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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(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, 2000
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
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(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
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(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. |X|
As of March 23, 2001, the aggregate market value of the voting stock
held by non-affiliates of the registrant was approximately $9,598,813
(assumes the registrant's officers, directors and all stockholders holding
5% or more of outstanding shares are affiliates).
There were 8,363,817 shares of the registrant's Common Stock
outstanding as of March 23, 2001.
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 2001 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 Note 2 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 approximately $27
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.
In November 1999, the Company announced a restructuring plan for its
hot rolling operations in the United Kingdom. Under this plan, Niagara UK
closed its Ductile Hot Mill facility in Willenhall, transferred most of the
production from this facility to its W Wesson facility in Moxley (which was
renamed Ductile Wesson), and invested approximately $1.5 million in its
remaining hot rolling businesses. During 2000, Niagara UK also reorganized
the management structures in each of its three operating divisions (hot
rolling, cold finishing and distribution).
Certain financial information for each of the Company's reportable
segments (Niagara US and Niagara UK) is contained in Note 18 to the
Financial Statements.
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, ground and/or polished 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 added 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 48%, 28% and 24%, respectively, of
Niagara UK's total revenues from unaffiliated customers for 2000 and 51%,
27% and 22%, respectively, of such revenues 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, offer 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 11 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 Wesson Bright Products,
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 flats 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 74% of its sales during 2000, 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 575 active customers in North America
with sales outside the United States representing less than 5% of its total
sales for each of 1998, 1999 and 2000. For 2000, Niagara US's 10 largest
customers (by tons shipped) represented approximately 64% of its total
sales, and its 3 largest customers, Alro Steel Corporation, Earle M.
Jorgensen Co. and Joseph T. Ryerson and Sons, Inc., represented
approximately 44% of its total 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 9,500 active accounts. For 2000, its
largest account represented less than 3% of its total sales and its 10
largest customers represented approximately 19% of its total sales.
Approximately 64% of its sales during 2000 were within the U.K. with 19% to
continental Europe and 17% to the rest of the world. These amounts were
67%, 16% and 17%, respectively, for the period May 22 through December 31,
1999. Niagara UK's sales to any one foreign country represented less than 5%
of its total sales for these periods.
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 and 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 employing frequent rolling cycles from a comprehensive raw
material inventory.
In order to improve profitability, management has chosen to
specialize in 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 added significantly to its information
technology staff and systems in order to improve customer service and
efficiency. The Company's goal in this regard is to fully integrate its
information systems with those of its suppliers and customers. In the
United Kingdom, the Company has restructured operations and consolidated
management and administrative functions in order to improve product range
and quality, more efficiently meet customer requirements and reduce costs.
EMPLOYEES
As of December 31, 2000, the Company had 1,355 employees, 607 were
located in the U.S. and 748 were located in the U.K. All of LaSalle's 214
hourly production 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 22 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 expires on February
19, 2003.
Of the 748 Niagara UK employees as of December 31, 2000, 420 were
covered by collective bargaining agreements with the Iron and Steel Trades
Confederation (329 employees), the Transport and General Workers Union (54
employees) and the General and Municipal Boilermakers Union (37 employees).
These agreements extend indefinitely and contain compensation provisions
which are reviewed annually. These 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 51,900 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
$75,000) for the first two years; (pound)850,000 (approximately $1.3
million) for years 3-6; and (pound)1,000,000 (approximately $1.5 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
$14.2 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 currently consist of : 124,500
square feet in Dudley (Gadd Dudley Port)*, 204,500 square feet in Moxley
(Ductile Wesson)*, 103,000 square feet in Willenhall (GB Longmore), 121,200
(Gadd Dudley Port)* and 32,000 (Midland Engineering Steels) square feet in
Tipton, 115,600 square feet 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 terminated its lease of the 51,000 square-foot
facility in Willenhall (Ductile Wesson) on February 18, 2001.
Management considers these manufacturing facilities, which operated
at approximately 70% of capacity in 2000, 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 two of these sites, LaSalle has
entered into de minimis settlement agreements resolving the pending claims
of liability. 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, 2000.
Because liability under CERCLA and analogous state laws is generally joint
and several, and because further remediation work may be required at these
sites, LaSalle may be required to contribute additional funds. However,
based on its volumetric share of wastes disposed and the participation of
other potentially liable parties, management believes that LaSalle's share
of the additional costs will not 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 1999 and 2000.
High Low
---- ---
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
2000
January 1 through March 31......... 5 3/16 3 7/8
April 1 through June 30............ 5 1/16 3 1/2
July 1 through September 30........ 4 7/16 3 5/8
October 1 through December 31...... 3 3/4 1 1/4
As of March 23, 2001, there were 26 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,
------------------------------------------------------------
1996(1) 1997(2) 1998 1999(3) 2000
---- ---- ---- ---- ----
(in thousands, except per share data)
Statement of Operations Data:
Net sales (4) ..................... $ 78,510 $214,962 $217,582 $281,117 $336,037
Cost of products sold (4) ......... 69,814 190,532 187,375 245,170 294,108
Gross profit ...................... 8,695 24,430 30,207 35,947 41,928
Selling, general and
administrative expenses ......... 5,706 12,450 15,645 24,441 27,744
Interest income ................... 100 160 172 36 7
Other income ...................... 126 187 195 143 152
Interest expense .................. 1,536 5,874 4,154 5,631 7,417
Income taxes ...................... 615 2,479 4,265 2,299 2,590
Extraordinary loss on early
extinguishment of debt .......... -- 2,062 -- -- --
Net income ........................ 1,064 1,912 6,510 3,757 4,337
Net income per share (basic)
(before extraordinary loss) ..... $ .30 $ .94 $ .66 $ .40 $ .50
Net income per share (diluted)
(before extraordinary loss) ..... $ .30 $ .78 $ .64 $ .40 $ .50
Net income per share (basic) ...... $ .30 $ .45 $ .66 $ .40 $ .50
Net income per share (diluted) .... $ .30 $ .38 $ .64 $ .40 $ .50
Weighted average common shares
outstanding (basic) ............. 3,603 4,247 9,880 9,350 8,659
Weighted average common shares
outstanding (diluted) ........... 3,603 5,095 10,250 9,357 8,659
------------------------------------------------------------
At December 31,
------------------------------------------------------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
(in thousands)
Balance Sheet Data:
Cash and cash equivalents ......... $ 1,588 $ 13,207 $ 441 $ 2,234 $ 2,351
Trade accounts receivable, net .... 5,953 21,660 13,360 53,126 46,138
Inventories ....................... 14,446 35,190 30,132 59,442 60,901
Property, plant and equipment,
net ............................. 21,649 89,163 89,749 102,984 98,076
Goodwill, net ..................... 2,543 2,177 2,100 2,022 1,984
Total assets ...................... 47,348 166,520 139,429 227,934 215,418
Trade accounts payable ............ 4,110 20,985 14,107 50,191 44,468
Accrued expenses .................. 3,690 8,679 6,555 9,506 10,496
Current maturities of long-term
debt ............................ 1,662 3,498 4,797 6,411 7,653
Long-term debt, less current
maturities ...................... 18,075 59,184 41,572 87,388 77,877
Accrued pension and other
postretirement benefits ......... -- 14,537 10,303 8,023 7,718
Deferred income taxes ............. 3,805 5,726 7,357 9,849 11,266
Total liabilities ................. 31,822 114,524 84,898 171,473 159,539
Stockholders' equity .............. $ 15,526 $ 51,996 $ 54,531 $ 56,461 $ 55,879
(1) Includes the results of Southwest from February 1, 1996.
(2) Includes the results of LaSalle from April 1, 1997.
(3) Includes the results of Niagara UK from May 22, 1999.
(4) Net sales and cost of products sold have been restated for years 1996
through 1999 in accordance with EITF No. 00-10. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
During the first half of 2000, the Company experienced an increase in
both sales and net income, with most of the improvement attributable to its
U.S. operations. Beginning in the third quarter 2000 and accelerating
through the end of the year, the Company experienced a decline in sales
resulting in a $432,658 loss for the fourth quarter. During this period,
demand for the Company's products declined as service centers, the
Company's major customer base in the U.S., reduced excess inventories in
the face of a weaker overall economy. In addition, competitive pressures in
the U.S. during the second half of 2000 resulted in a marked decline in
prices. In the U.K., the Company's operations experienced a weakened
domestic demand for its products during the second half of the year while
the high value of the pound sterling relative to other European currencies
continued to impact negatively on Niagara UK's export business.
The following year-to-year comparisons reflect a reclassification of
freight costs in accordance with Emerging Issues Task Force ("EITF") No.
00-10. This pronouncement, issued in September 2000, requires that all such
costs billed to customers be classified as revenue. See "Recent Accounting
Pronouncements." This reclassification, to conform to current year
presentation, resulted in the recording of such amounts in both net sales
and cost of products sold for 1999 and 1998, and, accordingly, resulted in
no change to gross profit for such years. Previously, net sales for 1999
and 1998 had been stated after reduction for freight costs.
The results of operations for the year ended December 31, 1999
include the results of Niagara UK from May 22, 1999.
Year ended December 31, 2000 compared with December 31, 1999
Net sales for the year ended December 31, 2000 were $336,036,710,
representing an increase of $54,919,822, or 19.5%, over the same period in
1999. Approximately 21.3% of this increase was attributable to the
Company's U.S. operations with the remainder, 78.7%, attributable to the
Company's U.K. operations. The increase in net sales attributable to the
Company's U.S. operations was due to increased volume while the increase in
net sales attributable to the Company's U.K. operations was due to their
inclusion for the entire year in 2000 as compared to the period May 22
through December 31 for 1999.
Cost of products sold for the year ended December 31, 2000 increased
by $48,938,783 to $294,108,284, representing an increase of 20.0% over the
same period in 1999. This increase was primarily attributable to the
increased sales volume from the Company's operations.
Gross margins for the year ended December 31, 2000 decreased by 0.3%
over the same period in 1999 due primarily to a less favorable product mix.
Selling, general and administrative expenses for the year ended
December 31, 2000 increased by $3,303,281 to $27,744,071, or 8.3% of sales,
compared to 8.7% of sales for the same period in 1999. The increase in
dollar amount was due to the inclusion of Niagara UK's expenses for the entire
year in 2000, which was offset in part by reduced selling, general and
administrative expenses due to cost reductions at the Company's U.S.
operations.
Interest expense for the year ended December 31, 2000 increased by
$1,786,081 to $7,416,630. This increase was primarily due to increased
levels of borrowings following the acquisition of the U.K. steel bar
businesses and an increase in interest rates.
Net income for the year ended December 31, 2000 was $4,337,218, an
increase of $580,593, or 15.5%, as compared to the net income for the year
ended December 31, 1999. Approximately 10.0% of this increase was
attributable to the Company's U.S. operations and the balance, 90.0%, was
attributable to the Company's U.K. operations.
As disclosed in Note 2 to the Financial Statements, actual net income
for the year ended December 31, 2000 was $4,337,218 compared to a pro forma
net loss of $2,122,086 for the same period in 1999. The pro forma results
for the year ended December 31, 1999 were negatively impacted by 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, 1999 compared with December 31, 1998
Net sales for the year ended December 31, 1999 were $281,116,888,
representing an increase of $63,535,362, or 29.2%, over the same period in
1998. This increase was attributable to the inclusion of $84,066,863 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 $57,794,752 to $245,169,501, representing an increase of 30.8% over the
same period in 1998. This increase was attributable to the inclusion of
$71,077,141 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 1.1%
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 0.4% 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 8.7% of sales,
compared to 7.2% 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 and 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 2 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.
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, 2000 were $4,897,032
compared to $5,180,444 for the same period in 1999. This decrease was
attributable to an increase by U.S. operations in the financing of new
machinery and equipment through leases. The Company anticipates spending
approximately $8,300,000 for capital expenditures during 2001.
Cash flows provided by operating activities were $13,539,373 for the
year ended December 31, 2000 as compared to $5,252,947 used in operating
activities for the year ended December 31, 1999. This $18,792,320 increase
from the prior year is largely attributable to the large increase in
accounts receivable in 1999 following the acquisition of the U.K. steel bar
businesses (an increase of $39,356,798 in 1999 as compared to a decrease of
$3,846,937 in 2000) and a smaller increase in inventory for 2000 as
compared to 1999 ($3,450,179 as compared to $7,563,220). These were
partially offset by an increase in accounts payable and accrued expenses
(an increase of $32,718,279 in 1999 as compared to a decrease of $2,524,477
in 2000), an increase in net income ($580,593), an increase in
depreciation, amortization and allowances ($1,374,856) and a decrease in
accounts receivable - other ($2,255,687). Cash and cash equivalents at
December 31, 2000 was $2,350,515, an increase of $116,334 as compared to
December 31, 1999. Such funds are used for working capital and other
corporate purposes.
On April 18, 1997 and in connection with the acquisition of LaSalle,
Niagara US entered into a revolving credit and term loan agreement (as
amended, 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 five-year revolving credit facility and a
$40,000,000 seven-year term loan. The obligations of Niagara US under the
Credit Agreement are guaranteed by Niagara and secured by substantially all
of the assets and a pledge of all outstanding capital stock of Niagara US.
Principal of the term loan under the Credit Agreement amortizes in
monthly installments that commenced on November 1, 1997 and end on April 1,
2004. The principal repayment installments on the term loan escalate
throughout its term. Interest on the term loan is payable in monthly
installments either at the LIBOR rate (for a period specified by Niagara US
from time to time) plus 210 basis points, or M&T's prime rate plus 50 basis
points. Revolving credit loans made pursuant to the Credit Agreement are
based on a percentage of eligible accounts receivable and inventory and
will mature on April 18, 2002. 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,
cross-defaults and changes in control of Niagara and 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, 2000.
On April 18, 2000, Niagara LaSalle entered into an interest rate cap
transaction with The Bank of New York ("BNY") pursuant to which, and in
exchange for $63,000, BNY agreed to make certain payments to Niagara
LaSalle in the event the applicable three-month LIBOR rate exceeds 8.28% at
any time between July 20, 2000 and April 20, 2002. In such event, BNY has
agreed to pay Niagara LaSalle, on a quarterly basis beginning on October
20, 2000, an amount equal to that which would be payable on $45 million
(for the period in question), at an interest rate equal to the difference
between such LIBOR rate and 8.28%.
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, 2000, Niagara had repurchased 1,633,638 shares of its Common
Stock at a cost of $8,030,409, of which 599,129 shares were repurchased at
a cost of $2,404,198 during the year ended December 31, 2000.
On May 21, 1999 and in connection with the acquisition of the steel
bar businesses from Glynwed Steels, Niagara UK entered into a bank
facilities agreement (the "Facilities Agreement") with National Westminster
Bank plc ("National Westminster") 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 2.5% 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,
cross-defaults, changes in control of Niagara UK 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, 2000.
In connection with the execution of the Facilities and Discount
Agreements, Niagara and Niagara UK entered into intercreditor agreements
which, among other things (i) restrict the payment of dividends in respect
of the Niagara UK shares, (ii) prohibit the repayment of the Subordinated
Loan until after the discharge of all of Niagara UK's liabilities under the
Facilities and Discount Agreements and (iii) permit the repayment of the
Short-Term Loan upon demand unless payments of principal or interest under
these agreement are owing, certain financial covenants in these agreements
have not been met or an event of default thereunder has occurred and is
continuing.
At December 31, 2000, the Company had borrowed or been advanced
$44,967,728 under its revolving credit facilities and the Discount
Agreement and had approximately $19,000,000 in available credit thereunder,
and the outstanding balance of its term loans was $39,738,721. Working
capital of the Company at December 31, 2000 and 1999 was $51,338,968 and
$55,019,020, respectively.
EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (the "FASB")
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. Adoption of the new standard is
not expected to have a material effect on the Company's financial
statements.
In December 1999, the Securities and Exchange Commission (the "SEC")
issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in
Financial Statements." SAB No. 101 summarizes certain of the SEC's views in
applying generally accepted accounting principles to revenue recognition in
financial statements. In October 2000, the SEC issued additional written
guidelines supplementing SAB No. 101. The adoption of this bulletin and
these guidelines did not have an effect on the Financial Statements.
In March 2000, the FASB issued Interpretation No. 44 to Accounting
Principles Board Opinion No. 25, "Accounting for Certain Transactions
Involving Stock Compensation," which, among other things, addressed the
accounting consequences of a reduction of the exercise price of a fixed
stock option award. The adoption of this interpretation did not have an
effect on the Financial Statements.
The Company has adopted the classification requirements for freight
costs required by EITF No. 00-10, "Accounting for Shipping and Handling
Fees and Costs." This pronouncement, issued in September 2000, requires
that all such costs billed to customers be classified as revenue. This
reclassification, to conform to current year presentation, resulted in the
recording of such amounts in both net sales and cost of products sold for
1996 through 1999, and, accordingly, resulted in no change to gross profit
for such years. Previously, net sales for such years had been stated after
reduction for freight costs. For the years ended December 31, 1996, 1997,
1998, 1999 and 2000, the amounts involved were $3,700,000, $10,000,000,
$10,035,000, $16,895,000 and $21,784,000, respectively.
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),
exchange rate variability and the credit risk of its customers. 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 has
attempted to reduce market risks associated with the fluctuations in
interest rates by entering into an interest rate cap agreement which
protects Niagara LaSalle with respect to $45 million of indebtedness in the
event the applicable three-month LIBOR rate exceeds 8.28% (see
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Liquidity and Capital Resources"). Management has also
attempted 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. At December 31, 2000, Niagara UK had approximately
(pound)13,535,000 (approximately $20,215,000) of such contracts all of
which were due to mature during 2001. Revenues from sales by Niagara US are
collected exclusively in U.S. dollars.
The Company is subject to the economic conditions affecting its
customers. To reduce its customer credit risk, Niagara UK has insured
substantially all of its accounts receivable. In the U.S., management
continuously reviews information concerning the financial condition of its
customers and believes that its allowance for doubtful accounts is
sufficient to cover such risks.
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, in future filings by Niagara with the
SEC, in the Company's press releases or 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.
o Foreign Sales - Approximately 36% 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 Customer Concentration - Niagara US's 3 largest customers represented
approximately 44% of its total sales for 2000. The loss of any of
these customers would have a material adverse effect on Niagara US's
sales. See "BUSINESS -- Customers."
o Expiration of Management Employment Contracts - Certain members of
management had employment contracts with the Company which expired
within the last year. There is no assurance that the Company will be
able to negotiate new agreements in order to retain these
individuals.
o Expiration or Review of Union Contracts - LaSalle's hourly production
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."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Certified Public Accountants....... 17
Balance Sheets........................................... 18
Statements of Operations................................. 19
Statements of Stockholders' Equity....................... 20
Statements of Cash Flows................................. 21
Notes to Financial Statements............................ 22-53
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, 1999 and 2000, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the
period ended December 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 at December 31, 1999 and 2000, and the
consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States of America.
/s/BDO Seidman, LLP
BDO Seidman, LLP
New York, New York
February 22, 2001
Niagara Corporation
and Subsidiaries
Balance Sheets
December 31, 1999 2000
- ------------------------------------------------------------------------------
Assets
Current:
Cash and cash equivalents $ 2,234,181 $ 2,350,515
Trade accounts receivable, net of
allowance for doubtful accounts
of $925,000 and $1,459,000
(Notes 5 and 11) 53,126,071 46,138,149
Accounts receivable - other (Note 8) 2,255,687 ---
Inventories (Notes 3 and 5) 59,441,872 60,901,482
Deferred income taxes (Note 10) 957,000 1,736,000
Other current assets (Note 6) 3,112,453 2,829,295
- ------------------------------------------------------------------------------
Total current assets 121,127,264 113,955,441
Property, plant and equipment, net
(Notes 4 and 5) 102,983,882 98,075,506
Goodwill, net of accumulated
amortization of $300,077 and
$377,876 2,022,061 1,983,579
Deferred financing costs, net of
accumulated amortization of
$295,168 and $405,876 479,832 369,124
Intangible pension asset (Note 6) 474,000 422,000
Other assets, net of accumulated
amortization of $584,483 and
$744,680 847,260 612,338
- ------------------------------------------------------------------------------
$ 227,934,299 $ 215,417,988
- ------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 50,191,265 $ 44,468,035
Accrued expenses (Note 2) 9,506,238 10,495,664
Current maturities of long-term debt
(Note 5) 6,410,741 7,652,774
- ------------------------------------------------------------------------------
Total current liabilities 66,108,244 62,616,473
Other:
Long-term debt, less current
maturities (Note 5) 87,387,943 77,876,706
Accrued pension cost (Note 6) 2,690,987 2,400,000
Accrued other postretirement
benefits (Note 6) 5,331,586 5,317,536
Deferred income taxes (Note 10) 9,849,000 11,266,000
Other noncurrent liabilities 105,261 62,550
- ------------------------------------------------------------------------------
Total liabilities $ 171,473,021 $ 159,539,265
- ------------------------------------------------------------------------------
Commitments and contingencies
(Notes 8, 9 and 13)
Stockholders' equity
(Notes 6, 7 and 9):
Preferred stock, $.001 par value -
500,000 shares authorized; none
outstanding $ - $ -
Common stock, $.001 par value -
15,000,000 shares authorized;
9,997,455 issued 9,998 9,998
Additional paid-in capital 50,111,675 50,111,675
Retained earnings 12,141,460 16,478,678
Accumulated other comprehensive loss (175,644) (2,691,219)
- ------------------------------------------------------------------------------
62,087,489 63,909,132
Treasury stock, at cost, 1,034,509
and 1,633,638 shares (5,626,211) (8,030,409)
- ------------------------------------------------------------------------------
Total stockholders' equity $ 56,461,278 $ 55,878,723
- ------------------------------------------------------------------------------
$ 227,934,299 $ 215,417,988
- ------------------------------------------------------------------------------
See accompanying notes to financial statements.
Niagara Corporation
and Subsidiaries
Statements of Operations
Year ended December 31, 1998 1999(a) 2000
- -------------------------------------------------------------------------------------
Net sales (Note 11) $217,581,526 $281,116,888 $336,036,710
Cost of products sold (Notes 6 and 12) 187,374,749 245,169,501 294,108,284
- -------------------------------------------------------------------------------------
Gross profit 30,206,777 35,947,387 41,928,426
Operating expenses:
Selling, general and administrative
(Note 6) 15,644,702 24,440,790 27,744,071
- -------------------------------------------------------------------------------------
Operating income 14,562,075 11,506,597 14,184,355
Interest income 172,076 36,172 7,050
Interest expense (4,153,985) (5,630,549) (7,416,630)
Other income 194,940 143,405 152,443
- -------------------------------------------------------------------------------------
Income before income taxes 10,775,106 6,055,625 6,927,218
Income taxes (Note 10) 4,265,000 2,299,000 2,590,000
- -------------------------------------------------------------------------------------
Net income $ 6,510,106 $ 3,756,62 $ 4,337,218
- -------------------------------------------------------------------------------------
Net income per share:
Basic $ .66 $ .40 $ .50
- -------------------------------------------------------------------------------------
Diluted $ .64 $ .40 $ .50
- -------------------------------------------------------------------------------------
Weighted average common shares
outstanding (Note 14):
Basic 9,879,528 9,350,189 8,659,013
Diluted 10,249,954 9,357,114 8,659,013
- -------------------------------------------------------------------------------------
- -------------
(a) Includes the results of Niagara LaSalle (UK) Limited from May 22, 1999.
See accompanying notes to financial statements.
Niagara Corporation
and Subsidiaries
Statements of Stockholders' Equity
Years ended December 31, 1998, 1999 and 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Common stock
------------------
Accumulated
Number Additional other Treasury Total
of paid-in Retained comprehensive stock, stockholders
shares Amount capital earnings loss at cost equity
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 1998 9,997,455 $9,998 $50,111,675 $ 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 (a) - - - - - (2,899,965) (2,899,965)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 9,997,455 9,998 50,111,675 8,384,835 (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
- Note 6) - - - - 888,000 - 888,000
- ---------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income 4,656,981
- ---------------------------------------------------------------------------------------------------------------------------------
Purchase of treasury stock, at
cost (b) - - - - - (2,726,246) (2,726,246)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 9,997,455 9,998 50,111,675 12,141,460 (175,644) (5,626,211) 56,461,278
- ---------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income for the year - - - 4,337,218 - - 4,337,218
Foreign currency translation
adjustment (Note 1) - - - - (1,021,575) - (1,021,575)
Minimum pension liability
adjustment ($2,449,000, net
of tax benefit of $955,000
- Note 6) - - - - (1,494,000) - (1,494,000)
- ---------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income 1,821,643
- ---------------------------------------------------------------------------------------------------------------------------------
Purchase of treasury stock, at
cost (c) - - - - - (2,404,198) (2,404,198)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 9,997,455 $9,998 $50,111,675 $16,478,678 $(2,691,219) $(8,030,409) $55,878,723
- ---------------------------------------------------------------------------------------------------------------------------------
- ----------
(a) During the year ended December 31, 1998, Niagara Corporation repurchased 485,880 shares of its Common Stock at a cost of
$2,899,965.
(b) During the year ended December 31, 1999, Niagara Corporation repurchased 548,629 shares of its Common Stock at a cost of
$2,726,246.
(c) During the year ended December 31, 2000, Niagara Corporation repurchased 599,129 shares of its Common Stock at a cost of
$2,404,198.
- ---------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
Niagara Corporation
and Subsidiaries
Statements of Cash Flows
(Note 16)
Year ended December 31, 1998 1999(a) 2000
------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 6,510,106 $ 3,756,625 $ 4,337,218
------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 6,615,662 8,144,210 9,120,844
Provision for doubtful accounts 61,151 135,778 534,000
Deferred income taxes 3,226,000 1,461,000 1,593,000
Pension costs 523,437 (740,350) (3,021,987)
Other postretirement benefits (7,052,361) (307,053) (14,050)
Loss on disposal and write-off
of equipment - 569,008 38,875
Changes in assets and
liabilities, net of effects of
purchase of U.K. steel bar
businesses in 1999:
Decrease (increase) in
accounts receivable 8,238,789 (39,356,798) 3,846,937
(Increase) decrease in
accounts receivable - other - (2,255,687) 2,255,687
Decrease (increase) in
inventories 5,057,691 (7,563,220) (3,450,179)
Decrease (increase) in other
current assets 381,224 (1,391,323) 792,733
Decrease (increase) in other
assets 452,987 (423,416) 30,772
(Decrease) increase in
accounts payable, accrued
expenses and other
noncurrent liabilities (9,338,065) 32,718,279 (2,524,477)
------------------------------------------------------------------------------
Total adjustments 8,166,515 (9,009,572) 9,202,155
------------------------------------------------------------------------------
Net cash (used in) 14,676,621 (5,252,947) 13,539,373
provided by operating
activities
------------------------------------------------------------------------------
Cash flows from investing activities:
Adjustment to purchase price for
prior acquisition (1,371,000) - -
Acquisition of U.K. steel bar
businesses - (32,514,281) -
Proceeds from disposal of equipment - 25,864 15,550
Acquisition of property and equipment (6,859,081) (5,180,444) (4,897,032)
------------------------------------------------------------------------------
Net cash used in
investing activities (8,230,081) (37,668,861) (4,881,482)
------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from long-term debt - 57,226,432 1,102,495
Repayment of long-term debt (16,312,998) (9,797,207) (7,028,241)
Payments to acquire treasury stock (2,899,965) (2,726,246) (2,404,198)
------------------------------------------------------------------------------
Net cash (used in)
provided by financing
activities (19,212,963) 44,702,979 (8,329,944)
------------------------------------------------------------------------------
Effect of exchange rate changes on - 12,356 (211,613)
cash and cash equivalents
------------------------------------------------------------------------------
Net (decrease) increase in cash and
cash equivalents (12,766,423) 1,793,527 116,334
Cash and cash equivalents, beginning
of year 13,207,077 440,654 2,234,181
------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 440,654 $ 2,234,181 $2,350,515
------------------------------------------------------------------------------
----------
(a) Includes the cash flows of Niagara LaSalle (UK) Limited from May 22,
1999.
------------------------------------------------------------------------------
See accompanying notes to financial statements.
Niagara Corporation
and Subsidiaries
Notes to Financial Statements
1. Summary of Organization and Business Operations
Significant
Accounting
Policies Niagara Corporation ("Niagara") was incorporated
in Delaware on April 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 nine 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 of this
subsidiary 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 loss 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
The Company considers all highly liquid
investments with maturities of three months or
less when purchased to be cash equivalents.
Revenue Recognition
Revenue from the sale of products is recorded at
the time the goods are shipped.
In December 1999, the Securities and Exchange
Commission (the "SEC") issued Staff Accounting
Bulletin ("SAB") No. 101, "Revenue Recognition in
Financial Statements." SAB No. 101 summarizes
certain of the SEC's views in applying generally
accepted accounting principles to revenue
recognition in financial statements. In October
2000, the SEC issued additional written
guidelines supplementing SAB No. 101. The
adoption of this bulletin and these guidelines
did not have an effect on the Company's financial
statements.
Freight
The Company has adopted the classification
requirements for freight costs required by
Emerging Issues Task Force ("EITF") No. 00-10,
"Accounting for Shipping and Handling Fees and
Costs." This pronouncement, issued in September
2000, requires that all such costs billed to
customers be classified as revenue. This
reclassification, to conform to current year
presentation, resulted in the recording of such
amounts in both net sales and cost of products
sold for 1998 and 1999, and, accordingly,
resulted in no change to gross profit for such
years. Previously, net sales for such years had
been stated after reduction for freight costs.
For the years ended December 31, 1998, 1999 and
2000, the amounts involved were $10,035,000,
$16,895,000 and $21,784,000, respectively.
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.
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 7 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, 2000.
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, the 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
The Company accounts for its stock option plan in
accordance with the provisions of Accounting
Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and
related interpretations. APB No. 25 provides that
compensation expense would be recorded on the
date of grant only if the current market price of
the underlying stock exceeded the exercise price
of the option. SFAS No. 123, "Accounting for
Stock-Based Compensation," permits entities to
recognize as expense over the vesting period the
fair value of all stock-based awards on the date
of grant. Alternatively, SFAS No. 123 allows
entities to continue to apply the provisions of
APB No. 25 and provide pro forma net income and
pro forma earnings per share disclosures for
employee stock compensation as if the
fair-value-based method defined in SFAS No. 123
had been applied. The Company has elected to
continue to apply the provisions of APB No. 25
and provide the pro forma disclosures of SFAS No.
123 for options issued to employees.
In March 2000, the Financial Accounting Standards
Board (the "FASB") issued Interpretation No. 44
to APB No. 25, "Accounting for Certain
Transactions Involving Stock Compensation,"
which, among other things, addressed the
accounting consequences of a reduction of the
exercise price of a fixed stock option award. The
adoption of this interpretation did not have an
effect on the Company's financial statements.
Comprehensive Income
The Company has adopted the provisions of SFAS
No. 130, "Reporting Comprehensive Income," which
establishes standards for reporting and display
of comprehensive income and 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.
Derivative Instruments and Hedging Activities
In June 1998, the FASB 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 adoption of this standard is not
expected to have a material effect on the
Company's financial statements.
2. Acquisition of On May 21, 1999, Niagara UK purchased the equipment,
U.K. Steel Bar inventory and certain other assets of the eight steel
Businesses 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 steel bar businesses, which
are engaged in hot rolling, cold finishing and
distribution, currently consist of the following
unincorporated trading units: Ductile Wesson,
Gadd Dudley Port, GB Longmore, Midland
Engineering Steels, Wesson Bright Products and
Macreadys.
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)21,569,500
(approximately $34.8 million) which amount
includes approximately (pound)1,302,000
(approximately $2.1 million) of acquisition costs
and approximately (pound)2,081,000 (approximately
$3.3 million) of estimated costs relating to the
intended closure of certain facilities and
intended consolidation of certain operations.
Such estimated costs include approximately
(pound)990,000 (approximately $1.5 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)324,000
(approximately $0.6 million) of site clearance
costs. At December 31, 2000, approximately
(pound)468,000 (approximately $700,000) 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 $75,000) for the
first two years; (pound)850,000 (approximately
$1.3 million) for years 3-6; and (pound)1,000,000
(approximately $1.5 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 $14.2 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.
On August 23, 1999, Niagara UK entered into a
three-year invoice discounting agreement with
Lombard Natwest Discounting Limited providing for
up to (pound)20 million (approximately $32.2
million) of advances to Niagara UK based upon a
formula tied to the receivables purchased by such
institution. In connection with the execution of
this agreement, the revolving credit facility
under Niagara UK's bank facilities agreement was
reduced to (pound)4.9 million (approximately $7.9
million). This facility was further reduced to
(pound)2.5 million (approximately $4.0 million)
as of December 31, 1999.
Pro forma results of operations, assuming the
acquisition of the U.K. steel bar businesses had
occurred on January 1, 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 (a) $406,608,526 $341,406,068
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)
------------------------------------------------------
(a) In accordance with EITF No. 00-10, net sales
have been restated to include all freight costs
billed to customers. See Note 1.
3. Inventories Inventories consisted of the following at
December 31, 1999 and 2000:
December 31, 1999 2000
------------------------------------------------------
Raw materials $25,231,191 $21,575,657
Work-in-process 5,260,767 5,173,259
Finished goods 28,949,914 34,152,566
------------------------------------------------------
$59,441,872 $60,901,482
------------------------------------------------------
At December 31, 2000, Niagara US inventories were
$36,115,817 determined using the LIFO method and
Niagara UK inventories were $24,785,665
determined using the FIFO method.
4. Property, Plant Property, plant and equipment consisted of the
and Equipment following at December 31, 1999 and 2000:
December 31, 1999 2000
------------------------------------------------------
Land, buildings and $24,606,004 $24,734,297
improvements
Leasehold improvements 1,825,065 1,843,214
Machinery and equipment 94,364,513 99,493,817
Furniture and fixtures 3,348,343 3,954,891
------------------------------------------------------
Total 124,143,925 130,026,219
Less accumulated
depreciation and
amortization 21,160,043 31,950,713
------------------------------------------------------
$ 102,983,882 $ 98,075,506
------------------------------------------------------
5. Long-Term Debt The long-term debt consisted of the following at
December 31, 1999 and 2000:
December 31, 1999 2000
----------------------------------------------------------------------------
Term note payable - bank, maturing in monthly
installments of principal plus interest through
March 2004. From May 1, 2000 through April 1,
2001, the monthly installments of principal are
$500,000. 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 8.63% at December 31, 2000) $31,666,680 $26,000,015
Secured bank revolving line of credit up to
$50,000,000 due April 18, 2002, limited to a
portion 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 9.75%
on $7,200,000, 8.5% on $18,000,000 and 8.33% on
$5,000,000 at December 31, 2000) 30,500,000 30,200,000
Term note payable - bank (facilities agreement),
maturing in monthly installments of principal
plus interest through April 2006. From May 2000
through April 2001, the monthly installments of
principal are (pound)50,000. The monthly
principal payment is adjusted annually each
subsequent May 1 with the final installment due
and payable 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 6.2% at
December 31, 2000) 15,841,700 13,738,706
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 8.25% at December 31, 2000) 14,847,552 14,767,728
----------------------------------------------------------------------------
December 31,
------------------------------------------------------------------------------
Note payable - other, maturing $64,143 annually on
January 31, through 2010, plus interest at 8.5%
guranteed by Niagara $ 705,571 $ 641,428
Note payable - other, maturing $33,333 annually on
April 17, through 2005, plus interest at 10% 200,001 166,668
Other notes payable 37,180 14,935
------------------------------------------------------------------------------
93,798,684 85,529,480
Less: Current maturities of long-term debt 6,410,741 7,652,774
------------------------------------------------------------------------------
$87,387,943 $77,876,706
------------------------------------------------------------------------------
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, cross-defaults and
changes in control of Niagara and 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 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, cross-defaults, changes in control
of Niagara UK 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,
------------------------------------------------------
2001 $ 7,653,000
2002 54,748,000
2003 11,423,000
2004 6,443,000
2005 3,841,000
Thereafter 1,421,000
------------------------------------------------------
$85,529,000
------------------------------------------------------
6. Pension Plans LaSalle sponsors two contributory defined benefit
and Other pension plans which cover certain employees of
Postretirement LaSalle, as well as various retiree health and
Benefits welfare programs providing postretirement benefits
for eligible 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 17). 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, 2000, and a statement of the
funded status of these plans as of December 31,
1999 and 2000:
Pension benefits Other benefits
----------------- -----------------
1999 2000 1999 2000
------------------------------------------------------------------
Reconciliation of
benefit
obligation
Obligation at
January 1 $23,651,000 $22,447,000 $5,483,000 $6,348,000
Service cost 517,000 333,000 76,000 48,000
Interest cost 1,605,000 1,674,000 357,000 463,000
Actuarial (gain)
loss (1,670,000) 1,552,000 1,153,000 271,000
Benefit payments (1,656,000) (1,748,000) (721,000) (575,000)
------------------------------------------------------------------
Obligation at
December 31 $22,447,000 $24,258,000 $6,348,000 $6,555,000
------------------------------------------------------------------
Pension benefits Other benefits
----------------- -----------------
1999 2000 1999 2000
------------------------------------------------------------------
Reconciliation of
fair value of
plan assets
Fair value of
plan assets at
January 1 $19,310,000 $21,110,000 $ - $ -
Actual return on
plan assets 2,426,000 429,000 - -
Employer
contributions 1,030,000 2,895,000 721,000 575,000
Benefit payments (1,656,000) (1,748,000) (721,000) (575,000)
------------------------------------------------------------------
Fair value of
plan assets at
December 31 $21,110,000 $22,686,000 $ - $ -
------------------------------------------------------------------
Pension benefits Other benefits
----------------- -----------------
1999 2000 1999 2000
-----------------------------------------------------------------------
Funded status
Funded status at
December 31 $(1,337,000) $(1,572,000) $(6,348,000) $(6,555,000)
Unrecognized
prior service
cost 474,000 422,000 - -
Unrecognized
(gain) loss (765,987) 2,543,000 1,016,414 1,237,464
-----------------------------------------------------------------------
Net amount
recognized $(1,628,987) $ 1,393,000 $(5,331,586) $(5,317,536)
-----------------------------------------------------------------------
The following table provides the amounts
recognized in the Company's balance sheets at
December 31, 1999 and 2000:
Pension benefits Other benefits
----------------- -----------------
1999 2000 1999 2000
------------------------------------------------------------------------
Prepaid benefit
cost $ 280,000 $ 614,000 $ - $ -
Accrued benefit
liability (2,690,987) (2,400,000) (5,331,586) (5,317,536)
Intangible asset 474,000 422,000 - -
Accumulated other
comprehensive
income, pretax 308,000 2,757,000 - -
------------------------------------------------------------------------
Net amount
recognized $(1,628,987) $1,393,000 $(5,331,586) $(5,317,536)
------------------------------------------------------------------------
LaSalle's hourly pension plan has an accumulated
benefit obligation in excess of plan assets. The
plan's accumulated benefit obligation was
$14,727,000 and $16,320,000 at December 31, 1999
and 2000, respectively. Plan assets for this plan
were $11,951,000 and $13,863,000 at December 31,
1999 and 2000, respectively. LaSalle's plans for
postretirement benefits other than pensions have
no plan assets. The aggregate benefit obligation
for such plans was $6,348,000 and $6,555,000 at
December 31, 1999 and 2000, respectively.
The following table provides the components of
net periodic benefit cost for LaSalle's plans for
the years ended December 31, 1998, 1999 and 2000:
Pension benefits Other benefits
--------------------------------------- --------------------------------
1998 1999 2000 1998 1999 2000
- ---------------------------------------------------------------------------------------------------
Service cost $ 449,000 $ 517,000 $ 333,000 $ 107,000 $ 76,000 $ 48,000
Interest cost 1,559,000 1,605,000 1,674,000 763,000 357,000 463,000
Expected return on plan
assets (1,885,000) (1,912,000) (2,161,000) - - -
Amortization of prior
service cost 24,000 52,000 52,000 - - -
Amortization of
unrecognized loss
(gain) - 25,000 (22,000) - (19,000) 49,000
- ---------------------------------------------------------------------------------------------------
Net periodic benefit cost 147,000 287,000 (124,000) 870,000 414,000 560,000
Curtailment/settlement/ter-
mination benefits
loss (gain) 1,985,000 - - (6,934,000) - -
- ---------------------------------------------------------------------------------------------------
Net periodic benefit
cost after
curtailments and
settlements $ 2,132,000 $ 287,000 $ (124,000) $(6,064,000) $414,000 $560,000
- ---------------------------------------------------------------------------------------------------
The amount included within other comprehensive
(loss) income arising from a change in the
additional minimum pension liability was
$(1,076,000) (net of tax benefit), $888,000 (net
of tax expense) and $(1,494,000) (net of tax
benefit) for 1998, 1999 and 2000, 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 obligations are shown in the
following table:
Pension benefits Other benefits
--------------------------- -------------------------
1998 1999 2000 1998 1999 2000
- -------------------------------------------------------------------------------
Weighted average
assumptions as of
December 31:
Discount rate:
Used for
determination of
expense 7.50% 7.00% 7.75% 7.50% 7.00% 7.75%
Used for
determination of
year-end liability 7.00% 7.75% 7.75% 7.00% 7.75% 7.75%
Expected return on
plan assets 10.00% 10.00% 10.00% N/A N/A N/A
Rate of compensation
increase - hourly
plan 3.00% 3.00% 3.00% N/A N/A N/A
Rate of compensation
increase - salaried
plan 5.00% 5.00% N/A N/A 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 "Niagara LaSalle 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 all employees of LaSalle who are subject
to a collective bargaining agreement (the
"LaSalle 401(k) Plan"). The LaSalle 401(k) 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 Niagara
LaSalle 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
$622,000, $656,000 and $666,000 for the years
ended December 31, 1998, 1999 and 2000,
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 and the year ended December 31,
2000, 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) and approximately (pound)633,000
(approximately $960,000), respectively.
7. 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.
8. Lease
Commitments Niagara leases office space under an operating
lease expiring in December 2007. Niagara US
leases equipment and one operating facility under
operating leases expiring through November 2009.
Niagara UK leases equipment, nine operating
facilities and five sales offices under operating
leases expiring through May 2009. At December 31,
2000, future minimum payments under
noncancellable operating leases were
approximately as follows:
------------------------------------------------------
2001 $ 2,642,000
2002 2,963,000
2003 2,768,000
2004 2,657,000
2005 2,817,000
Thereafter 10,789,000
------------------------------------------------------
Total minimum lease payments $24,636,000
------------------------------------------------------
Rent expense under operating leases was
approximately $418,000, $975,000 and $1,286,000
for the years ended December 31, 1998, 1999 and
2000, respectively.
Niagara LaSalle is a party to an equipment lease
with a finance company that became effective on
March 2, 2000. 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) were
reimbursed by the lessor to Niagara LaSalle.
9. Stock Option Plan The Company has a stock option
plan which provides that the 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 25, "Accounting for Stock
Issued to Employees," and related interpretations
in accounting for this plan. Under APB 25, no
compensation cost was recognized because the
exercise price of Niagara's employee stock
options was equal to or greater than the market
price of the underlying stock on the date of
grant.
FASB 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 1998, 1999
and 2000: dividend yield of 0%; expected
volatility of 37.3% for 1998, 45.8% for 1999 and
44.0% for 2000; average risk-free interest rates
of 4.5%, 4.7% and 6.2% for 1998, 1999 and 2000,
respectively; expected lives of 10 years; and a
discount due to marketability and dilution of 0%
for 1998, 1999 and 2000.
Under the accounting provisions of FASB 123, the
Company's net income and earnings per share would
have been reduced to the pro forma amounts
indicated below:
1998 1999 2000
--------------------------------------------------------------
Net income:
As reported $6,510,106 $3,756,625 $4,337,218
Pro forma 6,037,295 3,238,140 3,423,628
Net income per share (basic):
As reported .66 .40 .50
Pro forma .61 .35 .40
Net income per share (diluted):
As reported .64 .40 .50
Pro forma .59 .35 .40
--------------------------------------------------------------
A summary of the status of the Company's stock
option plan at December 31, 1998, 1999 and 2000,
and changes during the years ending on those
dates, is presented below:
December 31, 1998 December 31, 1999 December 31, 2000
------------------ ------------------- ------------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Shares price Shares price Shares price
- -------------------------------------------------------------------------------
Outstanding at
beginning of year 1,190,000 $ 5.68 1,250,000 $5.61 2,140,000 $5.72
Granted 85,000 5.50 890,000 5.88 200,000 5.50
Exercised - - - - - -
Cancelled and
reissued (25,000) (8.50) - - - -
- -------------------------------------------------------------------------------
Outstanding at
end of 1,250,000 $ 5.61 2,140,000 $5.72 2,340,000 $5.70
- -------------------------------------------------------------------------------
Options exercisable
at year-end 751,000 $ 5.64 1,203,000 $5.67 1,551,000 $5.39
- -------------------------------------------------------------------------------
Weighted average
fair value of options
granted during the
year $ 2.80 $3.19 $2.29
- -------------------------------------------------------------------------------
The following table summarizes information about
stock options outstanding at December 31, 2000.
Options outstanding Options exercisable
----------------------------------- ----------------------
Weighted
Number average Weighted Weighted
Range of outstanding remaining average Number average
exercise at contractual exercise exercisable exercise
prices 12/31/00 life price at 12/31/00 price
-----------------------------------------------------------------------
$5.50-$5.88 2,340,000 6.96 years $5.70 1,551,000 $5.39
-----------------------------------------------------------------------
10. Income Taxes The provision for federal and state income tax
expense was comprised of the following:
Year ended
December 31, 1998 1999 2000
---------------------------------------------------------
Current:
Federal $ 887,000 $ 738,000 $ 879,000
State 152,000 100,000 118,000
---------------------------------------------------------
1,039,000 838,000 997,000
---------------------------------------------------------
Deferred:
Federal 2,622,000 1,130,000 1,105,000
State 604,000 185,000 90,000
Foreign, U.K. - 146,000 398,000
---------------------------------------------------------
3,226,000 1,461,000 1,593,000
---------------------------------------------------------
Total income taxes $ 4,265,000 $2,299,000 $2,590,000
---------------------------------------------------------
At December 31, 1999 and 2000, deferred tax
assets (liabilities) consisted of the following:
December 31, 1999 2000
-------------------------------------------------------
Federal alternative minimum
tax credit carryforwards $ 1,894,000 $ 2,536,000
Federal and state regular
tax net operating loss
carryforwards 1,095,000 530,000
Postretirement benefit
obligations 270,000 -
Accrued expenses deductible
when paid 723,000 891,000
Inventory reserves 1,261,000 1,696,000
Accrued minimum pension
liability 120,000 1,075,000
New York State investment
tax credits 667,000 678,000
Allowance for doubtful
accounts 325,000 348,000
Uniform capitalization in
ending tax inventory 87,000 164,000
Other 95,000 327,000
-------------------------------------------------------
Gross deferred tax assets 6,537,000 8,245,000
Valuation allowance for
deferred tax assets (667,000) (678,000)
-------------------------------------------------------
Net deferred tax assets 5,870,000 7,567,000
-------------------------------------------------------
Tax depreciation greater
than book depreciation of
property, plant and
equipment and intangibles (13,103,000) (14,649,000)
Inventories (1,513,000) (1,438,000)
Postretirement benefit
obligation - (466,000)
Other (146,000) (544,000)
-------------------------------------------------------
Gross deferred tax
liabilities (14,762,000) (17,097,000)
-------------------------------------------------------
Net deferred tax liabilities $ (8,892,000) $(9,530,000)
-------------------------------------------------------
Deferred taxes are included in the accompanying
balance sheets as follows:
1999 2000
-------------------------------------------------------
Current asset for deferred
income taxes $ 957,000 $ 1,736,000
Noncurrent liability for
deferred income taxes (9,849,000) (11,266,000)
-------------------------------------------------------
Net deferred tax liabilities $(8,892,000) $ (9,530,000)
-------------------------------------------------------
At December 31, 2000, the Company had available
federal alternative minimum tax credit
carryforwards of approximately $2,536,000 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, 2000, the Company had available
net operating loss carryforwards for regular
federal and state income tax purposes of
approximately $726,000 and $3,652,000,
respectively, expiring through 2020.
At December 31, 2000, Niagara LaSalle had New
York state investment tax credit carryforwards of
approximately $678,000, 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:
1998 1999 2000
------------- ---------------- ------------------
Amount % Amount % Amount %
-----------------------------------------------------------------------------
Tax at statutory
rate $3,664,000 34.0% $2,059,000 34.0% $2,355,000 34.0%
State income
taxes net of
federal
income tax
benefit 481,000 4.5 206,000 3.4 197,000 2.8
Goodwill
amortization 120,000 1.1 91,000 1.5 144,000 2.1
Other - - (57,000) (.9) (106,000) (1.5)
-----------------------------------------------------------------------------
Effective tax rate $4,265,000 39.6% $2,299,000 38.0% $2,590,000 37.4%
-----------------------------------------------------------------------------
No provision has been made for U.S. or additional
U.K. taxes on $213,901 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 5, Niagara UK is restricted under its
facilities and invoice discounting agreements
from paying dividends to Niagara.
Income before taxes for Niagara US was
$10,775,106, $5,275,885 and $5,532,268 and for
Niagara UK was $-0-, (pound)484,310 ($779,740)
and (pound)919,527 ($1,394,950) for the years
ended 1998, 1999 and 2000, respectively.
11. Major Customers Sales to three customers in 1998 were approximately
21%, 9% and 9% of total sales.
Niagara US' sales to three customers in 1999 were
approximately 23%, 12% and 10% of its total
sales. At December 31, 1999, accounts receivable
from these major customers represented
approximately 43% of its aggregate accounts
receivable.
Niagara US' sales to three customers in 2000 were
approximately 25%, 10% and 9% of its total sales.
At December 31, 2000, accounts receivable from
these major customers represented approximately
39% of its aggregate accounts receivable.
None of Niagara UK's customers exceeded 5% of its
total sales for either the period May 22 through
December 31, 1999 or the year 2000.
12. Major Suppliers Niagara US had one supplier from
which purchases were approximately 29% of its
total purchases in 1998; it had two suppliers
from which purchases were approximately 43% of
its total purchases in 1999; and it had one
supplier from which purchases were approximately
30% of its total purchases in 2000.
Niagara UK had one supplier from which purchases
were approximately 36% and 42% of its total
purchases for the period May 22 through December
31, 1999 and the year 2000, respectively.
13. Commitments and Commitments
Contingencies
Niagara and Niagara LaSalle have entered into
employment contracts with certain of their
officers. These contracts, which expire in May
2001 and December 2003, provide minimum salary
levels, as well as incentive bonuses and Niagara
stock options. The aggregate contract commitment
for future minimum salaries at December 31, 2000,
excluding bonuses and stock options, was
approximately $1,490,000.
At December 31, 2000, 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
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 the
locations they own or operate or at the locations
which they arranged for disposal of such
materials. Claims for such costs have been made
against LaSalle with respect to five third-party
sites. The costs expended through December 31,
2000 have been largely covered by insurance.
Management believes that the resolution of these
matters will not have a material adverse effect
on the Company's financial position or results of
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 $219,000 as of December 31, 2000.
It is the policy of the Company to retain a
portion of certain expected losses. These 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 for claims.
Such estimates utilize certain actuarial
assumptions followed in the insurance industry
and are included in accrued expenses.
All of LaSalle's hourly production workers at its
Hammond facility, representing approximately 70%
of LaSalle's personnel, are covered by a
collective bargaining agreement which expires on
July 18, 2001.
14. Earnings Per The following table sets forth the calculation of
Share weighted average common shares outstanding for
the calculation of basic and diluted earnings per
share:
December 31, 1998 1999 2000
-------------------------------------------------------
Weighted average
shares (for basic
earnings per share) 9,879,528 9,350,189 8,659,013
Effect of dilutive
securities:
Stock options 370,426 6,925 -
-------------------------------------------------------
Adjusted weighted
average shares (for
diluted earnings
per share) 10,249,954 9,357,114 8,659,013
-------------------------------------------------------
Options to purchase approximately 1,435,000 and
2,340,000 shares of common stock at exercise
prices ranging from $5.50 to $5.88 per share were
outstanding during a portion of the years ended
1999 and 2000, respectively, but were not
included in the computation of diluted earnings
per share because they were antidilutive. These
options expire through 2010.
15. Disclosure About The following methods and assumptions were used to
Fair Value of estimate the fair value of each class of financial
Financial instruments for which it is practicable to estimate
Instruments that value.
The carrying amounts of cash, trade accounts
receivable, accounts receivable - other 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.
Niagara LaSalle is a party to an interest rate
cap agreement with a bank which entitles it to
payments with respect to $45 million of its
indebtedness in the event and to the extent that
the applicable three-month LIBOR rate exceeds
8.28% at any time between July 20, 2000 and April
20, 2002. Through December 31, 2000, no payments
were paid or due Niagara LaSalle under this
agreement. The fair value of this agreement was
immaterial at December 31, 2000.
Niagara UK enters into foreign exchange contracts
in amounts and with expiration dates in line with
orders from foreign customers. These contracts
generally require Niagara UK to exchange foreign
currencies for pounds sterling. The related
amounts receivable from Niagara UK customers are
included in accounts receivable. At December 31,
2000, Niagara UK had approximately
(pound)13,535,000 (approximately $20,215,000) of
such contracts all of which were due to mature
during 2001. The unrealized deferred gain with
respect to such contracts at December 31, 2000
was (pound)78,400 ($117,000).
16. Supplemental Interest paid during the years ended December 31,
Cash Flow 1998, 1999 and 2000 was approximately $4,306,000,
Information $5,660,000 and $7,295,000, respectively.
Income tax payments made during the years ended
December 31, 1998, 1999 and 2000 were
approximately $2,194,000, $1,011,000 and
$1,402,000, respectively.
As discussed in Note 2, 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:
1998 1999 2000
-------------------------------------------------------
Adjustment of minimum pension liability (Note 6):
Prepaid benefit
cost $ 5,000 $ 275,000 $ 334,000
Intangible asset 526,000 (52,000) (52,000)
Deferred tax asset 688,000 (568,000) 955,000
Accumulated other
comprehensive
income, net of
tax 1,076,000 (888,000) 1,494,000
-------------------------------------------------------
Noncash pension cost $2,295,000 $(1,233,000)$2,731,000
-------------------------------------------------------
17. 1998 Adjustments On July 19, 1998, following a nine-week strike,
the hourly production workers at LaSalle's
Hammond, Indiana facility voted to accept a new
three-year collective bargaining agreement. Among
other things, this agreement provided 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.
18. Segments and Niagara operates in two reportable segments: (i)
Related Niagara US which has operations in the United States
Information and (ii) Niagara UK which has 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 of this
subsidiary 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 (a) $197,050,025 $84,066,863
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
Long-lived assets 90,637,095 15,542,647
Segment assets 150,228,015 76,416,825
Acquisition of property and
equipment 4,029,562 717,726
------------------------------------------------------
(a) In accordance with EITF No. 00-10, net sales
have been restated to include all freight costs
billed to customers. See Note 1.
Year ended December 31, 2000
------------------------------------------------------
Niagara US Niagara UK
------------------------------------------------------
Net sales (a) $208,718,480 $127,318,230
Segment profit (EBITDA) 18,586,422 7,239,114
Depreciation and
amortization 7,405,672 1,609,223
Interest expense 4,695,292 2,721,338
Long-lived assets 85,835,500 15,019,955
Segment assets 141,604,755 73,182,377
Acquisition of property and
equipment 2,754,444 2,124,439
------------------------------------------------------
(a) Net sales include all freight costs billed to
customers in accordance with EITF No. 00-10. See
Note 1.
Niagara US sells its products primarily to
customers in the United States.
Approximately 64% of Niagara UK's sales during
2000 were within the United Kingdom with 19% to
continental Europe and 17% to the rest of the
world. These amounts were 67%, 16% and 17%,
respectively, for the period May 22 through
December 31, 1999. Niagara UK's sales to any one
foreign country for these periods represented
less than 5% of its total sales.
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.
- -------------------------------------------------------------------------------
19. Quarterly The following presents certain unaudited quarterly
Financial financial information:
Information
(Unaudited)
Quarter ended
---------------------------------------------------
March 31, June 30, September 30, December 31,
1999 1999 1999 1999
------------------------------------------------------------------------------
Net sales (a) $52,413,153 $65,402,459 $80,368,037 $82,933,239
Gross profit 7,240,617 7,989,930 10,612,066 10,104,774
Operating income 3,135,949 2,594,286 3,226,727 2,549,635
Net income 1,418,754 932,873 916,508 488,490
Net income per share:
Basic $.15 $.10 $.10 $.05
Diluted $.15 $.10 $.10 $.05
------------------------------------------------------------------------------
Quarter ended
---------------------------------------------------
March 31, June 30, September 30, December 31,
2000 2000 2000 2000
------------------------------------------------------------------------------
Net sales (a) $96,271,423 $91,424,025 $77,462,193 $70,879,069
Gross profit 13,102,773 12,175,468 10,283,520 6,366,665
Operating income 5,213,244 4,740,457 3,182,640 1,048,014
Net income (loss) 2,135,689 1,800,383 833,804 (432,658)
Net income (loss) per
share:
Basic $.24 $.21 $.10 $(.05)
Diluted $.24 $.21 $.10 $(.05)
------------------------------------------------------------------------------
(a) In accordance with EITF 00-10, net sales have been restated to include all
freight costs billed to customers. See Note 1.
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 2001 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 16.
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 Seventh Amendment to the Credit Agreement, effective as of
March 31, 2000.
!!!!!!4.10 Eighth Amendment to the Credit Agreement, effective as of
June 8, 2000.
****4.11 Bank Facilities Agreement, dated May 21, 1999, between
National Westminster Bank Plc and Niagara LaSalle (UK)
Limited (the "Facilities Agreement").
4.12 Amendment, dated September 11, 2000, to the Facilities
Agreement.
****4.13 Intercreditor Agreement, dated May 21, 1999, between
National Westminster Bank Plc, Niagara Corporation and
Niagara LaSalle (UK) Limited.
++++4.14 Invoice Discounting Agreement, dated August 23, 1999,
between Niagara LaSalle (UK) Limited and Lombard
Natwest Discounting Limited (the "Discount Agreement").
4.15 Amendment, dated September 11, 2000, to the Discount
Agreement.
++++4.16 Intercreditor Agreement, dated August 23, 1999, between
Lombard Natwest Discounting Limited, Niagara Corporation
and Niagara LaSalle (UK) Limited.
++++4.17 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.
!!!!!!4.18 Amended Rate Cap Transaction Agreement, dated June 7, 2000,
between The Bank of New York and Niagara LaSalle
Corporation.
*** 10.1 Employment Agreement, dated as of January 1, 1999,
by and among Niagara Corporation, Niagara LaSalle
Corporation and Michael Scharf.
!10.2 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.
!10.3 Guaranty, made by the Registrant in favor of the Cohen
Family Revocable Trust, u/t/a dated June 15, 1988,
dated January 31, 1996.
!!10.4 International Metals Acquisition Corporation 1995 Stock
Option Plan (the "Stock Option Plan").
!!!!10.5 First Amendment to the Stock Option Plan, dated October 5,
1996.
++10.6 Second Amendment to the Stock Option Plan, dated June 8,
1998.
++10.7 Niagara Corporation Employee Stock Purchase Plan.
** 10.8 First Amendment to Lease, dated May 4, 1998, between
Niagara LaSalle Corporation and North American Royalties,
Inc.
*****10.9 Sale of Business Agreement, dated April 16, 1999, between
Glynwed Steels Limited, Glynwed International plc, Niagara
LaSalle (UK) Limited and Niagara Corporation
*****10.10 Property Agreement, dated April 16, 1999, between
Glynwed Property Management Limited, Glynwed Properties
Limited, Niagara LaSalle (UK) Limited, Niagara
Corporation and Glynwed International plc.
*****10.11 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.
+++++10.12 Form of Niagara LaSalle (UK) Limited Lease.
+++++10.13 Form of Niagara LaSalle (UK) Limited Side Deed.
+++++10.14 Form of Niagara LaSalle (UK) Limited Option Agreement.
+++++10.15 Form of Niagara LaSalle (UK) Limited Lease Renewal Deed.
- -------------------------------------
+ Incorporated by reference to exhibit 3.1 filed with the
Registrant's Report on Form 10-Q for the quarter ended
June 30, 1996.
++ Incorporated by reference to Annexes to the
Registrant's Proxy Statement for the Annual Meeting of
Stockholders held on July 7, 1998.
+++ Incorporated by reference to exhibits filed with the
Registrant's Report on Form 10-K for the fiscal year
ended December 31, 1997.
++++ Incorporated by reference to exhibits filed with the
Registrant's Report on Form 10-Q for the quarter ended
September 30, 1999.
+++++ Incorporated by reference to exhibits filed with the
Registrant's Report on Form 10-K for the fiscal year
ended December 31, 1999.
* Incorporated by reference to exhibits filed with the
Registrant's Registration Statement on Form S-1,
Registration No. 33-64682.
** Incorporated by reference to exhibits filed with the
Registrant's Report on Form 10-K for the fiscal year
ended December 31, 1998.
*** Incorporated by reference to exhibit 10.1 filed with
the Registrant's Report on Form 10-K/A for the fiscal
year ended December 31, 1998.
**** Incorporated by reference to exhibits filed with the
Registrant's Report on Form 8-K, dated June 4, 1999.
***** Incorporated by reference to exhibits filed with the
Registrant's Report on Form 8-K, dated April 27, 1999.
! Incorporated by reference to exhibits filed with the
Registrant's Report on Form 10-K for the year ended
December 31, 1995.
!! Incorporated by reference to Annex A to the
Registrant's Proxy Statement for the Annual Meeting of
Stockholders held on May 16, 1996.
!!! Incorporated by reference to exhibit 4.8 to the
Registrant's Report on Form 10-Q for the quarter ended
June 30, 1998.
!!!! Incorporated by reference to exhibit 10.10 to the
Registrant's Report on Form 10-K for the fiscal year
ended December 31, 1996.
!!!!! Incorporated by reference to exhibits filed with the
Registrant's Report on Form 8-K, dated May 2, 1997.
!!!!!! Incorporated by reference to exhibits filed with the
Registrant's Report on Form 10-Q for the quarter ended
June 30, 1999.
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
30th day of March, 2001.
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 March 30, 2001
- ----------------------- Executive Officer
Michael Scharf
Vice President,
Chief Financial and
/s/ Raymond Rozanski Principal Accounting March 30, 2001
- ----------------------- Officer
Raymond Rozanski
/s/ Gilbert D. Scharf Secretary and Director March 30, 2001
- -----------------------
Gilbert D. Scharf
/s/ Frank Archer Director March 30, 2001
- -----------------------
Frank Archer
/s/ Gerald L. Cohn Director March 30, 2001
- -----------------------
Gerald L. Cohn
/s/ Andrew R. Heyer Director March 30, 2001
- -----------------------
Andrew R. Heyer
/s/ Douglas T. Tansill Director March 30, 2001
- -----------------------
Douglas T. Tansill
NIAGARA CORPORATION
AND SUBSIDIARIES
FINANCIAL STATEMENT SCHEDULES
FORM 10-K - ITEM 14
YEARS ENDED DECEMBER 1998, 1999 AND 2000
NIAGARA CORPORATION
AND SUBSIDIARIES
INDEX
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS S-3
FINANCIAL STATEMENT SCHEDULE I:
Condensed Financial Information of Registrant:
Balance Sheets S-4
Statements of Operations S-5
Statements of Stockholders' Equity S-6
Statements of Cash Flows S-7
Notes to Condensed Financial Statements S-8
FINANCIAL STATEMENT SCHEDULE II:
Valuation and Qualifying Accounts S-9
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 22, 2001 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 22, 2001
NIAGARA CORPORATION
AND SUBSIDIARIES
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
December 31, 1999 2000
----------------------------------------------------------------------- ---------------------- ----------------------
ASSETS
CURRENT:
Cash and cash equivalents $ 601,931 $ 25,283
Other current assets 492,256 430,501
----------------------------------------------------------------------- ---------------------- ----------------------
TOTAL CURRENT ASSETS 1,094,187 455,784
PROPERTY AND EQUIPMENT, NET 552,800 505,909
INVESTMENT IN AND NET ADVANCES TO SUBSIDIARIES 61,687,562 63,530,039
OTHER ASSETS, NET 74,492 101,181
----------------------------------------------------------------------- ---------------------- ----------------------
$63,409,041 $64,592,913
----------------------------------------------------------------------- ---------------------- ----------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued expenses $ 86,285 $ 43,882
Advances from subsidiary 6,861,478 8,670,308
----------------------------------------------------------------------- ---------------------- ----------------------
TOTAL LIABILITIES 6,947,763 8,714,190
----------------------------------------------------------------------- ---------------------- ----------------------
COMMITMENTS AND CONTINGENCIES (SEE NOTES 8, 9 AND 13 TO THE
CONSOLIDATED FINANCIAL STATEMENTS)
STOCKHOLDERS' EQUITY (SEE NOTES 6, 7 AND 9 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 12,141,460 16,478,678
Accumulated other comprehensive loss (175,644) (2,691,219)
----------------------------------------------------------------------- ---------------------- ----------------------
62,087,489 63,909,132
Treasury stock, at cost, 1,034,509 and 1,633,638 shares (5,626,211) (8,030,409)
----------------------------------------------------------------------- ---------------------- ----------------------
TOTAL STOCKHOLDERS' EQUITY 56,461,278 55,878,723
----------------------------------------------------------------------- ---------------------- ----------------------
$63,409,041 $64,592,913
----------------------------------------------------------------------- ---------------------- ----------------------
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, 1998 1999 2000
----------------------------------------------------------- ------------------ ------------------- ------------------
REVENUES:
Management fees from subsidiaries (Note 2) $ 1,350,000 $1,838,175 $1,805,100
EXPENSES:
General and administrative expenses 2,405,744 2,069,283 1,839,943
----------------------------------------------------------- ------------------ ------------------- ------------------
(1,055,744) (231,108) (34,843)
OTHER INCOME:
Equity in net income of subsidiaries 7,040,774 3,880,171 4,358,052
Interest income 172,076 28,562 1,009
----------------------------------------------------------- ------------------ ------------------- ------------------
INCOME BEFORE INCOME TAX RECOVERIES 6,157,106 3,677,625 4,324,218
INCOME TAX RECOVERIES 353,000 79,000 13,000
----------------------------------------------------------- ------------------ ------------------- ------------------
NET INCOME $ 6,510,106 $3,756,625 $4,337,218
----------------------------------------------------------- ------------------ ------------------- ------------------
EARNINGS PER SHARE - BASIC:
Net income per share - basic $ .66 $ .40 $ .50
----------------------------------------------------------- ------------------ ------------------- ------------------
EARNINGS PER SHARE - DILUTED:
Net income per share - diluted $ .64 $ .40 $ .50
----------------------------------------------------------- ------------------ ------------------- ------------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (SEE NOTE 14 TO THE
CONSOLIDATED FINANCIAL STATEMENTS):
Basic 9,879,528 9,350,189 8,659,013
Diluted 10,249,954 9,357,114 8,659,013
----------------------------------------------------------- ------------------ ------------------- ------------------
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, 1998, 1999 and 2000
- -----------------------------------------------------------------------------------------------------------------------------------
Common stock
---------------------- Accumulated
Additional other Total
Number of paid-in Retained comprehensive Treasury stock, stockholders'
shares Amount capital earnings loss at cost equity
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, JANUARY 1, 1998 9,997,455 $9,998 $50,111,675 $ 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 (a) - - - - - (2,899,965) (2,899,965)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 9,997,455 9,998 50,111,675 8,384,835 (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 - - - - 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 (b) - - - - - (2,726,246) (2,726,246)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 9,997,455 9,998 50,111,675 12,141,460 (175,644) (5,626,211) 56,461,278
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income for the year - - - 4,337,218 - - 4,337,218
Foreign currency translation adjustments - - - - (1,021,575) - (1,021,575)
Minimum pension liability adjustment
($2,449,000, net of tax benefit of
$955,000) - - - - (1,494,000) - (1,494,000)
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL COMPREHENSIVE INCOME - - - - - - 1,821,643
- -----------------------------------------------------------------------------------------------------------------------------------
Purchase of treasury stock, at cost (c) - - - - - (2,404,198) (2,404,198)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2000 9,997,455 $9,998 $50,111,675 $16,478,678 $(2,691,219) $(8,030,409) $55,878,723
- -----------------------------------------------------------------------------------------------------------------------------------
- --------------
(a) During the year ended December 31, 1998, Niagara Corporation repurchased 485,880 shares of its Common Stock at a cost of
$2,899,965.
(b) During the year ended December 31, 1999, Niagara Corporation repurchased 548,629 shares of its Common Stock at a cost of
$2,726,246.
(c) During the year ended December 31, 2000, Niagara Corporation repurchased 599,129 shares of its Common Stock at a cost of
$2,404,198.
- -----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to condensed financial statements.
NIAGARA CORPORATION
AND SUBSIDIARIES
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
Year ended December 31, 1998 1999 2000
----------------------------------------------------------- ------------------ ------------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,510,106 $ 3,756,625 $4,337,218
----------------------------------------------------------- ------------------ ------------------- ------------------
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Amortization 18,204 16,906 105,949
Equity in net income of subsidiaries (7,040,774) (3,880,171) (4,358,052)
Decrease (increase) in other assets 688,837 780,851 (5,843)
Decrease in accrued expenses (1,246,787) (256,753) (42,403)
----------------------------------------------------------- ------------------ ------------------- ------------------
TOTAL ADJUSTMENTS (7,580,520) (3,339,167) (4,300,349)
----------------------------------------------------------- ------------------ ------------------- ------------------
NET CASH (USED IN) PROVIDED BY OPERATING
ACTIVITIES (1,070,414) 417,458 36,869
----------------------------------------------------------- ------------------ ------------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (137,140) (433,156) (18,149)
Investment in subsidiaries - (6,070,875) -
Advances, subsidiaries, net (8,152,429) 9,314,615 1,808,830
----------------------------------------------------------- ------------------ ------------------- ------------------
NET CASH (USED IN) PROVIDED BY INVESTING
ACTIVITIES (8,289,569) 2,810,584 1,790,681
----------------------------------------------------------- ------------------ ------------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments to acquire treasury stock (2,899,965) (2,726,246) (2,404,198)
----------------------------------------------------------- ------------------ ------------------- ------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (12,259,948) 501,796 (576,648)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 12,360,083 100,135 601,931
----------------------------------------------------------- ------------------ ------------------- ------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 100,135 $ 601,931 $ 25,283
----------------------------------------------------------- ------------------ ------------------- ------------------
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 ACCOUNTING
POLICY The accompanying condensed financial
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
DISTRIBUTIONS Niagara's subsidiary, Niagara LaSalle
Corporation ("Niagara LaSalle"), which was
acquired on August 16, 1995, has a revolving
line of credit and term loan agreement with a
group of banks which contains certain
restrictions on the payment of dividends.
Niagara LaSalle is permitted, however, to pay
management fees to Niagara and, in each of the
years ended December 31, 1998, 1999 and 2000,
$1,350,000 of such management fees were
included as revenues in the accompanying
condensed financial statements but have been
eliminated in the consolidated financial
statements.
Niagara's subsidiary, Niagara LaSalle (UK)
Limited ("Niagara UK"), which acquired the
equipment, inventory and certain other assets
of the steel bar businesses of Glynwed Steels
Limited on May 21, 1999, 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. In the
period May 22 through December 31, 1999 and
during the year ended December 31, 2000,
$488,175 ((pound)300,000) and $455,100
((pound)300,000), 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 CORPORATION
AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1998, 1999 and 2000
---------------------------------- --------------- -------------------------------- ----------------- ---------------
Additions
--------------------------------
Balance at Other Charged to Deductions Balance at
beginning of costs and end of
year expenses year
---------------------------------- --------------- --------------- ---------------- ----------------- ---------------
DECEMBER 31, 2000:
Allowance for doubtful
accounts $925,000 $ - $534,000 $ - $ 1,459,000
---------------------------------- --------------- --------------- ---------------- ----------------- ---------------
DECEMBER 31, 1999:
Allowance for doubtful $
accounts $789,000 $ - $136,000 - $ 925,000
---------------------------------- --------------- --------------- ---------------- ----------------- ---------------
DECEMBER 31, 1998:
Allowance for doubtful $
accounts $727,000 $ - $ 62,000 - $ 789,000
---------------------------------- --------------- --------------- ---------------- ----------------- ---------------