-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PaGycmzLoMjBYUMYCb0DYnVmht7wRAisyQRFZq53se0Vi70g0LfSeCuBZR5PST/R X/SimBK6u4lSthb7DIeNJA== 0000950152-99-006919.txt : 19990817 0000950152-99-006919.hdr.sgml : 19990817 ACCESSION NUMBER: 0000950152-99-006919 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WERNER HOLDING CO INC /DE/ CENTRAL INDEX KEY: 0001056112 STANDARD INDUSTRIAL CLASSIFICATION: FABRICATED STRUCTURAL METAL PRODUCTS [3440] IRS NUMBER: 510372599 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-46607 FILM NUMBER: 99690551 BUSINESS ADDRESS: STREET 1: 1105 NORTH MARKET STREET SUITE 1300 STREET 2: PO BOX 8985 CITY: WILMINGTON STATE: DE ZIP: 19899-8985 BUSINESS PHONE: 3024785723 MAIL ADDRESS: STREET 1: 1105 NORTH MARKET STREET STREET 2: SUITE 1300 CITY: WILMINGTON STATE: DE ZIP: 19899-8985 10-Q 1 WERNER HOLDING CO. (DE), INC. 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 ------------------------ FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended June 30, 1999 COMMISSION FILE NUMBER 333-46607 WERNER HOLDING CO. (DE), INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 25-1581345 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 1105 NORTH MARKET STREET, SUITE 1300 WILMINGTON, DELAWARE 19899 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(302) 478-5732 REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 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 [ ] As of June 30, 1999 there were 1,000 shares of common stock outstanding. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 INDEX WERNER HOLDING CO. (DE), INC. FORM 10-Q PERIOD ENDED JUNE 30, 1999 PART I FINANCIAL INFORMATION Item 1. Financial Statements of Werner Holding Co. (PA), Inc. and Subsidiaries (Unaudited) Condensed Consolidated Balance Sheets -- June 30, 1999 and December 31, 1998......................................... 1 Condensed Consolidated Statements of Operations -- Three and Six Months Ended June 30, 1999 and 1998................... 2 Condensed Consolidated Statements of Changes in Shareholders' Equity (Deficit)-Three and Six Months Ended June 30, 1999 and 1998.................................... 3 Condensed Consolidated Statements of Cash Flows -- Six Months Ended June 30, 1999 and 1998....................... 5 Notes to Condensed Consolidated Financial Statements........ 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations of Werner Holding Co. (PA), Inc. and Subsidiaries.......................................... 18 Item 3. Quantitative and Qualitative Disclosures about Market Risk...................................................... 22 PART II OTHER INFORMATION Item 1. Legal Proceedings........................................... 23 Item 4. Submission of Matters to a Vote of Security Holders......... 23 Item 6. Exhibits and Reports on Form 8-K............................ 23 SIGNATURE............................................................. 24
The financial statements included herein are that of Werner Holding Co. (PA), Inc. ("Holding"). The registrant is Werner Holding Co. (DE), Inc. (the "Issuer"), which is a wholly-owned subsidiary of Holding. Holding has no substantial operations or assets other than its investment in the Issuer. The consolidated financial condition and results of operations of Holding are substantially the same as those of the Issuer. As used herein and except as the context otherwise may require, the "Company" or "Werner" means, collectively, Holding, the Issuer and all of their consolidated subsidiaries. 3 PART I -- FINANCIAL INFORMATION ITEM 1. WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
JUNE 30, DECEMBER 31, 1999 1998 ----------- ------------ (UNAUDITED) ASSETS Current assets: Cash and cash equivalents................................. $ 4,247 $ 9,387 Undivided interest in accounts receivable................. 57,197 46,298 Allowance for doubtful accounts........................... (1,861) (1,600) Refundable income taxes................................... -- 490 Inventories............................................... 55,982 46,777 Deferred income taxes..................................... 2,849 2,830 Other..................................................... 2,696 2,559 -------- -------- Total current assets.............................. 121,110 106,741 Property, plant and equipment, net.......................... 72,161 65,693 Other assets: Deferred income taxes..................................... 10,079 5,997 Deferred financing fees, net.............................. 12,609 13,745 Other..................................................... 17,752 20,603 -------- -------- 40,440 40,345 -------- -------- TOTAL ASSETS...................................... $233,711 $212,779 ======== ======== LIABILITIES AND SHAREHOLDERS' DEFICIT Current liabilities: Accounts payable.......................................... $ 26,206 $ 22,742 Accrued liabilities....................................... 33,449 28,583 Income taxes payable...................................... 926 -- Current maturities of long-term debt...................... 1,450 1,450 -------- -------- Total current liabilities......................... 62,031 52,775 Long-term obligations: Long-term debt............................................ 277,942 278,483 Reserve for product liability and workers' compensation claims................................................. 21,167 13,639 Accrued employee retirement benefits...................... 23,358 22,279 -------- -------- Total liabilities................................. 384,498 367,176 Shareholders' deficit: Common stock.............................................. 1 1 Additional paid-in-capital................................ 198,847 198,847 Accumulated deficit....................................... (347,377) (351,607) Accumulated other non-owner changes in equity............. (1,598) (1,638) Notes receivable arising from stock loan plan............. (660) -- -------- -------- Total shareholders' deficit....................... (150,787) (154,397) -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT....... $233,711 $212,779 ======== ========
See notes to unaudited condensed consolidated financial statements. 1 4 WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS--(UNAUDITED) (DOLLARS IN THOUSANDS)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------- ------------------- 1999 1998 1999 1998 -------- -------- -------- -------- Net sales......................................... $124,776 $115,354 $230,235 $213,665 Cost of sales..................................... 88,024 84,584 163,172 159,542 -------- -------- -------- -------- Gross profit...................................... 36,752 30,770 67,063 54,123 General and administrative expenses............... 7,599 7,949 15,371 16,015 Selling and distribution expenses................. 14,888 13,298 28,667 25,989 -------- -------- -------- -------- Operating profit.................................. 14,265 9,523 23,025 12,119 Other (expense) income, net....................... (120) (1,018) (171) 173 -------- -------- -------- -------- Income before interest and taxes.................. 14,145 8,505 22,854 12,292 Interest expense.................................. 6,665 7,043 13,397 15,474 -------- -------- -------- -------- Income (loss) before income taxes................. 7,480 1,462 9,457 (3,182) Income tax (benefit).............................. 2,972 (112) 3,798 (1,912) -------- -------- -------- -------- NET INCOME (LOSS)................................. $ 4,508 $ 1,574 $ 5,659 $ (1,270) ======== ======== ======== ========
See notes to unaudited condensed consolidated financial statements. 2 5 WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT) (UNAUDITED) (DOLLARS IN THOUSANDS)
ACCUMULATED ADDITIONAL OTHER NON- TOTAL COMMON PAID-IN ACCUMULATED OWNER EQUITY SHAREHOLDERS' STOCK CAPITAL DEFICIT CHANGES OTHER EQUITY (DEFICIT) ------ ---------- ----------- ------------ ----- ---------------- Balance at January 1, 1999............ $1 $198,847 $(351,607) $(1,638) $ -- $(154,397) Non-owner equity changes: Net income.......................... 1,151 1,151 Other non-owner equity changes: Unrealized gains on investments (net of deferred taxes of $19)............................ 35 35 Less: reclassification adjustment for gains realized included in net income (net of tax)......... (18) (18) --------- Total non-owner equity changes.................... 1,168 Notes receivable arising from stock loan plan........................... (580) (580) -- -------- --------- ------- ----- --------- Balance at March 31, 1999............. $1 $198,847 $(350,456) $(1,621) $(580) $(153,809) == ======== ========= ======= ===== ========= Non-owner equity changes: Net income.......................... 4,508 4,508 Other non-owner equity changes: Unrealized gains on investments (net of deferred taxes of $27)............................ 49 49 Less: reclassification adjustment for gains realized included in net income (net of tax)......... (26) (26) --------- Total non-owner equity changes.................... 4,531 Notes receivable arising from stock loan plan........................... (80) (80) Repurchase of common stock............ (1,429) (1,429) -- -------- --------- ------- ----- --------- Balance at June 30, 1999.............. $1 $198,847 $(347,377) $(1,598) $(660) $(150,787) == ======== ========= ======= ===== =========
See notes to unaudited condensed consolidated financial statements. 3 6 WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT) (UNAUDITED) (DOLLARS IN THOUSANDS)
ACCUMULATED ADDITIONAL OTHER NON- TOTAL COMMON PAID-IN ACCUMULATED OWNER EQUITY SHAREHOLDERS' STOCK CAPITAL DEFICIT CHANGES OTHER EQUITY (DEFICIT) ---------------- ---------- ----------- -------------- ------- ------------------ Balance at January 1, 1998......... $1 $198,847 $(351,753) $ (767) $ -- $(153,672) Non-owner equity changes: Net loss......................... (2,844) (2,844) Other non-owner equity changes: Unrealized gains on investments (net of deferred taxes of $42)......................... 78 78 Add: reclassification adjustment for losses realized included in net loss (net of benefit)............. 218 218 --------- Total non-owner equity changes................. (2,548) -- -------- --------- ------- ------- --------- Balance at March 31, 1998.......... $1 $198,847 $(354,597) $ (471) $ -- $(156,220) == ======== ========= ======= ======= ========= Non-owner equity changes: Net income....................... 1,574 1,574 Other non-owner equity changes: Unrealized losses on investments (net of deferred benefit of $1,270)........... (2,359) (2,359) Add: reclassification adjustment for losses realized included in net income (net of tax).......... 610 610 --------- Total non-owner equity changes................. (175) -- -------- --------- ------- ------- --------- Balance at June 30, 1998........... $1 $198,847 $(353,023) $(2,220) $ -- $(156,395) == ======== ========= ======= ======= =========
See notes to unaudited condensed consolidated financial statements. 4 7 WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS--(UNAUDITED) (DOLLARS IN THOUSANDS)
SIX MONTHS ENDED JUNE 30, -------------------- 1999 1998 -------- -------- OPERATING ACTIVITIES Net income (loss)........................................... $ 5,659 $ (1,270) Reconciliation of net income (loss) to net cash provided by operating activities: Net gain on transfer of loss reserves and discontinuance of MIICA............................................... -- (4,506) Depreciation.............................................. 3,971 4,180 Amortization of deferred financing fees and original issue discount............................................... 1,320 565 Amortization of recapitalization and other deferred costs.................................................. 2,123 5,153 Provision for losses on accounts receivable............... 260 420 Impairment of property, plant and equipment............... -- 711 Provision for product liability and workers' compensation claims................................................. 8,314 8,039 Payment of product liability and workers' compensation claims................................................. (786) (3,386) Deferred income taxes..................................... (4,125) 6,646 Realized net losses on disposition and impairment of investments............................................ - 2,672 Changes in operating assets and liabilities: Accounts receivable.................................... -- 23,100 Undivided interest in accounts receivable.............. (10,899) (32,521) Refundable income taxes................................ 490 (6,373) Inventories............................................ (9,205) (2,240) Accounts payable....................................... 3,464 (797) Accrued liabilities.................................... 6,059 3,100 Income taxes payable................................... 926 - Other, net............................................. 346 1,465 -------- -------- Net cash provided by operating activities................... 7,917 4,958 INVESTING ACTIVITIES Capital expenditures........................................ (10,381) (2,709) Insurance fund securities available-for-sale: Purchases of debt and equity securities................... -- (572) Net sales of other investments.............................. 138 6,982 -------- -------- Net cash (used in) provided by investing activities......... (10,243) 3,701 FINANCING ACTIVITIES Issuance of notes receivable arising from stock loan plan... (660) -- Repurchase of common stock.................................. (1,429) -- Repayment of receivables facility........................... -- (41,500) Proceeds from sale of accounts receivable................... -- 40,000 Repayments of long-term debt................................ (725) (725) -------- -------- Net cash used in financing activities....................... (2,814) (2,225) -------- -------- Net (decrease) increase in cash and cash equivalents........ (5,140) 6,434 Cash and cash equivalents at beginning of period............ 9,387 3,107 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 4,247 $ 9,541 ======== ========
See notes to unaudited condensed consolidated financial statements. 5 8 WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (DOLLARS IN THOUSANDS) A. BASIS OF PRESENTATION AND RECAPITALIZATION Basis of Presentation The accompanying unaudited condensed consolidated financial statements of Werner Holding Co. (PA), Inc., ("Holding") include its accounts and the accounts of its wholly-owned subsidiary, Werner Holding Co. (DE), Inc. ("Issuer") and the Issuer's wholly-owned subsidiaries. Holding has no substantial operations or assets, other than its investment in the Issuer. The consolidated financial condition and results of operations of Holding are substantially the same as those of the Issuer. Intercompany accounts and transactions have been eliminated. The unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair financial presentation have been included. Operating results for the three and six months ended June 30, 1999 are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. For further information, refer to the consolidated financial statements and notes thereto included in the Company's Annual Report for 1998 on Form 10-K (File No. 333-46607) as filed with the Securities and Exchange Commission. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions in certain circumstances that affect amounts reported in the consolidated financial statements and notes. Actual results could differ from those estimates. Certain amounts for 1998 have been reclassified to conform to the 1999 interim period presentation. The Recapitalization In 1997, the Company entered into a recapitalization agreement (the "Agreement") with certain affiliates of INVESTCORP S.A. ("Investcorp") and certain other international investors organized by Investcorp (collectively, the "Investors"). Pursuant to the Agreement, the Company's common stock was reclassified and the Company redeemed certain shares of its reclassified stock for $330,700 and a market participation right, and sold to the Investors newly created common shares for $122,700 representing 67% of the outstanding voting equity of the Company (all of which actions together constituted the "Recapitalization"). The transaction was accounted for as a recapitalization and as such the historical basis of the Company's assets and liabilities was not affected. The Recapitalization was funded through borrowings under a senior credit facility with a syndicate of banks (the "Senior Credit Facility"), the issuance of Senior Subordinated Notes (the "Notes"), and the proceeds from the sale of stock to the Investors. B. CHANGE IN ACCOUNTING METHOD-DEPRECIATION The straight-line method of depreciation was adopted for all property, plant and equipment placed into service after January 1, 1999. For property, plant and equipment placed into service prior to January 1, 1999, depreciation is computed using accelerated methods. The Company believes the new method will more appropriately reflect its financial results by better allocating costs of new property over the useful lives of these assets. In addition, the new method more closely conforms with that prevalent in the industries in which the Company operates. The effect of this change was not material to the earnings or financial position of the Company for the three and six month periods ended June 30, 1999. 6 9 WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED (DOLLARS IN THOUSANDS) C. INVENTORIES Components of inventories are as follows:
JUNE 30, DECEMBER 31, 1999 1998 -------- ------------ Finished products........................................... $31,633 $26,887 Work-in-process............................................. 15,249 12,339 Raw materials and supplies.................................. 18,990 17,808 ------- ------- 65,872 57,034 Less excess of cost over LIFO stated values................. 9,890 10,257 ------- ------- NET INVENTORIES............................................. $55,982 $46,777 ======= =======
D. COMMITMENTS AND CONTINGENCIES In March 1998, an action was filed in the United States District Court for the Western District of Pennsylvania entitled Elizabeth Werner, et al v. Eric J. Werner, et al (Civil Action No. 98-503). The action purports, in part, to be brought derivatively on behalf of Holding and, in part, to be brought on behalf of plaintiffs individually against the Company and certain current and former officers and directors of the Company. The aspect of the case purportedly brought on behalf of Holding alleges breaches of fiduciary duty by various members of the Company's management arising out of, among other things, the issuance of restricted stock to management of the Company in 1992 and 1993. Holding's Board of Directors has referred the matter to a special committee of disinterested directors to investigate the merits of the claim and to take appropriate actions on behalf of Holding. After a detailed investigation, the special committee recommended that the derivative claims not be pursued by or on behalf of Holding. Accordingly, all the defendants have made motions to dismiss the derivative claims. Pursuant to an amendment to the complaint filed by plaintiffs on March 29, 1999, the only remaining corporate defendant in this action is Holding. Pursuant to the same amendment, the only remaining derivative claim asserted by the plaintiffs is a claim for excessive compensation, not relating to the restricted stock issuances. The aspect of the case purportedly brought on behalf of plaintiffs individually against the Company appear to arise out of the 1992 and 1993 restricted stock issuances as well as certain alleged misrepresentations by representatives of the Company. The plaintiffs seek monetary damages in an unspecified amount. In May 1999, the magistrate judge issued a report and recommendation ruling that all of the Plaintiffs' claims be dismissed. The Plaintiffs have filed objections to this report. The District Court issued a Memorandum Order on August 4, 1999 granting the motion to dismiss all remaining claims against all defendants without prejudice and adopted the magistrate judge's report as the opinion of the District Court. The plaintiffs have a right to appeal such decision. E. RESERVE FOR PRODUCT LIABILITY AND WORKERS' COMPENSATION CLAIMS AND INSURANCE FUND INVESTMENTS On March 31, 1998, the Company obtained third party commercial insurance coverage for its product liability and workers' compensation claims. Previously, the Company provided insurance for such claims through MIICA, the Company's captive insurance subsidiary. Under the terms of the commercial insurance coverage, the commercial insurance provider agreed to assume losses which occurred on or before March 31, 1998, capped such losses at a maximum of $75,000, and extinguished the Company's liability in regard to such losses (the "MIICA Insurance Transfer"). The Company paid approximately $42,400 for the commercial insurance coverage from the proceeds of liquidating certain of MIICA's insurance fund investments. As of the date of the MIICA Insurance Transfer, the Company had a reserve for such losses of approximately $47,500. As a result of the MIICA Insurance Transfer, the Company recognized a gain as of March 31, 1998 of approximately $4,500, 7 10 WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED (DOLLARS IN THOUSANDS) E. RESERVE FOR PRODUCT LIABILITY AND WORKERS' COMPENSATION CLAIMS AND INSURANCE FUND INVESTMENTS -- CONTINUED which is net of costs to discontinue the operations of MIICA. The Company has obtained third party commercial insurance coverage for product liability and workers' compensation claims occurring on or after April 1, 1998, subject to certain deductible provisions, for which the Company has established reserves. F. SEGMENT INFORMATION The Company classifies its business in two segments: Climbing Products, which includes aluminum, fiberglass and wood ladders, scaffolding, stages and planks; and Extruded Products, which includes aluminum extrusions and fabricated components. The Company's reportable segments are based on the characteristics of the product and the markets and distribution channels through which the products are sold. The Company evaluates segment performance based on operating profit. There has not been a material change in total assets, the basis of segmentation or the basis of measurement of segment profit or loss from that disclosed in the Company's 1998 Annual Report on Form 10-K. Net sales and operating profit (loss) of the Company's segments for the three and six months ended June 30, 1999 and 1998 are as follows:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------- -------------------- 1999 1998 1999 1998 -------- -------- -------- -------- NET SALES Climbing Products....................... $ 98,066 $ 88,322 $178,894 $160,306 Extruded Products....................... 26,710 27,032 51,341 53,359 -------- -------- -------- -------- $124,776 $115,354 $230,235 $213,665 ======== ======== ======== ======== OPERATING PROFIT (LOSS) Climbing Products....................... $ 13,698 $ 13,380 $ 21,274 $ 18,780 Extruded Products....................... 1,757 1,534 5,137 3,100 Corporate & Other....................... (1,190) (5,391) (3,386) (9,761) -------- -------- -------- -------- $ 14,265 $ 9,523 $ 23,025 $ 12,119 ======== ======== ======== ======== Corporate & Other includes various corporate expenses and eliminations.
G. SALES OF ACCOUNTS RECEIVABLE The undivided interest in accounts receivable is the net residual interest associated with accounts receivable sold under a receivables purchase agreement of $82,197 and $66,298 as of June 30, 1999 and December 31, 1998, respectively. The expense incurred on the sale of accounts receivable under the agreement is reported in the accompanying condensed consolidated statements of operations in "Other (expense) income, net". H. INCOME TAXES In accordance with APB Opinion 28, at the end of each interim period the Company shall make its best estimate of the annual effective tax rate expected to be applicable for the full fiscal year. The rate so determined shall be used in providing for income taxes on a current year-to-date basis. The effective tax rate shall include the effect of any valuation allowance expected to be necessary at the end of the year for deferred tax assets related to originating deductible temporary differences and loss carryforwards during the year. Accordingly, the Company 8 11 WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED (DOLLARS IN THOUSANDS) H. INCOME TAXES -- CONTINUED revised its annual effective tax rate for the six months ended June 30, 1999 and 1998 which includes an adjustment for the changes in the Company's estimated tax rate on a year-to-date basis. The difference between the statutory and the annual effective tax rates at June 30, 1999 is primarily due to state taxes (net of federal benefit). The difference between the statutory and the annual effective tax rate at June 30, 1998 was primarily from a valuation allowance for capital losses. I. SUPPLEMENTAL GUARANTOR INFORMATION The Company refinanced substantially all of its outstanding debt through borrowings under the Senior Credit Facility and the Notes. Holding has provided a full, unconditional, joint and several guaranty of the Issuer's obligations under the Senior Credit Facility and the Notes. In addition, the Issuer's wholly-owned subsidiaries, except for MIICA and Werner Funding Corporation, (collectively referred to as the "Guarantor Subsidiaries") have provided full, unconditional, joint and several guarantees of the Senior Credit Facility and the Notes. Following is condensed consolidated information for Holding (the "Parent Company"), the Issuer, the Guarantor Subsidiaries, and MIICA and Werner Funding Corporation (each a "Non-Guarantor Subsidiary" and collectively the "Non-Guarantor Subsidiaries"). Separate financial statements of the Guarantor Subsidiaries are not presented because management has determined that they would not provide additional information that is material to investors. Therefore, each of the Guarantor Subsidiaries are combined in the presentation below. Further, separate financial statements of the Issuer have not been provided as management has determined that they would not provide information that is material to investors, as the Issuer has no substantial operations or assets, other than its investment in its subsidiaries. Investments in subsidiaries are accounted for on the equity method of accounting. Earnings of subsidiaries are, therefore, reflected in the respective investment accounts of the Parent Company and the Issuer. The investments in subsidiaries and intercompany balances and transactions have been eliminated. For presentation purposes, all current and deferred taxes have been combined in the financial statements of the Guarantor Subsidiaries. 9 12 WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED (DOLLARS IN THOUSANDS) I. SUPPLEMENTAL GUARANTOR INFORMATION -- CONTINUED
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET JUNE 30, 1999 ---------------------------------------------------------------------------------- COMBINED NON- PARENT GUARANTOR GUARANTOR COMPANY ISSUER SUBSIDIARIES SUBSIDIARY(a) ELIMINATIONS CONSOLIDATED --------- --------- ------------ ------------- ------------ ------------ ASSETS Current assets: Cash and equivalents.......... $ - $ 414 $ 3,823 $ 10 $ - $ 4,247 Undivided interest in accounts receivable................. 57,197 57,197 Allowance for doubtful accounts................... (1,861) (1,861) Inventories................... 55,982 55,982 Deferred income taxes......... 2,849 2,849 Other......................... 16 41 2,639 - - 2,696 --------- --------- -------- ------- -------- -------- Total current assets.............. 16 455 63,432 57,207 - 121,110 Property, plant and equipment, net........................... 72,161 72,161 Other assets: Deferred income taxes......... 10,079 10,079 Deferred financing fees, net........................ 12,609 12,609 Investment in subsidiaries.... (161,229) (158,810) 5,231 - 314,808 - Other......................... - 5,556 12,196 - - 17,752 --------- --------- -------- ------- -------- -------- TOTAL ASSETS.......... $(161,213) $(140,190) $163,099 $57,207 $314,808 $233,711 ========= ========= ======== ======= ======== ========
(a) Includes the accounts of Werner Funding Corporation only. 10 13 WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED (DOLLARS IN THOUSANDS) I. SUPPLEMENTAL GUARANTOR INFORMATION -- CONTINUED
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET JUNE 30, 1999 ---------------------------------------------------------------------------------- COMBINED NON- PARENT GUARANTOR GUARANTOR COMPANY ISSUER SUBSIDIARIES SUBSIDIARY(a) ELIMINATIONS CONSOLIDATED --------- --------- ------------ ------------- ------------ ------------ LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable............. $ - $ - $ 26,206 $ - $ - $ 26,206 Intercompany payable (receivable).............. (10,426) (256,213) 214,722 51,917 - - Accrued liabilities.......... - 2,860 30,530 59 - 33,449 Income taxes payable......... 926 926 Current maturities of long-term debt............ 1,450 1,450 --------- --------- --------- ------- -------- -------- Total current liabilities........ (10,426) (251,903) 272,384 51,976 - 62,031 Long-term obligations: Long-term debt............... - 272,942 5,000 - - 277,942 Reserve for product liability and workers' compensation claims.................... 21,167 21,167 Accrued employee retirement benefits.................. 23,358 23,358 --------- --------- --------- ------- -------- -------- Total liabilities.... (10,426) 21,039 321,909 51,976 - 384,498 Shareholders' equity (deficit).................... (150,787) (161,229) (158,810) 5,231 314,808 (150,787) --------- --------- --------- ------- -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)... $(161,213) $(140,190) $ 163,099 $57,207 $314,808 $233,711 ========= ========= ========= ======= ======== ========
(a) Includes the accounts of Werner Funding Corporation only. 11 14 WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED (DOLLARS IN THOUSANDS) I. SUPPLEMENTAL GUARANTOR INFORMATION -- CONTINUED
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET DECEMBER 31, 1998 ---------------------------------------------------------------------------------- COMBINED NON- PARENT GUARANTOR GUARANTOR COMPANY ISSUER SUBSIDIARIES SUBSIDIARY(a) ELIMINATIONS CONSOLIDATED --------- --------- ------------ ------------- ------------ ------------ ASSETS Current assets: Cash and cash equivalents..... $ 1 $ 2,618 $ 6,768 $ - $ - $ 9,387 Undivided interest in accounts receivable................. 46,298 46,298 Allowance for doubtful accounts................... (1,600) (1,600) Refundable income taxes....... 490 490 Inventories................... 46,777 46,777 Deferred income taxes......... 2,830 2,830 Other......................... - 125 2,434 - - 2,559 --------- --------- -------- ------- -------- -------- Total current assets.............. 1 2,743 57,699 46,298 106,741 Property, plant and equipment, net........................... 65,693 65,693 Investments and other assets: Deferred income taxes......... 5,997 5,997 Deferred financing fees, net........................ 13,745 13,745 Investment in subsidiaries.... (166,607) (154,397) 5,343 - 315,661 - Other......................... - 5,688 14,915 - - 20,603 --------- --------- -------- ------- -------- -------- TOTAL ASSETS.......... $(166,606) $(132,221) $149,647 $46,298 $315,661 $212,779 ========= ========= ======== ======= ======== ========
(a) Includes the accounts of Werner Funding Corporation only. 12 15 WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED (DOLLARS IN THOUSANDS) I. SUPPLEMENTAL GUARANTOR INFORMATION -- CONTINUED
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET DECEMBER 31, 1998 ---------------------------------------------------------------------------------- COMBINED NON- PARENT GUARANTOR GUARANTOR COMPANY ISSUER SUBSIDIARIES SUBSIDIARY(a) ELIMINATIONS CONSOLIDATED --------- --------- ------------ ------------- ------------ ------------ LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable........... $ -- $ -- $ 22,742 $ -- $ -- $ 22,742 Intercompany payable (receivable)............ (12,209) (243,934) 215,233 40,910 -- -- Accrued liabilities........ -- 3,387 25,151 45 -- 28,583 Current maturities of long-term debt.......... 1,450 1,450 --------- --------- --------- ------- -------- --------- Total current liabilities...... (12,209) (239,097) 263,126 40,955 -- 52,775 Long-term obligations: Long-term debt............. -- 273,483 5,000 -- -- 278,483 Reserve for product liability and workers' compensation claims..... 13,639 13,639 Accrued employee retirement benefits................ 22,279 22,279 --------- --------- --------- ------- -------- --------- Total liabilities...... (12,209) 34,386 304,044 40,955 -- 367,176 Shareholders' equity (deficit).................. (154,397) (166,607) (154,397) 5,343 315,661 (154,397) --------- --------- --------- ------- -------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)........ $(166,606) $(132,221) $ 149,647 $46,298 $315,661 $ 212,779 ========= ========= ========= ======= ======== =========
(a) Includes the accounts of Werner Funding Corporation only. 13 16 WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED (DOLLARS IN THOUSANDS) I. SUPPLEMENTAL GUARANTOR INFORMATION -- CONTINUED
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS ----------------------------------------------------------------------------- COMBINED NON- PARENT GUARANTOR GUARANTOR COMPANY ISSUER SUBSIDIARIES SUBSIDIARY(a) ELIMINATIONS CONSOLIDATED ------- ------ ------------ ------------- ------------ ------------ FOR THE SIX MONTHS ENDED JUNE 30, 1999 Net sales....................... $ -- $ -- $230,235 $ -- $ -- $230,235 Cost of sales................... 163,172 163,172 ------ ------ -------- ------ ------- -------- Gross profit.................... 67,063 67,063 General and administrative expense...................... -- 9 15,362 -- -- 15,371 Selling and distribution expense...................... 28,667 28,667 ------ ------ -------- ------ ------- -------- Operating (loss) profit......... -- (9) 23,034 -- -- 23,025 Income (loss) from equity investees.................... 5,338 (4,413) (127) -- (798) -- Other income (expense), net..... 16 31 (2,272) 2,054 -- (171) ------ ------ -------- ------ ------- -------- Income (loss) before interest and taxes (benefit).......... 5,354 (4,391) 20,635 2,054 (798) 22,854 Interest income (expense)....... 305 9,729 (21,173) (2,258) -- (13,397) ------ ------ -------- ------ ------- -------- Income (loss) before income taxes (benefit).............. 5,659 5,338 (538) (204) (798) 9,457 Income taxes (benefit).......... -- -- 3,875 (77) -- 3,798 ------ ------ -------- ------ ------- -------- NET INCOME (LOSS)....... $5,659 $5,338 $ (4,413) $ (127) $ (798) $ 5,659 ====== ====== ======== ====== ======= ======== FOR THE THREE MONTHS ENDED JUNE 30, 1999 Net sales....................... $ -- $ -- $124,776 $ -- $ -- $124,776 Cost of sales................... 88,024 88,024 ------ ------ -------- ------ ------- -------- Gross profit.................... 36,752 36,752 General and administrative expense...................... -- 6 7,593 -- -- 7,599 Selling and distribution expense...................... 14,888 14,888 ------ ------ -------- ------ ------- -------- Operating (loss) profit......... -- (6) 14,271 -- -- 14,265 Income (loss) from equity investees.................... 4,476 (4,656) (34) -- 214 -- Other income (expense), net..... 9 21 (1,234) 1,084 -- (120) ------ ------ -------- ------ ------- -------- Income (loss) before interest and taxes (benefit).......... 4,485 (4,641) 13,003 1,084 214 14,145 Interest income (expense)....... 23 9,117 (14,667) (1,138) -- (6,665) ------ ------ -------- ------ ------- -------- Income (loss) before income taxes (benefit).............. 4,508 4,476 (1,664) (54) 214 7,480 Income taxes (benefit).......... -- -- 2,992 (20) -- 2,972 ------ ------ -------- ------ ------- -------- NET INCOME (LOSS)....... $4,508 $4,476 $ (4,656) $ (34) $ 214 $ 4,508 ====== ====== ======== ====== ======= ========
(a) Includes the accounts of Werner Funding Corporation only. 14 17 WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED (DOLLARS IN THOUSANDS) I. SUPPLEMENTAL GUARANTOR INFORMATION -- CONTINUED
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS ------------------------------------------------------------------------------ COMBINED COMBINED PARENT GUARANTOR NON-GUARANTOR COMPANY ISSUER SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------- ------- ------------ ------------- ------------ ------------ FOR THE SIX MONTHS ENDED JUNE 30, 1998 Net sales.................... $ -- $ -- $213,665 $ 610 $ (610) $213,665 Cost of sales................ 159,542 159,542 ------- ------- -------- ------ ------- -------- Gross profit................. 54,123 610 (610) 54,123 General and administrative expense................... - 8 15,577 658 (228) 16,015 Selling and distribution expense................... 25,989 25,989 ------- ------- -------- ------ ------- -------- Operating (loss) profit...... -- (8) 12,557 (48) (382) 12,119 (Loss) income from equity investees................. (1,792) (9,457) (133) -- 11,382 -- Other (expense) income, net....................... -- (69) (2,781) 3,023 -- 173 ------- ------- -------- ------ ------- -------- (Loss) income before interest and taxes (benefit)....... (1,792) (9,534) 9,643 2,975 11,000 12,292 Interest income (expense).... 522 7,742 (23,742) 4 -- (15,474) ------- ------- -------- ------ ------- -------- (Loss) income before income taxes (benefit)........... (1,270) (1,792) (14,099) 2,979 11,000 (3,182) Income (benefit) taxes....... -- -- (2,925) 1,013 -- (1,912) ------- ------- -------- ------ ------- -------- NET (LOSS) INCOME.... $(1,270) $(1,792) $(11,174) $1,966 $11,000 $ (1,270) ======= ======= ======== ====== ======= ======== FOR THE THREE MONTHS ENDED JUNE 30, 1998 Net sales.................... $ -- $ -- $115,354 $ (20) $ 20 $115,354 Cost of sales................ 84,584 84,584 ------- ------- -------- ------ ------- -------- Gross profit................. 30,770 (20) 20 30,770 General and administrative expense................... -- 4 7,904 41 -- 7,949 Selling and distribution expense................... 13,298 13,298 ------- ------- -------- ------ ------- -------- Operating (loss) profit...... (4) 9,568 (61) 20 9,523 Income (loss) from equity investees................. 1,310 (3,453) (133) -- 2,276 -- Other (expense) income, net....................... -- (37) (948) (33) -- (1,018) ------- ------- -------- ------ ------- -------- Income (loss) before interest and taxes (benefit)....... 1,310 (3,494) 8,487 (94) 2,296 8,505 Interest income (expense).... 264 4,804 (12,104) (7) -- (7,043) ------- ------- -------- ------ ------- -------- Income (loss) before income taxes (benefit)........... 1,574 1,310 (3,617) (101) 2,296 1,462 Income tax benefit........... -- -- (78) (34) -- (112) ------- ------- -------- ------ ------- -------- NET INCOME (LOSS).... $1,574 $ 1,310 $ (3,539) $ (67) $ 2,296 $ 1,574 ======= ======= ======== ====== ======= ========
15 18 WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED (DOLLARS IN THOUSANDS) I. SUPPLEMENTAL GUARANTOR INFORMATION -- CONTINUED
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1999 ------------------------------------------------------------------ COMBINED NON- PARENT GUARANTOR GUARANTOR COMPANY ISSUER SUBSIDIARIES SUBSIDIARY(a) CONSOLIDATED -------- ------- ------------- ------------- ------------- NET CASH PROVIDED BY OPERATING ACTIVITIES.... $ -- $ - $ 7,907 $10 $ 7,917 INVESTING ACTIVITIES Capital expenditures......................... (10,381) (10,381) Net sales of other investments............... 138 138 Intercompany transactions.................... 2,088 (1,617) (471) - - ------ ------ ------- --- ------- Net cash provided by (used in) investing activities....................... 2,088 (1,479) (10,852) -- (10,243) FINANCING ACTIVITIES Issuance of notes receivable arising from stock loan plan............................ (660) (660) Repurchase of common stock................... (1,429) (1,429) Repayments of long-term debt................. (725) (725) ------ ------ ------- --- ------- Net cash used in financing activities........ (2,089) (725) -- -- (2,814) ------ ------ ------- --- ------- Net (decrease) increase in cash and cash equivalents................................ (1) (2,204) (2,945) 10 (5,140) Cash and equivalents at beginning of period..................................... 1 2,618 6,768 -- 9,387 ------ ------ ------- --- ------- CASH AND CASH EQUIVALENTS AT END OF PERIOD... $ -- $ 414 $ 3,823 $10 $ 4,247 ====== ====== ======= === =======
(a) Includes the accounts of Werner Funding Corporation only. 16 19 WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED (DOLLARS IN THOUSANDS) I. SUPPLEMENTAL GUARANTOR INFORMATION -- CONTINUED
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1998 --------------------------------------------------------------- COMBINED COMBINED NON- PARENT GUARANTOR GUARANTOR COMPANY ISSUER SUBSIDIARIES SUBSIDIARIES CONSOLIDATED ------- -------- ------------ ------------ ------------ NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES.............................. $ -- $ -- $ 51,368 $(46,410) $ 4,958 INVESTING ACTIVITIES Capital expenditures...................... (2,709) (2,709) Insurance fund securities available-for-sale: Purchases of debt and equity securities........................... (572) (572) Net sales of other insurance fund investments............................. 6,982 6,982 Intercompany transactions................. (12) 43,198 (43,186) -- -- ---- -------- -------- -------- -------- Net cash (used in) provided by investing activities.............................. (12) 43,198 (45,895) 6,410 3,701 FINANCING ACTIVITIES Repayment of receivables facility......... (41,500) (41,500) Proceeds from sale of accounts receivable.............................. 40,000 40,000 Repayments of long-term debt.............. (725) (725) ---- -------- -------- -------- -------- Net cash (used in) provided by financing activities.............................. -- (42,225) -- 40,000 (2,225) ---- -------- -------- -------- -------- Net (decrease) increase in cash and cash equivalents............................. (12) 973 5,473 -- 6,434 Cash and equivalents at beginning of period.................................. 17 6 3,084 -- 3,107 ---- -------- -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................................. $ 5 $ 979 $ 8,557 $ -- $ 9,541 ==== ======== ======== ======== ========
17 20 WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The following discussion should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements of the Company and the notes thereto included elsewhere in this document and the Company's Annual Report for 1998 on Form 10-K as filed with the Securities and Exchange Commission. This document contains, in addition to historical information, forward-looking statements that are subject to risks and other uncertainties. The Company's actual results may differ materially from those anticipated in these forward-looking statements. In the text below, financial statement amounts have been rounded and the percentage changes are based on the financial statements. RESULTS OF OPERATIONS -- QUARTER ENDED JUNE 30, 1999 AS COMPARED TO QUARTER ENDED JUNE 30, 1998 Net Sales. Net sales increased $9.4 million or 8.2% to $124.8 million for the quarter ended June 30, 1999 from $115.4 million for the quarter ended June 30, 1998. Net sales of climbing products increased $9.8 million, or 11.0% to $98.1 million for the quarter ended June 30, 1999 from $88.3 million for the quarter ended June 30, 1998. The increase in net sales of climbing products was primarily due to increases in the volume of fiberglass and aluminum step, and aluminum and fiberglass extension ladders sold, partially offset by volume decreases in sales of attic ladders. Net sales of extruded products of $26.7 million for the quarter ended June 30, 1999 declined by $0.3 million compared to the quarter ended June 30, 1998. Gross Profit. Gross profit increased $6.0 million or 19.4% to $36.8 million for the quarter ended June 30, 1999 from $30.8 million for the quarter ended June 30, 1998. The increase was primarily due to more sales of higher margin climbing products and lower costs of sales due primarily to the effects of higher production volumes. General and Administrative Expenses. General and administrative expenses decreased $0.3 million or 4.4% to $7.6 million for the quarter ended June 30, 1999 from $7.9 million for the quarter ended June 30, 1998. The decrease was principally due to certain non-recurring expenses in 1998 associated with the Recapitalization. Selling and Distribution Expenses. Selling and distribution expenses increased $1.6 million or 12.0% to $14.9 million for the quarter ended June 30, 1999 from $13.3 million for the quarter ended June 30, 1998. The increase was primarily due to increases in advertising and distribution expenses. Operating Profit (Loss). Operating profit increased $4.8 million to $14.3 million for the quarter ended June 30, 1999 from $9.5 million for the quarter ended June 30, 1998. Operating profit of the Climbing Products segment increased $0.3 million to $13.7 million in the second quarter of 1999 from $13.4 million in the second quarter of 1998. This increase was primarily due to the increased sale of higher margin climbing products, partially offset by related increases in advertising and distribution expenses. Operating profit of the Extruded Products segment increased $0.3 million to $1.8 million for the quarter ended June 30, 1999 from $1.5 million for the quarter ended June 30, 1998. The increase is primarily attributable to improvements in profitability of the product mix. Corporate and Other expenses decreased $4.2 million for the quarter ended June 30, 1999 compared to the quarter ended June 30, 1998. The decrease was primarily due to certain non-recurring expenses in 1998 associated with the Recapitalization. Other (Expense) Income, Net. Other income (expense), net was $(0.1) million for the quarter ended June 30, 1999 compared to other income (expense), net of $(1.0) million for the quarter ended June 30, 1998. The difference was primarily attributable to lower costs associated with the accounts receivable sales program in the second quarter of 1999. 18 21 Interest Expense. Interest expense decreased $0.3 million to $6.7 million for the quarter ended June 30, 1999 from $7.0 million for the quarter ended June 30, 1998. The decrease was primarily due to lower interest rates. Income Tax (Benefit). During the second quarters of 1999 and 1998, the Company revised its full year projection of income subject to income tax and re-computed its estimated effective tax rate. The disproportionate tax benefit for the quarter ended June 30, 1998 included an adjustment to reflect the re-computed estimated effective rate on a year-to-date basis. The difference between the statutory and effective tax rate at June 30, 1998 was primarily from a valuation allowance for capital losses. Net Income (Loss). Net income increased $2.9 million to $4.5 million for the quarter ended June 30, 1999 from net income of $1.6 million for the quarter ended June 30, 1998 as a result of all of the above factors. RESULTS OF OPERATIONS -- SIX MONTHS ENDED JUNE 30, 1999 AS COMPARED TO SIX MONTHS ENDED JUNE 30, 1998 Net Sales. Net sales increased $16.5 million or 7.8% to $230.2 million for the six months ended June 30, 1999 from $213.7 million for the six months ended June 30, 1998. Net sales of climbing products increased $18.6 million, or 11.6% to $178.9 million for the six months ended June 30, 1999 from $160.3 million for the six months ended June 30, 1998. The increase in net sales of climbing products was primarily due to increases in the volume of fiberglass and aluminum step, and aluminum and fiberglass extension ladders sold, partially offset by volume decreases in sales of attic ladders. Net sales of extruded products decreased $2.0 million, or 3.8% to $51.3 million for the six months ended June 30, 1999 from $53.4 million for the six months ended June 30, 1998. The decrease is due to volume decreases in extrusions sold to customers in the building products sector and the impact of lower aluminum prices for the six months ended June 30, 1999. Gross Profit. Gross profit increased $13.0 million or 23.9% to $67.1 million for the six months ended June 30, 1999 from $54.1 million for the six months ended June 30, 1998. The increase was primarily due to more sales of higher margin climbing products and the effects of higher production volumes. General and Administrative Expenses. General and administrative expenses decreased $0.6 million or 4.0% to $15.4 million for the six months ended June 30, 1999 from $16.0 million for the six months ended June 30, 1998. The decrease was principally due to certain non-recurring expenses in 1998 associated with the Recapitalization. Selling and Distribution Expenses. Selling and distribution expenses increased $2.7 million or 10.3% to $28.7 million for the six months ended June 30, 1999 from $26.0 million for the six months ended June 30, 1998. The increase was primarily due to increases in advertising and distribution expenses. Operating Profit (Loss). Operating profit increased $10.9 million to $23.0 million for the six months ended June 30, 1999 from $12.1 million for the six months ended June 30, 1998. Operating profit of the Climbing Products segment increased $2.5 million to $21.3 million for the six months ended June 30, 1999 from $18.8 million for the six months ended June 30, 1998. This increase was primarily due to the increased sale of higher margin climbing products partially offset by related increases in advertising and distribution expenses. Operating profit of the Extruded Products segment increased $2.0 million to $5.1 million for the six months ended June 30, 1999 from $3.1 million for the six months ended June 30, 1998. The increase is primarily attributable to improvements in profitability of the product mix. Corporate and Other expenses decreased $6.4 million for the six months ended June 30, 1999 compared to the six months ended June 30, 1998. The decrease was primarily due to certain non-recurring expenses in 1998 associated with the Recapitalization and the operating losses of MIICA prior to the MIICA Insurance Transfer. Other (Expense) Income, Net. Other (expense), net was $(0.2) million for the six months ended June 30, 1999 compared to other income, net of $0.2 million for the six months ended June 30, 1998. The difference was primarily attributable to the income on MIICA insurance fund investments in the first quarter of 1998 and lower costs associated with the accounts receivable sales program in the second quarter of 1999. 19 22 Interest Expense. Interest expense decreased $2.1 million to $13.4 million for the six months ended June 30, 1999 from $15.5 million for the six months ended June 30, 1998. The decrease was primarily due to a decrease in short-term bank debt and lower interest rates. Income Tax (Benefit). During the second quarters of 1999 and 1998, the Company revised its full year projection of income subject to income tax and re-computed its estimated effective tax rate. The disproportionate tax benefit for the quarter ended June 30, 1998 included an adjustment to reflect the re-computed estimated effective rate on a year-to-date basis. The difference between the statutory and effective tax rate at June 30, 1998 was primarily from a valuation allowance for capital losses. Net Income (Loss). Net income increased $7.0 million to $5.7 million for the six months ended June 30, 1999 from a loss of $(1.3) million for the six months ended June 30, 1998 as a result of all of the above factors. LIQUIDITY AND CAPITAL RESOURCES Net cash flows provided by operating activities were $7.9 million for the six months ended June 30, 1999 compared to $5.0 million for the six months ended June 30, 1998. The increase is primarily attributable to a decrease in operating working capital (accounts receivable, including the undivided interest in accounts receivable, inventory, accounts payable and accrued expenses), reductions in product liability and workers' compensation claim payments and the effects of other non-cash items. The net cash flows provided by operating activities for the six months ended June 30, 1998 were primarily attributable to decreased operating working capital. Net cash used in investing activities was $10.2 million for the six months ended June 30, 1999 compared to net cash provided of $3.7 million for the six months ended June 30, 1998. The increase was primarily due to an increase in capital expenditures in the six months ended June 30, 1999. The Company satisfies its working capital needs and capital expenditure requirements primarily through a combination of operating cash flow, borrowings under the Senior Credit Facility and sales of accounts receivable under a receivables purchase agreement with a financial institution. The Company believes it has sufficient funds available to support debt service requirements, projected capital expenditures and working capital needs based on projected results of operations, availability under its Senior Credit Facility, and its Receivables Purchase Agreement. SEASONALITY, WORKING CAPITAL AND CYCLICALITY Sales of certain products of the Company are subject to seasonal variation. Demand for the Company's ladder products is affected by residential housing starts and existing home sales, commercial construction activity and overall home improvement expenditures. The residential and commercial construction markets are sensitive to cyclical changes in the economy. Due to seasonal factors associated with the construction industry, sales of products and working capital requirements are typically higher during the second and third quarters than at other times of the year. The Company expects to use the Senior Credit Facility and its Receivables Purchase Agreement to meet seasonal variations in its working capital requirements. YEAR 2000 READINESS PROGRAM The Year 2000 issue arises because many computer hardware and software systems use only the last two digits to represent a year. As a result, these systems may not properly process dates beyond 1999 which could cause errors in information or system failures. If the Company's computer systems do not correctly recognize and process date information beyond the year 1999, the Year 2000 issue could have a material adverse impact on the operations of the Company. The following discussion of the Company's Year 2000 Readiness Program contains numerous forward-looking statements based upon inherently uncertain information. Although management believes it has been able to make the necessary internal modifications in advance, there can be no guarantee that these modifications will prevent the occurrence of any material adverse effect on the Company's operations or financial condition. 20 23 In addition, the Company relies upon the computer systems of certain third parties such as customers, suppliers and financial institutions. Although the Company is assessing the readiness of these third parties and preparing contingency plans, there can be no guarantee that the failure of these third parties to modify their systems in advance of December 31, 1999 would not have a material adverse effect on the Company. State of Readiness. In 1996, the Company commenced a program intended to mitigate and prevent the adverse effect of the Year 2000 issue. This program consists of the following phases: AWARENESS PHASE -- development of a detailed strategic approach to address the Year 2000 issue; ASSESSMENT PHASE -- an assessment of all computer systems, software, building infrastructure components and equipment with embedded technology to identify each item that will require date code remediation and an assessment and certification of third parties' Year 2000 compliance; REMEDIATION PHASE -- implementation of code enhancements, hardware and software upgrades, system replacements, vendor and customer assurances, contingency planning and other associated changes; and VALIDATION PHASE -- testing of systems for Year 2000 readiness. The Awareness and Assessment Phases have been completed. The Remediation Phase has been substantially completed. The Company's Remediation Phase consisted of numerous individual projects that varied in size, materiality and importance. All information technology systems have been remediated and tested. With respect to those projects involving embedded systems (non-information technology processes), the appropriate end-users have tested and remediated these systems. In addition, the certification of third parties' Year 2000 readiness efforts by the Company has been substantially completed. All of the Company's critical suppliers and business partners have been assessed by the Company and the Company is taking appropriate measures to minimize its risk with these critical suppliers and business partners. However, there can be no assurance that these measures will prevent any material adverse effect on the operations and business of the Company if such suppliers and business partners fail to convert their systems before December 31, 1999. Costs. The Company primarily utilizes internal resources to reprogram, replace and test its computer systems, software, equipment and building infrastructure components for Year 2000 modifications. The Company estimates that Year 2000 expenditures will be approximately $1.6 million and will be funded by normal operating cash flow. All Year 2000 expenditures are expensed as incurred and are not expected to have a material effect on results of operations, liquidity or capital resources. As of June 30, 1999 approximately $1.2 million of the estimated project costs have been incurred. The remaining costs are expected to be incurred evenly over the period up through January 31, 2000. Risks. The Year 2000 issue presents a number of risks and uncertainties that could affect the Company, including failure of utilities, competition for skilled personnel and disruption of Company operations due to system failures or operational failures of third parties. With respect to risks associated with the Company's computer systems and equipment, management believes that it has made the necessary modifications and conversions in advance of the Year 2000. With respect to risks associated with the failure of computer systems or equipment of third parties, the Company could experience a material adverse impact on its operations if such third parties fail to make timely conversions or modifications. The most serious impact on Company operations in this regard would result if basic services such as telecommunications, electric power and financial services were disrupted. Contingency Plans. The Company is in the process of developing business resumption contingency plans specific to the Year 2000. These plans will address the actions that would be taken if critical business functions cannot be carried out in the normal manner upon entering the next century due to system or third party failure. Management estimates that these contingency plans will be developed by the end of the third quarter of 1999. 21 24 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The following discussion about the Company's market risk disclosures involves forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements. The Company is exposed to market risk related to changes in interest rates, foreign currency exchange rates and commodity prices. The Company does not use derivative financial instruments for speculative or trading purposes. The Company is exposed to market risk from changes in interest rates on long-term debt obligations. The Company manages such risk through the use of a combination of fixed and variable rate debt. Currently, the Company does not use derivative financial instruments to manage its interest rate risk. There have been no material changes in market risk from changes in interest rates from that disclosed in the Company's Annual Report for 1998 on Form 10-K. The Company has no operations in foreign countries. International sales were not material to the Company's operations for the six months ended June 30, 1999. Accordingly, the Company is not subject to material foreign currency exchange risk. To date, the Company has not entered into any foreign currency forward exchange contracts or other derivative financial instruments relative to foreign currency exchange rates. The Company is also exposed to market risk from changes in the price of aluminum. The Company manages such risk through the use of aluminum futures contracts. There have been no material changes in market risk from changes in the price of aluminum from that disclosed in the Company's Annual Report for 1998 on Form 10-K. 22 25 PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is involved from time to time in various legal proceedings and claims incident to the normal conduct of its business. In the opinion of management, the amount of any ultimate liability with respect to these proceedings and claims will not have a material adverse effect on its financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company's annual meeting of shareholders was held on May 12, 1999. The size of the Board of Directors of Holding was increased to six (6) persons and the following six (6) persons were elected as directors: James O. Egan, Charles K. Marquis, Charles J. Philippin, Howard L. Solot, Christopher J. Stadler, and Donald M. Werner. All shares of voting stock were cast for these six (6) persons with the exception that 799.9995 and 1,077.2704 shares of voting stock were withheld for Howard L. Solot and Donald M. Werner, respectively. In addition, at the meeting, Ernst & Young LLP was approved as the Company's independent auditors for the upcoming year. Of the total shares of voting stock, 71,935.2128 were cast for, 799.9995 were cast against, and 1,123.3664 shares were withheld, with respect to the selection of Ernst & Young LLP as the Company's independent auditors. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits:
10.1 Second Amendment to the Supplemental Pension Plan B applicable to Elected Salaried Corporate Officers of Werner Holding Co. (DE), Inc., its Parent and its Subsidiaries 10.2 Employment Agreement, dated as of May 26, 1999, between Werner Co. and Dennis G. Heiner 27.1 Financial Data Schedule
(b) Reports on Form 8-K: Registrant filed a Current Report on Form 8-K on June 17, 1999 pertaining to the election of Dennis G. Heiner as President and Chief Executive Officer. 23 26 SIGNATURE Pursuant to the requirements 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. WERNER HOLDING CO. (DE), INC. Date: August 16, 1999 /s/ R. P. Tamburrino -------------------------------------- R. P. Tamburrino Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer) 24 EX-10.1 2 EXHIBIT 10.1 1 Exhibit 10.1 SECOND AMENDMENT TO THE SUPPLEMENTAL PENSION PLAN B APPLICABLE TO ELECTED SALARIED CORPORATE OFFICERS OF WERNER HOLDING CO. (DE), INC., ITS PARENT AND ITS SUBSIDIARIES WHEREAS, Werner Holding Co. (DE), Inc. (the "Company") maintains Supplemental Pension Plan B Applicable to Elected Salaried Corporate Officers of Werner Holding Co. (DE), Inc., its Parent and its Subsidiaries ("Supplemental Plan B"); and WHEREAS, Section 10 of Supplemental Plan B reserves to the Company the authority to amend Supplemental Plan B; and WHEREAS, the Company deems it appropriate to amend Supplemental Plan B to clarify certain provisions of Section 5. NOW, THEREFORE, Supplemental Plan B is hereby amended as follows, effective January 1, 1999: The first paragraph of Section 5, the definition of "C" is amended to read as follows: C - Average annual compensation for years while an elected salaried Corporate officer, based on the same method as used in the Retirement Plan for Salaried Employees which is equal to the three (3) consecutive full calender years out of the last ten (10) full calender years prior to termination of employment that provide the highest average. For these purposes compensation shall be determined using Company payroll records and shall include salary, including salary paid in lieu of holiday or vacation, bonuses and any other regular compensation payment, but shall not include Employee Protection Pay, lump sum payments for consulting services or any other taxable income from the Company which is required to be reported on the annual W-2 forms to the U.S. Government for Federal Income Tax purposes, such as, by way of illustration and not limitation, the currently taxable portion of any fringe benefit or coverage by a fringe benefit program. IN WITNESS WHEREOF, this Second Amendment to Supplemental Plan B has been executed this ____ day of February, 1999, by the appropriate officer of the Company pursuant to resolution of the board of directors authorizing the same. _________________________________ _________________________________ Title EX-10.2 3 EXHIBIT 10.2 1 Exhibit 10.2 EMPLOYMENT AGREEMENT This Employment Agreement (this "Agreement") is made and entered into as of May 26, 1999 by and between Werner Co., a Pennsylvania corporation (the "Company"), and Dennis G. Heiner ("Executive"). The Company hereby agrees to employ Executive, and Executive hereby accepts such employment, on the terms and conditions hereinafter set forth. 1. POSITION. From the Commencement Date (as hereinafter defined) until the termination of Executive's employment hereunder (the "Period of Employment"), Executive shall serve in the capacity indicated on Schedule 1 hereto, and shall have the normal duties and responsibilities commensurate with such position. During the Period of Employment, Executive will (a) during normal business hours, devote his full time efforts to advancing the business and welfare of the Company, and (b) not engage in any other employment activities for any direct or indirect remuneration, provided, however, Executive may manage his passive investments and serve on corporate, charitable and community boards so long as such activities do not unreasonably interfere with the performance of his duties under this Agreement and provided that any such activities are approved in advance by the Board. The corporate, charitable and community boards on which Executive currently serves have been identified by Executive in a written notice to the Company and will be considered approved unless otherwise specified by the Company prior to the Commencement Date. 2. PLACE AND TERM OF EMPLOYMENT. Executive's Period of Employment shall commence on June 15, 1999 unless the parties mutually agree upon an earlier date (the date on which Executive actually starts working for the Company pursuant hereto is referred to herein as "Commencement Date"). Subject to Section 8 hereunder, the term of this Agreement shall be through January 31, 2003 with automatic annual renewals for one (1) year through January 2005 unless, in the case of the automatic annual one (1) year renewals, either party gives three (3) months notice to the other party prior to the next scheduled expiration. 2 3. COMPENSATION. 3.1 Base Salary. Effective as of the Commencement Date, the Company shall pay Executive the per annum Base Salary indicated on Schedule 1 attached hereto during the Period of Employment payable in accordance with the standard policies of the Company and subject to payroll deductions as may be necessary or customary in respect of the Company's salaried employees in general. Thereafter Executive's Base Salary hereunder shall be subject to annual review by the Board for such increases as the Board may determine. Executive's base salary shall not be decreased unless there are proportionate across the board executive salary reductions approved by the Board of Directors. 3.2 Performance Based Compensation. In addition to the Base Salary provided for in Section 3.1 hereof, Executive shall be eligible to receive an annual cash bonus payable prior to May 1 of the following year, based upon the extent to which Werner Holding Co. (PA), Inc.'s ("Holdings") consolidated Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA"), as defined in Exhibit 1 hereto, equals or exceeds the percentages of target annual EBITDA for the applicable year in accordance with the chart set forth below:
Range in Which Target Bonus May be Percentage of Target Bonus as % of Base Salary Adjusted at Discretion of the Board EBITDA Target Achieved (Subject to Board Adjustment) (% of Base Salary) ---------------------- ----------------------------- ----------------------------------- Less than 85% 0% 0% 85% or above, but below 90% 20% 10% - 30% 90% or above, but below 95% 50% 40% - 60% 95% or above, but below 100% 75% 65% - 85% 100% 100% 90% - 110%
2 3 The EBITDA targets for each year shall be set by the Company's Board of Directors as part of its annual budgeting process. The 1999 EBITDA target shall be $66 million. Executive will be entitled to receive a minimum annual cash bonus of $250,000 for 1999, payable in April 2000 if (a) Executive is still employed by the Company on December 31, 1999 or (b) such employment is terminated prior thereto by the Company without Cause or by Executive for Good Reason. In the event of Executive's death or Permanent Disability prior to December 31, 1999, Executive will receive a prorated portion of such amount based on ratio that the number of days of employment through the date of death or Permanent Disability bears to the number of days from the Commencement Date through December 31, 1999. 4. BENEFITS. During the Period of Employment, Executive shall be entitled to participate in those benefit plans and programs maintained by the Company which are described in Exhibit 2 or which are subsequently developed for its executive officers or employees generally provided that, (i) Executive's right to participate in such plans and programs shall not affect the Company's right to amend or terminate the general applicability of such plans and programs, and (ii) Executive acknowledges that he shall have no vested rights under or to participate in any such plan or program except as expressly provided under the terms thereof. Executive shall relocate as soon as practical, but in any event no later than August 31, 1999. The Company will reimburse Executive for his reasonable actual documented commuting and interim living expenses until Executive relocates but in any event no later than August 31, 1999. The Company will also pay up to $25,000 for Executive's reasonable actual documented legal expenses associated with the review of documents regarding his commencement of employment with the Company. 3 4 5. EQUITY OPPORTUNITY (a) Executive will be entitled, during the period between the Commencement Date and December 31, 1999, to purchase up to 1,000 shares of Class C Common Stock of Holdings at a purchase price of $2,421.29 per share. Up to 75% of the aggregate purchase price of any shares purchased pursuant to this Section 5(a) may be paid in the form of a promissory note secured by a pledge of all shares so purchased. The balance of the aggregate purchase price will be payable in cash. The share purchase and any related promissory note and pledge will be subject to the execution of definitive agreements in form and substance substantially similar to the documentation previously provided to Executive. (b) Executive will receive from Holdings, as soon as practicable after the Commencement Date, 1,033 additional shares of Class C Common Stock of Holdings in the form of restricted stock which will vest in three (3) equal installments on the first, second and third anniversaries of the Commencement Date subject to Executive's continued employment during that period. In the event that, prior to the third anniversary of the Commencement Date, Executive's employment hereunder is terminated by the Company without Cause, by Executive for Good Reason or as a result of Executive's Permanent Disability, 50% of any then unvested restricted shares shall vest and the remaining unvested restricted shares will be forfeited. Upon consummation of a Change of Control (as defined below), all unvested restricted shares then held by Executive will vest. In all other events, all restricted shares that are unvested at the time of termination of Executive's employment hereunder shall be forfeited. The additional shares of restricted stock referred to in this paragraph will be subject to the execution of definitive agreements in form and substance that are mutually agreeable to both parties. For purposes of this Agreement, a "Change of Control" shall be deemed to have occurred if any person other than any of its current stockholders or their affiliates acquires more than 50% of the voting power or business of Holdings, whether pursuant to a stock sale, asset sale, merger, consolidation, recapitalization, reorganization or otherwise. (c) Executive will be entitled as of the Commencement Date to receive from Holdings a grant of stock options exercisable for 1,000 shares of Class C Common Stock of Holdings at an exercise price of $2,421.29 per share. The options will be subject to vesting and 4 5 other terms and conditions substantially as set forth in the documentation previously furnished to Executive. In the event Executive purchases at least 500 shares pursuant to Section 5(a) hereof, Executive shall be entitled to receive stock options for an additional 250 Class C Common Shares on the same terms and conditions as those referred to above in this Section 5(c). (d) Executive will have "piggyback" registration rights exercisable during the three-year period following the "Initial Public Offering" of Holdings (as defined in the Articles of Incorporation of Holdings) with respect to the shares acquired by Executive pursuant to Section 5(a) and (b) hereof, subject to reasonable and customary terms and conditions and subject to existing registration rights commitments. 6. RETENTION INCENTIVE COMPENSATION (a) Prior to the end of the 90-day period beginning on the Commencement Date, the Company shall establish a special annual incentive compensation program for Executive that will provide him the opportunity to earn up to $360,000 on an annual basis but contingent on Executive remaining in the employ of the Company until the fifth anniversary of the Commencement Date, subject to Section 6(b) below (each annual award shall be referred to herein as a "Special Annual Compensation Award"). Each Special Annual Compensation Award shall be subject to the achievement of specific performance goals. Payment of any Special Annual Compensation Award shall be made in accordance with a payment schedule to be mutually agreed upon by the Company and Executive prior to the beginning of the year with respect to which the Special Annual Compensation Award is earned; provided, however, that all Special Annual Compensation Awards shall not be paid until after the fifth anniversary of the Commencement Date. (b)(i) If, prior to the fifth anniversary of the Commencement Date, Executive's employment is terminated by the Company without Cause, by the Executive for Good Reason or as a result of Executive's Permanent Disability, the Company shall (unless clause (b)(ii) below applies) promptly pay Executive an amount equal to the earned Special Annual Compensation Awards plus 50% of the unearned Special Annual Compensation Awards which would otherwise have been earned through the completion of five (5) years of employment hereunder. (ii) If, 5 6 prior to the fifth anniversary of the Commencement Date, a Change of Control occurs and, within two years after such Change of Control, Executive's employment hereunder is terminated by the Company without Cause or Executive terminates his employment hereunder for Good Reason, the Company will promptly pay Executive an amount equal to all earned but unpaid Special Annual Compensation Awards and all unearned Special Compensation Awards which would otherwise have been earned through the completion of five (5) years of employment hereunder. If Executive's employment is terminated by the Company for Cause prior to the fifth anniversary of the Commencement Date, Executive shall forfeit all right, title and interest to payment of any and all Special Annual Compensation Awards. (c) On the date that the Company pays each earned Special Annual Compensation Award (or portion thereof) to Executive, the Company shall pay to him an additional amount equal to the interest that the Special Annual Compensation Award (or portion thereof) would have generated had it been invested on the date it was earned in an interest-bearing account with an interest rate equal to the average of the "GATT Rate" as of the last day of each calendar quarter over the applicable calendar year. 7. EXPENSES; TAXES. Upon presentation of acceptable substantiation therefor, the Company will pay or reimburse Executive for such reasonable travel, entertainment and other expenses as he may incur during the Period of Employment in connection with the performance of his duties hereunder. Federal, state and local income taxes shall be withheld on all cash and in-kind payments made by the Company to Executive in accordance with applicable tax laws and regulations. 8. TERMINATION OF EMPLOYMENT. The provisions of this Section 8 shall apply upon termination of Executive's employment hereunder. In connection with any termination of Executive's employment hereunder, Executive or his beneficiaries shall be entitled to receive, promptly after termination, earned but unpaid Base Salary, earned but unpaid bonus pursuant to Section 3.2 for any completed fiscal year, any payments due pursuant to Section 6, unreimbursed amounts pursuant to Section 7, and unpaid 6 7 and unreimbursed payments and benefits under, and in accordance with the terms of, applicable benefit plans and programs, said payments being collectively referred to as Standard Termination Payments. 8.1 For Cause or Not for Good Reason. If the Company terminates Executive's employment for Cause or if Executive terminates his employment other than for Good Reason, the Company's obligations to compensate Executive shall in all respects cease as of the date of such termination, except for Standard Termination Payments. Termination of Executive's employment for "Cause" shall mean termination by the Company because Executive: (i) has been convicted of a felony, or has entered a plea of guilty or nolo contendere to a felony; (ii) has committed an act of fraud involving dishonesty for personal gain which is materially injurious to the Company; (iii) has willfully and continually refused to substantially perform his duties with the Company (other than any such refusal resulting from his incapacity due to mental illness or physical illness or injury), after a demand for substantial performance has been delivered to the Executive by the Board, where such demand specifically identifies the manner in which the Board believes that the Executive has refused to substantially perform his duties and the passage of a reasonable period of time for Executive to comply with such demand; or (iv) has engaged in gross misconduct materially and demonstrably injurious to the Company or its subsidiaries or has willfully engaged in conduct which represents a material breach of Company policies on discrimination or harassment. With respect to termination for Cause arising out of conduct described in clause (ii), (iii) or (iv) above, a termination shall not be considered for Cause for purposes of this Agreement unless there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire Board, at a meeting of the Board called and held for that purpose (after reasonable notice to the Executive and an opportunity for the Executive, together with his counsel or other advisors, to be heard at such meeting), 7 8 finding that in the good faith opinion of the Board the Executive had engaged in conduct described in clause (ii), (iii) or (iv) above and specifying the particulars thereof in detail. Such a finding by the Board of Directors of the Company is a prerequisite to a termination for Cause pursuant to clauses (ii), (iii) or (iv) above; provided, however, that such a finding may be challenged, by appropriate judicial process, on the merits (i.e., that Cause did not exist) or on the basis that the Board's finding was not made in good faith (provided that proof that Cause for termination existed shall be a complete defense to any showing that the Board's findings were not made in good faith). If the Executive terminates his employment other than for Good Reason, the Executive must provide the Company with thirty (30) days written notice prior to such termination. 8.2 Upon Death or Permanent Disability. If Executive's employment is terminated as a result of death or Permanent Disability, the Company's obligation to compensate Executive shall in all respects cease as of the date of such termination, except for Standard Termination Payments including all applicable disability benefits (provided that, if termination results from Permanent Disability which occurs on or after January 1, 2000, Executive will also be entitled to receive prior to May 1 of the year following such termination a prorated portion of the annual bonus, if any, earned for the year in which such termination occurs based on the total number of days Executive was employed by the Company during such year). The Company may terminate Executive's employment hereunder attributable to the "Permanent Disability" of Executive if Executive becomes physically or mentally incapacitated or disabled so that he is unable to perform for the Company substantially the same services as he performed prior to incurring such incapacity or disability (the Company, at its option and expense, is entitled to retain a physician reasonably acceptable to Executive to confirm the existence of such incapacity or disability, and the determination of such physician shall be binding upon the Company and Executive), and such incapacity or disability exists for an aggregate of six (6) calendar months in any twelve (12) calendar month period. 8.3 Not For Cause; For Good Reason; Nonrenewal. If (i) the Company gives notice to prevent the automatic annual renewal pursuant to Section 2 hereof, or (ii) Executive's 8 9 employment is terminated by the Company for a reason other than Cause, Executive's death or Executive's Permanent Disability, or (iii) Executive terminates his employment for Good Reason (as hereinafter defined), the Company's obligation to compensate Executive shall in all respects cease as of the date of such termination, except (a) for Standard Termination Payments, (b) that the Company will pay to Executive a lump sum amount equal the sum of (1) $1,050,000 and (2) two (2) times the bonus that the Executive received (or earned but did not receive) for the fiscal year immediately preceding the fiscal year in which his employment terminated, and (c) that the Company will, for a period of twenty-four (24) months following said date of termination, provide Executive with retirement benefits and welfare (including any life insurance, hospitalization, medical and disability) benefits, substantially similar to those provided to Executive as of the date of termination, provided that such welfare benefits shall be discontinued to the extent Executive receives similar benefits from subsequent employment. For purposes of this Agreement, "Good Reason" shall mean (1) any removal of Executive from his title or position as chief executive officer of the Company; (2) any material diminution of Executive's role, responsibilities and authority as chief executive officer of the Company; (3) a reduction by the Company in the Executive's base salary except as contemplated by Section 3.1 or in the Executive's bonus opportunities as in effect on the Commencement Date; (4) any material reduction in the aggregate level of benefits to which the Executive is entitled under Company employee benefit plans on the Commencement Date, or the taking of any action by the Company which would adversely affect the Executive's accrued benefits under any such employee benefit plans, unless a reduction is made consistently for all executive officers of the Company; (5) a demand by the Company to the Executive to relocate to any place that exceeds a fifty (50) mile radius beyond the location at which the Executive performed the Executive's duties on the Commencement Date; or (6) any material breach by the Company of any provision of this Agreement. In the event that Executive intends to assert that he has grounds for terminating his employment for Good Reason, Executive shall give the Company at least two (2) days notice of such intention in the case of clause (1) or thirty (30) days notice of such intention in the case of clauses (2) through (6). The Company shall have the opportunity during the applicable notice period to cure the cause which Executive asserts constitutes Good Reason (provided the same or substantially similar cause has not occurred in the prior twelve (12) months) and, if the Company does so, then Executive shall not be entitled to terminate his employment for Good Reason. 9 10 8.4 Release and Satisfaction. At the time of termination of Executive's employment for any reason other than by the Company for Cause, Executive and the Company agree to execute mutual releases whereby (a) Executive will release, relinquish and forever discharge the Company and any director, officer, employee, shareholder, controlling person or agent of the Company from any and all claims, damages, losses, costs, expenses, liabilities or obligations, whether known or unknown (other than any such claims, damages losses, costs, expenses, liabilities or obligations arising under (i) any indemnification arrangement of the Company with respect to Executive, (ii) any employee benefit plan or program (whether or not tax-qualified) covering Executive, (iii) any stock purchase or stock option plan or agreement to which the Company and Executive are parties (or any document executed in connection therewith) or (iv) this Agreement, to the extent the Company or any such person has continuing obligations pursuant to the express provisions hereof following such termination), which Executive has incurred or suffered or may incur or suffer as a result of Executive's employment by the Company or the termination of such employment, and (b) the Company will release, relinquish and forever discharge Executive and his heirs, successors and assigns from any and all claims, damages, losses, costs, expenses, liability or obligations, whether known or unknown (except as set forth in Section 8.5 hereof and other than any such claims, damages, losses, costs, expenses, liabilities or obligations arising under any of the arrangements or agreements referred to in clauses (i) through (iii) in the preceding clause (a) of this Section 8.4 or under this Agreement to the extent Executive or any such person has continuing obligations pursuant to the express provisions hereof following such termination), which the Company has incurred or suffered or may incur or suffer as a result of the Company's employment of Executive or the termination of such employment. 8.5 Effect on This Agreement. The termination of Executive's employment shall not affect the continuing operation and effect of Sections 8.4 and 9 hereof, nor affect any obligation of the Company to make payments pursuant to Section 8 hereof, which shall continue in full force and effect upon the Company and Executive, and its and his heirs, successors and assigns. Nothing in Section 8.1 or 8.4 hereof shall be deemed to operate or shall operate as a release, 10 11 settlement or discharge of any liability of Executive to the Company (a) from any act or omission by Executive enumerated in Section 8.1 with regard to the Company which constituted a reason for termination of Executive's employment for Cause or (b) in connection with any amount Executive owes to the Company pursuant to a loan or other advance. 8.6 Mitigation. Executive shall not be required to mitigate the amount of any payment provided for under this Agreement by seeking other employment or otherwise and the amount of any payment or benefit provided for in this Agreement shall not be reduced by any compensation earned or benefits received by Executive as the result of employment by a future employer, by offset against any amount claimed to be owed by him to the Company (except amounts owed to the Company pursuant to any loan or other advance that is then due), or otherwise. 9. NON-COMPETITION; NON-DISCLOSURE OF PROPRIETARY INFORMATION, SURRENDER OF RECORDS; INVENTIONS AND PATENTS. 9.1 Non-Competition (a) Executive acknowledges that in the course of his employment with the Company he will become familiar with the trade secrets and other confidential information of the Company and that his services will be of special, unique and extraordinary value to the Company. Therefore, Executive agrees that, during the Period of Employment and for two years thereafter (the "Noncompete Period"), he shall not directly or indirectly own, manage, control, participate in, consult with, render services for, or in any manner engage in any business competing with the businesses of the Company (i) which relates to (A) the manufacturing or sale of climbing equipment or (B) aluminum extrusion or (ii) which is commenced by the Company or becomes under development by the Company after the date hereof and as of the date of termination constitutes, or is reasonably likely to develop during the Noncompete Period into, a material portion of the Company's overall business within the United States and any other geographical area in which the Company or any of its subsidiaries engage in such businesses. Nothing herein shall prohibit Executive from being a passive owner of not more than 2% of the outstanding stock or debt of any corporation which is publicly traded so long as Executive has no 11 12 active participation in the business of such corporation. The foregoing will not prevent Executive from being employed by an entity which has an affiliate, subsidiary or division which competes with the Company provided Executive does not participate in any way in such competing business. (b) During the Noncompete Period, Executive shall not directly or indirectly through another entity (i) induce or attempt to induce any employee of the Company to leave the employ of such person, or in any way interfere with the employee relationship between the Company and any employee thereof, (ii) hire any person who was an employee of the Company at any time during the Period of Employment (other than individuals who have not been employed by the Company for a period of at least six (6) months prior to employment by Executive directly or indirectly through another entity), or (iii) induce or attempt to induce any customer, supplier, licensee or other person having a business relationship with the Company (A) which relates to (x) the manufacturing or sale of climbing equipment or (y) aluminum extrusion or (B) which is commenced by the Company or becomes under development by the Company after the date hereof and as of the date of termination constitutes, or is reasonably likely to develop during the Noncompete Period into, a material portion of the Company's overall business to cease doing business with the Company or interfere materially with the relationship between any such customer, supplier, licensee or other person having a business relationship with the Company. 9.2 Proprietary Information. Executive agrees that he shall not use for his own purpose or for the benefit of any person or entity other than the Company or its shareholders or affiliates, nor otherwise disclose to any individual or entity at any time while he is employed by the Company or thereafter any proprietary information of the Company unless such disclosure (a) has been authorized by the Board, (b) is in the good faith judgment of Executive required in the course of Executive's employment hereunder, (c) is in the course of such individual's or entity's employment or retention by the Company, or (d) is required by law, a court of competent jurisdiction or a governmental or regulatory agency. For purposes of this Agreement, the term "proprietary information" shall mean: (a) the name or address of any customer, supplier or affiliate of the Company or any information concerning the transactions or relations of any 12 13 customer, supplier or affiliate of the Company or any of its shareholders; (b) any information concerning any product, technology or procedure employed by the Company, but not generally known to its customers, suppliers or competitors, or under development by or being tested by the Company, but not at the time offered generally to customers or suppliers; (c) any information relating to the marketing methods, sales margins, discounts, rebates, supplier incentives, or the like, the capital structure, or results of any business plan of the Company; (d) any information contained in the Company's policies and procedures or employees' manual; (e) any inventions, innovations, trade secrets or other items covered by Section 9.4 below; and (f) any other information which the Board has determined by resolution and communicated to Executive to be confidential or proprietary. However, proprietary information shall not include any information that is or becomes generally known to the public other than through actions of Executive in violation of Sections 9.1, 9.2 or 9.3 hereof. 9.3 Confidentiality and Surrender of Records. Executive agrees that, while he is employed by the Company or at any time thereafter, he shall not except as required by law give any "confidential records" (as hereinafter defined) to, or permit any inspection or copying of confidential records by, any individual or entity other than in the course of such individual's or entity's employment or retention by the Company or as required by law, a court of competent jurisdiction, or a governmental or regulatory agency, nor shall he retain any of the same following termination of this employment, without the prior approval of the Board. For purposes hereof, "confidential records" means all correspondence, memoranda, files, manuals, financial, operating or marketing records, magnetic tape, or electronic or other media of any kind which may be in Executive's possession or under his control or accessible to him which contain any proprietary information as defined in Section 9.2 above. 9.4 Inventions and Patents. Executive agrees that all inventions, innovations, trade secrets, patents and processes in any way relating, directly or indirectly, to the Company's businesses developed by him alone or in conjunction with others at any time during his employment by the Company shall belong to the Company. Executive will use his reasonable best efforts to perform all actions reasonably requested by the Board to establish and confirm such ownership by the Company. The Company shall prepare and pay all expenses related to any documentation to file for intellectual property rights, assignments, or transfers of title with regard thereto. 13 14 9.5 Definition of Company. For purposes of this Section 9, the term "Company" shall include Holdings and all of its subsidiaries, ventures or affiliates (including the Company and all of its subsidiaries, ventures or affiliates) whether currently existing or hereafter formed. 9.6 Enforcement. The parties hereto agree that the duration and area for which the covenants set forth in Section 9 are to be effective are reasonable. In the event that any court or arbitrator determines that the time period or the area, or both of them, are unreasonable and that any of the covenants are to that extent unenforceable, the parties hereto agree that such covenants will remain in full force and effect, first, for the greatest time period, and second, in the greatest geographical area that would not render them unenforceable. The parties intend that this Agreement will be deemed to be a series of separate covenants, one for each and every county of each and every state of the United States of America. Executive agrees that damages are an inadequate remedy for any breach of the covenants in this Section 9 and that the Company will, whether or not it is pursuing any potential remedies at law, be entitled to equitable relief in the form of preliminary and permanent injunctions without bond or other security upon any actual or threatened breach of this Agreement. 10. MISCELLANEOUS. 10.1 Notice. Any notice required or permitted to be given hereunder shall be deemed sufficiently given if sent by registered or certified mail, postage prepaid, addressed to the addressee at his or its address last provided the sender in writing by the addressee for purposes of receiving notices hereunder or, unless or until such address shall be so furnished, to the address indicated opposite his or its signature to this Agreement. Each party may also provide notice by sending the other party a facsimile at a number provided by such other party. 10.2 Modification and No Waiver of Breach. No waiver or modification of this Agreement shall be binding unless it is in writing signed by the parties hereto. No waiver by a party of a breach hereof by the other party shall be deemed to constitute a waiver of a future breach, whether of a similar or dissimilar nature, except to the extent specifically provided in any written waiver under this Section 10.2. 14 15 10.3 Governing Law. This Agreement shall be governed by and construed and interpreted in accordance with the laws of the Commonwealth of Pennsylvania, and all questions relating to the validity and performance hereof and remedies hereunder shall be determined in accordance with such law. 10.4 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same Agreement. 10.5 Captions. The captions used herein are for ease of reference only and shall not define or limit the provisions hereof. 10.6 Entire Agreement. This Agreement together with any agreement, plans or other documents implementing the terms of this Agreement constitute the entire agreement between the parties hereto relating to the matters encompassed hereby and supersede any prior oral or written agreements. 10.7 Assignment. The rights of the Company under this Agreement may, without the consent of Executive, be assigned by the Company, in its sole and unfettered discretion, to any person, firm, corporation or other business entity which at any time, whether by purchase, merger, or otherwise, directly or indirectly, acquires all or substantially all of the stock, assets or business of the Company (provided that, if as a result thereof the employer is to be an entity other than the Company, such entity shall assume the Company's obligations hereunder in writing delivered to the Executive); except for the foregoing this Agreement may not be assigned by the Company. 10.8 Non-Transferability of Interest. None of the rights of Executive to receive any form of compensation payable pursuant to this Agreement shall be assignable or transferable except through a testamentary disposition or by the laws of descent and distribution upon the death of Executive. Any attempted assignment, transfer, conveyance, or other disposition (other than as aforesaid) of any interest in the rights of Executive to receive any form of compensation to be made by the Company pursuant to this Agreement shall be void. 15 16 10.9 Arbitration. Any dispute, claim or controversy arising out of or relating to this Agreement, or the breach, termination or validity hereof, shall be finally settled by arbitration in accordance with the then-prevailing Commercial Arbitration Rules of the American Arbitration Association, as modified herein ("Rules"). There shall be one arbitrator who shall be jointly selected by the parties. If the parties have not jointly agreed upon an arbitrator within twenty days of respondent's receipt of claimant's notice of intention to arbitrate, either party may request the American Arbitration Association to furnish the parties with a list of names from which the parties shall jointly select an arbitrator. If the parties have not agreed upon an arbitrator within ten days of the transmittal date of the list, then each party shall have an additional five days in which to strike any names objected to, number the remaining names in order of preference, and return the list to the American Arbitration Association, which shall then select an arbitrator in accordance with Rule 13 of the Rules. The place of arbitration shall be Pittsburgh, Pennsylvania. By agreeing to arbitration, the parties hereto do not intend to deprive any court of its jurisdiction to issue a pre-arbitral injunction, pre-arbitral attachment or other order in aid of arbitration. The arbitration shall be governed by the Federal Arbitration Act, 9 U.S.C. Sections 1-16. Judgment upon the award of the arbitrator may be entered in any court of competent jurisdiction. Each party shall bear its or his own costs and expenses in any such arbitration and one-half of the arbitrator's fees and expenses provided that the arbitrator may but need not award the prevailing party reasonable fees and expenses. 10.10 Shareholder Approval. The Company represents and warrants to Executive that the holders of shares of capital stock of Holdings representing 75% or more of the voting power of all classes of capital stock of Holdings have approved this Agreement in accordance with the requirements of Section 280G(b)(5) of the Internal Revenue Code of 1986, as amended. 16 17 IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and year first written above. WERNER CO., a Pennsylvania Corporation. By: ----------------------- Name: Donald M. Werner Address for Notices: Title: Chairman 93 Werner Road Greenville, PA 16125-9499 Attention: Eric J. Werner, Esq. General Counsel With a copy to: Investcorp International Inc. 280 Park Avenue, 37th Floor New York, NY 10017 Attention: Christopher J. Stadler and Gibson, Dunn & Crutcher LLP 200 Park Avenue New York, NY 10166 Attention: E. Michael Greaney EXECUTIVE ------------------------------ Address for Notices: Dennis G. Heiner Dennis G. Heiner 8 Searidge Laguna Niguel, CA 92677 17 18 SCHEDULE 1 TARGET BONUS AMOUNT AS A TITLE BASE SALARY PERCENTAGE OF BASE SALARY Chief Executive Officer and President $525,000 100% 18 19 EXHIBIT 1 EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") is defined as Consolidated Net Income (loss) of the Company and its subsidiaries as it would appear on a statement of income (loss), which shall (i) exclude or be adjusted otherwise for all acquisitions and additional equity contributions to the extent such acquisitions and/or equity contributions materially change target EBITDA for any particular Fiscal Year, (ii) reflect a reduction for all management and employment bonuses payable with respect to the Fiscal Year of the Company prepared in accordance with U.S. GAAP consistently applied and (iii) be adjusted for any material Board approved amendment to the capital expenditure plan: plus (minus) the following amounts, to the extent such amounts are otherwise taken into account in determining EBITDA (prior to adjustment): 1. Any provision (benefit) for taxes (including franchise taxes) deducted (added) in calculating such consolidated net income (loss); plus 2. Any interest expense (net of interest income), deducted in calculating such consolidated net income (loss); plus 3. Amortization expenses deducted in calculating consolidated net income (loss); plus 4. Depreciation expense deducted in calculating consolidated net income (loss); plus 5. Management fees paid to Investcorp; plus (minus) 6. Any unusual losses (gains) deducted (added) in calculating consolidated net income (loss). (Unusual items are intended to include transactions considered outside the ordinary course of business. EBITDA will be adjusted to eliminate the effects, if any, of such transactions, the intent being to calculate EBITDA as if such transactions had not occurred; plus (minus) 19 20 7. Any compensation expense (income) deducted (added) in calculating consolidated net income (loss) attributable to transactions involving equity securities of the Company or its subsidiaries. The Executive and his representative shall be provided reasonable opportunity to review the computation of EBITDA and reasonable access to the data and information supporting much computation, but the Board's determination shall be conclusive and binding. 20 21 EXHIBIT 2 List of current Employee Benefits --------------------------------- Term Life Insurance Health/Dental Insurance Long Term Disability Insurance Accidental Death & Dismemberment Insurance Travel Insurance 401(k) Savings Plan Retirement Plan for Salaried Employees of Werner Holding Co. (DE), Inc. Relocation Benefits (with appropriate modifications to the tax gross-up including that any expenses attributable to relocation that are nondeductible for personal income tax purposes will be grossed up so as to result in no after tax cost to Executive) Company Car per Policy Vacation per Policy Laptop Computer Cellular Telephone Internet E-Mail and Web Surfing Account Annual Supplemental Physical Reimbursement 21 EX-27.1 4 EXHIBIT 27.1
5 0001056112 WERNER HOLDING CO. (PA), INC. 1,000 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 4,247 0 0 (1,861) 55,982 121,110 159,452 87,291 233,711 62,031 277,942 0 0 1 (150,787) 233,711 230,235 230,235 163,172 207,210 171 260 13,397 9,457 3,798 0 0 0 0 5,659 0 0
-----END PRIVACY-ENHANCED MESSAGE-----