SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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, 2001
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 22, 2002, the aggregate market value of the voting
stock held by non-affiliates of the registrant was approximately $7,158,423
(assumes the registrant's officers, directors and all stockholders holding
5% or more of outstanding shares are affiliates).
There were 8,238,517 shares of the registrant's Common Stock
outstanding as of March 22, 2002.
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 2002 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 $30
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 and September 2001, the Company announced
restructuring plans for its hot rolling operations in the United Kingdom.
Under this first plan, Niagara UK closed its Ductile Hot Mill facility in
Willenhall, terminated its lease of the real property, 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 the same period, Niagara UK
reorganized the management structures in each of its three operating
divisions (hot rolling, cold finishing and distribution). Under this second
plan, Niagara UK closed its Dudley Port hot rolling facility in Tipton and
transferred most of its production to its two other hot rolling facilities.
On March 15, 2002, Niagara UK entered into an agreement to sell the Tipton
property for (pound)3,600,000 (approximately $5,094,000), subject to
adjustment. This sale is subject to certain conditions.
See "PROPERTIES --Niagara UK."
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 automotive rack and steering systems, (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 quench and tempering line to its
Hammond facility and a continuous shape straightening and weighing line to
its Buffalo plant. This new equipment has increased capacity and improved
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, respectively, 39%, 34% and 27% of
Niagara UK's total revenues from unaffiliated customers for 2001; 48%, 28%
and 24% for 2000; and 51%, 27% and 22%, 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 75% of its sales during 2001, 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 615 active customers in North America
with sales outside the United States representing less than 5% of its total
sales for each of 1999, 2000 and 2001. For 2001, Niagara US's 10 largest
customers (by tons shipped) represented approximately 63% 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 50% 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 7,200 active accounts. For 2001, its
largest account represented less than 3% of its total sales and its 10
largest customers represented approximately 19% of its total sales.
Approximately 65% of its sales to unaffiliated customers during 2001 were
within the U.K., with 19% to continental Europe and 16% to the rest of the
world. These amounts were, respectively, 64%, 19% and 17% for the year
ended December 31, 2000, and 67%, 16% and 17% for the period May 22 through
December 31, 1999. Niagara UK's sales to any one foreign country, excluding
the United States, 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.
In response to an International Trade Commission finding on the
negative effects of imports on the domestic steel industry and its workers,
on March 5, 2002, President Bush announced tariffs, quotas and other
measures concerning a broad range of steel products imported into the
United States. These measures became effective on March 20, 2002 and
include tariffs on imported hot rolled and cold finished steel bar of 30%
in the first year, 24% in the second year and 18% in the third year.
Excluded from the tariffs are imports from many developing countries, as
well as Mexico and Canada. Reportedly, new requests for product exclusions
will be considered, although the rules governing these requests have not
been released. Challenges to these tariffs and other measures have been
brought before the World Trade Organization. In addition, certain
individual countries are reported to be considering responsive measures.
Management has not yet determined what impact these tariffs and other
measures will have on the Company's U.S. and U.K. operations.
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, 2001, the Company had 1,125 employees, 510 were
located in the U.S. and 615 were located in the U.K. All of LaSalle's 190
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, 2005. All of
LaSalle's 21 hourly employees at its Griffith, Indiana facility as of such
date were covered by a collective bargaining agreement with the United
Steel Workers of America and its local affiliate which expires on February
19, 2003.
Of the 615 Niagara UK employees as of December 31, 2001, 263 were
covered by collective bargaining agreements with the Iron and Steel Trades
Confederation (192 employees), the Transport and General Workers Union (38
employees) and the General and Municipal Boilermakers Union (33 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 production 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 production facilities and 5 years for the remaining production
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 $1.2 million) for years 3-6; and
(pound)1,000,000 (approximately $1.4 million) for years 7-10. The sales
office leases have various terms ranging to five years. Each production
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
production facilities (identified by an asterisk "*" below) at prices fixed
for 10 years (which prices total (pound)9,468,000 (approximately $13.7
million)), or to renew the leases with respect thereto for an additional
term of 15 years at commercial market rates.
Niagara UK's production 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), 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 restructuring plans for its hot rolling
operations, Niagara UK terminated the lease of its Ductile Wesson facility
in Willenhall on February 18, 2001 and discontinued production at its
Dudley Port facility in Tipton on November 23, 2002. On March 15, 2002,
Niagara UK entered into an agreement to sell this Tipton property for
(pound)3,600,000 (approximately $5,094,000), subject to adjustment. This
transaction is subject to the buyer receiving approval from the local
planning authority of its plans to build residential property at the site.
Niagara UK's option to purchase this property is exercisable on 3 months'
notice and upon payment of (pound)1,495,000 (approximately $2,115,000).
Management considers its manufacturing facilities, which operated
at approximately 65% of capacity in 2001, 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. In three of these cases, LaSalle has
entered into de minimis settlement agreements resolving the pending claims
of liability, one of which is subject to further governmental approval. In
connection with the fourth site, the United States Environmental Protection
Agency (the "EPA") has notified LaSalle that it does not intend to seek
cost recovery from it at this time. 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 EPA and performed a limited
remediation at the site. LaSalle has received insurance settlements in
amounts that largely cover the financial contributions it has made for
these sites through December 31, 2001. 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 2000 and 2001.
High Low
---- ---
2000
January 1 through March 31......................... 5.188 3.875
April 1 through June 30............................ 5.063 3.500
July 1 through September 30........................ 4.438 3.625
October 1 through December 31...................... 3.750 1.250
2001
January 1 through March 31......................... 2.750 1.750
April 1 through June 30............................ 2.250 1.560
July 1 through September 30........................ 2.250 1.400
October 1 through December 31...................... 1.940 1.250
As of March 22, 2002, there were 34 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,
1997 (1) 1998 1999 (2) 2000 2001
------------ ----------- ------------ ---------- ----------
(in thousands, except per share data)
Statement of Operations Data:
Net sales (3) ........................ $ 214,962 $ 217,582 $ 281,117 $336,037 $268,637
Cost of products sold (3) ............. 190,532 187,375 245,170 293,857 239,085
Gross profit(3)........................ 24,430 30,207 35,947 42,180 29,552
Selling, general and administrative
expenses(3)......................... 12,450 15,645 24,441 27,996 24,814
Restructuring costs(4) ................ -- -- -- -- 5,278
Interest income........................ 160 172 36 7 --
Other income........................... 187 195 143 152 186
Interest expense....................... 5,874 4,154 5,631 7,417 5,373
Provision (benefit) for income taxes... 2,479 4,265 2,299 2,590 (1,100)
Extraordinary loss on early
extinguishment of debt.............. 2,062 -- -- -- --
Net income (loss) .....................
1,912 6,510 3,757 4,337 (4,627)
Net income (loss) per share (basic)
(before extraordinary loss)........ $ .94 $ .66 $ .40 $ .50 $ (.56)
Net income (loss) per share (diluted)
(before extraordinary loss)........ $ .78 $ .64 $ .40 $ .50 $ (.56)
Net income (loss) per share (basic)....
$ .45 $ .66 $ .40 $ .50 $ (.56)
Net income (loss) per share (diluted)..
$ .38 $ .64 $ .40 $ .50 $ (.56)
Weighted average common shares
outstanding (basic)................ 4,247 9,880 9,350 8,659 8,329
Weighted average common shares
outstanding (diluted).............. 5,095 10,250 9,357 8,659 8,329
At December 31,
1997 1998 1999 2000 2001
------------ ----------- ------------ ---------- ----------
< (in thousands)
Balance Sheet Data:
Cash and cash equivalents.............. $ 13,207 $ 441 $ 2,234 $ 2,351 $ 1,692
Trade accounts receivable, net......... 21,660 13,360 53,126 46,138 37,845
Inventories............................ 35,190 30,132 59,442 60,901 44,114
Property, plant and equipment, net..... 89,163 89,749 102,984 98,076 89,658
Goodwill, net.......................... 2,177 2,100 2,022 1,984 1,904
TOTAL ASSETS........................... 166,520 139,429 227,934 215,418 181,879
Trade accounts payable................. 20,985 14,107 50,191 44,468 32,605
Accrued expenses....................... 8,679 6,555 9,506 10,496 10,671
Current maturities of long-term debt... 3,498 4,797 6,411 7,653 9,709
Long-term debt, less current maturities 59,184 41,572 87,388 77,877 62,294
Accrued pension and other
postretirement benefits............. 14,537 10,303 8,023 7,718 7,289
Deferred income taxes.................. 5,726 7,357 9,849 11,266 10,020
TOTAL LIABILITIES...................... 114,524 84,898 171,473 159,539 132,626
STOCKHOLDERS' EQUITY .................. $ 51,996 $54,531 $56,461 $55,879 $ 49,253
(1) Includes the results of LaSalle from April 1, 1997.
(2) Includes the results of Niagara UK from May 22, 1999.
(3) Net sales and cost of products sold have been restated for years 1997
through 1999 with respect to freight costs in accordance with EITF No.
00-10. Certain additional reclassifications, primarily in respect of
depreciation, have been made in 2000 in order to conform to current
year presentation. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
(4) Represents costs associated with a restructuring of Niagara UK
operations. 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 2001, the Company continued to experience the decline in
sales and net income that began during the third quarter of 2000. In the
U.S., demand for the Company's products by service centers, the Company's
major U.S. customer base, continued to decline in the face of weak
conditions in the manufacturing sector of the economy. In addition,
competitive pressures in the U.S. during 2001 resulted in a further decline
in prices.
In the U.K., the Company's operations performed poorly due
primarily to weak conditions in the manufacturing sector of the U.K. and
other European countries. In addition, the high value of the pound sterling
relative to Western European currencies continued to impact negatively on
Niagara UK's export business.
Faced with these conditions, management reviewed all operations
for cost cutting opportunities and effected reductions in raw material,
production and transportation costs and reduced capital expenditures.
Long-term debt was reduced by $12,707,710 during 2001, as the Company
focused on tighter working capital management. The Company also evaluated
its staffing needs and cut back on some shifts in both its U.S. and U.K
operations.
On September 4, 2001, the Company announced a restructuring plan
for its hot rolled bar operations in the United Kingdom. Under this plan,
Niagara UK closed its Dudley Port facility in Tipton and transferred most
of its production to its two other hot rolling facilities. In connection
with this restructuring, the Company recorded, in the fourth quarter of
2001, a charge of $5,278,074 (approximately (pound)3,662,000), resulting in
a net loss for the quarter of $4,439,079. As described in Note 3 to the
Financial Statements, this charge consisted of equipment write-offs and
redundancy and reorganization costs including severance costs. On March 15,
2002, Niagara UK entered into an agreement to sell this Tipton property for
(pound)3,600,000 (approximately $5,094,000), subject to adjustment. This
sale is subject to certain conditions. See "PROPERTIES--Niagara UK."
The following year-to-year comparisons reflect a reclassification
of freight costs in accordance with 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 2000 and 2001 presentation, resulted in the recording of such
amounts in both net sales and cost of products sold for 1997 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, 1997, 1998 and 1999, the
amounts involved were $10,000,000, $10,035,000 and $16,895,000,
respectively.
Certain additional reclassifications, primarily in respect of
depreciation, have also been made in the 2000 Statement of Operations in
order to conform to current year presentation. The net effect of these
reclassifications was to decrease cost of products sold, and thereby
increase gross profit, and to increase selling, general and administrative
expenses, each by $251,569 for the year ended December 31, 2000.
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, 2001 compared with December 31, 2000
Net sales for the year ended December 31, 2001 were $268,636,530,
representing a decrease of $67,400,180, or 20.1%, over the same period in
2000. Approximately 64.7% of this decrease was attributable to the
Company's U.S. operations with the remainder, 35.3%, attributable to the
Company's U.K. operations. The decrease in net sales attributable to the
Company's U.S. and U.K. operations was due primarily to a marked decrease
in sales volume (18.5% and 20.1%, respectively) and, to a lesser extent, a
decrease in prices.
Cost of products sold for the year ended December 31, 2001
decreased by $54,771,824 to $239,084,891, representing a decrease of 18.6%
over the same period in 2000. This decrease was primarily attributable to
the decreased sales volume from both the Company's U.S. and U.K.
operations.
Gross margins for the year ended December 31, 2001 decreased by
1.6% compared to the same period in 2000 due primarily to the Company's
decreased net sales and the decline in prices in the U.S. These were
partially offset by a more favorable product mix in the U.K.
Selling, general and administrative expenses for the year ended
December 31, 2001 decreased by $3,181,362 to $24,814,277, or 9.2% of sales,
compared to 8.3% of sales for the same period in 2000. The reduction in
dollar amount was primarily attributable to the Company's cost-cutting
measures, and the increase as a percentage of sales was due primarily to
the decrease in net sales.
As discussed above, the Company incurred a restructuring charge of
$5,278,074 (approximately (pound)3,662,000) for the year ended December 31,
2001 in connection with a restructuring of its hot rolled bar operations in
the U.K. This charge consisted of equipment write-offs of $3,554,270
(approximately (pound)2,466,000) and redundancy and reorganization costs of
$1,723,804 (approximately (pound)1,196,000). Such costs include
approximately $1,185,000 (approximately (pound)823,000) of severance costs
in respect of approximately 100 employees. At December 31, 2001,
approximately $300,000 (approximately (pound)207,000) of these costs were
included in accrued expenses.
Interest expense for the year ended December 31, 2001 decreased by
$2,044,274 to $5,372,356 due primarily to decreased levels of borrowing and
lower interest rates.
For the year ended December 31, 2001, the tax benefit on the
Company's loss before income taxes ($5,726,519) was $1,100,000. As
described in Note 11 to the Financial Statements, this tax benefit (19.2%
of the loss before income taxes) differs from the statutory rate (34%)
primarily due to a valuation allowance of $631,000 relating to basis
differences on the Company's property, plant and equipment in the U.K. For
the year ended December 31, 2000, the Company's tax expense was $2,590,000.
The effective rate for such year (37.4% on $6,927,218 of income before
taxes) differs from the statutory rate (34%) primarily due to state income
taxes.
Net loss for the year ended December 31, 2001 was $4,626,519, a
decrease of $8,963,737, as compared to net income of $4,337,218 for the
year ended December 31, 2000. Approximately 40.7% of this decrease was
attributable to the Company's U.S. operations and the balance, 59.3%, was
attributable to the Company's U.K. operations. Net loss for the year ended
December 31, 2001 includes a restructuring charge of approximately $4.3
million on an after-tax basis in respect of the Company's operations in the
U.K.
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 $48,687,214 to $293,856,715, representing an increase of 19.9%
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
0.2% 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 $3,554,850 to $27,995,640, 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.
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. At
December 31, 2001, the Company had combined debt obligations and operating
lease commitments of approximately $12,892,000 payable in 2002, $53,788,000
payable in 2003, $9,177,000 payable in 2004, $6,706,000 payable in 2005,
$4,181,000 payable in 2006, and $8,480,000 payable thereafter.
Capital expenditures for the year ending December 31, 2001 were
$3,110,207 compared to $4,897,032 for the same period in 2000. This
decrease was attributable to a decrease by both U.S. and U.K. operations in
the purchase of new machinery and equipment in response to weak operating
conditions. The Company anticipates spending approximately $2,000,000 for
capital expenditures during 2002.
Cash flows provided by operating activities were $15,503,433 for
the year ended December 31, 2001, an increase of $1,964,060 as compared to
cash flows provided by operating activities of $13,539,373 for the same
period in 2000. This increase was largely attributable to a decrease in
inventories in 2001 as compared to 2000 (a decrease of $16,026,062 in 2001
as compared to an increase of $3,450,179 in 2000). These were partially
offset by the amount of the decrease in accounts payable, accrued expenses
and other non-current liabilities in 2001 as compared to 2000 (a decrease
of $10,918,287 in 2001 as compared to a decrease of $2,524,477 in 2000),
and a decrease in net income (net loss of $4,626,519 in 2001 as compared to
net income of $4,337,218 in 2000). Cash and cash equivalents at December
31, 2001 were $1,692,070, a decrease of $658,445 as compared to December
31, 2000. 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") and Niagara LaSalle terminated its
previously existing credit agreements. The other parties to the Credit
Agreement are Manufacturers and Traders Trust Company ("M&T"), CIBC Inc.,
Citizens Business Credit Company, The Prudential Insurance Company of
America and PNC Bank. The Credit Agreement provides for a $50,000,000
revolving credit facility and a $40,000,000 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 2.85%, or M&T's prime rate plus 1.00%. Revolving
credit loans made pursuant to the Credit Agreement are based on a
percentage of eligible accounts receivable and inventory and will mature on
July 31, 2003. Interest on such loans is payable in monthly installments
and is either 2.50% above the LIBOR rate (for a period specified by Niagara
US from time to time) or M&T's prime rate plus 0.75%.
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 these requirements as of
December 31, 2001.
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 and
borrowings under the Company's credit facilities. 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, 2001, Niagara had repurchased 1,758,938 shares of its Common
Stock at a cost of $8,249,684, of which 125,300 shares were repurchased at
a cost of $219,275 during the year ended December 31, 2001.
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 $14.5 million) term loan and a (pound)9.8 million
(approximately $14.2 million) 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 BBA LIBOR rate (for
periods specified by Niagara UK from time to time) plus 0.15% 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 an Invoice Discounting
Agreement (the "Discount Agreement") with Royal Bank of Scotland Invoice
Discounting Limited ("RBID") (formerly known as Lombard Natwest Discounting
Limited) providing for up to (pound)20 million (approximately $29.0
million) of advances to Niagara UK based upon a formula tied to the
receivables purchased by RBID. Advances under the Discount Agreement accrue
interest at the National Westminster base rate plus 2.25% and mature on
August 23, 2003. 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 $7.1
million) and were further reduced to (pound)2.5 million (approximately $3.6
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 consolidated EBITDA to consolidated fixed
charges and the ratio of current assets to current liabilities. Niagara UK
was in compliance with these requirements as of December 31, 2001.
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.
During 2001, long-term debt was reduced by $12,707,710. At
December 31, 2001, the Company had borrowed or been advanced $39,470,451
under its revolving credit facilities and the Discount Agreement and had
approximately $12,000,000 in available credit thereunder, and the
outstanding balance of its term loans was $31,822,057. Working capital of
the Company at December 31, 2001 was $36,213,848.
Critical Accounting Policies
On December 12, 2001, the Securities and Exchange Commission (the
"SEC") issued Financial Reporting Release No. 60 which requires a
discussion of the critical accounting policies used by companies in the
preparation of their financial statements. Note 1 to the Financial
Statements includes a summary of the significant accounting policies used
by the Company in the preparation of its financial statements. The Company
believes that the following critical accounting policies affect the
significant judgments and estimates used in the preparation of the
Company's consolidated financial statements.
The discussion and analysis of the Company's financial condition
and results of operations are based upon the Company's consolidated
financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of America.
The preparation of these financial statements requires that management make
estimates and assumptions that affect the reported amounts of assets and
liabilities, revenues and expenses and the related disclosure of contingent
assets and liabilities. On an ongoing basis, management evaluates these
estimates, including those related to inventory reserves, taxes, doubtful
accounts, intangible assets, insurance, litigation, environmental
compliance and other contingencies. Management bases its estimates on
historical data, when available, professional advice, experience and
various assumptions that are believed to be reasonable under the
circumstances, the combined results of which form the basis for making
judgments about the carrying values of assets and liabilities. Actual
results could differ from these estimates.
Revenue from the sale of products is recorded at the time the
goods are shipped. Revenue from freight charged to customers is recognized
when products are shipped. Provisions for discounts, customer returns and
other adjustments are provided for in the period the related sales are
recorded based upon historical data.
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.
Effects of Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board (the
"FASB") issued Statement of Financial Accounting Standards ("SFAS") No.
141, "Business Combinations," which requires that entities use the purchase
method of accounting, and prohibits the use of the pooling-of-interests
method of accounting, for all business combinations initiated after June
30, 2001. This statement also requires that the Company recognize acquired
intangible assets apart from goodwill if the acquired intangible assets
meet certain criteria. The Company's previous business combinations were
accounted for using the purchase method. The adoption of this statement has
not had an effect on the Company's financial statements.
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets," which requires, among other things, that entities no
longer amortize goodwill and other intangible assets having indefinite
useful lives, but rather test them, at least annually, for impairment. In
accordance with this statement, intangible assets that have finite useful
lives will continue to be amortized over their useful lives. SFAS No. 142
is required to be applied in fiscal years beginning after December 15, 2001
to all goodwill and other intangible assets recognized at that date,
regardless of when such assets were initially recognized. This statement
also requires that entities complete a transitional goodwill impairment
test six months from the date of adoption and reassess the useful lives of
other intangible assets within the first quarter of its adoption. The
Company is in the process of completing this test and, accordingly, has not
yet determined what effect the adoption of this statement will have on its
financial statements. As of December 31, 2001, the net carrying amount of
goodwill was $1,904,499. Goodwill amortization for the year ended December
31, 2001 was $79,080.
In August 2001, the FASB issued SFAS No. 143, "Accounting for
Assets Retirement Obligations," which addresses financial accounting and
reporting for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. This statement
is required to be applied for fiscal years beginning after June 15, 2002.
The adoption of this statement is not expected to have a material effect on
the Company's financial statements.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which addresses financial
accounting for the impairment or disposal of long-lived assets. This
statement requires that one accounting model be used for long-lived assets
to be disposed of by sale, and broadens the presentation of discontinued
operations to include more disposal transactions. This statement is
required to be applied for fiscal years beginning after December 15, 2001.
The adoption of this statement is not expected to have a material effect on
the Company's financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risks include fluctuations in
interest rates, variability in interest rate spreads (i.e., prime to LIBOR
spreads), 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 2.85%, or M&T's prime rate plus 1.00%.
Interest on revolving credit loans made pursuant to such agreement accrues
at either 2.50% above the LIBOR rate (for a period specified by Niagara US
from time to time) or M&T's prime rate plus 0.75%. Interest on the term and
revolving credit loans under the Facilities Agreement accrues at the BBA
LIBOR rate (for a period specified by Niagara UK from time to time) plus
0.15%. 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
through the selection of LIBOR periods under the Credit and Facilities
Agreements and advance amounts under the Discount Agreement. Management has
also attempted to reduce such risks 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").
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, 2001, Niagara UK had approximately (pound)5,402,000
(approximately $7,840,000) of such contracts all of which were due to
mature during 2002. 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. Generally, these insurance
policies provide for payments to Niagara UK of 80% (90% through December
31, 2001) of the unpaid invoiced amounts. 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 can
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 can affect the market for the Company's
products, particularly in Niagara US and Niagara UK's respective
home markets. Recently enacted tariffs and other measures in the
United States and the market and governmental responses thereto
may also affect both the Company's U.S. and U.K. operations. See
"BUSINESS--Competition."
o Foreign Sales - Approximately 35% of Niagara UK's sales during
2001 were 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." Recently enacted tariffs and other measures in the
United States and the market and governmental responses thereto
may also affect both the Company's U.S. and U.K.
operations. See "BUSINESS--Competition."
o Customer Concentration - Niagara US's 3 largest customers
represented approximately 50% of its total sales for 2001. The
loss of any of these customers would have a material adverse
effect on Niagara US's sales. See "BUSINESS -- Customers."
o Management Employment Contracts - Certain members of management do
not have employment contracts with the Company. There is no
assurance that the Company will be able 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, 2005 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..................... 19
Balance Sheets......................................................... 20
Statements of Operations............................................... 21
Statements of Stockholders' Equity..................................... 22
Statements of Cash Flows............................................... 23
Notes to Financial Statements.......................................... 24-57
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, 2000 and 2001, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the
period ended December 31, 2001. 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, 2000 and 2001, and the
consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 2001, 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, 2002
(except as to Note 3 which is as of March 15, 2002)
NIAGARA CORPORATION
AND SUBSIDIARIES
Balance Sheets
=====================================================================================================================
December 31, 2000 2001
---------------------------------------------------------------------------------------------------------------------
Assets
Current:
Cash and cash equivalents $ 2,350,515 $ 1,692,070
Trade accounts receivable, net of allowance for doubtful accounts
of $1,459,000 and $1,276,000 (Notes 6 and 12) 46,138,149 37,844,609
Inventories (Notes 4 and 6) 60,901,482 44,113,663
Deferred income taxes (Note 11) 1,736,000 1,678,000
Other current assets (Note 7) 2,829,295 3,870,749
- ---------------------------------------------------------------------------------------------------------------------
Total current assets 113,955,441 89,199,091
Property, plant and equipment, net (Notes 5 and 6) 98,075,506 89,658,179
Goodwill, net of accumulated amortization of $377,867 and $456,947 1,983,579 1,904,499
Deferred financing costs, net of accumulated amortization of $405,876
and $516,564 369,124 258,436
Intangible pension asset (Note 7) 422,000 370,000
Other assets, net of accumulated amortization of $744,680 and $883,293 612,338 488,725
- ---------------------------------------------------------------------------------------------------------------------
$ 215,417,988 $ 181,878,930
=====================================================================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 44,468,035 $ 32,604,979
Accrued expenses (Notes 2 and 3) 10,495,664 10,671,116
Current maturities of long-term debt (Note 6) 7,652,774 9,709,148
- ---------------------------------------------------------------------------------------------------------------------
Total current liabilities 62,616,473 52,985,243
Other:
Long-term debt, less current maturities (Note 6) 77,876,706 62,293,980
Accrued pension cost (Note 7) 2,400,000 1,987,000
Accrued other postretirement benefits (Note 7) 5,317,536 5,302,483
Deferred income taxes (Note 11) 11,266,000 10,020,000
Other noncurrent liabilities 62,550 37,710
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities 159,539,265 132,626,416
- ---------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 9, 10 and 14)
Stockholders' equity (Notes 7, 8 and 10):
Preferred stock, $.001 par value - 500,000 shares authorized;
none outstanding - -
Common stock, $.001 par value - 15,000,000 shares authorized;
9,997,455 issued 9,998 9,998
Additional paid-in capital 50,111,675 50,111,675
Retained earnings 16,478,678 11,852,159
Accumulated other comprehensive loss (2,691,219) (4,471,634)
---------------------------------------------------------------------------------------------------------------------
63,909,132 57,502,198
Treasury stock, at cost, 1,633,638 and 1,758,938 shares (8,030,409) (8,249,684)
---------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 55,878,723 49,252,514
---------------------------------------------------------------------------------------------------------------------
$ 215,417,988 $ 181,878,930
=====================================================================================================================
See accompanying notes to financial statements.
NIAGARA CORPORATION
AND SUBSIDIARIES
Statements of Operations
=====================================================================================================================
Year ended December 31, 1999(a) 2000 2001
---------------------------------------------------------------------------------------------------------------------
Net sales (Note 12) $281,116,888 $336,036,710 $268,636,530
Cost of products sold (Notes 7 and 13) 245,169,501 293,856,715 239,084,891
---------------------------------------------------------------------------------------------------------------------
Gross profit 35,947,387 42,179,995 29,551,639
Operating expenses and restructuring costs:
Selling, general and administrative
(Note 7) 24,440,790 27,995,640 24,814,278
Restructuring costs (Note 3) - - 5,278,074
---------------------------------------------------------------------------------------------------------------------
Operating income (loss) 11,506,597 14,184,355 (540,713)
Interest income 36,172 7,050 -
Interest expense (5,630,549) (7,416,630) (5,372,356)
Other income 143,405 152,443 186,550
---------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 6,055,625 6,927,218 (5,726,519)
Provision (benefit) for income taxes (Note 11) 2,299,000 2,590,000 (1,100,000)
---------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 3,756,625 $ 4,337,218 $ (4,626,519)
=====================================================================================================================
Net income (loss) per share:
Basic $ .40 $ .50 $ (.56)
---------------------------------------------------------------------------------------------------------------------
Diluted $ .40 $ .50 $ (.56)
=====================================================================================================================
Weighted average common shares outstanding (Note 15):
Basic 9,350,189 8,659,013 8,329,145
Diluted 9,357,114 8,659,013 8,329,145
=====================================================================================================================
___________
(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, 1999, 2000 and 2001
==================================================================================================================================
Common stock
-------------------
Accumulated
Additional other Treasury Total
Number of paid-in Retained comprehensive stock, stockholders'
shares Amount capital earnings loss at cost equity
----------------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 1999 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 adjustment - - - - 12,356 - 12,356
Minimum pension liability
adjustment ($1,456,000,
net of tax expense of
$568,000 - Note 7) - - - - 888,000 - 888,000
----------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income 4,656,981
----------------------------------------------------------------------------------------------------------------------------------
Purchase of treasury stock, - - - - - (2,726,246) (2,726,246)
at cost (a)
----------------------------------------------------------------------------------------------------------------------------------
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 - - - - (1,021,575) - (1,021,575)
Minimum pension liability
adjustment($2,449,000,
net of tax benefit of
$955,000 - Note 7) - - - - (1,494,000) - (1,494,000)
----------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income 1,821,643
----------------------------------------------------------------------------------------------------------------------------------
Purchase of treasury stock,
at cost (a) - - - - - (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
Comprehensive loss:
Net loss for the year - - - (4,626,519) - - (4,626,519)
Foreign currency translation
adjustment - - - - (476,415) - (476,415)
Minimum pension liability
adjustment ($2,137,000,
net of tax benefit of
$833,000 - Note 7) - - - - (1,304,000) - (1,304,000)
----------------------------------------------------------------------------------------------------------------------------------
Total comprehensive loss (6,406,934)
----------------------------------------------------------------------------------------------------------------------------------
Purchase of treasury stock,
at cost (a) - - - - - (219,275) (219,275)
----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2001 9,997,455 $9,998 $50,111,675 $11,852,159 $(4,471,634) $(8,249,684) $49,252,514
==================================================================================================================================
(a) During the years ended December 31, 1999, 2000 and 2001, Niagara Corporation repurchased 548,629 shares, 599,129 shares,
and 125,300 shares of its Common Stock, respectively, at a cost of $2,726,246, $2,404,198 and $219,275, respectively.
===================================================================================================================================
See accompanying notes to financial statements.
NIAGARA CORPORATION
AND SUBSIDIARIES
Statements of Cash Flows
(Note 17)
==========================================================================================================================
Year ended December 31, 1999(a) 2000 2001
- --------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income (loss) $ 3,756,625 $ 4,337,218 $ (4,626,519)
- --------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income (loss)
to net cash (used in)
provided by operating activities:
Depreciation and amortization 8,144,210 9,120,844 7,684,862
Provision for doubtful accounts 135,778 534,000 (165,084)
Deferred income taxes 1,461,000 1,593,000 (355,000)
Pension costs (740,350) (3,021,987) (2,498,000)
Other postretirement benefits (307,053) (14,050) (15,053)
Loss on disposal and write-off of equipment 569,008 38,875 3,554,270
Changes in assets and liabilities, net of effects
of purchase of U.K. steel bar businesses in
1999:
(Increase) decrease in accounts receivable (39,356,798) 3,846,937 7,555,242
(Increase) decrease in accounts receivable
- other (2,255,687) 2,255,687 -
(Increase) decrease in inventories (7,563,220) (3,450,179) 16,026,062
(Increase) decrease in other current assets (1,391,323) 792,733 (724,060)
(Increase) decrease in other assets (423,416) 30,772 (15,000)
Increase (decrease) in accounts payable,
accrued expenses and other noncurrent
liabilities 32,718,279 (2,524,477) (10,918,287)
-------------------------------------------------------------------------------------------------------------------------
Total adjustments (9,009,572) 9,202,155 20,129,952
- --------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by
operating activities (5,252,947) 13,539,373 15,503,433
- --------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Acquisition of U.K. steel bar businesses (32,514,281) - -
Proceeds from disposal of equipment 25,864 15,550 -
Acquisition of property and equipment (5,180,444) (4,897,032) (3,110,207)
- --------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (37,668,861) (4,881,482) (3,110,207)
- --------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from long-term debt 57,226,432 1,102,495 -
Repayment of long-term debt (9,797,207) (7,028,241) (12,707,710)
Payments to acquire treasury stock (2,726,246) (2,404,198) (219,275)
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 44,702,979 (8,329,944) (12,926,985)
- --------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash
equivalents 12,356 (211,613) (124,686)
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 1,793,527 116,334 (658,445)
Cash and cash equivalents, beginning of year 440,654 2,234,181 2,350,515
- --------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 2,234,181 $ 2,350,515 $ 1,692,070
==========================================================================================================================
___________
(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 Significant Organization and Business Operations
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 eight 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. The Company has adopted the
classification requirements for freight
costs required by Emerging Issue 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.
Application of EITF No. 00-10 resulted in
the reclassification, to conform to 2000
and 2001 presentation, of such amounts in
both net sales and costs of products sold
for 1999, and, accordingly, resulted in
no change to gross profit. Prior to the
year ended December 31, 2000, net sales
had been stated after reduction for
freight costs. For the year ended
December 31, 1999, the amount of this
reclassification was $16,895,000.
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 40 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 of goodwill was 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.
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 estimates and 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.
Additional Reclassifications
Certain additional reclassifications,
primarily in respect of depreciation,
have been made in the 2000 Statement of
Operations in order to conform to current
year presentation. The net effect of
these reclassifications was to decrease
cost of products sold, and thereby
increase gross profit, and to increase
selling, general and administrative
expenses, each by $251,569 for the year
ended December 31, 2000.
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.
Comprehensive Income or Loss
The Company has adopted the provisions of
SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for
reporting and display of comprehensive
income or loss and its components and
accumulated balances. Comprehensive
income or loss 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 or loss be reported in a financial
statement that is displayed with the same
prominence as other financial statements.
Comprehensive income or loss is displayed
in the Statements of Stockholders'
Equity.
At December 31, 2001, the Company had an
accumulated other comprehensive loss of
$4,471,634. This loss was comprised of
accumulated minimum pension liability
adjustments of $2,986,000, representing
pension plan obligations in excess of
pension plan assets, and accumulated
foreign currency translation adjustments
of $1,485,634 arising from the declining
value of the British pound with respect
to the U.S. dollar.
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
The Company has adopted the provisions of
SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as
amended by SFAS No. 137, 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.
The adoption of this standard by the
Company during 2001 did not have a
material effect on the Company's
financial statements.
New Accounting Pronouncements
SFAS No. 141, "Business Combinations"
In June 2001, the Financial Accounting
Standards Board (the "FASB") issued SFAS
No. 141, "Business Combinations," which
requires that entities use the purchase
method of accounting, and prohibits the
use of the pooling-of-interests method of
accounting, for all business combinations
initiated after June 30, 2001. This
statement also requires that the Company
recognize acquired intangible assets
apart from goodwill if the acquired
intangible assets meet certain criteria.
The Company's previous business
combinations were accounted for using the
purchase method. The adoption of this
statement has not had an effect on the
Company's financial statements.
SFAS No. 142, "Goodwill and Other
Intangible Assets"
In July 2001, the FASB issued SFAS No.
142, "Goodwill and Other Intangible
Assets," which requires, among other
things, that entities no longer amortize
goodwill and other intangible assets
having indefinite useful lives, but
rather test them, at least annually, for
impairment. In accordance with this
statement, intangible assets that have
finite useful lives will continue to be
amortized over their useful lives. SFAS
No. 142 is required to be applied in
fiscal years beginning after December 15,
2001 to all goodwill and other intangible
assets recognized at that date,
regardless of when such assets were
initially recognized. This statement also
requires that entities complete a
transitional goodwill impairment test six
months from the date of adoption and
reassess the useful lives of other
intangible assets within the first
quarter of its adoption. The Company is
in the process of completing this test
and, accordingly, has not yet determined
what effect the adoption of this
statement will have on its financial
statements.
As of December 31, 2001, the net carrying
amount of goodwill was $1,904,499.
Goodwill amortization for the year ended
December 31, 2001 was $79,080.
SFAS No. 143, "Accounting for Assets
Retirement Obligations"
In August 2001, the FASB issued SFAS No.
143, "Accounting for Assets Retirement
Obligations," which addresses financial
accounting and reporting for obligations
associated with the retirement of
tangible long-lived assets and the
associated asset retirement costs. This
statement is required to be applied for
fiscal years beginning after June 15,
2002. The adoption of this statement is
not expected to have a material effect on
the Company's financial statements.
SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived
Assets"
In October 2001, the FASB issued SFAS No.
144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," which
addresses financial accounting for the
impairment or disposal of long-lived
assets. This statement requires that one
accounting model be used for long-lived
assets to be disposed of by sale, and
broadens the presentation of discontinued
operations to include more disposal
transactions. This statement is required
to be applied for fiscal years beginning
after December 15, 2001. The adoption of
this statement is not expected to have a
material effect on the Company's
financial statements.
2. Acquisition of U.K. On May 21, 1999, Niagara UK purchased the
Steel Bar Businesses 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 $34.3 million) in cash at
the closing, (pound)3,015,500
(approximately $4.9 million) of which was
returned to Niagara UK during the third
quarter of 1999 as an adjustment to
reflect the value of the net assets
transferred. These steel bar businesses,
which are engaged in hot rolling, cold
finishing and distribution, consist of
the following unincorporated trading
units: Ductile Wesson, Gadd Dudley Port,
GB Longmore, 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. At December 31, 2001,
approximately (pound)338,000
(approximately $0.5 million) of such
estimated costs were included in accrued
expenses.
In connection with the acquisition of the
U.K. steel bar businesses, Niagara and
Niagara UK entered into agreements with
subsidiaries of Glynwed providing for the
lease or sublease by Niagara UK of 10
production 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
production facilities and 5 years for the
remaining production facility at
aggregate rents of (pound)50,000
(approximately $75,000) for the first two
years; (pound)850,000 (approximately $1.2
million) for years 3-6; and
(pound)1,000,000 (approximately $1.4
million) for years 7-10, (ii) each
production 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 production facilities at prices
fixed for 10 years (which prices total
(pound)9,468,000 (approximately $13.7
million)), or to renew the leases with
respect thereto for an additional term of
15 years at commercial market rates. In
connection with a restructuring plan for
its hot rolling operations, Niagara UK
terminated one of its production facility
leases in 2001.
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 $14.5 million) seven-year
term loan and a (pound)9.8 million
(approximately $14.2 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 an invoice discounting agreement
with Royal Bank of Scotland Invoice
Discounting Limited (formerly known as
Lombard Natwest Discounting Limited)
providing for up to (pound)20 million
(approximately $29.0 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 $7.1 million). This
facility was further reduced to
(pound)2.5 million (approximately $3.6
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,
1999, 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, 1999
---------------------------------------------
Net sales (a) $341,406,068
Net loss (2,122,086)
Net loss per share (basic) (.23)
Net loss per share (diluted) (.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. Restructuring Costs In the third quarter of 2001, the Company
announced a restructuring plan involving
the closure of Niagara UK's hot rolling
facility in Tipton. In connection
therewith, the Company recorded, in the
fourth quarter of 2001, a restructuring
charge of $5,278,074 (approximately
(pound)3,662,000), consisting of
equipment write-offs of $3,554,270
(approximately(pound)2,466,000) and
redundancy and reorganization costs of
$1,723,804 (approximately (pound)
1,196,000). Such costs include
approximately $1,185,000 (approximately
(pound)823,000) of severance costs in
respect of approximately 100 employees.
At December 31, 2001, approximately
$300,000 (approximately(pound)207,000) of
these costs were included in accrued
expenses.
On March 15, 2002, Niagara UK entered
into an agreement to sell the Tipton
property for (pound)3,600,000
(approximately $5,094,000), subject to
adjustment. The transaction is subject to
the buyer receiving approval from the
local planning authority of its plans to
build residential property at the site.
This property is currently leased to
Niagara UK but is subject to Niagara UK's
option to purchase exercisable on 3
months' notice and upon payment of
(pound)1,495,000 (approximately
$2,115,000).
4. Inventories Inventories consisted of the following at
December 31, 2000 and 2001:
December 31, 2000 2001
---------------------------------------------
Raw materials $21,575,657 $10,503,938
Work-in-process 5,173,259 3,783,934
Finished goods 34,152,566 29,825,791
---------------------------------------------
$60,901,482 $44,113,663
=============================================
At December 31, 2001, Niagara US
inventories were $27,159,513 determined
using the LIFO method and Niagara UK
inventories were $16,954,150 determined
using the FIFO method.
5. Property, Plant and Property, plant and equipment consisted of the
Equipment following at December 31, 2000 and 2001:
December 31, 2000 2001
--------------------------------------------------------
Land, buildings and
improvements $ 24,734,297 $26,040,591
Leasehold improvements 1,843,214 1,884,425
Machinery and equipment 99,493,817 97,564,448
Furniture and fixtures 3,954,891 4,401,293
--------------------------------------------------------
Total 130,026,219 129,890,757
Less accumulated
depreciation and
amortization 31,950,713 40,232,578
--------------------------------------------------------
$ 98,075,506 $89,658,179
========================================================
6. Long-Term Debt The long-term debt consisted of the
following at December 31, 2000 and 2001:
December 31, 2000 2001
------------------------------------------------------------------------------
Term note payable - bank, maturing in monthly
installments of principal plus interest
through March 2004. Scheduled monthly
installments of principal are $583,333 from
May 1, 2001 through April 1, 2002, $666,666
from May 1, 2002 through April 1, 2003, and
$750,000 thereafter. Interest is calculated
at either the LIBOR rate plus 2.85% (2.10%
from January 1, 2000 through June 27, 2001;
2.35% from June 28, 2001 through December
31, 2001), or the bank's prime rate plus
1.00% (0.50% from January 1, 2000 through
December 31, 2001) (effective rate of 4.75%
at December 31, 2001) $26,000,015 $19,333,351
Secured bank revolving line of credit
up to $50,000,000 due July 31, 2003,
limited to a portion of eligible
accounts receivable and inventories.
Interest is payable in monthly
installments at either the LIBOR
rate plus 2.50% (1.75% from January
1, 2000 through June 27, 2001; 2.00%
from June 28, 2001 through December
31, 2001), or the bank's prime rate
plus 0.75% (0.25% from January 1,
2000 through December 31, 2001)(effective
rate of 4.40% at December 31, 2001) 30,200,000 26,600,000
Term note payable - bank (facilities
agreement), maturing in monthly
installments of principal plus interest
through April 2006. From May 2001
through April 2002, the monthly
installments of principal are
(pound)85,000. 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 BBA LIBOR
rate plus 0.15%. The note is secured
by, among other things, a letter of
credit for the balance outstanding with
a fee of 2.75% (effective rate of 6.94%
at December 31, 2001) 13,738,706 12,488,706
Secured invoice discounting agreement up
to (pound)20,000,000 ($29,030,000) due
August 23, 2003, limited to a portion
of the purchased accounts receivable.
Interest is payable in monthly
installments at the bank's base rate
plus 2.25% (effective rate of 6.25% at
December 31, 2001) 14,767,728 12,870,451
Note payable - other, maturing
$64,143 annually on January 31, through
2010, plus interest at 8.5% 641,428 577,285
Note payable - other, maturing
$33,333 annually on April 17, through
2005, plus interest at 10% 166,668 133,335
Other notes payable 14,935 -
------------------------------------------------------------------------------
85,529,480 72,003,128
Less: Current maturities of long-term debt 7,652,774 9,709,148
------------------------------------------------------------------------------
$77,876,706 $62,293,980
==============================================================================
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 consolidated EBITDA
to consolidated fixed charges and the
ratio of current assets to current
liabilities.
Approximate maturities of long-term debt
are as follows:
Year ended December 31,
-------------------------------------------
2002 $9,709,000
2003 50,818,000
2004 6,349,000
2005 3,736,000
2006 1,134,000
Thereafter 257,000
-------------------------------------------
$72,003,000
===========================================
7. Pension Plans and Other LaSalle sponsors two contributory defined
Postretirement Benefits benefit pension plans which cover certain
employees of LaSalle, as well as various
retiree health and welfare programs
providing postretirement benefits for
eligible employees hired prior to certain
specified dates. Niagara LaSalle,
together with Niagara, is also a party to
a non-contributory defined benefit
pension plan with one of the Company's
officers. See Note 14.
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, 2001, and a statement of the
funded status of these plans as of
December 31, 2000 and 2001:
Pension benefits Other benefits
------------------------ -----------------------
2000 2001 2000 2001
------------------------------------------------------------------------------
Reconciliation of benefit
obligation
Obligation at January 1 $22,447,000 $24,258,000 $6,348,000 $6,555,000
Obligation -
non-contributory plan
at January 1 - 1,041,000 - -
Service cost 333,000 481,000 48,000 48,000
Interest cost 1,674,000 1,892,000 463,000 485,000
Actuarial loss 1,552,000 1,404,000 271,000 176,000
Benefit payments (1,748,000) (1,860,000) (575,000) (615,000)
------------------------------------------------------------------------------
Obligation at December 31 $24,258,000 $27,216,000 $6,555,000 $6,649,000
==============================================================================
Pension benefits Other benefits
------------------------ -----------------------
2000 2001 2000 2001
- -------------------------------------------------------------------------------
Reconciliation of fair
value of plan assets
Fair value of plan assets
at January 1 $21,110,000 $22,686,000 $ - $ -
Actual return on plan
assets 429,000 502,000 - -
Employer contributions 2,895,000 2,750,000 575,000 615,000
Benefit payments (1,748,000) (1,860,000) (575,000) (615,000)
- -------------------------------------------------------------------------------
Fair value of plan assets
at December 31 $22,686,000 $24,078,000 $ - $ -
===============================================================================
Pension benefits Other benefits
------------------------ -----------------------
2000 2001 2000 2001
- -------------------------------------------------------------------------------
Funded status
Funded status at
December 31 $(1,572,000) $(3,138,000) $(6,555,000) $(6,649,000)
Unrecognized prior
service cost 422,000 370,000 - -
Unrecognized loss 2,543,000 6,699,000 1,237,464 1,346,517
- --------------------------------------------------------------------------------
Net amount recognized $ 1,393,000 $ 3,931,000 $(5,317,536) $(5,302,483)
===============================================================================
The following table provides the amounts recognized in the Company's
balance sheets at December 31, 2000 and 2001:
Pension benefits Other benefits
------------------------ ---------------------
2000 2001 2000 2001
- -------------------------------------------------------------------------------
Prepaid benefit cost $ 614,000 $ 654,000 $ - $ -
Accrued benefit liability (2,400,000) (1,987,000) (5,317,536) (5,302,483)
Intangible asset 422,000 370,000 - -
Accumulated other
comprehensive loss,
pretax 2,757,000 4,894,000 - -
- -------------------------------------------------------------------------------
Net amount recognized $ 1,393,000 $ 3,931,000 $(5,317,536) $(5,302,483)
===============================================================================
LaSalle's hourly pension plan has a benefit obligation in excess of plan
assets. The plan's benefit obligation was $16,320,000 and $17,639,000 at
December 31, 2000 and 2001, respectively. Plan assets for this plan were
$13,863,000 and $15,591,000 at December 31, 2000 and 2001, respectively.
LaSalle's plans for postretirement benefits other than pensions have no
plan assets. The benefit obligation for such plans was $6,555,000 and
$6,649,000 at December 31, 2000 and 2001, respectively. The
non-contributory defined benefit pension plan to which Niagara and Niagara
LaSalle are parties has no plan assets. This plan's benefit obligation was
$1,310,000 at December 31, 2001.
The following table provides the components of net periodic benefit cost
for the Company's plans for the years ended December 31, 1999, 2000 and
2001:
Pension benefits Other benefits
----------------------------------------- -----------------------------------------
1999 2000 2001 1999 2000 2001
- ----------------------------------------------------------------------------------------------------------------------------
Service cost $ 517,000 $ 333,000 $ 481,000 $ 76,000 $ 48,000 $ 48,000
Interest cost 1,605,000 1,674,000 1,892,000 357,000 463,000 485,000
Expected return on plan assets (1,912,000) (2,161,000) (2,323,000) - - -
Amortization of prior service cost 52,000 52,000 52,000 - - -
Amortization of unrecognized loss
(gain) 25,000 (22,000) 110,000 (19,000) 49,000 67,000
- ----------------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost $ 287,000 $ (124,000) $ 212,000 $ 414,000 $ 560,000 $ 600,000
============================================================================================================================
The amounts included within other comprehensive income (loss) arising from
a change in the additional minimum pension liability were $888,000 (net of
tax expense), $(1,494,000) (net of tax benefit) and $(1,304,000) (net of
tax benefit) for 1999, 2000 and 2001, 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
----------------------------------------- -----------------------------------------
1999 2000 2001 1999 2000 2001
- ----------------------------------------------------------------------------------------------------------------------------
Weighted average assumptions as of
December 31:
Discount rate:
Used for determination of
expense 7.00% 7.75% 7.50% 7.00% 7.75% 7.50%
Used for determination of
year-end liability 7.75% 7.75% 7.50% 7.75% 7.75% 7.50%
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
salaried plan N/A N/A N/A N/A N/A N/A
non-contributory plan N/A N/A 3.00% 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 of 1986, as
amended, and the requirements of the
Employee Retirement Income Security Act
of 1974, as amended. The funds are
invested as directed by the individual
participants. Total expense related to
these plans was approximately $656,000,
$666,000 and $726,000 for the years ended
December 31, 1999, 2000 and 2001,
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 years
ended December 31, 2000 and 2001,
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
($1,249,000), (pound)633,000 ($960,000)
and (pound)618,000 ($890,000),
respectively.
8. Preferred Stock Niagara is authorized to issue 500,000 shares
of Preferred Stock, par value $.001 per
share, with such designations, voting and
other rights and preferences as may be
determined from time to time by its Board
of Directors.
9. Lease 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, 2001, future
minimum payments under operating leases
were approximately as follows:
----------------------------------------------
2002 3,183,000
2003 2,970,000
2004 2,828,000
2005 2,970,000
2006 3,047,000
Thereafter 8,223,000
----------------------------------------------
Total minimum lease payments $23,221,000
==============================================
Rent expense under operating leases was
approximately $975,000, $1,286,000 and
$2,412,000 for the years ended December
31, 1999, 2000 and 2001, respectively.
10. 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 1999 and
2000: dividend yield of 0%; expected
volatility of 45.8% for 1999 and 44.0%
for 2000; average risk-free interest
rates of 4.7% and 6.2% for 1999 and 2000,
respectively; expected lives of 10 years;
and a discount due to marketability and
dilution of 0% for 1999 and 2000. There
were no stock options granted in 2001.
Under the accounting provisions of FASB
123, the Company's net income (loss) and
earnings (loss) per share would have been
reduced to the pro forma amounts
indicated below:
1999 2000 2001
---------------------------------------------------------------------------
Net income (loss):
As reported $3,756,625 $4,337,218 $(4,626,519)
Pro forma 3,238,140 3,423,628 (5,218,523)
Net income (loss) per
share (basic):
As reported .40 .50 (.56)
Pro forma .35 .40 (.63)
Net income (loss) per
share (diluted):
As reported .40 .50 (.56)
Pro forma .35 .40 (.63)
===========================================================================
A summary of the status of the Company's stock option plan at December 31,
1999, 2000 and 2001, and changes during the years ending on those dates, is
presented below:
December 31, 1999 December 31, 2000 December 31, 2001
-------------------------- -------------------------- --------------------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Shares price Shares price Shares price
- ---------------------------------------------------------------------------------------------------------------------------
Outstanding at beginning of year 1,250,000 $5.61 2,140,000 $5.72 2,330,000 $5.70
Granted 890,000 5.88 200,000 5.50 - -
Forfeited or cancelled - - 10,000 5.75 - -
- ---------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 2,140,000 $5.72 2,330,000 $5.70 2,330,000 $5.70
- ---------------------------------------------------------------------------------------------------------------------------
Options exercisable at year-end 1,203,000 $5.67 1,315,000 $5.65 1,656,000 $5.66
- ---------------------------------------------------------------------------------------------------------------------------
Weighted average fair value of
options granted during the year $3.19 $2.29 -
- ---------------------------------------------------------------------------------------------------------------------------
The following table summarizes information about stock options outstanding
at December 31, 2001.
Options outstanding Options exercisable
---------------------------------- ----------------------
Weighted
average Weighted Weighted
Number remaining average Number average
Range of outstanding contractual exercise exercisable exercise
exercise prices at 12/31/01 life price at 12/31/01 price
- -------------------------------------------------------------------------------
$5.50-$5.88 2,330,000 5.13 years $5.70 1,656,000 $5.66
===============================================================================
11. Income Taxes The provision (benefit) for federal and
state income taxes was comprised of the
following:
Year ended December 31, 1999 2000 2001
-------------------------------------------------------------------------
Current:
Federal $ 738,000 $ 879,000 $ (745,000)
State 100,000 118,000 -
-------------------------------------------------------------------------
838,000 997,000 (745,000)
-------------------------------------------------------------------------
Deferred:
Federal 1,130,000 1,105,000 593,000
State 185,000 90,000 14,000
Foreign (UK) 146,000 398,000 (962,000)
-------------------------------------------------------------------------
1,461,000 1,593,000 (355,000)
-------------------------------------------------------------------------
Total income tax provision
(benefit) $2,299,000 $2,590,000 $(1,100,000)
=========================================================================
At December 31, 2000 and 2001, deferred tax assets (liabilities) consisted of
the following:
December 31, 2000 2001
------------------------------------------------------------------------------
Federal and state regular tax net $ 530,000 $ 2,355,000
operating loss carryforwards
Accrued minimum pension liability 1,075,000 1,908,000
Federal alternative minimum tax credit
carryforwards 2,536,000 1,898,000
Accrued expenses deductible when paid 891,000 851,000
New York State investment tax credits 678,000 767,000
Allowance for doubtful accounts 348,000 387,000
Inventories 422,000 364,000
Foreign, book depreciation greater than
tax depreciation and basis
differences on UK property, plant
and equipment - 1,049,000
Other 327,000 549,000
------------------------------------------------------------------------------
Gross deferred tax assets 6,807,000 10,128,000
Valuation allowance for deferred tax
assets (678,000) (1,398,000)
------------------------------------------------------------------------------
Net deferred tax assets 6,129,000 8,730,000
------------------------------------------------------------------------------
Tax depreciation greater than book
depreciation on US property, plant
and equipment (14,649,000) (15,164,000)
Postretirement benefit obligation (466,000) (1,908,000)
Foreign (UK) (544,000) -
------------------------------------------------------------------------------
Gross deferred tax liabilities (15,659,000) (17,072,000)
------------------------------------------------------------------------------
Net deferred tax liabilities $ (9,530,000) $ (8,342,000)
==============================================================================
Deferred taxes are included in the accompanying balance sheets as follows:
2000 2001
------------------------------------------------------------------------------
Current asset for deferred income taxes $ 1,736,000 $ 1,678,000
Noncurrent liability for deferred
income taxes (11,266,000) (10,020,000)
------------------------------------------------------------------------------
Net deferred tax liabilities $ (9,530,000) $ (8,342,000)
==============================================================================
At December 31, 2001, the Company had
available federal alternative minimum tax
credit carryforwards of approximately
$1,898,000 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, 2001, the Company had
available net operating loss
carryforwards for regular federal and
state income tax purposes of
approximately $5,273,000 and $7,263,000,
respectively, expiring through 2021.
At December 31, 2001, Niagara LaSalle had
New York state investment tax credit
carryforwards of approximately $767,000,
which may be available to offset certain
future state income taxes. These credits
expire through 2006.
At December 31, 2001, the Company had a
valuation allowance for deferred tax
assets of $1,398,000 comprised of (i) its
New York state investment tax credit
carryforwards of approximately $767,000
and (ii) $631,000 relating to basis
differences on its UK property, plant and
equipment.
A reconciliation of the statutory federal
income tax rate and effective rate as a
percentage of pre-tax income (loss) was
as follows:
1999 2000 2001
-------------------- ------------------ -----------------------
Amount % Amount % Amount %
------------------------------------------------------------------------------------
Tax $2,059,000 34.0% $2,355,000 34.0% $(1,947,000) (34.0)%
(benefit) at
statutory
rate
State income
taxes net of
federal
income tax
benefit 206,000 3.4 197,000 2.8 (11,000) (.2)
Effect of
foreign (UK)
operations 126,000 2.1 76,000 1.1 232,000 4.1
Valuation
allowance - - 11,000 .2 720,000 12.5
Other (92,000) (1.5) (49,000) (.7) (94,000) (1.6)
------------------------------------------------------------------------------------
Effective
tax rate $2,299,000 38.0% $2,590,000 37.4% $(1,100,000) (19.2)%
------------------------------------------------------------------------------------
Income (loss) before income taxes for
Niagara US was $5,275,885, $5,532,268,
and $(359,884), and for Niagara UK was
(pound)484,310 or $779,740,
(pound)919,527 or $1,394,950, and
(pound)(3,726,113) or $(5,366,635), for
the years ended 1999, 2000 and 2001,
respectively.
12. Major Customers Niagara US sales to three customers
in 1999 were approximately 23%, 12% and
10% of its total sales.
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.
Niagara US sales to three customers in
2001 were approximately 27%, 14% and 9%
of its total sales. At December 31, 2001,
accounts receivable from these major
customers represented approximately 52%
of its aggregate accounts receivable.
None of Niagara UK's customers exceeded
5% of its total sales for the period May
22 through December 31, 1999, or the
years 2000 or 2001.
13. Major Suppliers Niagara US 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% and 32% of its total
purchases in 2000 and 2001, respectively.
Niagara UK had one supplier from which
purchases were approximately 36%, 42%,
and 32% of its total purchases for the
periods May 22 through December 31, 1999,
and the years 2000 and 2001,
respectively.
14. Commitments and Commitments
Contingencies
Niagara and Niagara LaSalle are parties
to an employment agreement with one of
the Company's officers. The contract,
which expires in January 2005 (subject to
extension), provides for a minimum salary
level, incentive compensation and
supplemental retirement benefits based on
years of service and compensation (Note
7). The aggregate commitment under this
contract for future minimum salaries at
December 31, 2001, excluding bonuses, was
$1,440,000.
At December 31, 2001, 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, 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, 2001 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 a bond or irrevocable
standby letter of credit totaling
$1,367,500 as of December 31, 2001. 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.
15. Earnings (Loss) The following table sets forth the
Per Share calculation of weighted average common
shares outstanding for the calculation of
basic and diluted earnings (loss) per
share:
December 31, 1999 2000 2001
---------------------------------------------------------------------------
Weighted average shares (for 9,350,189 8,659,013 8,329,145
basic earnings per share)
Effect of dilutive securities:
Stock options 6,925 - -
---------------------------------------------------------------------------
Adjusted weighted average
shares (for diluted earnings
per share) 9,357,114 8,659,013 8,329,145
---------------------------------------------------------------------------
Options to purchase approximately
1,435,000, 2,330,000 and 2,330,000 shares
of common stock at exercise prices
ranging from $5.50 to $5.88 per share
were outstanding during a portion of the
year ended 1999, and the entire years
ended 2000 and 2001, respectively, but
were not included in the computation of
diluted earnings per share because they
were antidilutive. These options expire
through 2010.
16. Disclosure About Fair The following methods and assumptions
Value of Financial were used to estimate the fair value of
Instruments each class of financial instruments for
which it is practicable to estimate 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,
2001, no payments were paid or due
Niagara LaSalle under this agreement. The
fair value of this agreement was
immaterial at December 31, 2001.
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, 2001, Niagara
UK had approximately (pound)5,402,000
(approximately $7,840,000) of such
contracts all of which were due to mature
during 2002. The unrealized deferred gain
with respect to such contracts at
December 31, 2001 was immaterial.
17. Supplemental Cash Flow Interest paid during the years ended
Information December 31, 1999, 2000 and 2001 was
approximately $5,660,000, $7,295,000 and
$5,270,000, respectively.
Income tax payments made during the years
ended December 31, 1999, 2000 and 2001
were approximately $1,011,000, $1,402,000
and $31,000, respectively. During the
year ended December 31, 2001, the Company
received income tax refunds of
approximately $215,000.
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:
1999 2000 2001
---------------------------------------------------------------------------------
Adjustment of minimum pension
liability (Note 7):
Prepaid benefit cost $ 275,000 $ 334,000 $ 40,000
Intangible asset (52,000) (52,000) (52,000)
Deferred tax asset (568,000) 955,000 833,000
Accumulated other
comprehensive income,
net of tax (888,000) 1,494,000 1,304,000
---------------------------------------------------------------------------------
Noncash pension cost $(1,233,000) $2,731,000 $2,125,000
=================================================================================
18. Segments and Related Niagara operates in two reportable
Information segments: (i) Niagara US which has
operations in the United States 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 tables set 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.
===============================================================================
Year ended December 31, 2001
-------------------------------------------------------------------------------
Niagara US Niagara UK
-------------------------------------------------------------------------------
Net sales(a) $ 165,097,414 $ 103,539,116
Segment profit (EBITDA) (b) 11,352,298 3,264,838
Depreciation and amortization 7,442,515 163,732
Interest expense 3,260,602 2,111,754
Long-lived assets 80,545,603 11,400,081
Segment assets 126,347,255 54,474,904
Acquisition of property and equipment 2,189,618 883,523
-------------------------------------------------------------------------------
(a) Net sales include all freight costs billed to customers in accordance
with EITF No. 00-10. See Note 1.
(b) Segment profit (EBITDA) for Niagara UK does not include a $5,278,074
restructuring charge. See Note 3.
===============================================================================
Niagara US sells its products primarily
to customers in the United States.
Approximately 65% of Niagara UK's sales
to unaffiliated customers during 2001
were within the United Kingdom, with 19%
to continental Europe and 16% to the rest
of the world. These amounts were 64%, 19%
and 17%, and 67%, 16% and 17%,
respectively, for 2000 and the period May
22 through December 31, 1999,
respectively. Niagara UK's sales to any
one foreign country, other than the
United States, 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.
19. Quarterly Financial The following presents certain unaudited
Information (Unaudited) quarterly financial information:
Quarter ended
---------------------------------------------------------------------------
March 31, June 30, September 30, December 31,
2000 2000 2000 2000
---------------------------------------------------------------------------------------------------------
Net sales $96,271,423 $91,424,025 $77,462,193 $70,879,069
Gross profit 13,165,665 12,238,360 10,346,412 6,429,558
Operating income 5,213,244 4,740,457 3,182,640 1,048,014
Net income 2,135,689 1,800,383 833,804 (432,658)
Net income per share:
Basic $.24 $.21 $.10 $(.05)
Diluted $.24 $.21 $.10 $(.05)
============================================================================================================
Quarter ended
---------------------------------------------------------------------------
March 31, June 30, September 30, December 31,
2001 2001 2001 2001
---------------------------------------------------------------------------------------------------------
Net sales $81,261,075 $70,294,475 $60,372,998 $ 56,707,982
Gross profit 10,003,365 8,097,579 5,804,722 5,645,973
Operating income
(loss) (a) 3,019,911 1,528,209 (635,819) (4,453,014)
Net income (loss) (a) 834,160 137,673 (1,159,273) (4,439,079)
Net income (loss)
per share:(a)
Basic $.10 $.02 $(.14) $(.54)
Diluted $.10 $.02 $(.14) $(.54)
---------------------------------------------------------------------------------------------------------
(a) Results for the quarter ended December 31, 2001, include a restructuring
charge of $5,278,074. See Note 3.
=========================================================================================================
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 2002 Annual Meeting
of Stockholders to be filed with the SEC (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 18.
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 Ninth Amendment to the Credit Agreement, effective
as of June 28, 2001.
4.12 Tenth Amendment to the Credit Agreement, effective
as of December 31, 2001.
****4.13 Bank Facilities Agreement, dated May 21, 1999,
between National Westminster Bank Plc and Niagara
LaSalle (UK) Limited (the "Facilities Agreement").
++++++4.14 Amendment to the Facilities Agreement, effective June
30, 2000.
******4.15 Second Amendment to the Facilities Agreement,
effective June 30, 2001.
4.16 Third Amendment to the Facilities Agreement, effective
December 31, 2001.
****4.17 Intercreditor Agreement, dated May 21, 1999, between
National Westminster Bank Plc, Niagara Corporation
and Niagara LaSalle (UK) Limited.
++++4.18 Invoice Discounting Agreement, dated August 23,
1999, between Niagara LaSalle (UK) Limited and
Lombard Natwest Discounting Limited (the "Discount
Agreement").
++++++4.19 Amendment to the Discount Agreement, effective June
30, 2000.
******4.20 Second Amendment to the Discount Agreement, effective
June 30, 2001.
4.21 Third Amendment to the Discount Agreement, effective
December 31, 2001.
++++4.22 Intercreditor Agreement, dated August 23, 1999, between
Lombard Natwest Discounting Limited, Niagara
Corporation and Niagara LaSalle (UK) Limited.
++++4.23 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.
!!!!!!4.24 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.
10.16 Agreement, dated March 15, 2002, between Niagara (UK)
Limited and George Wimpey Midland Limited
________________________
+ 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 Report on Form 10-K for the fiscal
year ended December 31, 2000.
* 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-Q for the
quarter ended September 30, 2001.
! 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, 2000.
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 27th day of March, 2002.
NIAGARA CORPORATION
By: /s/ Michael Scharf
--------------------------------
Michael Scharf
Chairman of the Board
Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
Chairman of the Board,
/s/ Michael Scharf President and Chief Executive March 27, 2002
- ---------------------------------- Officer
Michael Scharf
Vice President,
Chief Financial and
/s/ Raymond Rozanski Principal Accounting March 27, 2002
- --------------------------------- Officer
Raymond Rozanski
/s/ Gilbert D. Scharf Secretary and Director March 27, 2002
- ---------------------------------
Gilbert D. Scharf
/s/ Frank Archer Director March 27, 2002
- ---------------------------------
Frank Archer
/s/ Gerald L. Cohn Director March 27, 2002
- ---------------------------------
Gerald L. Cohn
/s/ Andrew R. Heyer Director March 27, 2002
- ---------------------------------
Andrew R. Heyer
/s/ Douglas T. Tansill Director March 27, 2002
- ---------------------------------
Douglas T. Tansill
Niagara Corporation
and Subsidiaries
Financial Statement Schedules
Form 10-K - Item 14
Years Ended December 1999, 2000 and 2001
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, 2002, except as to
Note 3 which is as of March 15, 2002, 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, 2002
Niagara Corporation
and Subsidiaries
Schedule I
Condensed Financial Information of Registrant
Balance Sheets
December 31, 2000 2001
----------------------------------------------------------------------- ---------------------- ----------------------
Assets
Current:
Cash and cash equivalents $ 25,283 $ 47,155
Other current assets 430,501 469,441
----------------------------------------------------------------------- ---------------------- ----------------------
Total current assets 455,784 516,596
Property and equipment, net 505,909 470,492
Investment in and net advances to subsidiaries 63,530,039 57,213,088
Other assets, net 101,181 69,683
----------------------------------------------------------------------- ---------------------- ----------------------
$ 64,592,913 $ 58,269,859
----------------------------------------------------------------------- ---------------------- ----------------------
Liabilities and Stockholders' Equity
Current liabilities:
Accrued expenses $ 43,882 $ 123,296
Advances from subsidiary 8,670,308 8,894,049
----------------------------------------------------------------------- ---------------------- ----------------------
Total liabilities 8,714,190 9,017,345
----------------------------------------------------------------------- ---------------------- ----------------------
Commitments and contingencies (see Notes 9, 10 and 14 to the
consolidated financial statements)
Stockholders' equity (see Notes 7, 8 and 10 to the consolidated financial
statements):
Preferred stock, $.001 par value - 500,000 shares authorized,
none outstanding - -
Common stock, $.001 par value - 15,000,000 shares authorized,
9,997,455 issued 9,998 9,998
Additional paid-in capital 50,111,675 50,111,675
Retained earnings 16,478,678 11,852,159
Accumulated other comprehensive loss (2,691,219) (4,471,634)
----------------------------------------------------------------------- ---------------------- ----------------------
63,909,132 57,502,198
Treasury stock, at cost, 1,633,638 and 1,758,938 shares (8,030,409) (8,249,684)
----------------------------------------------------------------------- ---------------------- ----------------------
Total stockholders' equity 55,878,723 49,252,514
----------------------------------------------------------------------- ---------------------- ----------------------
$64,592,913 $58,269,859
----------------------------------------------------------------------- ---------------------- ----------------------
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, 1999 2000 2001
----------------------------------------------------------- ------------------ ------------------- ------------------
Revenues:
Management fees from subsidiaries (Note 2) $1,838,175 $1,805,100 $1,782,393
Expenses:
General and administrative expenses 2,069,283 1,839,943 1,930,376
----------------------------------------------------------- ------------------ ------------------- ------------------
(231,108) (34,843) (147,983)
Other income (loss):
Equity in net income (loss) of subsidiaries 3,880,171 4,358,052 (4,536,536)
Interest income 28,562 1,009 -
----------------------------------------------------------- ------------------ ------------------- ------------------
Income before income tax recoveries 3,677,625 4,324,218 (4,684,519)
Income tax recoveries 79,000 13,000 58,000
----------------------------------------------------------- ------------------ ------------------- ------------------
Net income (loss) $3,756,625 $4,337,218 $(4,626,519)
----------------------------------------------------------- ------------------ ------------------- ------------------
Earnings (loss) per share - basic:
Net income (loss) per share - basic $ .40 $ .50 $ (.56)
----------------------------------------------------------- ------------------ ------------------- ------------------
Earnings (loss) per share - diluted:
Net income (loss) per share - diluted $ .40 $ .50 $ (.56)
----------------------------------------------------------- ------------------ ------------------- ------------------
Weighted average common shares outstanding (see Note 15 to the consolidated
financial statements):
Basic 9,350,189 8,659,013 8,329,145
Diluted 9,357,114 8,659,013 8,329,145
----------------------------------------------------------- ------------------ ------------------- ------------------
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, 1999, 2000 and 2001
------------------------------------------- ------------------------- ----------------- -----------------
Common stock
------------- -----------
Number of Additional Retained
shares Amount paid-in capital earnings
------------- ----------- ----------------- -----------------
------------------------------------------- ------------- ----------- ----------------- -----------------
Balance, January 1, 1999 9,997,455 $ 9,998 $50,111,675 $8,384,835
------------------------------------------- ------------- ----------- ----------------- -----------------
Comprehensive income:
Net income for the year - - - 3,756,625
Foreign currency translation
adjustment - - - -
Minimum pension liability adjustment
($1,456,000, net of tax expense of
$568,000) - - - -
------------------------------------------- ------------- ----------- ----------------- -----------------
Total comprehensive income
------------------------------------------- ------------- ----------- ----------------- -----------------
Purchase of treasury stock, at cost (a) - - - -
------------------------------------------- ------------- ----------- ----------------- -----------------
Balance, December 31, 1999 9,997,455 9,998 50,111,675 12,141,460
------------------------------------------- ------------- ----------- ----------------- -----------------
Comprehensive income:
Net income for the year - - - 4,337,218
Foreign currency translation
adjustment - - - -
Minimum pension liability adjustment
($2,449,000, net of tax benefit of
$955,000) - - - -
------------------------------------------- ------------- ----------- ----------------- -----------------
Total comprehensive income
------------------------------------------- ------------- ----------- ----------------- -----------------
Purchase of treasury stock, at cost (a) - - - -
------------------------------------------- ------------- ----------- ----------------- -----------------
Balance, December 31, 2000 9,997,455 $9,998 $50,111,675 $16,478,678
Comprehensive loss:
Net loss for the year - - - (4,626,519)
Foreign currency translation
adjustment - - - -
Minimum pension liability adjustment
($2,137,000, net of tax benefit of
$833,000) - - - -
------------------------------------------- ------------- ----------- ----------------- -----------------
Total comprehensive loss
------------------------------------------- ------------- ----------- ----------------- -----------------
Purchase of treasury stock, at cost (a) - - - -
------------------------------------------- ------------- ----------- ----------------- -----------------
Balance, December 31, 2001 9,997,455 $9,998 $50,111,675 $11,852,159
------------------------------------------- ------------- ----------- ----------------- -----------------
------------------------------------------- ------------------ ------------------ -----------------
Total
Accumulated
other
comprehensive Treasury stock, stockholders'
loss at cost equity
------------------ ------------------ -----------------
------------------------------------------- ------------------ ------------------ -----------------
Balance, January 1, 1999 $(1,076,000) $(2,899,965) $54,530,543
------------------------------------------- ------------------ ------------------ -----------------
Comprehensive income:
Net income for the year - - 3,756,625
Foreign currency translation
adjustment 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 (a) - (2,726,246) (2,726,246)
------------------------------------------- ------------------ ------------------ -----------------
Balance, December 31, 1999 (175,644) (5,626,211) 56,461,278
------------------------------------------- ------------------ ------------------ -----------------
Comprehensive income:
Net income for the year - - 4,337,218
Foreign currency translation
adjustment (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 (a) - (2,404,198) (2,404,198)
------------------------------------------- ------------------ ------------------ -----------------
Balance, December 31, 2000 $(2,691,219) (8,030,409) $55,878,723
Comprehensive loss:
Net loss for the year - - (4,626,519)
Foreign currency translation
adjustment (476,415) - (476,415)
Minimum pension liability adjustment
($2,137,000, net of tax benefit of
$833,000) (1,304,000) - (1,304,000)
------------------------------------------- ------------------ ------------------ -----------------
Total comprehensive loss (6,406,934)
------------------------------------------- ------------------ ------------------ -----------------
Purchase of treasury stock, at cost (a) - (219,275) (219,275)
------------------------------------------- ------------------ ------------------ -----------------
Balance, December 31, 2001 $(4,471,634) $(8,249,684) $49,252,514
------------------------------------------- ------------------ ------------------ -----------------
(a) During the years ended December 31, 1999, 2000 and 2001, Niagara Corporation repurchased 548,629 shares,
599,129 shares, and 125,300 shares of its Common Stock, respectively, at a cost of $2,726,246, $2,404,198
and $219,275, respectively.
----------------------------------------------------------------------------------------------------
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, 1999 2000 2001
----------------------------------------------------------- ------------------ ------------------- ------------------
Cash flows from operating activities:
Net income (loss) $ 3,756,625 $4,337,218 $(4,626,519)
----------------------------------------------------------- ------------------ ------------------- ------------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization 16,906 105,949 103,980
Equity in net (income) loss of subsidiaries (3,880,171) (4,358,052) 4,536,536
Decrease (increase) in other current assets 780,851 (5,843) (38,940)
(Decrease) increase in accrued expenses (256,753) (42,403) 79,414
----------------------------------------------------------- ------------------ ------------------- ------------------
Total adjustments (3,339,167) (4,300,349) 4,680,990
----------------------------------------------------------- ------------------ ------------------- ------------------
Net cash provided by operating activities 417,458 36,869 54,471
----------------------------------------------------------- ------------------ ------------------- ------------------
Cash flows from investing activities:
Acquisition of property and equipment (433,156) (18,149) (37,065)
Investment in subsidiaries (6,070,875) - -
Advances, subsidiaries, net 9,314,615 1,808,830 223,741
----------------------------------------------------------- ------------------ ------------------- ------------------
Net cash provided by investing activities 2,810,584 1,790,681 186,676
----------------------------------------------------------- ------------------ ------------------- ------------------
Cash flows from financing activities:
Payments to acquire treasury stock (2,726,246) (2,404,198) (219,275)
----------------------------------------------------------- ------------------ ------------------- ------------------
Net increase (decrease) in cash and cash equivalents 501,796 (576,648) 21,872
Cash and cash equivalents, beginning of year 100,135 601,931 25,283
----------------------------------------------------------- ------------------ ------------------- ------------------
Cash and cash equivalents, end of year $ 601,931 $ 25,283 $ 47,155
----------------------------------------------------------- ------------------ ------------------- ------------------
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 The accompanying condensed financial
Policy statements have been prepared by Niagara
Corporation ("Niagara") pursuant to
the rules and regulations of the
Securities and Exchange Commission.
Certain information and footnote
disclosures normally included in
financial statements prepared in
accordance with generally accepted
accounting principles have been
condensed or omitted pursuant to these
rules and regulations. It is, therefore,
suggested that these condensed financial
statements be read in conjunction with
the consolidated financial statements
and notes thereto.
2. Restrictions on Niagara's subsidiary, Niagara LaSalle
Distributions Corporation ("Niagara LaSalle"), which
was acquired on August 16, 1995, has
a revolving line of credit and term loan
agreement with a 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, 1999, 2000 and
2001, $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
years ended December 31, 2000 and 2001,
$488,175 ((pound)300,000), $455,100
((pound)300,000) and $432,393
((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, 1999, 2000 and 2001
---------------------------------- --------------- -------------------------------- ----------------- ---------------
Additions
--------------------------------
Balance at Other Charged to Deductions Balance at
beginning of costs and end of
year expenses year
---------------------------------- --------------- --------------- ---------------- ----------------- ---------------
December 31, 2001:
Allowance for doubtful
accounts $1,459,000 $ - $(165,000) $ 18,000 $1,276,000
---------------------------------- --------------- --------------- ---------------- ----------------- ---------------
---------------------------------- --------------- --------------- ---------------- ----------------- ---------------
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
---------------------------------- --------------- --------------- ---------------- ----------------- ---------------