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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, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to _________________
Commission file number 0-22206
NIAGARA CORPORATION
_____________________________________________________
(Exact Name of Registrant as Specified in Its Charter)
Delaware 59-3182820
______________________________ ___________________
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
667 Madison Avenue, New York, New York 10021
______________________________________ ________
(Address of Principal Executive Offices) Zip Code
Registrant's telephone number, including area code: (212) 317-1000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes _X_ No __.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of June 28, 2002, the aggregate market value of the voting stock
held by non-affiliates of the registrant was approximately $9,845,395 (assumes
the registrant's officers, directors and all stockholders holding 5% or more
of outstanding shares are affiliates).
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2). Yes __ No _X_.
There were 8,238,517 shares of the registrant's Common Stock
outstanding as of March 27, 2003.
Documents Incorporated by Reference: Items 10, 11, 12, 13 and 15 of
Part III hereof are incorporated by reference from the Registrant's Proxy
Statement for its 2003 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 "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 $34 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 the 1999 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 the 2001 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 this leased property for
(pound)3,600,000 ($5,413,572), which Niagara UK had an option to purchase for
(pound)1,495,000 ($2,248,136). On September 30, 2002, Niagara UK completed the
transaction by selling this option to purchase. In connection with this
transaction, Niagara UK purchased a parcel of land in the fourth quarter of
2002 which it subsequently sold during this period to the purchaser of the
option. These sales resulted in a pre-tax gain of (pound)2,063,022
($3,102,311). See Note 2 to the Financial Statements.
In the fourth quarter of 2002, Niagara LaSalle completed significant
purchases of equipment and related assets from two companies after having
prevailed at auctions held in connection with such companies' bankruptcy
proceedings. On October 8, 2002, Niagara LaSalle purchased certain production
equipment and related assets of Moltrup Steel Products Company for $375,000.
Niagara US has relocated the majority of these assets to its other operating
facilities. On November 19, 2002, Niagara LaSalle purchased from Republic
Technologies International, LLC ("Republic") all of the equipment and supplies
located at Republic's Harvey, Illinois facility. Management has not yet
determined where this equipment will be deployed.
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, 35%, 34% and 31% of Niagara UK's
total revenues from unaffiliated customers for 2002; 39%, 34% and 27% for
2001; and 48%, 28% and 24% for 2000.
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
four 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 2002, 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 550 active customers in North America
with sales outside the United States representing less than 5% of its total
sales for each of 2000, 2001 and 2002. For 2002, Niagara US's 10 largest
customers (by tons shipped) represented approximately 64% of its total sales,
and its 3 largest customers, Alro Steel Corporation, Earle M. Jorgensen Co.
and Joseph T. Ryerson and Sons, Inc., represented approximately 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 6,300 active accounts. For 2002, its
largest account represented less than 4% of its total sales and its 10 largest
customers represented approximately 19% of its total sales. Approximately 67%
of its sales to unaffiliated customers during 2002 were within the U.K., with
17% to continental Europe and 16% to the rest of the world. These amounts were
65%, 19% and 16% for 2001 and 64%, 19% and 17%, for 2000. Niagara UK's sales
to any one foreign country, other than 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 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 Canada and Mexico. In May 2002, the
Company submitted applications for exclusion of approximately 22,000 tons of
Niagara UK products (based on 2001 shipments), approximately 58% of which were
granted in August 2002. These exclusions are retroactive to March 20, 2002
thereby entitling Niagara UK to a refund of approximately $834,000 in Section
201 tariffs paid in respect of these excluded products. In November 2002, the
Company submitted applications for exclusion of approximately 7,400 tons of
Niagara UK products (based on 2001 shipments), approximately 69% of which were
granted on March 21, 2003. It is expected that these exclusions will not be
retroactive to any period before March 20, 2003. On March 27, 2003, it was
reported that the World Trade Organization had issued a preliminary ruling
that the Section 201 tariffs were a violation of global trade rules. This
preliminary decision is subject to a one-month comment period. U.S. officials
have stated that the United States would appeal the ruling.
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, 2002, the Company had 1,093 employees, 534 were
located in the U.S. and 559 were located in the U.K. All of LaSalle's 197
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 19 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, 2006.
Of the 559 Niagara UK employees as of December 31, 2002, 300 were
covered by collective bargaining agreements with the Iron and Steel Trades
Confederation (236 employees), the Transport and General Workers Union (29
employees) and the General and Municipal Boilermakers Union (35 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
in May 1999, 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 $80,000) for the first two years; (pound)850,000 (approximately
$1.4 million) for years 3-4; (pound)700,000 (approximately $1.1 million) for
years 5-6; and (pound)870,000 (approximately $1.4 million) for years 7-10.
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 8 primary
production facilities (identified by an asterisk "*" below) at prices fixed
for 10 years (which prices total (pound)7,973,000 (approximately $12.8
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
square feet in Tipton (Midland Engineering Steels), 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 currently located in Potters Bar, Southhampton, Leeds and
Glasgow. The sales office leases have various terms ranging to five years.
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, 2001. On March 15, 2002, Niagara UK entered
into an agreement to sell this leased property for (pound)3,600,000
($5,413,572), which Niagara UK had an option to purchase for (pound)1,495,000
($2,248,136). On September 30, 2002, Niagara UK completed the transaction by
selling this option to purchase.
Management considers its manufacturing facilities, which operated at
approximately 67% of capacity in 2002, 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. 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, 2002. 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 2001 and 2002.
High Low
---- ---
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
2002
January 1 through March 31............................... 1.890 1.420
April 1 through June 30.................................. 3.310 1.810
July 1 through September 30.............................. 2.390 1.180
October 1 through December 31............................ 1.955 1.080
As of March 25, 2003, there were 36 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,
1998 1999(1) 2000 2001 2002
---- ---- ---- ---- ----
(in thousands, except per share data)
Statement of Operations Data:
Net sales (2) ........................ $ 217,582 $ 281,117 $336,037 $268,637 $260,875
Cost of products sold (2) ............. 187,375 245,170 293,857 239,085 230,286
Gross profit(2)........................ 30,207 35,947 42,180 29,552 30,588
Selling, general and administrative
expenses(2)......................... 15,645 24,441 27,996 24,814 25,883
Restructuring costs(3) ................ -- -- -- 5,278 --
Interest income........................ 172 36 7 -- --
Other income........................... 195 143 152 186 58
Gain on sale of property(4)............ -- -- -- -- 3,102
Interest expense....................... 4,154 5,631 7,417 5,373 3,546
Provision (benefit) for income taxes... 4,265 2,299 2,590 (1,100) 2,646
Net income (loss) ..................... 6,510 3,757 4,337 (4,627) 1,673
Net income (loss) per share (basic).... $ .66 $ .40 $ .50 $ (.56) $ .20
Net income (loss) per share (diluted).. $ .64 $ .40 $ .50 $ (.56) $ .20
Weighted average common shares
outstanding (basic)................ 9,880 9,350 8,659 8,329 8,239
Weighted average common shares
outstanding (diluted).............. 10,250 9,357 8,659 8,329 8,239
At December 31,
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
(in thousands)
Balance Sheet Data:
Cash and cash equivalents.............. $ 441 $ 2,234 $ 2,351 $ 1,692 $ 5,561
Trade accounts receivable, net......... 13,360 53,126 46,138 37,845 34,283
Inventories............................ 30,132 59,442 60,901 44,114 55,663
Property, plant and equipment, net..... 89,749 102,984 98,076 89,658 85,775
Goodwill, net.......................... 2,100 2,022 1,984 1,904 1,904
Total assets........................... 139,429 227,934 215,418 181,879 189,196
Trade accounts payable................. 14,107 50,191 44,468 32,605 37,657
Accrued expenses....................... 6,555 9,506 10,496 10,671 11,456
Current maturities of long-term debt... 4,797 6,411 7,653 9,709 7,509
Long-term debt, less current maturities 41,572 87,388 77,877 62,294 63,817
Accrued pension and other
postretirement benefits............. 10,303 8,023 7,718 7,289 11,476
Deferred income taxes.................. 7,357 9,849 11,266 10,020 9,602
Total liabilities...................... 84,898 171,473 159,539 132,626 141,768
Stockholders' equity .................. $54,531 $56,461 $55,879 $ 49,253 $ 47,428
(1) Includes the results of Niagara UK from May 22, 1999.
(2) Net sales and cost of products sold have been restated for years 1998
and 1999 with respect to freight costs in accordance with EITF No. 00-10
issued in September 2000. This reclassification resulted in the
recording of such costs in both net sales and cost of products sold 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. The amounts involved were $10,035,000 and $16,895,000 for
the years ended December 31, 1998 and 1999, respectively. Certain
additional reclassifications, primarily in respect of depreciation, have
been made in 2000 in order to conform to the presentation of subsequent
years. 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.
(3) Represents costs associated with a restructuring of Niagara UK
operations. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" and Note 2 to the Consolidated
Financial Statements.
(4) Represents gain on sale of property by Niagara UK. See
"BUSINESS--Corporate History" and Note 2 to the Consolidated Financial
Statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Results of Operations
During 2002, the Company experienced an overall decrease in net sales
and increase in net income as compared to 2001. Results attributable to the
Company's U.S. operations improved throughout the year as a result of modest
price increases and a reduction in capacity, due primarily to the closure of
certain competitors' facilities. As a result, Niagara US's sales, margins and
net income improved for 2002 when compared to 2001.
During 2002, the Company's U.K. operations continued to be faced with
depressed conditions in the manufacturing sector of the U.K. and imports from
lower-cost foreign competitors. Niagara UK's sales declined in 2002 as
compared to 2001 due primarily to the consolidation of certain hot rolled
production facilities (see below) and management's decision to reduce
production of unprofitable commodity items. Demand and prices for Niagara UK's
products were generally weak throughout the year, though they increased
marginally toward the end of 2002. In addition, the high value of the pound
sterling relative to the Euro and the imposition of U.S. tariffs on imported
steel (notwithstanding the exclusions obtained by the Company) had a negative
impact on Niagara UK's export business. As a result, Niagara UK's sales and
margins declined for 2002 as compared to 2001.
In the third quarter of 2001, the Company announced a restructuring
plan involving the closure of one of its hot rolling facilities in the United
Kingdom. Under this 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. 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). On March 15, 2002, Niagara UK
entered into an agreement to sell this leased property for (pound)3,600,000
($5,413,572), which Niagara UK had an option to purchase for (pound)1,495,000
($2,248,136). On September 30, 2002, Niagara UK completed the transaction by
selling this option to purchase. In connection with this transaction, Niagara
UK purchased a parcel of land in the fourth quarter of 2002 which it
subsequently sold during this period to the purchaser of the option. These
sales resulted in a pre-tax gain of (pound)2,063,022 ($3,102,311).
As previously discussed, in the fourth quarter of 2002, Niagara
LaSalle completed significant equipment purchases from two companies after
having prevailed at auctions held in connection with such companies'
bankruptcy proceedings. See "BUSINESS--Corporate History."
Year ended December 31, 2002 compared with December 31, 2001
Net sales for the year ended December 31, 2002 were $260,874,561,
representing a decrease of $7,761,969, or 2.9%, versus the same period in
2001. Net sales by the Company's U.K. operations decreased by $19,540,882, or
18.9%, which was partially offset by an increase in net sales by the Company's
U.S. operations of $11,778,913 or 7.1%. The decrease in net sales attributable
to the Company's U.K. operations was due primarily to a decrease in volume of
19.0% and, to a lesser extent, the imposition of U.S. tariffs on imported
steel. The increase in net sales attributable to the Company's U.S. operations
was due primarily to an increase in sales volume of 6.5% and, to a lesser
extent, an increase in prices.
Cost of products sold for the year ended December 31, 2002 decreased
by $8,798,592 to $230,286,299, representing a decrease of 3.7% over the same
period in 2001. This decrease was primarily attributable to the decrease in
the cost of products sold by the Company's U.K. operations of $14,450,699 due
to the decrease in sales volume by such operations, which was partially offset
by an increase in the cost of products sold by the Company's U.S. operations
of $5,570,085 due to the increase in sales volume by such operations.
Gross margins for the year ended December 31, 2002 increased by 0.7%
compared to the same period in 2001. Gross margins for the Company's U.S.
operations increased by 2.9% due primarily to the increase in sales volume by
such operations and, to a lesser extent, an increase in prices. This was
partially offset by a decrease of 2.7% in gross margins for the Company's U.K.
operations due primarily to the decrease in sales volume by such operations.
Selling, general and administrative expenses for the year ended
December 31, 2002 increased by $1,068,669 to $25,882,947, or 9.9% of sales,
compared to 9.2% of sales for the same period in 2001. The increase in dollar
amount is attributable to additional expenses incurred by the Company's U.S.
operations as a result of the increase in sales volume by such operations. The
increase as a percentage of sales is attributable to the overall decrease in
consolidated net sales.
As described above, in the fourth quarter of 2002, the Company
completed the restructuring of its hot rolled bar operations in the U.K. that
had been announced in the fourth quarter of 2001. The sales of related
properties resulted in a pre-tax gain of $3,102,311 ((pound)2,063,022).
Interest expense for the year ended December 31, 2002 decreased by
$1,826,133 to $3,546,223, due primarily to decreased levels of borrowing and
lower interest rates.
For the year ended December 31, 2002, the Company's income tax
expense was $2,646,000, and its effective income tax rate was 62.3%, on
$4,319,112 of income before taxes. The effective rate differs from the U.S.
statutory income tax rate of 34% primarily due to increasing the valuation
allowance associated with the Company's basis differences in its UK property,
plant and equipment, in order to fully reserve the value of these deferred tax
assets. 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. This tax benefit (19.2%
of the loss before income taxes) differs from the statutory rate (34%)
primarily due to the establishment of the U.K. valuation allowance of
$631,000. See Note 11 to the Financial Statements.
Net income for the year ended December 31, 2002 was $1,673,112 as
compared to a net loss of $4,626,519 for the year ended December 31, 2001. Net
income attributable to the Company's U.S. operations for the year ended
December 31, 2002 was $3,103,340, an increase of $3,275,190 compared to the
year ended December 31, 2001. Net loss attributable to the Company's U.K.
operations for the year ended December 31, 2002 was $1,430,288, an improvement
of $3,024,441 compared to the year ended December 31, 2001. Net income
attributable to the Company's U.S. operations for 2002 reflects statutory tax
rates, whereas the net loss attributable to the Company's U.K. operations for
this period reflects a tax provision as a result of fully reserving Niagara
UK's deferred tax asset given the uncertainty of its realization. The
Company's and Niagara UK's net income for 2002 includes gains on sales of
property of approximately $2.4 million on an after-tax basis, whereas the
Company's and Niagara UK's 2001 net loss includes a restructuring charge
related to Niagara UK operations of approximately $4.3 million on an after-tax
basis.
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.
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 repayment of debt and the funding of capital expenditures to modernize,
improve and expand its facilities, machinery and equipment. At December 31,
2002, the Company had combined debt obligations and operating lease
commitments of approximately $10,544,000 payable in 2003, $63,658,000 payable
in 2004, $5,573,000 payable in 2005, $3,047,000 payable in 2006, $2,882,000
payable in 2007, and $4,560,000 payable thereafter.
Capital expenditures for the year ending December 31, 2002 were
$3,833,096 compared to $3,110,207 for the same period in 2001. This increase
was attributable to Niagara LaSalle's acquisitions of equipment and related
assets from companies in bankruptcy during the fourth quarter of the year,
which was partially offset by a decrease in capital expenditures by Niagara UK
in response to continued weak operating conditions in the United Kingdom. The
Company anticipates spending approximately $3,500,000 for capital expenditures
during 2003.
Cash flows provided by operating activities were $7,490,868 for the
year ended December 31, 2002, a decrease of $8,012,565 as compared to cash
flows provided by operating activities of $15,503,433 for the same period in
2001 This decrease was largely attributable to an increase in inventories in
2002 as compared to 2001 (an increase of $9,740,077 in 2002 as compared to a
decrease of $16,026,062 in 2001). This change was partially offset by an
increase in accounts payable, accrued expenses and other non-current
liabilities in 2002 as compared to 2001 (an increase of $3,767,775 in 2002 as
compared to a decrease of $10,918,287 in 2001), and an increase in net income
(net income of $1,673,112 in 2002 as compared to a net loss of $4,626,519 in
2001). Cash and cash equivalents at December 31, 2002 were $5,561,090, an
increase of $3,829,020 as compared to December 31, 2001, which increase was
primarily attributable to the timing of receipt of customer cash collections
at December 31, 2002. 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 agreement. The other parties to the Credit Agreement are
Manufacturers and Traders Trust Company ("M&T"), Comerica Bank, Citizens
Business Credit Company, and PNC Bank. 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.
At the Company's request, a number of amendments were made to the
Credit Agreement effective September 1, 2002. The revolving credit facility
was reduced from $50,000,000 to $35,000,000 and the balance owed under the
term loan was increased from $14,333,356 to $18,000,000. Principal payments
under the term loan were reduced to $375,000 from $666,666 per month. In
addition, the maturity date of both the term loan and revolving credit loans
made pursuant to the Credit Agreement was extended to July 31, 2004.
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. Interest on such loans is payable in
monthly installments at a rate that 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, the ratio of net income before interest,
taxes, depreciation and amortization ("EBITDA") to debt service and capital
expenditures, and the ratio of senior secured indebtedness to EBITDA. Niagara
US was in compliance with all of these requirements as of December 31, 2002.
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, 2002, Niagara had
repurchased 1,758,938 shares of its Common Stock at a cost of $8,249,684. No
shares were repurchased during 2002.
On May 21, 1999 and in connection with the acquisition of the steel
bar businesses from Glynwed Steels, Niagara UK entered into a bank facilities
agreement (the "Facilities Agreement") with National Westminster Bank Plc
("National Westminster") providing for a (pound)10 million (approximately
$16.0 million) term loan and a (pound)9.8 million (approximately $15.7
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 August 31,
2005. The principal repayment installments on the term loan escalate from
(pound)125,000 to (pound)213,333 throughout its term. Revolving credit loans
made pursuant to the Facilities Agreement are based upon a percentage of
eligible inventory and will mature on July 31, 2004. Interest on 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 advances to Niagara UK based upon a formula tied to the
receivables purchased by RBID. The obligations of Niagara UK under the
Discount Agreement are guaranteed by Niagara and secured by substantially all
of the assets of Niagara UK. In connection with the execution of the Discount
Agreement, the Revolving Letter of Credit and the revolving credit facility
under the Facilities Agreement were reduced to (pound)4.9 million
(approximately $7.9 million) and subsequently reduced to (pound)2.5 million
(approximately $4.0 million) as of December 31, 1999.
At the Company's request, a number of amendments were made to the
Discount Agreement effective August 23, 2002. These amendments included (i) a
reduction in the maximum amount of advances to Niagara UK from (pound)20
million (approximately $32.1 million) to (pound)15.0 million (approximately
$24.1 million), (ii) a reduction in the interest rate applicable to such
advances from 2.25% to 2.0% above Royal Bank of Scotland's base rate and (iii)
the extension of the maturity date on such advances to July 31, 2004. In
connection with these amendments, Niagara and Niagara UK agreed to capitalize
the Subordinated Loan and related accrued interest, which occurred during the
fourth quarter of 2002.
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 all of these
requirements as of December 31, 2002.
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.
As a result of depressed conditions in the manufacturing sector in
the United Kingdom including within the overall steel industry, and conditions
within the insurance industry following the events of September 11, 2001, the
market for credit insurance in the United Kingdom deteriorated over the last
nine months of 2002. This necessitated, during the fourth quarter of 2002,
Niagara guaranteeing on a short-term basis certain trade payables of Niagara
UK in the aggregate amount of up to (pound)6.7 million (approximately $10.7
million) in order to ensure an orderly supply of raw materials.
At December 31, 2002, the Company had borrowed or been advanced
$45,093,690 under its revolving credit facilities and the Discount Agreement
and had approximately $14,000,000 in available credit thereunder, and the
outstanding balance of its term loans was $25,619,410. Working capital of the
Company at December 31, 2002 was $43,984,022.
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. The Company adopted SFAS No. 142 during the
year ended December 31, 2002. Amortization of goodwill was computed using the
straight-line method over 30 years in the years ended December 31, 2000 and
2001. There was no amortization of goodwill in the year ended December 31,
2002. See Note 16 to the Financial Statements.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
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 has not had an effect on the Company's financial statements.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44 and 64, and Amendment of FASB Statement No. 13, and
Technical Corrections." This statement, among other things, rescinds SFAS No.
4, "Reporting Gains and Losses from Extinguishment of Debt," which required
that all gains and losses from the extinguishment of debt be aggregated and,
if material, classified as an extraordinary item, net of related income tax
effect. As a result, the criteria in Accounting Principles Board Opinion No.
30, "Reporting the Results of Operations - Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions," will now be used to classify such gains
and losses. SFAS No. 145 also amends SFAS No. 13 to require that certain lease
modifications that have economic effects similar to sale-leaseback
transactions be accounted for in the same manner as sale-leaseback
transactions. Such provisions of SFAS No. 145 are required to be applied in
fiscal years beginning after May 15, 2002. The adoption of this statement is
not expected to have a material effect on the Company's financial statements.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This statement requires that a
liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred, as opposed to prior guidance which
provided that liability for such exit costs be recognized at the date of an
entity's commitment to an exit or disposal plan. This statement is required to
be applied to exit or disposal activities that are initiated after December
31, 2002. The adoption of this statement is not expected to have a material
effect on the Company's financial statements.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Guarantees of
the Indebtedness of Others," which interprets the guidance in FASB Statement
No. 5, "Accounting for Contingencies," relating to a guarantor's accounting
for, and disclosure of, certain types of guarantees. Interpretation No. 45
requires that a guarantor recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the
guarantee. Under Interpretation No. 45, the recognition of the liability is
required even if it is not probable that payments will be required under the
guarantee. Previously, SFAS No. 5 required recognition of a liability only for
a probable loss. The recognition requirements of Interpretation No. 45 apply
to guarantees issued or modified after December 31, 2002. The disclosure
requirements are effective for interim and annual financial statements ending
after December 15, 2002. The adoption of Interpretation No. 45 is not expected
to have a material effect on the Company's financial statements.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation--Transition and Disclosure--an amendment of FASB
Statement No. 123," which amends the disclosure requirements of SFAS No. 123
to require prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee
compensation and the effect on the method used on reported results. The
adoption of this statement did not have an 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, the credit risk of its customers and the
availability to its suppliers of credit insurance on their receivables from
the Company. 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 Royal Bank of Scotland's base
rate plus 2.0%. Management attempts to reduce market risks associated with the
fluctuations in interest rates through the selection of LIBOR periods under
the Credit and Facilities Agreements and advance amounts under the Discount
Agreement (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. Revenues from sales by Niagara US are collected
exclusively in U.S. dollars. Niagara UK's revenues are generally collected in
the local currency of its customers. In order to reduce its exposure to
fluctuations in exchange rates, Niagara UK purchased foreign exchange
contracts in amounts and with expiration dates in line with customer orders.
Following the adoption of the Euro, Niagara UK's exposure to such fluctuations
was substantially reduced. As a result, Niagara UK discontinued its practice
of purchasing foreign exchange contracts in February 2002.
The Company is subject to the economic conditions affecting its
customers. The Company's exposure to losses on trade accounts receivable is
principally dependent on each customer's financial condition. The Company
monitors its exposure for credit losses and maintains allowances for
anticipated losses after giving consideration to current delinquency data,
historical loss experience, and economic conditions impacting steel service
centers and original equipment manufacturers. Management continuously reviews
information concerning the financial condition of the Company's customers and
believes that the Company's allowance for doubtful accounts is sufficient to
cover such risks. In addition, Niagara UK has insured substantially all of its
accounts receivable to further reduce its customer credit risk. Generally,
these insurance policies provide for payments to Niagara UK of 80% of the
unpaid invoiced amounts.
As a result of depressed conditions in the manufacturing sector in
the United Kingdom including within the overall steel industry, and conditions
within the insurance industry following the events of September 11, 2001, the
market for credit insurance in the United Kingdom has been deteriorating over
the last nine months of 2002. This necessitated, during the fourth quarter of
2002, Niagara guaranteeing on a short-term basis certain trade payables of
Niagara UK in the aggregate amount of up to (pound)6.7 million (approximately
$10.7 million) in order to ensure an orderly supply of raw materials.
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 33% of Niagara UK's sales during 2002
were to customers outside of the United Kingdom. Revenues in respect
of such sales are generally collected in the local currency of the
customer. 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 2002. 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, 2006, respectively. There is no assurance that LaSalle
will be able to negotiate new agreements on favorable economic terms.
In addition, a large number of Niagara UK's employees are covered by
collective bargaining agreements containing compensation provisions
which are reviewed annually. There is no assurance that Niagara UK
will be able to agree with the covered employees at the time of such
review. Accordingly, the Company may experience work stoppages or
other labor difficulties. See "BUSINESS -- Employees."
o Environmental Matters - Niagara US and Niagara UK are subject to
extensive environmental laws and regulations concerning the discharge
of materials into the environment and the removal or remediation of
environmental contamination at locations owned or operated by them or
at locations owned or operated by third parties where they, or a
company from which they acquired assets, arranged for the disposal of
such materials. While the costs of complying with the current
regulations and the Company's share of remediation expenses at
locations where Niagara's subsidiaries have been identified as a
responsible party have not adversely affected the Company in any
material respect, there is no assurance that substantial additional
costs will not be required as a result of more stringent regulations,
an increase in the Company's share of remediation costs or the
discovery of additional contamination at the Company's facilities or
at other locations for which the Company would be responsible. See
"LEGAL PROCEEDINGS."
o Acts of Terrorism or War - The operations of the Company, its
suppliers and customers may be affected by further acts of terrorism
or war.
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........................................ 24-53
Report of Independent Certified Public Accountants
Niagara Corporation
New York, New York
We have audited the accompanying consolidated balance sheets of Niagara
Corporation and its subsidiaries (together, the "Company") as of December 31,
2001 and 2002, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 2002. 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, 2001 and 2002, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2002, 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 4, 2003
Niagara Corporation
and Subsidiaries
Balance Sheets
======================================================================================================================
December 31, 2001 2002
---------------------------------------------------------------------------------------------------------------------
Assets (Note 5)
Current:
Cash and cash equivalents $ 1,692,070 $ 5,561,090
Trade accounts receivable, net of allowance for doubtful accounts
of $1,276,000 and $1,347,000 (Note 11) 37,844,609 34,283,089
Inventories (Note 3) 44,113,663 55,662,799
Deferred income taxes (Note 10) 1,678,000 1,953,000
Other current assets (Note 6) 3,870,749 3,146,316
----------------------------------------------------------------------------------------------------------------------
Total current assets 89,199,091 100,606,294
Property, plant and equipment, net (Note 4) 89,658,179 85,775,275
Goodwill (Note 16) 1,904,499 1,904,499
Deferred financing costs, net of accumulated amortization of $516,564
and $627,252 258,436 147,748
Intangible pension asset (Note 6) 370,000 318,000
Other assets, net (Note 16) 488,725 443,333
----------------------------------------------------------------------------------------------------------------------
$ 181,878,930 $ 189,196,149
======================================================================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 32,604,979 $ 37,656,820
Accrued expenses (Note 2) 10,671,116 11,455,990
Current maturities of long-term debt (Note 5) 9,709,148 7,509,462
----------------------------------------------------------------------------------------------------------------------
Total current liabilities 52,985,243 56,622,272
Other:
Long-term debt, less current maturities (Note 5) 62,293,980 63,816,781
Accrued pension cost (Note 6) 1,987,000 6,729,000
Accrued other postretirement benefits (Note 6) 5,302,483 4,747,067
Deferred income taxes (Note 10) 10,020,000 9,602,000
Other noncurrent liabilities 37,710 250,667
----------------------------------------------------------------------------------------------------------------------
Total liabilities $ 132,626,416 $ 141,767,787
----------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 8, 9 and 13)
Stockholders' equity (Notes 6, 7 and 9):
Preferred stock, $.001 par value - 500,000 shares authorized; none
outstanding - -
Common stock, $.001 par value - 15,000,000 shares authorized;
9,997,455 issued 9,998 9,998
Additional paid-in capital 50,111,675 50,111,675
Retained earnings 11,852,159 13,525,271
Accumulated other comprehensive loss (4,471,634) (7,968,898)
----------------------------------------------------------------------------------------------------------------------
57,502,198 55,678,046
Treasury stock, at cost, 1,758,938 shares (8,249,684) (8,249,684)
----------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 49,252,514 47,428,362
----------------------------------------------------------------------------------------------------------------------
$ 181,878,930 $ 189,196,149
======================================================================================================================
See accompanying notes to financial statements.
Niagara Corporation
and Subsidiaries
Statements of Operations
Year ended December 31, 2000 2001 2002
----------------------------------------------------------------------------------------------------------------------
Net sales (Note 11) $336,036,710 $268,636,530 $260,874,561
Cost of products sold (Note 12) 293,856,715 239,084,891 230,286,299
----------------------------------------------------------------------------------------------------------------------
Gross profit 42,179,995 29,551,639 30,588,262
Operating expenses and restructuring costs:
Selling, general and administrative 27,995,640 24,814,278 25,882,947
Restructuring costs (Note 2) - 5,278,074 -
----------------------------------------------------------------------------------------------------------------------
Operating income (loss) 14,184,355 (540,713) 4,705,315
Interest income 7,050 - -
Interest expense (7,416,630) (5,372,356) (3,546,223)
Gain on sale of property (Note 2) - - 3,102,311
Other income 152,443 186,550 57,709
----------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 6,927,218 (5,726,519) 4,319,112
Provision (benefit) for income taxes (Note 10) 2,590,000 (1,100,000) 2,646,000
----------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 4,337,218 $ (4,626,519) $ 1,673,112
=======================================================================================================================
Net income (loss) per share
(basic and diluted) $ .50 $ (.56) $ .20
=======================================================================================================================
Weighted average common shares outstanding
(basic and diluted) (Note 14) 8,659,013 8,329,145 8,238,517
=======================================================================================================================
See accompanying notes to financial statements.
Niagara Corporation
and Subsidiaries
Statements of Stockholders' Equity
=========================================================================================================
Years ended December 31, 2000, 2001 and 2002
--------------------------------------------------------------------------------------------------------
Common stock
----------------------
Number of Additional Retained
shares Amount paid-in capital earnings
- ----------------------------------------------------------------------------------------------------------
Balance, January 1, 2000 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 - Note 6) - - - -
--------------------------------------------------------------------------------------------------------
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, Note 6) - - - -
--------------------------------------------------------------------------------------------------------
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
--------------------------------------------------------------------------------------------------------
Comprehensive loss:
Net income for the year - - - 1,673,112
Foreign currency translation adjustment - - - -
Minimum pension liability adjustment
($7,130,000, net of tax benefit of
$2,781,000, Note 6) - - - -
--------------------------------------------------------------------------------------------------------
Total comprehensive loss
--------------------------------------------------------------------------------------------------------
Balance, December 31, 2002 9,997,455 $9,998 $50,111,675 $13,525,271
=========================================================================================================
Statement of Stockholders' Equity - continued
Accumulated
other Total
comprehensive Treasury stock, stockholders'
loss at cost equity
- ----------------------------------------------------------------------------------------------------
Balance, January 1, 2000 $ (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 - Note 6) (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, Note 6) (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
----------------------------------------------------------------------------------------------------
Comprehensive loss:
Net income for the year - - 1,673,112
Foreign currency translation adjustment 851,736 - 851,736
Minimum pension liability adjustment
($7,130,000, net of tax benefit of
$2,781,000, Note 6) (4,349,000) - (4,349,000)
----------------------------------------------------------------------------------------------------
Total comprehensive loss (1,824,152)
----------------------------------------------------------------------------------------------------
Balance, December 31, 2002 $(7,968,898) $(8,249,684) $ 47,428,362
=====================================================================================================
(a) During the years ended December 31, 2000 and 2001, Niagara Corporation
repurchased 599,129 and 125,300 shares of its Common Stock, respectively,
at a cost of $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, 2000 2001 2002
---------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income (loss) $ 4,337,218 $ (4,626,519) $ 1,673,112
---------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 9,120,844 7,684,862 9,104,131
Gain on sale of property - - (3,102,311)
Provision for doubtful accounts 534,000 (165,084) 379,559
Deferred income taxes 1,593,000 (355,000) 2,088,000
Pension payments, net (3,021,987) (2,498,000) (1,734,000)
Other postretirement benefits (14,050) (15,053) (555,416)
Loss on disposal and write-off of equipment 38,875 3,554,270 -
Changes in assets and liabilities:
Decrease in accounts receivable 3,846,937 7,555,242 5,447,822
Decrease in accounts receivable - other 2,255,687 - -
(Increase) decrease in inventories (3,450,179) 16,026,062 (9,740,077)
Decrease (increase) in other current assets 792,733 (724,060) 264,768
Decrease (increase) in other assets 30,772 (15,000) (102,495)
(Decrease) increase in accounts payable,
accrued expenses and other noncurrent
liabilities (2,524,477) (10,918,287) 3,767,775
---------------------------------------------------------------------------------------------------------------------
Total adjustments 9,202,155 20,129,952 5,817,757
---------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 13,539,373 15,503,433 7,490,868
---------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of property, net - - 3,102,311
Proceeds from disposal of equipment 15,550 - -
Acquisition of property and equipment (4,897,032) (3,110,207) (3,833,096)
---------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (4,881,482) (3,110,207) (730,785)
---------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from long-term debt 1,102,495 - 3,666,644
Repayment of long-term debt (7,028,241) (12,707,710) (6,806,021)
Payments to acquire treasury stock (2,404,198) (219,275) -
---------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (8,329,944) (12,926,985) (3,141,377)
---------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash
equivalents (211,613) (124,686) 250,313
---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 116,334 (658,445) 3,869,020
Cash and cash equivalents, beginning of year 2,234,181 2,350,515 1,692,070
---------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 2,350,515 $ 1,692,070 $ 5,561,090
======================================================================================================================
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.
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 are translated at the
exchange rates in effect at the balance
sheet dates and the related revenues and
expenses have been translated at the
average rates for the periods.
Translation adjustments arising from the
use of different exchange rates from
period to period are included as
accumulated other comprehensive income
(loss) within the Statements of
Stockholders' Equity. Gains and losses
resulting from foreign currency
transactions are included in other
income (expense) 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.
Business and Credit Concentrations
Financial instruments that potentially
subject the Company to concentrations of
credit risk consist principally of cash
equivalents and trade accounts
receivable. The Company places its
temporary cash investments with high
credit quality financial institutions.
The Company competes in a narrow sector
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 credit
to its customers consistent with
industry practice. Exposure to losses on
trade accounts receivable is principally
dependent on each customer's financial
condition. The Company monitors its
exposure for credit losses and maintains
allowances for anticipated losses after
giving consideration to current
delinquency data, historical loss
experience, and economic conditions
impacting steel service centers and
original equipment manufacturers. The
financial condition of its customers and
the related allowance for doubtful
accounts is continually reviewed by
management.
Niagara UK has insured substantially all
of its accounts receivable. Generally,
these insurance policies provide for
payments to Niagara UK of 80% of the
unpaid invoiced amounts.
Revenue Recognition
Revenue from the sale of products is
recorded at the time the goods are
shipped. The Company follows the
classification requirements for freight
costs required by Emerging Issues Task
Force ("EITF") No. 00-10, "Accounting
for Shipping and Handling Fees and
Costs." This pronouncement requires that
all such costs billed to customers be
classified as revenue and the associated
expenses be included in cost of products
sold.
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.
Goodwill and Other Intangible Assets
Goodwill represents the excess of the
cost of purchased businesses over the
fair value of the net assets acquired.
In July 2001, the Financial Accounting
Standards Board (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. The Company
adopted SFAS No. 142 during the year
ended December 31, 2002. Amortization of
goodwill was computed using the
straight-line method over 30 years in
the years ended December 31, 2000 and
2001. There was no amortization of
goodwill in the year ended December 31,
2002. See Note 16.
In June 2001, the FASB also 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.
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.
Evaluating Recoverability of Long-Lived
Assets
In 2002, the Company adopted the
provisions of SFAS No. 144, "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.
The adoption of this statement has not
had an effect on the Company's financial
statements.
The Company reviews the carrying values
of its long-lived and identifiable
intangible assets subject to
amortization for possible impairment
whenever events or changes in
circumstances indicate that the carrying
amount of such 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 assumptions that
affect the reported amounts of assets
and liabilities, the disclosure of
contingent assets and liabilities at the
date of the financial statements and the
reported amounts of revenues and
expenses during the reporting period.
Actual results could differ from those
estimates.
Stock-Based Compensation
The Company accounts for its stock
option plan in accordance with the
provisions of Accounting Principles
Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to
Employees," and related interpretations.
APB No. 25 provides that compensation
expense would be recorded on the date of
grant only if the current market price
of the underlying stock exceeded the
exercise price of the option. SFAS No.
123, "Accounting for Stock-Based
Compensation," permits entities to
recognize as expense over the vesting
period the fair value of all stock-based
awards on the date of grant.
Alternatively, SFAS No. 123 allows
entities to continue to apply the
provisions of APB No. 25 and provide pro
forma net income and pro forma earnings
per share disclosures for employee stock
compensation as if the fair-value-based
method defined in SFAS No. 123 had been
applied. The Company has elected to
continue to apply the provisions of APB
No. 25 and provide the pro forma
disclosures required of SFAS No. 123 for
options issued to employees.
The Company has also adopted the
additional disclosure provisions of SFAS
No. 148, "Accounting for Stock-Based
Compensation--Transition and
Disclosure--an amendment of FASB
Statement No. 123," which the FASB
issued in December 2002. This statement
amends the disclosure requirements of
SFAS No. 123 to require prominent
disclosures in both annual and interim
financial statements about the method of
accounting for stock-based employee
compensation and the effect on the
method used on reported results. The
adoption of this statement did not have
an effect on the Company's financial
statements. See Note 9.
Comprehensive Income or Loss
The Company follows 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, 2002, the Company had an
accumulated other comprehensive loss of
$7,968,898. This loss was comprised of
accumulated minimum pension liability
net of tax adjustments of $7,335,000,
representing pension plan obligations in
excess of pension plan assets, and
accumulated foreign currency translation
adjustments of $633,898 arising from the
changing value of the British pound with
respect to the U.S. dollar.
Derivative Instruments and Hedging
Activities
The Company follows 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 statement by the
Company during 2001 has not had an
effect on the Company's financial
statements.
New Accounting Pronouncements
In August 2001, the FASB issued SFAS No.
143, "Accounting for Asset 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 April 2002, the FASB issued SFAS No.
145, "Rescission of FASB Statements No.
4, 44 and 64, and Amendment of FASB
Statement No. 13, and Technical
Corrections." This statement, among
other things, rescinds SFAS No. 4,
"Reporting Gains and Losses from
Extinguishment of Debt," which required
that all gains and losses from the
extinguishment of debt be aggregated
and, if material, classified as an
extraordinary item, net of related
income tax effect. As a result, the
criteria in Accounting Principles Board
Opinion No. 30, "Reporting the Results
of Operations - Reporting the Effects of
Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently
Occurring Events and Transactions," will
now be used to classify such gains and
losses. SFAS No. 145 also amends SFAS
No. 13 to require that certain lease
modifications that have economic effects
similar to sale-leaseback transactions
be accounted for in the same manner as
sale-leaseback transactions. Such
provisions of SFAS No. 145 are required
to be applied in fiscal years beginning
after May 15, 2002. The adoption of this
statement is not expected to have a
material effect on the Company's
financial statements.
In July 2002, the FASB issued SFAS No.
146, "Accounting for Costs Associated
with Exit or Disposal Activities." This
statement requires that a liability for
a cost associated with an exit or
disposal activity be recognized when the
liability is incurred, as opposed to
prior guidance which provided that
liability for such exit costs be
recognized at the date of an entity's
commitment to an exit or disposal plan.
This statement is required to be applied
to exit or disposal activities that are
initiated after December 31, 2002. The
adoption of this statement is not
expected to have a material effect on
the Company's financial statements.
In November 2002, the FASB issued
Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements
for Guarantees, Including Guarantees of
the Indebtedness of Others," which
interprets the guidance in FASB
Statement No. 5, "Accounting for
Contingencies," relating to a
guarantor's accounting for, and
disclosure of, certain types of
guarantees. Interpretation No. 45
requires that a guarantor recognize, at
the inception of a guarantee, a
liability for the fair value of the
obligation undertaken in issuing the
guarantee. Under Interpretation No. 45,
the recognition of the liability is
required even if it is not probable that
payments will be required under the
guarantee. Previously, SFAS No. 5
required recognition of a liability only
for a probable loss. The recognition
requirements of Interpretation No. 45
apply to guarantees issued or modified
after December 31, 2002. The disclosure
requirements are effective for interim
and annual financial statements ending
after December 15, 2002. The adoption of
Interpretation No. 45 is not expected to
have a material effect on the Company's
financial statements.
2. Restructuring of UK In the third quarter of 2001, the
Operations Company announced a restructuring plan
involving the closure of one of its hot
rolling facilities in the United
Kingdom. Under this 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. 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 was included in accrued
expenses, all of which were expended
during 2002.
On March 15, 2002, Niagara UK entered into
an agreement to sell the leased Dudley
Port facility for (pound)3,600,000
($5,413,572), which Niagara UK had an
option to purchase for (pound)1,495,000
($2,248,136). On September 30, 2002,
Niagara UK completed the sale by selling
this option to purchase. In connection
with this transaction, Niagara UK
purchased a parcel of land in the fourth
quarter of 2002 which it subsequently sold
during this period to the purchaser of the
option. These sales resulted in a pre-tax
gain of (pound)2,063,022 ($3,102,311).
3. Inventories Inventories consisted of the following
at December 31, 2001 and 2002:
December 31, 2001 2002
--------------------------------------------------------------------------------
Raw materials $10,503,938 $14,749,119
Work-in-process 3,783,934 4,071,318
Finished goods 29,825,791 36,842,362
--------------------------------------------------------------------------------
$44,113,663 $55,662,799
================================================================================
At December 31, 2002, Niagara US
inventories were $37,249,968 determined
using the LIFO method and Niagara UK
inventories were $18,412,831 determined
using the FIFO method.
4. Property, Plant and Property, plant and equipment consisted
Equipment of the following at December 31, 2001
and 2002:
December 31, 2001 2002
--------------------------------------------------------------------------------
Land, buildings and improvements $ 26,040,591 $ 26,332,987
Leasehold improvements 1,884,425 1,965,696
Machinery and equipment 97,564,448 103,442,537
Furniture and fixtures 4,401,293 4,653,403
--------------------------------------------------------------------------------
Total 129,890,757 136,394,623
Less accumulated depreciation and
amortization 40,232,578 50,619,348
--------------------------------------------------------------------------------
$ 89,658,179 $ 85,775,275
================================================================================
5. Long-Term Debt The long-term debt consisted of the
following at December 31, 2001 and 2002:
December 31, 2001 2002
------------------------------------------------ --------------- ---------------
Term note payable - bank, maturing in monthly
installments of principal plus interest
through July 2004. Scheduled monthly
installments of principal are $375,000 through
July 1, 2004, with the remaining balance of
principal outstanding of $9,375,000 due on
July 31, 2004. 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 4.27% at December 31,
2002) $19,333,351 $16,500,000
Secured bank revolving line of credit up
to $35,000,000 due July 31, 2004,
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 3.92% at
December 31, 2002) 26,600,000 29,600,000
Term note payable - bank (facilities agreement),
maturing in monthly installments of principal
plus interest through August 2005. From May
2002 through April 2003, the monthly
installments of principal are (pound)125,000.
The monthly principal payment is adjusted
annually each subsequent May 1 with the final
installment due and payable August 2005.
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 4.21% at December 31, 2002) 12,488,706 9,119,410
Secured invoice discounting agreement up to
(pound)15,000,000 ($24,066,000) due July 31,
2004, limited to a portion of the purchased
accounts receivable. Interest is payable in
monthly installments at the Royal Bank of
Scotland base rate plus 2.00% (effective rate
of 6.00% at December 31, 2002) 12,870,451 15,493,690
Note payable - other, maturing $64,143 annually
on January 31, through 2010, plus interest at
8.5% 577,285 513,143
Note payable - other, maturing $33,333 annually
on April 17, through 2005, plus interest at
10% 133,335 100,000
--------------------------------------------------------------------------------
72,003,128 71,326,243
Less: Current maturities of long-term debt 9,709,148 7,509,462
--------------------------------------------------------------------------------
$62,293,980 $ 63,816,781
================================================================================
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, the
ratio of net income before interest,
taxes, depreciation and amortization
(EBITDA) to debt service and capital
expenditures and the ratio of senior
secured indebtedness to EBITDA.
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,
-------------------------------------------
2003 $ 7,509,000
2004 60,849,000
2005 2,647,000
2006 64,000
2007 64,000
Thereafter 193,000
-------------------------------------------
$71,326,000
===========================================
6. Pension Plans
and Other
Postretirement
Benefits
LaSalle sponsors two contributory
defined 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 13.
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, 2002, and a
statement of the funded status of these
plans as of December 31, 2001 and 2002:
Pension benefits Other benefits
------------------------ ------------------------
2001 2002 2001 2002
--------------------------------------------------------------------------------
Reconciliation of benefit
obligation
Obligation at January 1 $25,299,000 $27,216,000 $6,555,000 $6,649,000
Service cost 481,000 458,000 48,000 43,000
Interest cost 1,892,000 1,971,000 485,000 471,000
Actuarial loss 1,404,000 1,092,000 176,000 445,000
Benefit payments (1,860,000) (1,906,000) (615,000) (1,139,000)
--------------------------------------------------------------------------------
Obligation at December 31 $27,216,000 $28,831,000 $6,649,000 $6,469,000
================================================================================
Pension benefits Other benefits
------------------------ -------------------------
2001 2002 2001 2002
----------------------------------------------------------------------------------
Reconciliation of fair
value of plan assets
Fair value of plan assets $ $
at January 1 $22,686,000 $24,078,000 - -
Actual return on plan
assets 502,000 (1,893,000) - -
Employer contributions 2,750,000 1,840,000 615,000 1,139,000
Benefit payments (1,860,000) (1,906,000) (615,000) (1,139,000)
----------------------------------------------------------------------------------
Fair value of plan assets
at December 31 $24,078,000 $22,119,000 $ - $ -
==================================================================================
Pension benefits Other benefits
----------------------- -------------------------
2001 2002 2001 2002
---------------------------------------------------------------------------------
Funded status
Funded status at
December 31 $(3,138,000) $(6,712,000) $(6,649,000) $(6,469,000)
Unrecognized prior service
cost 370,000 318,000 - -
Unrecognized loss 6,699,000 12,007,000 1,346,517 1,721,933
---------------------------------------------------------------------------------
Net amount recognized $ 3,931,000 5,613,000 $(5,302,483) $(4,747,067)
=================================================================================
The following table provides the amounts recognized in the Company's balance
sheets at December 31, 2001 and 2002:
Pension benefits Other benefits
------------------------ ------------------------
2001 2002 2001 2002
--------------------------------------------------------------------------------
Prepaid benefit cost $ 654,000 $ - $ - $ -
Accrued benefit liability (1,987,000) (6,729,000) (5,302,483) (4,747,067)
Intangible asset 370,000 318,000 - -
Accumulated other
comprehensive loss,
pretax 4,894,000 12,024,000 - -
--------------------------------------------------------------------------------
Net amount recognized $ 3,931,000 5,613,000 $(5,302,483) $(4,747,067)
================================================================================
At December 31, 2001, LaSalle's salaried
pension plan had plan assets in excess
of the benefit obligation, whereas at
December 31, 2002 the benefit obligation
under this plan was in excess of plan
assets. LaSalle's hourly pension plan
had a benefit obligation in excess of
plan assets at December 31, 2001 and
2002. The salaried plan's benefit
obligation was $8,267,000 and $8,651,000
at December 31, 2001 and 2002,
respectively. Plan assets for the
salaried plan were $8,487,000 and
$7,338,000 at December 31, 2001 and
2002, respectively. The hourly plan's
benefit obligation was $17,639,000 and
$18,833,000 at December 31, 2001 and
2002, respectively. Plan assets for the
hourly plan were $15,591,000 and
$14,781,000 at December 31, 2001 and
2002, 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 and $1,347,000
at December 31, 2001 and 2002. LaSalle's
plans for postretirement benefits other
than pensions have no plan assets. The
benefit obligation for such plans was
$6,649,000 and $6,469,000 at December
31, 2001 and 2002, respectively.
The following table provides the
components of net periodic (benefit)
cost for the Company's plans for the
years ended December 31, 2000, 2001 and
2002:
Pension benefits Other benefits
----------------------------------------- -----------------------------------------
2000 2001 2002 2000 2001 2002
- ----------------------------------------------------------------------------------------------------------------------------
Service cost $ 333,000 $ 481,000 $ 458,000 $ 48,000 $ 48,000 $ 43,000
Interest cost 1,674,000 1,892,000 1,971,000 463,000 485,000 471,000
Expected return on plan assets (2,161,000) (2,323,000) (2,553,000) - - -
Amortization of prior service cost 52,000 52,000 52,000 - - -
Amortization of unrecognized (gain)
loss (22,000) 110,000 230,000 49,000 67,000 70,000
- ----------------------------------------------------------------------------------------------------------------------------
Net periodic (benefit) cost $ (124,000) $ 212,000 $ 158,000 $ 560,000 $ 600,000 $ 584,000
- ----------------------------------------------------------------------------------------------------------------------------
The amounts included within other
comprehensive income (loss) arising from
a change in the additional minimum
pension liability were $(1,494,000) (net
of tax benefit), $(1,304,000) (net of
tax benefit) and $(4,349,000) (net of
tax benefit) for 2000, 2001 and 2002,
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 the Company's benefit obligations are
shown in the following table:
Pension benefits Other benefits
----------------------------------------- -----------------------------------------
2000 2001 2002 2000 2001 2002
- ----------------------------------------------------------------------------------------------------------------------------
Weighted average assumptions as of
December 31:
Discount rate used to determine:
yearly expense 7.75% 7.50% 7.50% 7.75% 7.50% 7.50%
year-end liability 7.75% 7.50% 7.00% 7.75% 7.50% 7.00%
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 3.00% 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 $666,000,
$726,000 and $727,000 for the years
ended December 31, 2000, 2001 and 2002,
respectively.
Niagara UK has a defined contribution
group personal pension arrangement for
all of its employees. 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 members of the predecessor
operator's 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 years
ended December 31, 2000, 2001 and 2002,
expenses in respect of this plan totaled
approximately (pound)633,000 ($960,000),
(pound)618,000 ($890,000) and
(pound)532,000 ($800,000), respectively.
7. Preferred Stock Niagara is authorized to issue 500,000
shares of Preferred Stock, par value
$.001 per share, with such designations,
voting and other rights and preferences
as may be determined from time to time
by its Board of Directors.
8. Lease Commitments Niagara leases office space under an
operating lease expiring in December
2007. Niagara US leases equipment and
one operating facility under operating
leases expiring through 2011. Niagara UK
leases equipment, eight operating
facilities and four sales offices under
operating leases expiring through 2009.
At December 31, 2002, future minimum
payments under operating leases were
approximately as follows:
------------------------------------------
2003 3,035,000
2004 2,809,000
2005 2,926,000
2006 2,983,000
2007 2,818,000
Thereafter 4,367,000
-------------------------------------------
Total minimum lease payments $ 18,938,000
===========================================
Rent expense under operating leases was
approximately $1,286,000, $2,412,000 and
$2,960,000 for the years ended December
31, 2000, 2001 and 2002, respectively.
9. Stock Option Plan The Company has a stock option plan
which provides that the Compensation
Committee of Niagara's Board of
Directors may grant options to the
Company's officers, directors, employees
and independent contractors for up to
2,500,000 shares of Niagara Common
Stock.
The Company applies APB 25, "Accounting
for Stock Issued to Employees," and
related interpretations in accounting
for this plan. Under APB 25, no
compensation cost was recognized because
the exercise price of Niagara's employee
stock options was equal to or greater
than the market price of the underlying
stock on the date of grant.
SFAS No. 123, "Accounting for
Stock-Based Compensation" and SFAS No.
148, "Accounting for Stock-Based
Compensation--Transition and
Disclosure," 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 SFAS No. 123. 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 2000:
dividend yield of 0%; expected
volatility of 44.0%; average risk-free
interest rate of 6.2%; expected lives of
10 years; and a discount due to
marketability and dilution of 0%. There
were no stock options granted in 2001
and 2002.
Under the accounting and disclosure
provisions of SFAS No. 123 and SFAS No.
148, the following table illustrates the
effect on net income (loss) and earnings
(loss) per share if the Company had
applied the fair value recognition
provisions of SFAS No. 123 to
stock-based employee compensation:
Year ended December 31, 2000 2001 2002
----------------------------------------------------------------------------------
Net income (loss),
as reported $4,337,218 $(4,626,519) $1,673,112
Deduct: Total stock-based
compensation expense
determined under fair-value
based method for all
awards, net of related tax
effects (913,590) (592,109) (378,121)
----------------------------------------------------------------------------------
Pro forma
net income (loss) $3,423,628 $(5,218,628) $1,294,991
==================================================================================
Net income (loss) per share
(basic and diluted):
As reported $ .50 $(.56) $ .20
Pro forma $ .40 $(.63) $ .16
==================================================================================
A summary of the status of the Company's stock option plan at December 31, 2000,
2001 and 2002, and changes during the years ending on those dates, is
presented below:
December 31, 2000 December 31, 2001 December 31, 2002
--------------------------- --------------------------- ---------------------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Shares price Shares price Shares price
- --------------------------------------------------------------------------------------------------------------------------------
Outstanding at beginning of year 2,140,000 $5.72 2,330,000 $5.70 2,330,000 $5.70
Granted 200,000 5.50 - - - -
Forfeited or cancelled 10,000 5.75 - - 20,000 5.63
- --------------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 2,330,000 $5.70 2,330,000 $5.70 2,310,000 $5.70
================================================================================================================================
Options exercisable at year-end 1,315,000 $5.65 1,656,000 $5.66 1,882,000 $5.68
================================================================================================================================
Weighted average fair value of
options granted during the year $2.29 - -
================================================================================================================================
The following table summarizes information about stock options
outstanding at December 31, 2002.
Options outstanding Options exercisable
------------------------------------ -----------------------
Weighted
average Weighted Weighted
Number remaining average Number average
Range of outstanding contractual exercise exercisable exercise
exercise prices at 12/31/02 life price at 12/31/02 price
--------------------------------------------------------------------------------
$5.50-$5.88 2,310,000 4.82 years $5.70 1,882,000 $5.68
================================================================================
10. Income Taxes The provision (benefit) for federal and state income taxes was comprised of
the following:
Year ended December 31, 2000 2001 2002
---------------------------------------------------------------------------------
Current:
Federal $ 879,000 $ (745,000) $ 509,000
State 118,000 - 49,000
---------------------------------------------------------------------------------
997,000 (745,000) 558,000
---------------------------------------------------------------------------------
Deferred:
Federal 1,105,000 593,000 1,097,000
State 90,000 14,000 325,000
Foreign (UK) 398,000 (962,000) 666,000
---------------------------------------------------------------------------------
1,593,000 (355,000) 2,088,000
---------------------------------------------------------------------------------
Total income tax provision
(benefit) $2,590,000 $(1,100,000) $2,646,000
=================================================================================
At December 31, 2001 and 2002, deferred tax assets (liabilities) consisted of
the following:
December 31, 2001 2002
---------------------------------------------------------------------------------
Federal and state regular tax net
operating loss carryforwards $ 2,355,000 $ 893,000
Accrued minimum pension liability 1,908,000 4,689,000
Federal alternative minimum tax credit
carryforwards 1,898,000 3,462,000
Accrued expenses deductible when paid 851,000 937,000
New York State investment tax credits 767,000 767,000
Allowance for doubtful accounts 387,000 397,000
Inventories 364,000 618,000
Foreign, book depreciation greater than
tax depreciation and basis
differences on UK property, plant and
equipment 1,049,000 1,297,000
Other 549,000 3,000
---------------------------------------------------------------------------------
Gross deferred tax assets 10,128,000 13,063,000
Valuation allowance for deferred tax
assets (1,398,000) (2,064,000)
---------------------------------------------------------------------------------
Net deferred tax assets 8,730,000 10,999,000
---------------------------------------------------------------------------------
Tax depreciation greater than book (15,164,000) (15,771,000)
depreciation on US property, plant
and equipment
Pension and postretirement benefit
obligations (1,908,000) (2,629,000)
Other - (248,000)
---------------------------------------------------------------------------------
Gross deferred tax liabilities (17,072,000) (18,648,000)
---------------------------------------------------------------------------------
Net deferred tax liabilities $ (8,342,000) $ (7,649,000)
=================================================================================
Deferred taxes are included in the accompanying balance sheets as follows:
December 31, 2001 2002
---------------------------------------------------------------------------------
Current asset for deferred income taxes $ 1,678,000 $ 1,953,000
Noncurrent liability for deferred
income taxes (10,020,000) (9,602,000)
---------------------------------------------------------------------------------
Net deferred tax liabilities $ (8,342,000) $ (7,649,000)
=================================================================================
At December 31, 2002, the Company had
available federal alternative minimum
tax credit carryforwards of
approximately $3,462,000 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, 2002, the Company had
available net operating loss
carryforwards for regular federal and
state income tax purposes of
approximately $1,362,000 and $8,245,000,
respectively, expiring through 2022.
At December 31, 2002, 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 2017.
At December 31, 2002, the Company had a
valuation allowance for deferred tax
assets of $2,064,000 comprised of (i)
its New York state investment tax credit
carryforwards of approximately $767,000
and (ii) $1,297,000 relating to basis
differences on its UK property, plant
and equipment. The Company has recorded
the valuation allowance to offset the
related deferred tax assets.
A reconciliation of the statutory
federal income tax rate and effective
rate as a percentage of pre-tax income
(loss) was as follows:
2000 2001 2002
------------------- ------------------- ---------------------
Amount % Amount % Amount %
---------------------------------------------------------------------------------
Tax (benefit)
at statutory
rate $2,355,000 34.0% $(1,947,000) (34.0)% $1,468,000 34.0%
State
income taxes
net of
federal
income tax
benefit 197,000 2.8 (11,000) (.2) 244,000 5.7
Effect of
foreign (UK)
operations 76,000 1.1 232,000 4.1 246,000 5.7
Valuation
allowance 11,000 .2 720,000 12.5 666,000 15.4
Other (49,000) (.7) (94,000) (1.6) 22,000 .5
---------------------------------------------------------------------------------
Effective
tax rate $2,590,000 37.4% $(1,100,000) (19.2)% $2,646,000 61.3%
=================================================================================
Income (loss) before income taxes for
Niagara US was $5,532,268, $(359,884)
and $5,083,340, and for Niagara UK was
(pound)919,527 or $1,394,950,
(pound)(3,726,113) or $(5,366,635) and
(pound)(507,605) or $(764,228) for the
years ended 2000, 2001 and 2002,
respectively.
11. Major Customers Niagara US sales to three customers in
2000 were approximately 25%, 10% and 9%
of its total sales.
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.
Niagara US sales to three customers in
2002 were approximately 26%, 14% and 10%
of its total sales. At December 31,
2002, accounts receivable from these
major customers represented
approximately 40% of its aggregate
accounts receivable.
None of Niagara UK's customers exceeded
5% of its total sales for the years
2000, 2001 or 2002.
12. Major Suppliers Niagara US had one supplier from which
purchases were approximately 30%, 32%
and 17% of its total purchases in 2000,
2001 and 2002, respectively.
Niagara UK had one supplier from which
purchases were approximately 42%, 32%
and 29% of its total purchases for the
years 2000, 2001 and 2002, respectively.
13. 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 2006 (subject
to extension), provides for a minimum
salary level, incentive compensation and
supplemental retirement benefits based
on years of service and compensation
(see Note 6). The aggregate commitment
under this contract for future minimum
salaries at December 31, 2002, excluding
bonuses, was $1,440,000.
At December 31, 2002, 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, 2002 have been
largely covered by insurance. Management
believes that the resolution of these
matters will not have a material adverse
effect on the Company's financial
position or results of operations.
Under the Company's insurance programs,
coverage is obtained for catastrophic
exposures as well as those risks
required to be insured by law or
contract. In connection with these
programs, Niagara US has provided
certain insurance carriers with
irrevocable standby letters of credit
totaling $1,345,000 as of December 31,
2002. 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.
14. Earnings (Loss) Per The following table sets forth the
Share calculation of weighted average common
shares outstanding for the calculation
of basic and diluted earnings (loss) per
share:
Year ended December 31, 2000 2001 2002
-------------------------------------------------------------------------------
Weighted average shares (for 8,659,013 8,329,145 8,238,517
basic earnings per share)
Effect of dilutive securities:
Stock options - - -
-------------------------------------------------------------------------------
Adjusted weighted average shares
(for diluted earnings per
share) 8,659,013 8,329,145 8,238,517
===============================================================================
Options to purchase 2,330,000, 2,330,000
and 2,310,000 shares of Niagara common
stock at exercise prices ranging from
$5.50 to $5.88 per share were
outstanding during the entire years
ended December 31, 2000, 2001 and 2002,
but were not included in the computation
of diluted earnings per share because
they were antidilutive. These options
expire through 2010.
15. 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 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.
16. Goodwill and Other Effective January 1, 2002, in accordance
Intangible Assets with SFAS No. 142, the Company changed
its method of accounting for goodwill.
SFAS No. 142 requires, among other
things, that companies no longer
amortize goodwill, but instead test
goodwill for impairment at least
annually. As required by SFAS No. 142,
the Company completed its impairment
tests on its $1,904,499 of recorded
goodwill, and no impairment charge was
deemed necessary. The effect of the
adoption of SFAS No. 142 on the reported
net income and net income (loss) per
share of the Company for the years ended
December 31, 2000, 2001 and 2002 is as
follows:
Year ended December 31, 2000 2001 2002
-------------------------------- -------------- ---------------- --------------
Reported net income (loss) $4,337,218 $(4,626,519) $1,673,112
Addback:
Goodwill amortization 79,080 79,080 -
-------------------------------- -------------- ---------------- --------------
Adjusted net income (loss) $4,416,298 $(4,547,439) $1,673,112
================================ ============== ================ ==============
Net income (loss) per share - $ .50 $ (.56) $ .20
basic and diluted:
As reported
Addback:
Goodwill amortization .01 .01 -
-------------------------------- -------------- ---------------- --------------
Adjusted net income (loss)
per share - basic and
diluted $ .51 $ (.55) $ .20
================================ ============== ================ ==============
In accordance with SFAS No. 142, other
intangible assets that have finite
useful lives will continue to be
amortized over such useful lives. At
December 31, 2001 and 2002, the Company
had other identifiable intangible assets
recorded at a cost of $797,574, which
are being amortized on a straight-line
basis over approximately 10 years.
Accumulated amortization was $490,071
and $566,943 as of December 31, 2001 and
2002, respectively. The related
amortization expense, which is included
in cost of products sold, was $76,872
for each of the years ended December 31,
2000, 2001 and 2002, and is estimated to
be approximately $77,000 for each of the
years ended December 31, 2003 through
2005, and -0- thereafter.
17. Supplemental Cash Flow Interest paid during the years ended
Information December 31, 2000, 2001 and 2002 was
approximately $7,295,000, $5,270,000,
$3,839,000, respectively.
Income tax payments made during the
years ended December 31, 2000, 2001 and
2002 were approximately $1,402,000,
$31,000 and $755,000, respectively.
During the years ended December 31, 2001
and 2002, the Company received income
tax refunds of approximately $215,000
and $1,463,000, respectively.
Non-cash investing and financing
activities consisted of the following:
Year ended December 31, 2000 2001 2002
--------------------------------- -------------- -------------- ----------------
Adjustment of accrued pension
cost liability (Note 6):
Prepaid benefit cost $ 334,000 $ 40,000 $ (654,000)
Intangible asset (52,000) (52,000) (52,000)
Deferred tax asset 955,000 833,000 2,781,000
Accumulated other
comprehensive income,
net of tax 1,494,000 1,304,000 4,349,000
--------------------------------- -------------- -------------- ----------------
Noncash pension cost $2,731,000 $2,125,000 $6,424,000
================================= ============== ============== ================
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 (loss)
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 are
translated at the exchange rates in
effect at the balance sheet dates and
the related revenues and expenses have
been translated at the average rates for
the periods.
The following tables set forth certain performance and other information by
reportable segment.
Year ended December 31, 2000
--------------------------------------------------------------------------------
Niagara US Niagara UK
--------------------------------------------------------------------------------
Net sales $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
Net income 3,448,198 962,516
Accounts receivable, net 15,494,516 30,643,633
Long-lived assets 83,851,921 15,019,955
Goodwill 1,983,579 -
Segment assets 141,604,755 73,182,377
Acquisition of property and equipment 2,754,444 2,124,439
--------------------------------------------------------------------------------
Year ended December 31, 2001
--------------------------------------------------------------------------------
Niagara US Niagara UK
--------------------------------------------------------------------------------
Net sales $165,097,414 $103,539,116
Segment profit (EBITDA) (a) 11,352,298 3,264,838
Depreciation and amortization 7,442,515 163,732
Interest expense 3,260,602 2,111,754
Net (loss) (131,901) (4,454,668)
Accounts receivable, net 13,992,110 23,852,499
Long-lived assets 78,641,104 11,400,081
Goodwill 1,904,499 -
Segment assets 126,347,255 54,474,904
Acquisition of property and equipment 2,189,618 883,523
----------------------------------------- ------------------- ------------------
(a) Segment profit (EBITDA) for Niagara UK does not include a $5,278,074
restructuring charge. See Note 2.
--------------------------------------------------------------------------------
Year ended December 31, 2002
-------------------------------------------------------------------------------
Niagara US Niagara UK
-------------------------------------------------------------------------------
Net sales $176,876,327 $83,998,234
Segment profit (loss) (EBITDA) 15,859,688 (127,199)
Note: Segment (loss) (EBITDA) for Niagara UK does not include
$3,102,311 gain on sale of property. See Note 2.
Depreciation and amortization 7,301,591 1,712,794
Interest expense 2,003,612 1,542,611
Net income (loss) 3,275,663 (1,430,228)
Accounts receivable, net 11,851,973 22,431,116
Long-lived assets 75,215,777 10,842,535
Goodwill 1,904,499 -
Segment assets 133,038,969 55,702,144
Acquisition of property and equipment 3,773,767 76,692
--------------------------------------------------------------------------------
Niagara US sells its products primarily to customers in the United States.
Approximately 67% of Niagara UK's sales during 2002 were within the United
Kingdom, with 17% to continental Europe and 16% to the rest of the world.
These amounts were 65%, 19% and 16% and 64%, 19% and 17%, respectively, for
2001 and 2000. 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 or loss, depreciation and
amortization, assets and acquisition of property and equipment) do not include
components attributable to Niagara or incurred by Niagara on behalf of its
operating subsidiaries.
The following table provides a reconciliation of the Company's segment profit (loss) (EBITDA) for the years
ended December 31, 2000, 2001, and 2002, to the respective net income (loss) attributable to each reportable
segment for such years:
2000 2001 2002
------------------------- ------------------------ --------------------------
Niagara US Niagara UK Niagara US Niagara UK Niagara US Niagara UK
------------------------------------------------------------------------------------------------------------------------
Segment profit
(loss) (EBITDA) $ 18,586,422 $ 7,239,114 $11,352,298 $ 3,264,838 $15,859,688 $ (127,199)
Depreciation
and amortization (7,405,672) (1,609,223) (7,442,515) (163,732) (7,301,591) (1,712,794)
Interest expense (4,695,292) (2,721,338) (3,260,602) (2,111,754) (2,003,612) (1,542,611)
Intercompany
interest income
(expense) 426,557 (426,557) 405,368 (405,368) 211,469 (211,469)
Other income 152,443 - 186,550 - 57,709 -
Restructuring costs - - - (5,278,074) - -
Gain on sale
of property - - - - - 3,102,311
Provision for
doubtful accounts (61,260) (473,019) (103,000) (244,185) (108,000) (271,466)
Management fees (1,350,000) (455,100) (1,350,000) (432,393) (1,350,000) -
Intercompany
profit elimination - (158,361) - (82,000) - -
(Provision) benefit
for income taxes (2,205,000) (433,000) 80,000 998,000 (2,090,000) (667,000)
-------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 3,448,198 $ 962,516 $ (131,901) $(4,454,668) $ 3,275,663 $(1,430,228)
=========================================================================================================================
19. Quarterly Financial
Information (Unaudited)
The following presents certain unaudited
quarterly financial information:
Quarters ended during 2001
----------------------------------------------------------------------------
March 31 June 30 September 30 December 31
- ----------------------------------------------------------------------------------------------------------------------------
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
(basic and diluted) (a) $.10 $.02 $(.14) $(.54)
- ----------------------------------------------------------------------------------------------------------------------------
(a) Results for the quarter ended December 31, 2001 include a restructuring charge of $5,278,074. See Note 2.
- ----------------------------------------------------------------------------------------------------------------------------
Quarters ended during 2002
-----------------------------------------------------------------------------
March 31 June 30 September 30 December 31
- ----------------------------------------------------------------------------------------------------------------------------
Net sales $62,971,239 $66,601,860 $67,650,129 $63,651,333
Gross profit 6,829,548 8,055,883 6,870,621 8,832,210
Operating income 725,328 1,749,835 251,724 1,978,428
Net income (loss) (b) (188,688) 113,485 1,391,255 357,060
Net income (loss) per share
(basic and diluted) (b) $(.02) $.01 $.17 $.04
- ----------------------------------------------------------------------------------------------------------------------------
(b) Results for the quarters ended September 30, 2002 and December 31, 2002 include gains on sale of property
of $2,906,834 and $195,477, respectively. See Note 2.
- ----------------------------------------------------------------------------------------------------------------------------
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 2003 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
AND RELATED STOCKHOLDER MATTERS
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.
ITEM 14. CONTROLS AND PROCEDURES.
Within 90 days prior to the date of this annual report, an evaluation
was performed under the supervision and with the participation of the
Company's management, including the Chief Executive Officer and the Chief
Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based on such evaluation, such
individuals have concluded that as of such evaluation date, the Company's
disclosure controls and procedures are effective in timely alerting them to
material information relating to the Company (including its consolidated
subsidiaries) required to be included in the Company's periodic SEC reports.
There have been no significant changes in the Company's internal controls or
in other factors that could significantly affect internal controls subsequent
to the date of their evaluation.
ITEM 15. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by Item 15 will be contained in, and is
incorporated herein by reference from, the section entitled "Principal
Accountant Fees and Services" of the Proxy Statement, or will be filed by
amendment to this Form 10-K.
PART IV.
ITEM 16. 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 19.
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.
3. Exhibits - See Item 16(c) below for a list of the exhibits filed
as a part of or incorporated by reference into this report.
(b) Reports on Form 8-K.
None.
(c) Exhibits
--------
3.1(1) Registrant's Restated Certificate of Incorporation, as
amended on May 16, 1996.
3.2(2) Registrant's By-laws.
4.1(2) Form of Common Stock Certificate.
4.2(3) 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(4) First Amendment to the Credit Agreement, dated as of
September 4, 1997.
4.4(4) Second Amendment to the Credit Agreement, effective as of
December 31, 1997.
4.5(5) Third Amendment to the Credit Agreement, effective May
15, 1998.
4.6(6) Fourth Amendment to the Credit Agreement, effective as of
December 1, 1998.
4.7(7) Fifth Amendment to the Credit Agreement, effective as of
May 21, 1999.
4.8(8) Sixth Amendment to the Credit Agreement, effective as of
December 31, 1999.
4.9(9) Seventh Amendment to the Credit Agreement, effective as
of March 31, 2000.
4.10(9) Eighth Amendment to the Credit Agreement, effective as of
June 8, 2000.
4.11(10) Ninth Amendment to the Credit Agreement, effective as of
June 28, 2001.
4.12(11) Tenth Amendment to the Credit Agreement, effective as of
December 31, 2001.
4.13(12) Eleventh Amendment to the Credit Agreement, effective as
of March 31, 2002.
4.14(13) Twelfth Amendment to the Credit Agreement, effective as
of September 1, 2002.
4.15(7) Bank Facilities Agreement, dated May 21, 1999, between
National Westminster Bank Plc and Niagara LaSalle (UK)
Limited (the "Facilities Agreement").
4.16(14) Amendment to the Facilities Agreement, effective June 30,
2000.
4.17(10) Second Amendment to the Facilities Agreement, effective
June 30, 2001.
4.18(11) Third Amendment to the Facilities Agreement, effective
December 31, 2001.
4.19(12) Fourth Amendment to the Facilities Agreement, effective
March 31, 2002.
4.20(7) Intercreditor Agreement, dated May 21, 1999, between
National Westminster Bank Plc, Niagara Corporation and
Niagara LaSalle (UK) Limited.
4.21(15) Invoice Discounting Agreement, dated August 23, 1999,
between Niagara LaSalle (UK) Limited and Lombard Natwest
Discounting Limited (the "Discount Agreement").
4.22(14) Amendment to the Discount Agreement, effective June 30,
2000.
4.23(10) Second Amendment to the Discount Agreement, effective
June 30, 2001.
4.24(11) Third Amendment to the Discount Agreement, effective
December 31, 2001.
4.25(12) Fourth Amendment to the Discount Agreement, effective
March 31, 2002.
4.26(13) Fifth Amendment to the Discount Agreement, effective
August 23, 2002.
4.27(15) Intercreditor Agreement, dated August 23, 1999, between
Lombard Natwest Discounting Limited, Niagara Corporation
and Niagara LaSalle (UK) Limited.
4.28(15) Deed of Priority, dated August 23, 1999, between Lombard
Natwest Discounting Limited, National Westminster Bank
Plc, Manufacturers and Traders Trust Company, Niagara
LaSalle (UK) Limited and Niagara Corporation.
10.1(16) Employment Agreement, dated as of January 1, 1999, by and
among Niagara Corporation, Niagara LaSalle Corporation
and Michael Scharf.
10.2(17) 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(17) 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(18) International Metals Acquisition Corporation 1995 Stock
Option Plan (the "Stock Option Plan").
10.5(19) First Amendment to the Stock Option Plan, dated October
5, 1996.
10.6(20) Second Amendment to the Stock Option Plan, dated June 8,
1998.
10.7(20) Niagara Corporation Employee Stock Purchase Plan.
10.8(6) First Amendment to Lease, dated May 4, 1998, between
Niagara LaSalle Corporation and North American Royalties,
Inc.
10.9(21) Sale of Business Agreement, dated April 16, 1999, between
Glynwed Steels Limited, Glynwed International plc,
Niagara LaSalle (UK) Limited and Niagara Corporation
10.10(21) 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(21) 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(8) Form of Niagara LaSalle (UK) Limited Lease.
10.13(8) Form of Niagara LaSalle (UK) Limited Side Deed.
10.14(8) Form of Niagara LaSalle (UK) Limited Option Agreement.
10.15(8) Form of Niagara LaSalle (UK) Limited Lease Renewal Deed.
10.16(11) Agreement, dated March 15, 2002, between Niagara (UK)
Limited and George Wimpey Midland Limited
10.17(13) Form of Niagara Corporation Guaranty to Niagara LaSalle
(UK) Limited supplier.
21 Subsidiaries of the Registrant.
99.1 Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
- ---------------------------------------------------------
(1) Incorporated by reference to exhibit 3.1 filed with the
Registrant's Report on Form 10-Q for the quarter ended
June 30, 1996.
(2) Incorporated by reference to exhibits filed with the
Registrant's Registration Statement on Form S-1,
Registration No. 33-64682.
(3) Incorporated by reference to exhibits filed with the
Registrant's Report on Form 8-K, dated May 2, 1997.
(4) Incorporated by reference to exhibits filed with the
Registrant's Report on Form 10-K for the fiscal year
ended December 31, 1997.
(5) Incorporated by reference to exhibit 4.8 to the
Registrant's Report on Form 10-Q for the quarter ended
June 30, 1998.
(6) Incorporated by reference to exhibits filed with the
Registrant's Report on Form 10-K for the fiscal year
ended December 31, 1998.
(7) Incorporated by reference to exhibits filed with the
Registrant's Report on Form 8-K, dated June 4, 1999.
(8) Incorporated by reference to exhibits filed with the
Registrant's Report on Form 10-K for the fiscal year
ended December 31, 1999.
(9) Incorporated by reference to exhibits filed with the
Registrant's Report on Form 10-Q for the quarter ended
June 30, 2000.
(10) Incorporated by reference to exhibits filed with the
Registrant's Report on Form 10-Q for the quarter ended
September 30, 2001.
(11) Incorporated by reference to exhibits filed with the
Registrant's Report on Form 10-K for the fiscal year
ended December 31, 2001.
(12) Incorporated by reference to exhibits filed with the
Registrant's Report on Form 10-Q for the quarter ended
March 31, 2002.
(13) Incorporated by reference to exhibits filed with the
Registrant's Report on Form 10-Q for the quarter ended
September 30, 2002.
(14) Incorporated by reference to exhibits filed with the
Registrant's Report on Form 10-K for the fiscal year
ended December 31, 2000.
(15) Incorporated by reference to exhibits filed with the
Registrant's Report on Form 10-Q for the quarter ended
September 30, 1999.
(16) 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.
(17) Incorporated by reference to exhibits filed with the
Registrant's Report on Form 10-K for the year ended
December 31, 1995.
(18) Incorporated by reference to Annex A to the
Registrant's Proxy Statement for the Annual Meeting of
Stockholders held on May 16, 1996.
(19) Incorporated by reference to exhibit 10.10 to the
Registrant's Report on Form 10-K for the fiscal year
ended December 31, 1996.
(20) Incorporated by reference to Annexes to the
Registrant's Proxy Statement for the Annual Meeting of
Stockholders held on July 7, 1998.
(21) Incorporated by reference to exhibits filed with the
Registrant's Report on Form 8-K, dated April 27, 1999.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
NIAGARA CORPORATION
By:/s/ Michael Scharf
Michael Scharf
Chairman of the Board
Chief Executive Officer
and President
Dated: March 28, 2003
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 28, 2003
Michael Scharf Officer
Vice President,
/s/ Raymond Rozanski Chief Financial and March 28, 2003
Raymond Rozanski Principal Accounting Officer
/s/ Gilbert D. Scharf Secretary and Director March 28, 2003
Gilbert D. Scharf
/s/ Frank Archer Director March 28, 2003
Frank Archer
/s/ Gerald L. Cohn Director March 28, 2003
Gerald L. Cohn
/s/ Andrew R. Heyer Director March 28, 2003
Andrew R. Heyer
/s/ Douglas T. Tansill Director March 28, 2003
Douglas T. Tansill
CERTIFICATION
I, Michael Scharf, as the Chief Executive Officer of Niagara
Corporation, certify that:
1. I have reviewed this annual report on Form 10-K of Niagara
Corporation;
2. Based on my knowledge, this annual report does not contain
any untrue statement of material fact or omit to state a
material fact necessary to make the statements made, in
light of the circumstances under which such statements were
made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as
of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation
Date"); and
c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the
equivalent function):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) Any fraud, whether or not material, that involved management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have
indicated in this annual report whether or not there were
significant changes in internal controls or in other factors
that could significantly affect the internal controls
subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: March 28, 2003
/s/ Michael Scharf
Michael Scharf
Chairman, President & Chief Executive Officer
CERTIFICATION
I, Raymond Rozanski, as the Chief Financial Officer of Niagara
Corporation, certify that:
1. I have reviewed this annual report on Form 10-K of Niagara
Corporation;
2. Based on my knowledge, this annual report does not contain
any untrue statement of material fact or omit to state a
material fact necessary to make the statements made, in
light of the circumstances under which such statements were
made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as
of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation
Date"); and
c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the
equivalent function):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) Any fraud, whether or not material, that involved management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have
indicated in this annual report whether or not there were
significant changes in internal controls or in other factors
that could significantly affect the internal controls
subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: March 28, 2003
/s/ Raymond Rozanski
Raymond Rozanski
Vice President & Treasurer
Niagara Corporation
and Subsidiaries
Financial Statement Schedules
Form 10-K - Item 16
Years Ended December 2000, 2001 and 2002
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-10
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 4, 2003 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 4, 2003
Niagara Corporation
and Subsidiaries
Schedule I
Condensed Financial Information of Registrant
Balance Sheets
December 31, 2001 2002
----------------------------------------------------------------------- ---------------------- ----------------------
Assets
Current:
Cash and cash equivalents $ 47,155 $ 16,008
Other current assets 469,441 5,965
----------------------------------------------------------------------- ---------------------- ----------------------
Total current assets 516,596 21,973
Property and equipment, net 470,492 372,833
Investment in and net advances to subsidiaries 57,213,088 56,879,972
Deferred income taxes - 399,000
Other assets, net 69,683 59,760
----------------------------------------------------------------------- ---------------------- ----------------------
$58,269,859 $57,733,538
----------------------------------------------------------------------- ---------------------- ----------------------
Liabilities and Stockholders' Equity
Current liabilities:
Accrued expenses $ 123,296 $ 96,967
Advances from subsidiary 8,894,049 10,208,209
----------------------------------------------------------------------- ---------------------- ----------------------
Total liabilities 9,017,345 10,305,176
----------------------------------------------------------------------- ---------------------- ----------------------
Commitments and contingencies (see Notes 8, 9 and 13 to the
consolidated financial statements)
Stockholders' equity (see Notes 6, 7 and 9 to the consolidated
financial statements):
Preferred stock, $.001 par value - 500,000 shares authorized,
none outstanding - -
Common stock, $.001 par value - 15,000,000 shares authorized,
9,997,455 issued 9,998 9,998
Additional paid-in capital 50,111,675 50,111,675
Retained earnings 11,852,159 13,525,271
Accumulated other comprehensive loss (4,471,634) (7,968,898)
----------------------------------------------------------------------- ---------------------- ----------------------
57,502,198 55,678,046
Treasury stock, at cost, 1,758,938 shares (8,249,684) (8,249,684)
----------------------------------------------------------------------- ---------------------- ----------------------
Total stockholders' equity 49,252,514 47,428,362
----------------------------------------------------------------------- ---------------------- ----------------------
$58,269,859 $57,733,538
----------------------------------------------------------------------- ---------------------- ----------------------
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, 2000 2001 2002
----------------------------------------------------------- ------------------ ------------------- ------------------
Revenues:
Management fees from subsidiaries (Note 2) $1,805,100 $ 1,782,393 $1,350,000
Expenses:
General and administrative expenses 1,839,943 1,930,376 1,632,323
----------------------------------------------------------- ------------------ ------------------- ------------------
(34,843) (147,983) (282,323)
Other income (loss):
Equity in net income (loss) of subsidiaries 4,358,052 (4,536,536) 1,845,435
Interest income 1,009 - -
----------------------------------------------------------- ------------------ ------------------- ------------------
Income before income tax recoveries 4,324,218 (4,684,519) 1,563,112
Income tax recoveries 13,000 58,000 110,000
----------------------------------------------------------- ------------------ ------------------- ------------------
Net income (loss) $4,337,218 $(4,626,519) $1,673,112
----------------------------------------------------------- ------------------ ------------------- ------------------
Net income (loss) per share
- basic and diluted $ .50 $ (.56) $ .20
----------------------------------------------------------- ------------------ ------------------- ------------------
Weighted average common shares outstanding (see Note 14
to the consolidated financial statements):
basic and diluted 8,659,013 8,329,145 8,238,517
----------------------------------------------------------- ------------------ ------------------- ------------------
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, 2000, 2001 and 2002
------------------------------------------- ------------------------- ----------------- -----------------
Common stock
------------- -----------
Number of Additional Retained
shares Amount paid-in capital earnings
------------- ----------- ----------------- -----------------
------------------------------------------- ------------- ----------- ----------------- -----------------
Balance, January 1, 2000 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
Comprehensive loss:
Net income for the year - - - 1,673,112
Foreign currency translation
adjustment - - - -
Minimum pension liability adjustment
($7,130,000, net of tax benefit of
$2,781,000) - - - -
------------------------------------------- ------------- ----------- ----------------- -----------------
Total comprehensive loss
------------------------------------------- ------------- ----------- ----------------- -----------------
Balance, December 31, 2002 9,997,455 $9,998 $50,111,675 $13,525,271
----------------------------------------------------------------------------------------------------------
(a) During the years ended December 31, 2000 and 2001, Niagara Corporation repurchased 599,129 shares,
and 125,300 shares of its Common Stock, respectively, at a cost of $2,404,198 and $219,275, respectively.
--------------------------------------------------------------------------------------------------------------
[table continued]
Niagara Corporation
and Subsidiaries
Schedule I
Condensed Financial Information of Registrant
Statements of Stockholders' Equity
Years ended December 31, 2000, 2001 and 2002
------------------------------------------- ------------------ ------------------ -----------------
Total
Accumulated
other
comprehensive Treasury stock, stockholders'
loss at cost equity
------------------ ------------------ -----------------
------------------------------------------- ------------------ ------------------ -----------------
Balance, January 1, 2000 $ (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
Comprehensive loss:
Net income for the year - - 1,673,112
Foreign currency translation
adjustment 851,736 - 851,736
Minimum pension liability adjustment
($7,130,000, net of tax benefit of
$2,781,000) (4,349,000) - (4,349,000)
------------------------------------------- ------------------ ------------------ -----------------
Total comprehensive loss (1,824,152)
------------------------------------------- ------------------ ------------------ -----------------
Balance, December 31, 2002 $(7,968,898) $(8,249,684) $47,428,362
----------------------------------------------------------------------------------------------------
(a) During the years ended December 31, 2000 and 2001, Niagara Corporation repurchased 599,129 shares,
and 125,300 shares of its Common Stock, respectively, at a cost of $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, 2000 2001 2002
----------------------------------------------------------- ------------------ ------------------- ------------------
Cash flows from operating activities:
Net income (loss) $4,337,218 $(4,626,519) $1,673,112
----------------------------------------------------------- ------------------ ------------------- ------------------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 105,949 103,980 89,746
Equity in net (income) loss of subsidiaries (4,358,052) 4,536,536 (1,845,435)
Deferred income taxes - - (399,000)
(Increase) decrease in other current assets (5,843) (38,940) 463,476
(Decrease) increase in accrued expenses (42,403) 79,414 (25,856)
----------------------------------------------------------- ------------------ ------------------- ------------------
Total adjustments (4,300,349) 4,680,990 (1,717,069)
----------------------------------------------------------- ------------------ ------------------- ------------------
Net cash provided by (used in) operating
activities 36,869 54,471 (43,957)
----------------------------------------------------------- ------------------ ------------------- ------------------
Cash flows from investing activities:
Acquisition of property and equipment (18,149) (37,065) -
Subsidiary reimbursement of property costs - - 17,364
Advances, subsidiaries, net 1,808,830 223,741 (4,554)
----------------------------------------------------------- ------------------ ------------------- ------------------
Net cash provided by investing activities 1,790,681 186,676 12,810
----------------------------------------------------------- ------------------ ------------------- ------------------
Cash flows from financing activities:
Payments to acquire treasury stock (2,404,198) (219,275) -
----------------------------------------------------------- ------------------ ------------------- ------------------
Net (decrease) increase in cash
and cash equivalents (576,648) 21,872 (31,147)
Cash and cash equivalents, beginning of year 601,931 25,283 47,155
----------------------------------------------------------- ------------------ ------------------- ------------------
Cash and cash equivalents, end of year $ 25,283 $ 47,155 $ 16,008
----------------------------------------------------------- ------------------ ------------------- ------------------
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 statements have been prepared by Niagara
Policy 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 Corporation ("Niagara LaSalle"), which
Distributions 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, 2000, 2001 and
2002, $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 of up to (pound)300,000 per year. During the years ended December
31, 2000 and 2001, $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. During the year ended December 31, 2002,
payment of Niagara UK's management fees were discontinued.
3. Trade Payable During the fourth quarter of 2002, Niagara guaranteed on a short-term basis
Guarantees certain trade payables of Niagara UK in the aggregate amount of up to
(pound)6.7 million (approximately $10.7 million) in order to ensure an orderly
supply of raw materials.
Niagara Corporation
and Subsidiaries
Schedule II
Valuation and Qualifying Accounts
Years ended December 31, 2000, 2001 and 2002
---------------------------------- --------------- -------------------------------- ----------------- ---------------
Additions
--------------------------------
Balance at Other Charged to Deductions Balance at
beginning of costs and end of
year expenses year
---------------------------------- --------------- --------------- ---------------- ----------------- ---------------
December 31, 2002:
Allowance for doubtful
accounts $1,276,000 $ - $379,000 $ 308,000 $1,347,000
---------------------------------- --------------- --------------- ---------------- ----------------- ---------------
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
---------------------------------- --------------- --------------- ---------------- ----------------- ---------------
Exhibit 21
SUBSIDIARIES
Niagara LaSalle Corporation, a Delaware corporation
LaSalle Steel Company, a Delaware corporation
Niagara LaSalle (UK) Limited, an English company, which also conducts
business under the following names:
- Gadd Dudley Port
- Ductile Wesson
- GB Longmore
- Midland Engineered Steels
- Wesson Bright Products
- Macreadys
Exhibit 99.1
Certification of CEO Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report on Form 10-K of Niagara Corporation (the
"Company") for the year ended December 31, 2002 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, Michael Scharf,
as the Chief Executive Officer of the Company, hereby certify, pursuant to 18
U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of
2002, that, to the best of my knowledge:
(1) The Report fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
/s/ Michael Scharf
Michael Scharf
Chairman, President & Chief Executive Officer
March 28, 2003
This certification accompanies the Report pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the
Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of
ss.18 of the Securities Exchange Act of 1934, as amended.
Exhibit 99.2
Certification of CFO Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report on Form 10-K of Niagara Corporation (the
"Company") for the year ended December 31, 2002 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, Raymond Rozanski,
as the Chief Financial Officer of the Company, hereby certify, pursuant to 18
U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of
2002, that, to the best of my knowledge:
(1) The Report fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
/s/ Raymond Rozanski
Raymond Rozanski
Vice President & Treasurer
March 28, 2003
This certification accompanies the Report pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the
Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of
ss.18 of the Securities Exchange Act of 1934, as amended.