as you go basis.
The assumptions used in the measurement of LaSalle's benefit obligation are
shown in the following table:
Pension benefits Other benefits
------------------------------ -------------------------
1998 1999 1998 1999
- --------------------------------------------------------------------------------------------
Weighted average assumptions as
of December 31:
Discount rate:
Used for determination of
expense 7.50% 7.00% 7.50% 7.00%
Used for determination of
year-end liability 7.00% 7.75% 7.00% 7.75%
Expected return on plan assets 10.00% 10.00% N/A N/A
Rate of compensation increase -
hourly plan 3.00% 3.00% N/A N/A
Rate of compensation increase -
salaried plan 5.00% 5.00% N/A N/A
============================================================================================
Because of changes effected during 1998 to health care benefits under
LaSalle's postretirement benefit plans, a zero percent health care cost
trend rate has been assumed since then.
Niagara LaSalle maintains a contributory salary deferral retirement plan
(401(k)) for all employees of Niagara and Niagara US other than those
subject to a collective bargaining agreement (the "Salaried 401(k) Plan").
Under the terms of this plan, participants may elect to defer up to 15% of
their earnings. This plan provides for a 100% match for the first 3% of
employee contributions and a 50% match for the next 2% of employee
contributions, and an additional employer contribution equal to 2% of
earnings. Niagara LaSalle also maintains a contributory salary deferral
retirement plan (401(k)) for employees of LaSalle who are subject to a
collective bargaining agreement. This plan provides for a 25% match of the
first 5% of employee contributions for all participants other than
employees at the Company's Hammond, Indiana facility hired after May 18,
1998 for whom the plan provides for the same employer match and additional
contribution provisions as the Salaried 401(k) Plan. All contributions
under these plans are subject to the limitations of Section 401 of the
Internal Revenue Code and the requirements of the Employee Retirement
Income Security Act of 1974. The funds are invested as directed by the
individual participants. Total expense related to these plans was
approximately $288,000, $622,000 and $656,000 for the years ended December
31, 1997, 1998 and 1999, respectively.
Niagara UK established a defined contribution group personal pension
arrangement for all of its employees effective October 1, 1999. (Between
May 21 and October 1, 1999 (the "Transitional Period"), employees of
Niagara UK were able to continue their participation in Glynwed's pension
plans on a transitional basis.) Under the terms of Niagara UK's plan,
participants may elect to contribute prescribed percentages of their
earnings based upon their age, position and whether they were previously
members of a Glynwed pension plan. Niagara UK's contributions to
participants' accounts under this plan are based upon the same factors. All
contributions are subject to the requirements of the U.K. Inland Revenue
and related pension laws. The funds are invested as directed by the
individual participants. For the period May 22 through December 31, 1999,
expenses in respect of this plan, together with Niagara UK's contributions
to Glynwed's pension plans during the Transitional Period (in respect of
Niagara UK employees), totaled approximately (pound)776,000 (approximately
$1,249,000).
8. PREFERRED STOCK Niagara is authorized to issue 500,000 shares of Preferred Stock, par
value $.001 per share, with such designations, voting and other rights
and preferences as may be determined from time to time by its Board of
Directors.
9. LEASE Niagara leases office space under an operating lease expiring in
COMMITMENTS December 2007. Niagara US leases equipment and one operating facility
under operating leases expiring through November 2009. Niagara UK
leases equipment, ten operating facilities and five sales offices under
operating leases expiring through May 2009. At December 31, 1999,
future minimum payments under noncancellable operating leases were
approximately as follows:
------------------------------------------------------------------------
2000 $ 939,000
2001 1,756,000
2002 2,143,000
2003 1,965,000
2004 1,842,000
Thereafter 9,511,000
------------------------------------------------------------------------
Total minimum lease payments $ 18,156,000
========================================================================
Rent expense under operating leases was approximately $458,000,
$418,000 and $975,000 for the years ended December 31, 1997, 1998 and
1999, respectively.
Niagara LaSalle is negotiating an equipment lease with a finance
company. Upon execution of this lease, all purchase price installment
payments made by Niagara LaSalle to the equipment manufacturer
($2,255,687 as of December 31, 1999) will be reimbursed by the lessor
to Niagara LaSalle.
10. STOCK OPTION The Company has a stock option plan which provides that the
PLAN Compensation Committee of Niagara's Board of Directors may grant
options to the Company's officers, directors, employees and independent
contractors for up to 2,500,000 shares of Niagara Common Stock.
The Company applies APB Opinion 25, "Accounting for Stock Issued to
Employees," and related Interpretations in accounting for this plan.
Under APB Opinion 25, no compensation cost was recognized because the
exercise price of Niagara's employee stock options equaled the market
price of the underlying stock on the date of grant.
FASB Statement 123, "Accounting for Stock-Based Compensation," requires
that the Company provide pro forma information regarding net income and
earnings per share as if the compensation cost for the Company's stock
option plan had been determined in accordance with the fair value
method prescribed in such statement. The Company estimates the fair
value of each stock option at the grant date by using the Black-Scholes
option-pricing model with the following weighted average assumptions
used for grants in 1997, 1998 and 1999: dividend yield of 0%; expected
volatility of 37.3% for 1997 and 1998 and 45.8% for 1999; average
risk-free interest rates of 6.6%, 4.5% and 4.7% for 1997, 1998 and
1999, respectively; expected lives of 10 years; and a discount due to
marketability and dilution of 22% in 1997 and 0% for 1998 and 1999.
Under the accounting provisions of FASB Statement 123, the Company's
net income and earnings per share would have been reduced to the pro
forma amounts indicated below:
1997 1998 1999
- ------------------------------ ---------------- ----------------------- -----------------------
Net income:
As reported $1,912,318 $6,510,106 $3,756,625
Pro forma 1,494,881 6,037,295 3,238,140
Net income per share (basic):
As reported .45 .66 .40
Pro forma .35 .61 .35
Net income per share (diluted):
As reported .38 .64 .40
Pro forma .29 .59 .35
============================== ================ ======================= =======================
A summary of the status of the Company's stock option plan as of December
31, 1997, 1998 and 1999, and changes during the years ending on those
dates, is presented below:
December 31, 1997 December 31, 1998 December 31, 1999
----------------------- -------------------------- ------------------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Shares price Shares price Shares price
- ----------------- ----------------------- --------------------------- - ------------------------
Outstanding
at beginning
of year 815,000 $5.66 1,190,000 $5.68 1,250,000 $5.61
Granted 375,000 5.72 85,000 5.50 890,000 5.88
Exercised - - - - - -
Cancelled and
reissued - - (25,000) (8.50) - -
- ----------------------------------------------------------------------------------------------------
Outstanding
at end of year 1,190,000 $5.68 1,250,000 $5.61 2,140,000 $5.72
================= ======================= =========================== = ========================
Options
exercisable at
year-end 485,332 $5.69 751,000 $5.64 1,203,000 $5.67
================= ======================= =========================== = ========================
Weighted
average fair
value of
options
granted
during the
year $2.78 $2.80 $3.19
================= ======================= =========================== = ========================
The following table summarizes information about stock options outstanding
at December 31, 1999.
Options outstanding Options exercisable
-------------------------------------------- ----------------------------
Weighted
Number average Weighted Number Weighted
Range of outstanding remaining average exercisable average
exercise at contractual exercise at exercise
prices 12/31/99 life price 12/31/99 price
- ------------------------------------------------------------------------------------------------
$5.50 to
$5.88 2,140,000 7.61 years $5.72 1,203,000 $5.67
================================================================================================
11. INCOME TAXES The provision for federal and state income tax expense was comprised of
the following:
Year ended December 31, 1997 1998 1999
- --------------------------------------------------------------------------------------------------
Current:
Federal $ 1,801,000 $887,000 $ 738,000
State 158,000 152,000 100,000
- --------------------------------------------------------------------------------------------------
1,959,000 1,039,000 838,000
- --------------------------------------------------------------------------------------------------
Deferred:
Federal 425,000 2,622,000 1,130,000
State 95,000 604,000 185,000
Foreign, U.K. - - 146,000
- ---------------------------------------------------------------------------------------------------
520,000 3,226,000 1,461,000
- --------------------------------------------------------------------------------------------------
Total income taxes $ 2,479,000 $4,265,000 $ 2,299,000
==================================================================================================
At December 31, 1998 and 1999, deferred tax assets (liabilities) consisted
of the following:
December 31, 1998 1999
- ---------------------------------------------- ---------------------------------------------
Federal alternative minimum tax
credit carryforwards $ 1,095,000 $ 1,894,000
Federal and state regular tax net
operating loss carryforwards 690,000 1,095,000
Postretirement benefit obligations 924,000 270,000
Accrued expenses deductible when
paid 843,000 723,000
Inventory reserves 837,000 1,261,000
Accrued minimum pension liability 688,000 120,000
New York State investment tax
credits 667,000 667,000
Allowance for doubtful accounts 305,000 325,000
Uniform capitalization in ending tax
inventory 81,000 87,000
Other 11,000 95,000
- ---------------------------------------------- ------------------------------------------------
Gross deferred tax assets 6,141,000 6,537,000
Valuation allowance for deferred tax
assets (667,000) (667,000)
- -----------------------------------------------------------------------------------------------
Net deferred tax assets 5,474,000 5,870,000
- ---------------------------------------------- ------------------------------------------------
Tax depreciation greater than book
depreciation of property,
plant and equipment (5,846,000) (8,459,000)
Pushdown adjustment for property,
plant, equipment and
intangibles (4,919,999) (4,644,000)
Pushdown adjustment for inventories (1,572,000) (1,513,000)
Other - (146,000)
- -----------------------------------------------------------------------------------------------
Gross deferred tax liabilities (12,337,000) (14,762,000)
- ---------------------------------------------- ------------------------------------------------
Net deferred tax liabilities $ (6,863,000) $ (8,892,000)
============================================== ================================================
Deferred taxes are included in the accompanying balance sheets as follows:
1998 1999
- ---------------------------------------------------------------------------------------------
Current asset for deferred income
taxes $ 494,000 $ 957,000
Noncurrent liability for deferred
income taxes (7,357,000) (9,849,000)
- ---------------------------------------------------------------------------------------------
Net deferred tax liabilities $ (6,863,000) $ (8,892,000)
=============================================================================================
At December 31, 1999, the Company had available federal alternative minimum
tax credit carryforwards of approximately $1,894,000 which do not expire
and can be used to offset future years' regular tax to the extent it
exceeds alternative minimum tax.
At December 31, 1999, the Company had available net operating loss
carryforwards for regular federal and state income tax purposes of
approximately $1,500,000 and $7,000,000, respectively, expiring through
2019.
At December 31, 1999, Niagara LaSalle had New York state investment tax
credit carryforwards of approximately $667,000, which may be available to
offset certain future state income taxes. These credits expire through
2005. A valuation allowance has been provided for these tax credits.
A reconciliation of the statutory federal income tax rate and effective
rate as a percentage of pre-tax income was as follows:
1997 1998 1999
---------------------------------------------------------------------
Amount % Amount % Amount %
- ---------------------------------------------------------------------------------------------
Tax at statutory rate $2,194,000 34.0% $3,664,000 34.0% $2,059,000 34.0%
State income taxes
net of federal
income tax benefit 167,000 2.6 481,000 4.5 206,000 3.4
Goodwill amortization 118,000 1.8 120,000 1.1 91,000 1.5
Other - - - - (57,000) (.9)
- ---------------------------------------------------------------------------------------------
Effective tax rate $2,479,000 38.4% $4,265,000 39.6% $2,299,000 38.0%
=============================================================================================
No provision has been made for U.S. or additional U.K. taxes on $388,472 of
undistributed Niagara UK earnings as any such tax would be insignificant.
Such earnings could become subject to additional tax if they were remitted
as a dividend to Niagara. However, as discussed in Note 6, Niagara UK is
restricted under its bank facilities and invoice discounting agreements from
paying dividends to Niagara.
12. MAJOR CUSTOMERS Sales to three customers in 1997 were approximately 27%, 8% and 6% of
total sales.
Sales to three customers in 1998 were approximately 21%, 9% and 9% of
total sales. Accounts receivable from these major customers represented
approximately 38% of aggregate accounts receivable at December 31,
1998.
Niagara US' sales to three customers in 1999 were approximately 23%,
12% and 10% of its total sales. It had accounts receivable from these
major customers representing approximately 43% of its aggregate
accounts receivable at December 31, 1999.
None of Niagara UK's customers exceeded 5% of its total sales.
13. MAJOR SUPPLIERS Niagara US had one supplier from which purchases were approximately 29%
of total purchases in 1998. It had two suppliers from which purchases
were approximately 43% of its total purchases in 1999.
Niagara UK had one supplier from which purchases were approximately 36%
of its total purchases in 1999.
14. COMMITMENTS AND Commitments
CONTINGENCIES
In addition to the equipment discussed in Note 9, the Company was
committed to purchase approximately $2,800,000 of machinery and
equipment at December 31, 1999.
Niagara and Niagara LaSalle have entered into employment contracts with
certain of their officers. These contracts, which expire in August
2000, March 2001 and January 2004, provide minimum salary levels, as
well as incentive bonuses and Niagara stock options. The aggregate
contract commitment for future minimum salaries at December 31, 1999,
excluding bonuses and stock options, was approximately $2,437,000.
At December 31, 1999, Niagara UK was a party to employment agreements
with 13 of its executives. These agreements provide for a notice
period, generally one year, prior to termination of the executive's
employment with Niagara UK. If Niagara UK terminates the executive's
employment prior to the expiration of such notice period, the agreement
provides that the executive will receive the compensation that would
have been paid for the remainder of the period.
Contingencies
Niagara US and Niagara UK are subject to environmental laws and
regulations concerning, among other matters, water and air emissions
and waste disposal. Under such laws, including the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 as
amended ("CERCLA"), Niagara US and Niagara UK may be responsible for
parts of the costs required to remove or remediate previously disposed
wastes or hazardous substances at the locations they own or operate or
at the locations which they arranged for disposal of such materials.
The costs expended through December 31, 1999 have been largely covered
by insurance. Management believes any resolution of these matters will
not have a material adverse effect on the Company's financial position
or operations.
Under the Company's insurance programs, coverage is obtained for
catastrophic exposures as well as those risks required to be insured by
law or contract. In connection with these programs, Niagara US has
provided certain insurance carriers with irrevocable standby letters of
credit totaling $350,000 as of December 31, 1999. It is the policy of
the Company to retain a portion of certain expected losses which relate
primarily to workers' compensation, physical loss to property, business
interruption resulting from such loss and comprehensive general,
product, vehicle, medical and life benefits and liability. Provisions
for losses expected under these programs are recorded based upon the
Company's estimates of the aggregate liability, actual and estimated,
for claims. Such estimates utilize certain actuarial assumptions
followed in the insurance industry and are included in accrued
expenses.
15. EARNINGS PER The following table sets forth the calculation of weighted average
SHARE common shares outstanding for the calculation of basic and diluted
earnings per share:
December 31, 1997 1998 1999
- --------------------------------------------------------------------------------------------------
Weighted average shares (for
basic earnings per share) 4,246,925 9,879,528 9,350,189
Effect of dilutive securities:
Employee stock option
equivalents 848,425 370,426 6,925
- --------------------------------------------------------------------------------------------------
Adjusted weighted average
shares (for diluted
earnings per share) 5,095,350 10,249,954 9,357,114
==================================================================================================
16. DISCLOSURE ABOUT The following methods and assumptions were used to estimate the fair
FAIR VALUE OF value of each class of financial instruments for which it is
FINANCIAL practicable to estimate that value.
INSTRUMENTS
The carrying amounts of cash, trade accounts receivable and current
liabilities approximate fair value because of the short maturity of
these instruments.
The carrying amount of debt approximates fair value because the
interest rates on these instruments fluctuate with market interest
rates or are based on current rates offered to the Company for debt
with similar terms and maturities.
17. SUPPLEMENTAL Interest paid during the years ended December 31, 1997, 1998 and 1999
CASH FLOW was approximately $5,637,000, $4,306,000 and $5,660,000, respectively.
INFORMATION
Income tax payments made during the years ended December 31, 1997, 1998
and 1999 totaled approximately $512,000, $2,194,000 and $1,011,000,
respectively.
As discussed in Note 3(b), Niagara LaSalle acquired all of the capital
stock of LaSalle for $68,183,000 in 1997. In connection with this
acquisition, net assets were acquired as follows:
------------------------------------------------------------------------
Fair value of assets acquired $ 110,351,000
Liabilities assumed (42,168,000)
------------------------------------------------------------------------
Net assets acquired $ 68,183,000
========================================================================
As discussed in Note 3(c), Niagara UK acquired certain assets of the
steel bar businesses of Glynwed Steels for approximately $34,391,000 in
1999. In connection with this acquisition, net assets were acquired as
follows:
------------------------------------------------------------------------
Fair value of assets acquired $ 38,437,000
Liabilities assumed (4,046,000)
------------------------------------------------------------------------
Net assets acquired $ 34,391,000
========================================================================
Noncash investing and financing activities consisted of the following:
1997 1998 1999
- ------------------------------------------------------------------------------------------------
Adjustment of minimum pension liability 275,000 (Note 7):
Prepaid benefit cost $ - $ 5,000 $ 275,000
Intangible asset - 526,000 (52,000)
Deferred tax asset - 688,000 (568,000)
Accumulated other comprehensive
income, net of tax - 1,076,000 (888,000)
- -------------------------------------------------------------------------------------------------
Accrued pension cost $ - $2,295,000 $(1,233,000)
=================================================================================================
Deferred debt issuance costs recorded
as additional paid-in capital
(Note 3(b)) $ 1,321,432 $ - $ -
=================================================================================================
Adjustments arising from satisfaction - of Southwest notes (Note 3(a)):
Decrease in goodwill $ 310,715 $ - $ -
Decrease in accounts
receivable 89,491 - -
Decrease in inventory 81,595 - -
- -------------------------------------------------------------------------------------------------
Decrease in long-term debt $ 481,801 $ - $ -
=================================================================================================
Investment in LaSalle financed by
amount due to Quanex Corporation $ 933,000 $ - $ -
=================================================================================================
18. EXTRAORDINARY In 1997, Niagara LaSalle sold the Subordinated Notes. Net proceeds from
ITEM the sale, together with borrowings under the revolving credit and term
loan agreement, were used to finance the acquisition of LaSalle (see
Note 3(b)).
In December 1997, in connection with the prepayment of the Subordinated
Notes, the Company was required to write off unamortized debt issuance
costs and incur a prepayment charge in the aggregate amount of
approximately $3,326,000. The resultant one time, after-tax charge
amounted to approximately $2,062,000. The Subordinated Notes and
prepayment charge were paid by Niagara from the proceeds of the
Warrants exercised during the fourth quarter of 1997 (see Note 2).
19. 1998 ADJUSTMENTS On July 19, 1998, following a nine-week strike, the hourly workers at
LaSalle's Hammond, Indiana facility voted to accept a new three-year
collective bargaining agreement. Among other things, this agreement
provides for a curtailment of certain pension costs and other
postretirement benefits. The net effect of these curtailments was to
reduce the Company's obligations by $1,746,000 during the quarter ended
September 30, 1998 and $3,203,000 during the quarter ended December 31,
1998, for an aggregate reduction of $4,949,000 for 1998. This reduction
increased net income by $1,065,000 for the quarter ended September 30,
1998 and $1,954,000 for the quarter ended December 31, 1998, for an
aggregate increase to net income of $3,019,000 for 1998.
20. SEGMENTS AND Niagara operates in two reportable segments: (i) Niagara US which has
RELATED operations in the United States and (ii) Niagara UK which has
INFORMATION operations in the United Kingdom. Niagara operates these segments as
separate strategic business units and measures the segment performance
based on earnings before interest, taxes, depreciation and amortization
("EBITDA"). Niagara UK uses British pounds sterling as its functional
currency and its accounts are translated to United States dollars in
conformity with SFAS No. 52, "Foreign Currency Translation." Assets and
liabilities have been translated at year-end exchange rates and the
related revenues and expenses have been translated at rates prevailing
at the transaction date, which approximates average rates for the
period.
The following table sets forth certain performance and other
information by reportable segment. Performance information for Niagara
UK reflects the results from May 22, 1999.
Year ended December 31, 1999
------------------------------------------------------------------------
Niagara US Niagara UK
------------------------------------------------------------------------
Net sales $ 186,432,025 $ 77,789,863
Segment profit (EBITDA) 17,906,574 3,927,950
Depreciation and amortization 7,108,909 1,018,395
Interest expense 4,081,535 1,549,014
Segment assets 150,228,015 76,416,825
Acquisition of property and
equipment 4,029,562 717,726
========================================================================
Certain of the foregoing segment information (profit, depreciation and
amortization, assets, and acquisition of property and equipment) does
not include components attributable to Niagara or incurred by Niagara
on behalf of its operating subsidiaries. Prior to the acquisition of
the U.K. steel bar businesses, the Company had one segment as all of
its operations were in the United States.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The information required by Item 10 will be contained in, and is
incorporated herein by reference from, the section entitled "Election of
Directors" of the Registrant's Proxy Statement for its 2000 Annual Meeting
of Stockholders to be filed with the Commission (the "Proxy Statement"), or
will be filed by amendment to this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 will be contained in, and is
incorporated herein by reference from, the section entitled "Executive
Compensation" of the Proxy Statement, or will be filed by amendment to this
Form 10- K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information required by Item 12 will be contained in, and is
incorporated herein by reference from, the section entitled "Security
Ownership of Directors and Executive Officers" of the Proxy Statement, or
will be filed by amendment to this Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 will be contained in, and is
incorporated herein by reference from, the section entitled "Election of
Directors -- Certain Relationships and Related Transactions" of the Proxy
Statement, or will be filed by amendment to this Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS ON FORM 8-K.
(a) List of documents filed as a part of this Report:
1. Financial Statements. Financial Statements filed as part
of this Report on Form 10-K are listed in Item 8 on
page 17.
2. Financial Statement Schedules
Schedules I and II are filed as part of this Report on
Form 10-K beginning on page S-1 hereof.
(b) Reports on Form 8-K.
None.
(C) EXHIBITS
+3.1 Registrant's Restated Certificate of Incorporation, as amended on May 16, 1996.
*3.2 Registrant's By-laws.
*4.1 Form of Common Stock Certificate.
!!!!!4.2 Revolving Credit and Term Loan Agreement, dated as of April 18, 1997, by and among Niagara
Cold Drawn Corp., LaSalle Steel Company, Manufacturers and Traders Trust Company
(individually and as Agent), CIBC Inc. and National City Bank (the "Credit Agreement").
+++4.3 First Amendment to the Credit Agreement, dated as of September 4, 1997.
+++4.4 Second Amendment to the Credit Agreement, effective as of December 31, 1997.
!!!4.5 Third Amendment to the Credit Agreement, effective May 15, 1998.
**4.6 Fourth Amendment to the Credit Agreement, effective as of December 1, 1998.
****4.7 Fifth Amendment to the Credit Agreement, effective as of May 21, 1999.
4.8 Sixth Amendment to the Credit Agreement, effective as of December 31, 1999.
!!!!!4.9 Stockholders Agreement, dated as of April 18, 1997,
among the Registrant, Niagara Cold Drawn Corp., Michael
J. Scharf, The Prudential Insurance Company of America,
The Equitable Life Assurance Society of the United
States and United States Fidelity and Guaranty Company.
**4.10 Amended and Restated Promissory Note, dated December 15, 1998, made by Gilbert D. Scharf in
favor of Niagara Corporation.
****4.11 Bank Facilities Agreement, dated May 21, 1999 between National Westminster Bank Plc and
Niagara LaSalle (UK) Limited.
****4.12 Intercreditor Agreement, dated May 21, 1999, between National Westminster Bank Plc, Niagara
Corporation and Niagara LaSalle (UK) Limited.
++++4.13 Invoice Discounting Agreement, dated August 23, 1999, between Niagara LaSalle (UK) Limited
and Lombard Natwest Discounting Limited.
++++4.14 Intercreditor Agreement, dated August 23, 1999, between Lombard Natwest Discounting Limited,
Niagara Corporation and Niagara LaSalle (UK) Limited.
++++4.15 Deed of Priority, dated August 23, 1999, between
Lombard Natwest Discounting Limited, National
Westminster Bank Plc, Manufacturers and Traders Trust
Company, Niagara LaSalle (UK) Limited and Niagara
Corporation.
***10.1 Employment Agreement, dated as of January 1, 1999, by and among Niagara Corporation, Niagara
LaSalle Corporation and Michael Scharf.
** 10.2 Employment Agreement, dated August 16, 1995, between International Metals Acquisition
Corporation, Niagara Cold Drawn Corp. and Frank Archer.
** 10.3 Employment Agreement, dated August 16, 1995, between International Metals Acquisition
Corporation, Niagara Cold Drawn Corp. and Raymond Rozanski.
!10.4 Amended and Restated Promissory Note made by Southwest Steel Company, Inc. in favor of the
Cohen Family Revocable Trust, u/t/a dated June 15, 1988, in the principal amount of $898,000,
dated January 31, 1996.
!10.5 Guaranty, made by the Registrant in favor of the Cohen
Family Revocable Trust, u/t/a dated June 15, 1988,
dated January 31, 1996.
!!10.6 International Metals Acquisition Corporation 1995 Stock Option Plan.
!!!!10.7 First Amendment to the International Metals Acquisition Corporation 1995 Stock Option Plan,
dated October 5, 1996.
++10.8 Second Amendment to the Niagara Corporation 1995 Stock Option Plan, dated June 8, 1998.
++10.9 Niagara Corporation Employee Stock Purchase Plan.
** 10.10 First Amendment to Lease, dated May 4, 1998, between Niagara LaSalle Corporation and North
American Royalties, Inc.
*****10.11 Sale of Business Agreement, dated April 16, 1999, between Glynwed Steels Limited, Glynwed
International plc, Niagara LaSalle (UK) Limited and Niagara Corporation
*****10.12 Property Agreement, dated April 16, 1999, between
Glynwed Property Management Limited, Glynwed Properties
Limited, Niagara LaSalle (UK) Limited, Niagara
Corporation and Glynwed International plc.
*****10.13 Agreement For Lease of Unit 6-8 Eagle Industrial
Estate, dated April 16, 1999, between Glynwed Property
Management Limited, Glynwed Properties Limited, Niagara
LaSalle (UK) Limited and Niagara Corporation.
10.14 Form of Niagara LaSalle (UK) Limited Lease.
10.15 Form of Niagara LaSalle (UK) Limited Side Deed.
10.16 Form of Niagara LaSalle (UK) Limited Option Agreement.
10.17 Form of Niagara LaSalle (UK) Limited Lease Renewal Deed.
21 Subsidiaries of the Registrant.
27 Financial Data Schedule.
- --------------------------
+ Incorporated by reference to exhibit 3.1 filed with the
Registrant's Report on Form 10-Q for the quarter ended
June 30, 1996.
++ Incorporated by reference to Annexes to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders held on July
7, 1998.
+++ Incorporated by reference to exhibits filed with the
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1997.
++++ Incorporated by reference to exhibits filed with the
Registrant's Report on Form 10-Q for the quarter ended
September 30, 1999.
* Incorporated by reference to exhibits filed with the
Registrant's Registration Statement on Form S-1, Registration
No. 33-64682.
** Incorporated by reference to exhibits filed with the
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1998.
*** Incorporated by reference to exhibit 10.1 filed with the
Registrant's Report on Form 10-K/A for the fiscal year ended
December 31, 1998.
**** Incorporated by reference to exhibits filed with the Registrant's
Report on Form 8-K, dated June 4, 1999.
***** Incorporated by reference to exhibits filed with the Registrant's
Report on Form 8-K, dated April 27, 1999.
! Incorporated by reference to exhibits filed with the
Registrant's Report on Form 10-K for the year ended December
31, 1995.
!! Incorporated by reference to Annex A to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders held on May
16, 1996.
!!! Incorporated by reference to exhibit 4.8 to the Registrant's
Report on Form 10-Q for the quarter ended
June 30, 1998.
!!!! Incorporated by reference to exhibit 10.10 to the Registrant's
Report on Form 10-K for the fiscal year
ended December 31, 1996.
!!!!! Incorporated by reference to exhibits filed with the
Registrant's Report on Form 8-K, dated May 2, 1997.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized,
on the 30 th day of March, 2000.
NIAGARA CORPORATION
By: /s/ Michael Scharf
--------------------------------------
Michael Scharf
Chairman of the Board
Chief Executive Officer and 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 registrant and in the capacities and on the dates indicated.
Chairman of the Board,
/s/ Michael Scharf President and Chief Executive March 30, 2000
---------------------------------------
Michael Scharf Officer
Vice President,
Chief Financial and
/s/ Raymond Rozanski Principal Accounting March 30, 2000
- ---------------------------------------
Raymond Rozanski Officer
/s/ Gilbert D. Scharf Secretary and Director March 30, 2000
- ---------------------------------------
Gilbert D. Scharf
/s/ Frank Archer Director March 30, 2000
- ---------------------------------------
Frank Archer
/s/ Gerald L. Cohn Director March 30, 2000
- ---------------------------------------
Gerald L. Cohn
/s/ Andrew R. Heyer Director March 30, 2000
- ---------------------------------------
Andrew R. Heyer
/s/ Douglas T. Tansill Director March 30, 2000
- ---------------------------------------
Douglas T. Tansill
NIAGARA CORPORATION
AND SUBSIDIARIES
INDEX
- -------------------------------------------------------------------------------
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS S-2
FINANCIAL STATEMENT SCHEDULE I:
Condensed Financial Information of Registrant:
Balance Sheets S-3
Statements of Operations S-4
Statements of Stockholders' Equity S-5
Statements of Cash Flows S-6
Notes to Condensed Financial Statements S-7
FINANCIAL STATEMENT SCHEDULE II:
Valuation and Qualifying Accounts S-8
All other schedules have been omitted because they are
inapplicable or not required or the information is included in the
consolidated financial statements or the notes thereto.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Niagara Corporation
New York, New York
The audits referred to in our report dated February 18, 2000 relating to
the consolidated financial statements of Niagara Corporation and its
subsidiaries (together, the "Company"), which is contained in Item 8 of
Form 10-K, include the audits of the financial statement schedules listed
in the accompanying index. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statement schedules based upon our
audits.
In our opinion, such financial statement schedules present fairly, in all
material respects, the information set forth therein.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
New York, New York
February 18, 2000
NIAGARA CORPORATION
AND SUBSIDIARIES
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
- --------------------------------------------------------------------------------------------------------------------------
December 31, 1998 1999
- --------------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT:
Cash and cash equivalents $ 100,135 $ 601,931
Other current assets 1,267,247 492,256
- --------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 1,367,382 1,094,187
PROPERTY AND EQUIPMENT, NET 136,550 552,800
INVESTMENT IN AND NET ADVANCES TO SUBSIDIARIES 53,289,297 61,687,562
OTHER ASSETS, NET 80,352 74,492
- --------------------------------------------------------------------------------------------------------------------------
$ 54,873,581 $ 63,409,041
==========================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued expenses $ 343,038 $ 86,285
Advances from subsidiary - 6,861,478
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES $ 343,038 $ 6,947,763
- ---------------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (SEE NOTES 9, 10 AND
14 TO THE CONSOLIDATED FINANCIAL STATEMENTS)
STOCKHOLDERS' EQUITY (SEE NOTES 2, 7, 8 AND 10 TO THE CONSOLIDATED
FINANCIAL STATEMENTS):
Preferred stock, $.001 par value - 500,000 - -
shares authorized, none outstanding
Common stock, $.001 par value - 15,000,000
shares authorized, 9,997,455 issued 9,998 9,998
Additional paid-in capital 50,111,675 50,111,675
Retained earnings 8,384,835 12,141,460
Accumulated other comprehensive loss (1,076,000) (175,644)
- --------------------------------------------------------------------------------------------------------------------------
57,430,508 62,087,489
Treasury stock, at cost, 485,880 and 1,034,509
shares (2,899,965) (5,626,211)
- --------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY $ 54,530,543 $ 56,461,278
- --------------------------------------------------------------------------------------------------------------------------
$ 54,873,581 $ 63,409,041
==========================================================================================================================
See accompanying notes to condensed financial statements.
NIAGARA CORPORATION
AND SUBSIDIARIES
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1997 1998 1999
- ---------------------------------------------------------------------------------------------------------------------------
REVENUES:
Management fees from subsidiaries $ 1,125,000 $ 1,350,000 $ 1,838,175
(Note 2)
EXPENSES:
General and administrative expenses 1,217,817 2,405,744 2,069,283
- ----------------------------------------------------------------------------------------------------------------------------
(92,817) (1,055,744) (231,108)
OTHER INCOME:
Equity in net income of subsidiaries 1,910,600 7,040,774 3,880,171
Interest income 94,535 172,076 28,562
- -----------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX RECOVERIES 1,912,318 6,157,106 3,677,625
- -----------------------------------------------------------------------------------------------------------------------------
INCOME TAX RECOVERIES - 353,000 79,000
NET INCOME $ 1,912,318 $ 6,510,106 $ 3,756,625
===========================================================================================================================
EARNINGS PER SHARE - BASIC:
Net income per share - basic $ .45 $ .66 $ .40
===========================================================================================================================
EARNINGS PER SHARE - DILUTED:
Net income per share - diluted $ .38 $ .64 $ .40
===========================================================================================================================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (SEE NOTE 15 TO THE CONSOLIDATED
FINANCIAL STATEMENTS):
Basic 4,246,925 9,879,528 9,350,189
Diluted 5,095,350 10,249,954 9,357,114
===========================================================================================================================
See accompanying notes to condensed financial statements.
NIAGARA CORPORATION
AND SUBSIDIARIES
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1997, 1998 and 1999
- --------------------------------------------------------------------------------------------------------------------
Common stock
------------------------------ Retained
Number of Additional earnings
shares Amount paid-in capital (deficit)
- -------------------------------------------------- --------------- -------------- --------------- ---------------
BALANCE, JANUARY 1, 1997 3,668,750 $ 3,669 $ 15,560,127 $ (37,589)
Shares issued (a) 285,715 286 1,321,146 -
Shares issued (b) 6,042,990 6,043 33,230,402 -
Net income for the year - - - 1,912,318
- --------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER31, 1997 9,997,455 9,998 50,111,675 1,874,729
- -------------------------------------------------- --------------- -------------- --------------- ---------------
Comprehensive income:
Net income for the year - - - 6,510,106
Minimum pension liability adjustment
($1,764,000, net of tax benefit of $688,000) - - - -
- --------------------------------------------------------------------------------------------------------------------
TOTAL COMPREHENSIVE INCOME
- --------------------------------------------------------------------------------------------------------------------
Purchase of treasury stock, at cost (c) - - - -
BALANCE, DECEMBER31, 1998 9,997,455 9,998 50,111,675 8,384,835
- -------------------------------------------------- --------------- -------------- --------------- ---------------
Comprehensive income:
Net income for the year - - - 3,756,625
Foreign currency translation adjustments - - - -
Minimum pension liability adjustment
($1,456,000, net of tax expense of
$568,000) - - - -
TOTAL COMPREHENSIVE INCOME
Purchase of treasury stock, at cost (d) - - - -
- -------------------------------------------------- --------------- -------------- --------------- ---------------
BALANCE, DECEMBER 31, 1999 9,997,455 $ 9,998 $ 50,111,675 $ 12,141,460
================================================== =============== ============== =============== ===============
[CHART CONTINUED]
Years ended December 31, 1997, 1998 and 1999
Accumulated
other Total
comprehensive Treasury stock, Stockholders'
loss at cost Equity
- -------------------------------------------------- ------------------ ------------------ ---------------
BALANCE, JANUARY 1, 1997 $ - $ - $ 15,526,207
Shares issued (a) - - 1,321,432
Shares issued (b) - - 33,236,445
Net income for the year - - 1,912,318
BALANCE, DECEMBER 31, 1997 - - 51,996,402
- -------------------------------------------------- ------------------ ------------------ ---------------
Comprehensive income:
Net income for the year - - 6,510,106
Minimum pension liability adjustment
($1,764,000, net of tax benefit of $688,000) (1,076,000) - (1,076,000)
TOTAL COMPREHENSIVE INCOME 5,434,106
Purchase of treasury stock, at cost (c) - (2,899,965) (2,899,965)
- -----------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 (1,076,000) (2,899,965) 54,530,543
- -------------------------------------------------- ------------------ ------------------ ---------------
Comprehensive income:
Net income for the year - - 3,756,625
Foreign currency translation adjustments 12,356 - 12,356
Minimum pension liability adjustment
($1,456,000, net of tax expense of
$568,000) 888,000 - 888,000
- ----------------------------------------------------------------------------------------------------------
TOTAL COMPREHENSIVE INCOME 4,656,981
- -----------------------------------------------------------------------------------------------------------
Purchase of treasury stock, at cost (d) - (2,726,246) (2,726,246)
- -------------------------------------------------- ------------------ ------------------ ---------------
BALANCE, DECEMBER 31, 1999 $ (175,644)$ (5,626,211) $ 56,461,278
================================================== ================== ================== ===============
- -------------------
(a) On April 18, 1997, Niagara Corporation issued 285,715 shares of its Common Stock in connection with the
subordinated debt portion of the financing for the acquisition of LaSalle.
(b) Proceeds from exercise of Warrants during December 1997.
(c) During the year ended December 31, 1998, Niagara Corporation repurchased 485,880 shares of its Common Stock at a
cost of $2,899,965.
(d) During the year ended December 31, 1999, Niagara Corporation repurchased 548,629 shares of its Common Stock at a
cost of $2,726,246.
=========================================================================================================================
See accompanying notes to condensed financial statements.
NIAGARA CORPORATION
AND SUBSIDIARIES
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------------------------------------------------------
Year ended December31, 1997 1998 1999
- ------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,912,318 $ 6,510,106 $ 3,756,625
- -------------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Amortization 19,622 18,204 16,906
Equity in net income of subsidiaries (1,910,600) (7,040,774) (3,880,171)
(Increase) decrease in other assets (1,824,065) 688,837 780,851
Increase (decrease) in accrued expenses 587,107 (1,246,787) (256,753)
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL ADJUSTMENTS (3,127,936) (7,580,520) (3,339,167)
- ------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (1,215,618) (1,070,414) 417,458
- ------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment - (137,140) (433,156)
Investment in subsidiaries (21,400,000) - (6,070,875)
Advances, subsidiaries, net 368,275 (8,152,429) 9,314,615
- ------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (21,031,725) (8,289,569) 2,810,584
- ------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of Warrants 33,236,445 - -
Payments to acquire treasury stock - (2,899,965) (2,726,246)
- -------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 33,236,445 (2,899,965) (2,726,246)
- -------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 10,989,102 (12,259,948) 501,796
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,370,981 12,360,083 100,135
- -------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 12,360,083 $ 100,135 $ 601,931
===============================================================================================================================
See accompanying notes to condensed financial statements.
NIAGARA CORPORATION AND SUBSIDIARIES
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
1. STATEMENT OF The accompanying condensed financial
ACCOUNTING POLICY statements have been prepared by Niagara
Corporation ("Niagara") pursuant to
the rules and regulations of the
Securities and Exchange Commission.
Certain information and footnote
disclosures normally included in
financial statements prepared in
accordance with generally accepted
accounting principles have been
condensed or omitted pursuant to
these rules and regulations. It is,
therefore, suggested that these
condensed financial statements be
read in conjunction with the
consolidated financial statements and
notes thereto.
2. RESTRICTIONS ON Niagara's subsidiary, Niagara LaSalle
DISTRIBUTIONS Corporation ("Niagara LaSalle"), which
was acquired on August 16, 1995, has a
revolving line of credit and term
loan agreement with a bank which
contains certain restrictions on the
payment of dividends. Niagara LaSalle
is permitted, however, to pay
management fees to Niagara and, in
the years ended December 31, 1997,
1998 and 1999, $1,125,000, $1,350,000
and $1,350,000, respectively, of such
management fees were included as
revenues in the accompanying
condensed financial statements, but
have been eliminated in the
consolidated financial statements.
Niagara's subsidiary, Niagara LaSalle
(UK) Limited ("Niagara UK"), which
was formed to acquire the equipment,
inventory and certain other assets of
the steel bar businesses of Glynwed
Steels Limited, has bank facilities
and invoice discounting agreements
which contain certain restrictions on
the payment of dividends. Niagara UK
is permitted, however, to pay
management fees to Niagara and, in
the period May 22 through December
31, 1999, $488,175 ((pound)300,000)
of such management fees were included
as revenues in the accompanying
condensed financial statements but
have been eliminated in the
consolidated financial statements.
NIAGARA CORPORATION
AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
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Years ended December 31, 1997, 1998 and 1999
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Additions
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Balance at Charged to Balance at
beginning costs and end of
of year Other expenses Deductions year
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DECEMBER 31, 1999:
Allowance for doubtful
accounts $789,000 $ - $136,000 $ - $925,000
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DECEMBER 31, 1998
Allowance for doubtful
accounts $727,000 $ - $ 62,000 $ - $789,000
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DECEMBER 31, 1997:
Allowance for doubtful
accounts $233,000 $397,000(1) $101,000 $4,000(2) $727,000
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(1) Balance in allowance for doubtful accounts for LaSalle Steel Company at April 1, 1997.
(2) Accounts written off.
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EXHIBIT INDEX
Exhibit No. Description
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4.8 Sixth Amendment for the Credit
Agreement, effective as of December 31, 1999.
10.14 Form of Niagara LaSalle (UK) Limited Lease.
10.15 Form of Niagara LaSalle (UK) Limited Side Deed.
10.16 Form of Niagara LaSalle (UK) Limited Option Agreement.
10.17 Form of Niagara LaSalle (UK) Limited Lease Renewal Deed.
21 Subsidiaries of the Registrant.
27 Financial Data Schedule.