10-Q 1 niag10q1103.txt UNITED STATES 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 the Quarter Ended September 30, 2003 Commission File Number 0-22206 NIAGARA CORPORATION ------------------------------ (Exact Name of Registrant as Specified in Its Charter) Delaware ---------------------- (State or Other Jurisdiction of Incorporation or Organization) 59-3182820 ----------------------- (I.R.S. Employer Identification Number) 667 Madison Avenue New York, New York 10021 ---------------------------------- (Address of Principal Executive Offices) (212) 317-1000 ------------------------ (Registrant's Telephone Number, Including Area Code) N/A --------------------------------------------------- (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No____. ------ Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ____ No X ------ There were 8,238,517 shares of the registrant's Common Stock outstanding as of September 30, 2003. NIAGARA CORPORATION INDEX TO SEPTEMBER 2003 FORM 10-Q ----------------------------------------------------------------------------- PAGE PART I - FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED): NIAGARA CORPORATION CONSOLIDATED BALANCE SHEETS........................... 3 CONSOLIDATED STATEMENTS OF OPERATIONS................. 4 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY........ 6 CONSOLIDATED STATEMENTS OF CASH FLOWS................. 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS............ 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................ 22 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ..... 32 ITEM 4. CONTROLS AND PROCEDURES ........................................ 33 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS ............................................. 34 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS...................... 34 ITEM 3. DEFAULTS UPON SENIOR SECURITIES................................ 34 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ........... 35 ITEM 5. OTHER INFORMATION ............................................. 35 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K .............................. 35 SIGNATURES.............................................................. 37

NIAGARA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - INFORMATION AS OF SEPTEMBER 30, 2003 AND FOR THE PERIODS ENDED SEPTEMBER 30, 2002 AND 2003 IS UNAUDITED. =============================================================================== 1. BASIS OF PRESENTATION BASIS OF PRESENTATION AND CRITICAL ACCOUNTING POLICIES The accompanying condensed consolidated financial statements of Niagara Corporation ("Niagara") and its subsidiaries (together with Niagara, the "Company"), Niagara LaSalle Corporation ("Niagara LaSalle"), LaSalle Steel Company ("LaSalle," and together with Niagara LaSalle, "Niagara US") and Niagara LaSalle (UK) Limited ("Niagara UK"), are unaudited; however, in the opinion of management, all adjustments necessary for a fair statement of financial position and results for the stated periods have been included. These adjustments are of a normal recurring nature. Selected information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. Certain reclassifications have been also made in order to conform to current year presentation. Results for interim periods are not necessarily indicative of the results to be expected for an entire fiscal year. It is suggested that these condensed consolidated financial statements be read in conjunction with the Company's audited financial statements and accompanying notes for the year ended December 31, 2002. CRITICAL ACCOUNTING POLICIES On December 12, 2001, the Securities and Exchange Commission (the "SEC") issued Financial Reporting Release No. 60 which requires a discussion of the critical accounting policies used by companies in the preparation of their financial statements. Note 1 to the Company's audited financial statements for the year ended December 31, 2002 includes a summary of the significant accounting policies used by the Company in the preparation of its financial statements. The Company believes that the following critical accounting policies affect the significant judgments and estimates used in the preparation of the Company's condensed consolidated financial statements. The preparation of these financial statements requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and the related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates these estimates, including those related to inventory reserves, taxes, doubtful accounts, intangible assets, insurance, litigation, environmental compliance and other contingencies. Management bases its estimates on historical data, when available, professional advice, experience and various assumptions that are believed to be reasonable under the circumstances, the combined results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from these estimates. Revenue from the sale of products is recorded at the time the goods are shipped and title and risk of loss has transferred. Revenue from freight charged to customers is recognized when products are shipped. Provisions for discounts, customer returns and other adjustments are provided for in the period the related sales are recorded based upon historical data. The Company reviews the carrying values of its long-lived and identifiable intangible assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The Company assesses recoverability of these assets by estimating future nondiscounted cash flows. Any long-lived assets held for disposal are reported at the lower of their carrying amounts or fair value less cost to sell. EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS In August 2001, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting for Asset Retirement Obligations," which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This statement is required to be applied for fiscal years beginning after June 15, 2002. The adoption of this statement as of January 1, 2003 did not have an effect on the Company's financial statements. In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, and Amendment of FASB Statement No. 13, and Technical Corrections." This statement, among other things, rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt," which required that all gains and losses from the extinguishment of debt be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. As a result, the criteria in Accounting Principles Board ("APB") Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," will now be used to classify such gains and losses. SFAS No. 145 also amends SFAS No. 13 to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions. Such provisions of SFAS No. 145 are required to be applied in fiscal years beginning after May 15, 2002. The adoption of this statement as of January 1, 2003 did not have an effect on the Company's financial statements. In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred, as opposed to prior guidance which provided that liability for such exit costs be recognized at the date of an entity's commitment to an exit or disposal plan. This statement is required to be applied to exit or disposal activities that are initiated after December 31, 2002. The adoption of this statement as of January 1, 2003 did not have an effect on the Company's financial statements. In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Guarantees of the Indebtedness of Others," which interprets the guidance in FASB Statement No. 5, "Accounting for Contingencies," relating to a guarantor's accounting for, and disclosure of, certain types of guarantees. Interpretation No. 45 requires that a guarantor recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. Under Interpretation No. 45, the recognition of the liability is required even if it is not probable that payments will be required under the guarantee. Previously, SFAS No. 5 required recognition of a liability only for a probable loss. The recognition requirements of Interpretation No. 45 apply to guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for interim and annual financial statements ending after December 15, 2002. The adoption of Interpretation No. 45 as of January 1, 2003 did not have an effect on the Company's financial statements. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation--Transition and Disclosure--an amendment of FASB Statement No. 123," which amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect on the method used on reported results. The adoption of this statement as of January 1, 2003 did not have an effect on the Company's financial statements. The Company accounts for its stock option plan in accordance with the provisions of APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. APB No. 25 provides that compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price of the option. SFAS No. 123, "Accounting for Stock-Based Compensation," permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 allows entities to continue to apply the provisions of APB No. 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock compensation as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB No. 25 and provide the pro forma disclosures required of SFAS No. 123 for options issued to employees. The following table illustrates the effect on net income (loss) and net income (loss) per share if the Company had applied the fair value recognition provisions of SFAS No. 123, as amended by SFAS No. 148, to stock-based employee compensation: -------------------------------------------------------------------------------

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin (ARB) No. 51" which defines when a business enterprise must consolidate a variable interest entity. Interpretation No. 46, as amended, applies in the first fiscal year or interim period beginning after December 15, 2003 to entities in which an enterprise holds a variable interest that it acquired before February 1, 2003 and applies immediately to variable interest entities created after January 31, 2003. The Company did not have any variable interest entities as of September 30, 2003. In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends SFAS No. 133 for certain decisions made by the FASB and is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. SFAS No. 149 is to be applied prospectively. The provisions of SFAS No. 149 that relate to SFAS No. 133 implementation issues that have been effective for fiscal quarters that began prior to June 15, 2003 continue to be applicable in accordance with their respective effective dates. The adoption of this statement as of July 1, 2003 did not have an effect on the Company's financial statements. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" which establishes standards for classifying and measuring certain financial instruments with characteristics of both a liability and equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and is otherwise effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of this statement as of July 1, 2003 did not have an effect on the Company's financial statements. 2. FOREIGN CURRENCY Niagara UK, an English company, uses British TRANSLATION AND pounds sterling ("(pound)") as its TRANSACTIONS functional currency and its accounts are translated to United States dollars in conformity with SFAS No. 52, "Foreign Currency Translation." Assets and liabilities of this subsidiary are translated at the exchange rate in effect at the balance sheet dates and the related revenues and expenses have been translated at the average rates for the periods. Translation adjustments arising from the use of different exchange rates from period to period are included as accumulated other comprehensive income (loss) within the Statement of Stockholders' Equity. Gains and losses resulting from foreign currency transactions are included in other income within the Statements of Operations. 3. INVENTORIES Inventories consisted of the following:

4. LONG-TERM DEBT At the Company's request, a number of amendments were made to the Company's credit facilities during August 2003. These amendments included (i) the extension of the maturity dates on Niagara UK's revolving credit facility and secured invoice discount agreement to July 31, 2005, (ii) a reduction in the size of Niagara UK's revolving credit facility from(pound)2.5 million (approximately $4.1 million) to (pound)1.25 million (approximately $2.1 million) and (iii) the extension of the maturity dates on Niagara US's term loan and revolving credit facility to July 31, 2006. 5. CONTINGENCIES Niagara US and Niagara UK are subject to extensive environmental laws and regulations concerning, among other matters, water and air emissions and waste disposal. Under such laws, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980 as amended, Niagara US and Niagara UK may be responsible for parts of the costs required to remove or remediate previously disposed wastes or hazardous substances at the locations they own or operate or at the locations which they arranged for disposal of such materials. The costs expended through September 30, 2003 have been largely covered by insurance. Management believes that the resolution of these matters will not have a material adverse effect on the Company's financial position or results of operations. Under the Company's insurance programs, coverage is obtained for catastrophic exposures as well as those risks required to be insured by law or contract. In connection with these programs, Niagara US has provided certain insurance carriers with irrevocable standby letters of credit totaling $1,545,000 as of September 30, 2003. It is the policy of the Company to retain a portion of certain expected losses. These relate primarily to workers' compensation, physical loss to property, business interruption resulting from such loss, and comprehensive general, product, vehicle, medical and life benefits and liability. Provisions for losses expected under these programs are recorded based upon the Company's estimates of the aggregate liability for claims. Such estimates utilize certain actuarial assumptions followed in the insurance industry and are included in accrued expenses. 6. SEGMENTS AND The Company operates in two reportable RELATED INFORMATION segments: (i) Niagara US which has operations in the United States and (ii) Niagara UK which has operations in the United Kingdom. Management operates these segments as separate strategic business units and measures their performance based on earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA"). Management believes that Adjusted EBITDA provides the best measurement of segment performance, in as much as it is based on a widely accepted measure of financial performance and cash flows, and management regularly calculates Adjusted EBITDA in order to determine compliance with financial covenants in the Company's credit facilities. Niagara UK uses British pounds sterling as its functional currency and its accounts are translated to United States dollars in conformity with SFAS No. 52, "Foreign Currency Translation." Assets and liabilities of this subsidiary have been translated at the exchange rates in effect on September 30, 2002 and 2003, and the related revenues and expenses have been translated at average rates for the periods. Niagara US sells its products primarily to customers in the United States. Of Niagara UK's sales to unaffiliated customers during the nine months ended September 30, 2003, approximately 68% were within the United Kingdom with 19% to continental Europe and 13% to the rest of the world. These amounts were 68%, 17% and 15%, respectively, for the nine months ended September 30, 2002. Niagara UK's sales to any one foreign country, other than the United States, for these periods represented less than 5% of its total sales. ------------------------------------------------------------------------------ The following tables set forth certain performance and other information by each of the Company's reportable segments:

The following tables provide a reconciliation of the Company's segment profit (loss) (Adjusted EBITDA) for the three and nine month periods ending September 30, 2002 and 2003, to the respective net income (loss) for such periods attributable to each reportable segment:

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Niagara was organized in April of 1993. In August 1995, Niagara acquired Niagara LaSalle. With plants in Buffalo, New York and Chattanooga, Tennessee, Niagara LaSalle was an established cold finished steel bar producer in the northeast and southeast regions of the United States. In January 1996, Niagara LaSalle acquired Southwest Steel Company, Inc. ("Southwest"), the leading cold drawn steel bar producer servicing the southwest region of the United States. During 1996, Southwest completed construction of a new plant in Midlothian, Texas and relocated its Tulsa, Oklahoma operations to this new facility. In April 1997, Niagara LaSalle acquired LaSalle, which had plants in Hammond and Griffith, Indiana. This acquisition gave Niagara LaSalle a strong market position in the midwest region of the United States and broadened Niagara LaSalle's product range by adding thermal treated and chrome plated bars. With this acquisition, Niagara US became the largest independent producer of cold drawn steel bars in the United States. On May 21, 1999, Niagara UK purchased the equipment, inventory and certain other assets of the eight steel bar businesses of Glynwed Steels Limited ("Glynwed Steels"). These steel bar businesses are engaged in hot rolling, cold finishing and distribution and represent the largest independent steel bar concern in the United Kingdom. In November 1999 and September 2001, the Company announced restructuring plans for its hot rolling operations in the United Kingdom. Under the 1999 plan, Niagara UK closed its Ductile Hot Mill facility in Willenhall, terminated its lease of the real property, transferred most of the production from this facility to its W Wesson facility in Moxley (which was renamed Ductile Wesson) and invested approximately $1.5 million in its remaining hot rolling businesses. During the same period, Niagara UK reorganized the management structures in each of its three operating divisions (hot rolling, cold finishing and distribution). Under the 2001 plan, Niagara UK closed its Dudley Port hot rolling facility in Tipton and transferred most of its production to its two other hot rolling facilities. On March 15, 2002, Niagara UK entered into an agreement to sell this leased property for (pound)3,600,000 ($5,413,572), which Niagara UK had an option to purchase for (pound)1,495,000 ($2,248,136). On September 30, 2002, Niagara UK completed this transaction. In connection with this transaction, Niagara UK purchased a parcel of land in the fourth quarter of 2002 which it subsequently sold during this period to the purchaser of the property. These sales resulted in a pre-tax gain of (pound)2,063,022 ($3,102,311). In the fourth quarter of 2002, Niagara LaSalle completed significant purchases of equipment and related assets from two companies after having prevailed at auctions held in connection with such companies' bankruptcy proceedings. On October 8, 2002, Niagara LaSalle purchased certain production equipment and related assets of Moltrup Steel Products Company for $375,000. Niagara US has relocated the majority of these assets to its other operating facilities. On November 19, 2002, Niagara LaSalle purchased from Republic Technologies International, LLC ("Republic") all of the equipment and supplies located at Republic's Harvey, Illinois facility for $2,225,000. Management has not yet determined where this equipment will be deployed. On May 30, 2003, Niagara UK entered into an agreement to sell its GB Longmore property in Darlaston. Production at this site had previously been shifted to GB Longmore's Willenhall facility. On September 19, 2003, Niagara UK completed this transaction receiving (pound)925,000 ($1,490,591) for the sale of this leased real property after payment of (pound)413,000 ($665,529) to the landlord under an option to purchase the property. After related costs, the sale of this property resulted in a pre-tax gain of (pound)483,520 ($779,170), which gain was partially offset by losses on the sale of equipment during the three and nine months ended September 30, 2003. During the nine months ended September 30, 2003, Niagara's subsidiaries transferred certain equipment to each other to more effectively meet the market conditions and requirements of their respective operations. These transfers resulted in Niagara UK recognizing intercompany gains of (pound)494,475 ($796,822) for the period. These amounts have been eliminated in the consolidated financial statements. RESULTS OF OPERATIONS The Company's results of operations for the three months ended September 30, 2003 declined when compared to the comparable period in 2002. Net income attributable to the Company's U.S. operations improved, due primarily to modest price increases on certain of its products. This was offset, however, by a decline in net income attributable to the Company's U.K. operations for the third quarter of 2003, due primarily to a larger gain recorded on the sale of property in the third quarter of last year. Niagara UK's operating results were negatively impacted by disadvantageous exchange rates, very competitive pricing and increased raw material costs during the three months ended September 30, 2003. As previously discussed, results for the three and nine months ended September 30, 2003 were favorably impacted by the sale of Niagara UK's Darlaston property resulting in a pre-tax gain of (pound)483,520 ($779,170) and results for the three and nine months ended September 30, 2002 were favorably impacted by the sale of Niagara UK's Tipton property resulting in a pre-tax gain for the period of (pound)1,963,414 ($2,906,834). Three months ended September 30, 2003 compared with September 30, 2002 The Company's net sales for the three months ended September 30, 2003 were $69,786,319, representing an increase of $2,136,190, or 3.2%, over the same period in 2002. Net sales by the Company's U.S. operations for the period decreased by $385,773 or 0.8%, and net sales by the Company's U.K. operations for the period increased by $2,521,963 or 12.4%. The decrease in net sales attributable to the Company's U.S. operations was due primarily to a decrease in sales volume (5.1%) which was partially offset by an increase in prices (3.1%). The increase in net sales attributable to the Company's U.K. operations was due primarily to an increase in sales volume (1.3%) and an increase in prices (4.1%). Net sales by the Company's U.K. operations also reflect a 4.0% increase in the value of the British pound relative to the U.S. dollar for the three months ended September 30, 2003, as compared to the same period in 2002. The Company's U.K. operations use British pounds as its functional currency and its net sales were translated from British pounds into U.S. dollars at higher relative levels for the three months ended September 30, 2003 as compared to the same period in 2002 as a result of this change in value. Cost of products sold for the three months ended September 30, 2003 increased by $1,474,115 to $62,253,623, representing an increase of 2.4% over the same period in 2002. Cost of products sold attributable to the Company's U.K. operations increased by $2,288,037. The increases incurred by the Company's U.K. operations were primarily attributable to an increase in the price of raw materials and, to a lesser extent, an increase in sales volume. Cost of products sold attributable to the Company's U.S. operations decreased by $813,922. The decrease incurred by the Company's U.S. operations was primarily attributable to a decrease in sales volume. Gross margins for the three months ended September 30, 2003 increased by 0.6% compared to the same period in 2002. Gross margins attributable to the Company's U.S. operations increased by 0.9% due to an increase in selling prices. This increase was partially offset by a 0.3% decrease in gross margins attributable to the Company's U.K. operations as a result of rising raw material costs. Selling, general and administrative expenses for the three months ended September 30, 2003 increased $13,365 to $6,632,262, or 9.5% of net sales, as compared to 9.8% of net sales for the same period in 2002. The decrease as a percentage of net sales was primarily attributable to the increase in net sales by the Company's operations. The Company realized smaller gains on the sale of property and equipment to third parties during the three months ended September 30, 2003 ($565,092), as compared to the same period in 2002 ($2,906,834). Interest expense for the three months ended September 30, 2003 decreased by $144,124 to $745,742, due to decreased levels of borrowing and lower interest rates. The Company's net income for the three months ended September 30, 2003 was $566,891, compared to net income of $1,391,255 for the comparable period in the prior year. Net income attributable to the Company's U.S. operations for the three months ended September 30, 2003 was $698,425, an increase of $464,472 over the same period in 2002. This increase was primarily due to an increase in gross margins attributable to such operations. Net income attributable to the Company's U.K. operations for the three months ended September 30, 2003 was $218,878, a decrease of $938,424 as compared to net income of $1,157,302 for the three months ended September 30, 2002. This decrease was primarily due to the Company's U.K. operations realizing smaller gains on the sale of property and equipment to third parties for the three months ended September 30, 2003 ($565,092) as compared to the same period in 2002 ($2,906,834). Net income attributable to the Company's U.S. operations for the three months ended September 30, 2002 and 2003 reflects statutory tax rates applied against income before income taxes. For the three months ended September 30, 2002, net income attributable to the Company's U.K. operations reflects a tax rate higher than the statutory rate as a result of a reduction in Niagara UK's deferred tax asset given the uncertainty of its realization. Net income attributable to the Company's U.K. operations for the three months ended September 30, 2003 reflects no tax provision. The taxes that would have otherwise been provided against Niagara UK's income before income taxes for this period have reduced the deferred tax valuation allowance. Nine months ended September 30, 2003 compared with September 30, 2002 The Company's net sales for the nine months ended September 30, 2003 were $222,537,317, representing an increase of $25,314,089, or 12.8%, over the same period in 2002. Net sales by the Company's U.S. operations for the period increased by $12,197,986 or 9.0%, and net sales by the Company's U.K. operations for the period increased by $13,116,103 or 21.1%. The increase in net sales attributable to the Company's U.S. and U.K. operations was due primarily to an increase in sales volume (4.4% and 4.0%, respectively) and, to a lesser extent, an increase in prices (3.5% and 5.5%, respectively). Net sales by the Company's U.K. operations also reflect an 8.8% increase in the value of the British pound relative to the U.S. dollar for the nine months ended September 30, 2003, as compared to the same period in 2002. The Company's U.K. operations use British pounds as its functional currency and its net sales were translated from British pounds into U.S. dollars at higher relative levels for the nine months ended September 30, 2003 as compared to the same period in 2002 as a result of this change in value. Cost of products sold for the nine months ended September 30, 2003 increased by $21,675,191 to $197,142,367, representing an increase of 12.4% over the same period in 2002. Cost of products sold attributable to the Company's U.S. and U.K. operations increased by $11,742,698 and $9,932,493, respectively. This increase was primarily attributable to the increase in sales volume by the Company's operations, and to a lesser extent, a 1.5% increase in raw material costs incurred by the Company's U.S. operations for the nine months ended September 30, 2003 as compared to the same period in 2002. Gross margins for the nine months ended September 30, 2003 increased by 0.4% compared to the same period in 2002. Gross margins attributable to the Company's U.K. operations increased by 1.8% due to an increase in sales volume and prices. This increase was partially offset by a 0.6% decrease in gross margins for the Company's U.S. operations, primarily as a result of an increase in the price of raw materials. Selling, general and administrative expenses for the nine months ended September 30, 2003 increased by $886,880 to $19,916,045, or 9.0% of net sales, compared to 9.6% of sales for the same period in 2002. The increase in dollar amount and the decrease as a percentage of net sales were primarily attributable to the increase in net sales by the Company's operations. The Company realized smaller gains on the sale of property and equipment to third parties during the nine months ended September 30, 2003 ($450,257), as compared to the same period in 2002 ($2,906,834). Interest expense for the nine months ended September 30, 2003 decreased by $345,198 to $2,362,242, due to decreased levels of borrowing and lower interest rates. The Company's net income for the nine months ended September 30, 2003 was $2,559,168, compared to net income of $1,316,052 for the comparable period in the prior year. Net income attributable to the Company's U.K. operations for the nine months ended September 30, 2003 was $881,328, an increase of $1,894,580 as compared to the net loss of $1,013,252 incurred by such operations during the nine months ended September 30, 2002. This improvement was primarily due to the higher sales volume in 2003 as compared to 2002, which was partially offset by Niagara UK realizing smaller gains on the sale of property and equipment to third parties for the nine months ended September 30, 2003 ($450,257) as compared to the same period in 2002 ($2,906,834). Net income attributable to the Company's U.S. operations for the nine months ended September 30, 2003 was $2,250,662, a decrease of $78,643 over the same period in 2002, which was due primarily to a reduction in gross margins attributable to such operations. Net income attributable to the Company's U.S. operations for the nine months ended September 30, 2002 and 2003 reflects statutory tax rates applied against income before income taxes. For the nine months ended September 30, 2002, net income attributable to the Company's U.K. operations reflects a tax rate higher than the statutory rate as a result of a reduction in Niagara UK's deferred tax asset given the uncertainty of its realization. Net income attributable to the Company's U.K. operations for the nine months ended September 30, 2003 reflects no tax provision. The taxes that would have otherwise been provided against Niagara UK's income before income taxes for this period have reduced the deferred tax valuation allowance. LIQUIDITY AND CAPITAL RESOURCES The Company's short-term liquidity requirements for day-to-day operating expenses has been, and is expected to continue to be, funded by cash provided by operations, borrowings under its revolving credit facilities and advances under its invoice discounting agreement. The Company's principal long-term liquidity requirement has been, and is expected to continue to be, the repayment of debt and the funding of capital expenditures to modernize, improve and expand its facilities, machinery and equipment. Capital expenditures for the nine months ended September 30, 2003 totaled $2,582,769, as compared to $741,302 for the same period in 2002. This increase was primarily attributable to increased purchases of machinery and equipment by the Company's U.S. operations. Cash flows provided by operating activities were $7,000,692 for the nine months ended September 30, 2003, a decrease of $1,566,086 as compared to cash flows provided by operating activities of $8,566,778 for the same period in 2002. This decrease was largely attributable to a smaller increase in accounts payable, accrued expenses and other non-current liabilities in 2003 as compared to 2002 (an increase of $4,806,478 in 2003 as compared to an increase of $10,091,794 in 2002), an increase in accounts receivable in 2003 as compared to a decrease in 2002 (an increase of $4,164,130 in 2003 as compared to a decrease of $1,153,705 in 2002). These were partially offset by a smaller increase in inventories as compared to 2002 (an increase of $1,205,928 in 2003 as compared to an increase of $6,247,464 in 2002), a smaller gain on sale of property in 2003 as compared to 2002 ($450,257 as compared to $2,906,834 in 2002) and an increase in net income (net income of $2,559,168 in 2003 as compared to net income of $1,316,052 in 2002). Cash and cash equivalents at September 30, 2003 were $1,171,448, a decrease of $4,389,642 as compared to December 31, 2002. This decrease was primarily attributable to the timing of customer cash collections at December 31, 2002 and September 30, 2003. Such funds are used for working capital and other corporate purposes. On April 18, 1997 and in connection with the acquisition of LaSalle, Niagara US entered into a revolving credit and term loan agreement (as amended, the "Credit Agreement") and Niagara LaSalle terminated its previously existing credit agreements. The other parties to the Credit Agreement are Manufacturers and Traders Trust Company ("M&T"), Comerica Bank, Citizens Bank of Pennsylvania, and PNC Bank. The obligations of Niagara US under the Credit Agreement are guaranteed by Niagara and secured by substantially all of the assets and a pledge of all outstanding capital stock of Niagara US. At the Company's request, a number of amendments were made to the Credit Agreement effective September 1, 2002. As a result of these amendments, the revolving credit facility was reduced from $50,000,000 to $35,000,000 and the balance owed under the term loan was increased from $14,333,356 to $18,000,000. Principal payments under the term loan were reduced to $375,000 from $666,666 per month. In addition, the maturity date of the term loan and revolving credit loans made pursuant to the Credit Agreement was extended to July 31, 2004. Effective September 1, 2003, these maturity dates were further extended to July 31, 2006. Principal payments under the term loan will continue at $375,000 per month. Interest on the term loan is payable in monthly installments either at the LIBOR rate (for a period specified by Niagara US from time to time) plus 2.85%, or M&T's prime rate plus 1.00% (effective rate of 4.04% at September 30, 2003). Revolving credit loans made pursuant to the Credit Agreement are based on a percentage of eligible accounts receivable and inventory. Interest on such loans is payable in monthly installments at a rate that is either 2.50% above the LIBOR rate (for a period specified by Niagara US from time to time) or M&T's prime rate plus 0.75% (effective rate of 3.67% at September 30, 2003). The Credit Agreement carries restrictions on, among other things, indebtedness, liens, capital expenditures, dividends, asset dispositions, cross-defaults and changes in control of Niagara and Niagara US, and requires minimum levels of net worth through maturity. Also included in this agreement are requirements regarding the ratio of consolidated current assets to consolidated current liabilities, the ratio of net income before interest, taxes, depreciation and amortization ("EBITDA") to debt service and capital expenditures, and the ratio of senior secured indebtedness to EBITDA. Niagara US was in compliance with all of these requirements as of September 30, 2003. On May 20, 1998, Niagara's Board of Directors authorized the repurchase, from time to time, of up to one million shares of Niagara Common Stock in open market and privately negotiated transactions. On October 6, 1999, Niagara's Board authorized the repurchase of an additional one million Niagara shares. Such repurchases are subject to market and other conditions and are financed with internally generated funds and borrowings under the Company's credit facilities. Shares of Niagara Common Stock repurchased are held as treasury stock and are available for use in the Company's benefit plans and for general corporate purposes. As of September 30, 2003, Niagara had repurchased 1,758,938 shares of its Common Stock at a cost of $8,249,684. No shares were repurchased during the nine months ended September 30, 2003. On May 21, 1999 and in connection with the acquisition of the steel bar businesses from Glynwed Steels, Niagara UK entered into a bank facilities agreement (the "Facilities Agreement") with National Westminster Bank Plc ("National Westminster") providing for a (pound)10 million (approximately $16.7 million) term loan and a (pound)9.8 million (approximately $16.3 million) revolving credit facility. The obligations of Niagara UK under the Facilities Agreement are secured by standby letters of credit issued by M&T to National Westminster (respectively, the "Term Letter of Credit" and the "Revolving Letter of Credit," and, together, the "Letters of Credit") and substantially all of the assets of Niagara UK (for the benefit of M&T). Niagara UK's agreement to reimburse M&T for drawdowns under the Letters of Credit is guaranteed by Niagara and Niagara US, which guarantees are secured by substantially all of the assets of Niagara US on a second priority basis. As consideration for the issuance of the Letters of Credit, Niagara UK paid M&T a total of (pound)178,400 (approximately $285,440) at the time of issuance and agreed to pay further annual fees (in monthly installments) of 2.5% and 2.75% in respect of the Revolving and Term Letters of Credit, respectively. Principal of the term loan under the Facilities Agreement amortizes in monthly installments commencing on May 31, 2000 and ending on August 31, 2005. The principal repayment installments on the term loan escalate from (pound)125,000 to (pound)213,333 (approximately $206,000 to $356,000) throughout its term. Revolving credit loans made pursuant to the Facilities Agreement are based upon a percentage of eligible inventory. On August 8, 2003, the maturity date on these revolving credit loans was extended to July 31, 2005. Interest on the term and revolving credit loans under the Facilities Agreement accrue at the BBA LIBOR rate (for periods specified by Niagara UK from time to time) plus 0.15% (effective rate of 3.85% at September 30, 2003) and is payable at the conclusion of such interest periods. The purchase of the U.K. steel bar businesses was also financed pursuant to (i) a (pound)3.75 million (approximately $6 million) equity investment by Niagara in Niagara UK (the "Equity Investment"), (ii) a (pound)3.75 million (approximately $6 million) subordinated loan from Niagara to Niagara UK which accrued interest at 7.5% per annum (the "Subordinated Loan") and (iii) a (pound)2.5 million (approximately $4 million) non-interest bearing short-term loan from Niagara to Niagara UK (the "Short-Term Loan"). The Equity Investment, the Subordinated Loan and the Short-Term Loan were financed by borrowings under the Credit Agreement. The Short-Term Loan was repaid in 1999. The Subordinated Loan was capitalized to equity during the fourth quarter of 2002. On August 23, 1999, Niagara UK entered into an Invoice Discounting Agreement (the "Discount Agreement") with Royal Bank of Scotland Invoice Discounting Limited ("RBID") (formerly known as Lombard Natwest Discounting Limited) providing for advances to Niagara UK based upon a formula tied to the receivables purchased by RBID. The obligations of Niagara UK under the Discount Agreement are guaranteed by Niagara and secured by substantially all of the assets of Niagara UK. In connection with the execution of the Discount Agreement, the Revolving Letter of Credit and the revolving credit facility under the Facilities Agreement were reduced to (pound)4.9 million (approximately $8.1 million) and subsequently reduced to (pound)2.5 million (approximately $4.1 million) as of December 31, 1999 and (pound)1.25 million (approximately $2.1 million) on August 8, 2003. At the Company's request, a number of amendments were made to the Discount Agreement effective August 23, 2002. These amendments included (i) a reduction in the maximum amount of advances to Niagara UK from (pound)20 million (approximately $33.0 million) to (pound)15.0 million (approximately $25.0 million), (ii) a reduction in the interest rate applicable to such advances from 2.25% to 2.0% above Royal Bank of Scotland's base rate (effective rate of 5.15% at September 30, 2003) and (iii) the extension of the maturity date on such advances to July 31, 2004. In connection with these amendments, Niagara and Niagara UK agreed to capitalize the Subordinated Loan, which occurred during the fourth quarter of 2002. On August 11, 2003, the maturity date for advances made pursuant to the Discount Agreement was further extended to July 31, 2005. The Facilities and Discount Agreements carry restrictions on, among other things, security interests, borrowed money, asset dispositions, dividends, transactions with affiliates, capital expenditures, cross-defaults, changes in control of Niagara UK and mergers and acquisitions. Also included in these agreements are requirements regarding tangible net worth, the ratio of earnings before interest, taxes, depreciation and amortization to fixed charges and the ratio of current assets to current liabilities. Niagara UK was in compliance with all of these requirements as of September 30, 2003. In connection with the execution of the Facilities and Discount Agreements, Niagara and Niagara UK entered into intercreditor agreements which, among other things restrict the payment of dividends in respect of the Niagara UK shares. As a result of depressed conditions in the manufacturing sector in the United Kingdom including within the overall steel industry, and conditions within the insurance industry following the events of September 11, 2001, the market for credit insurance in the United Kingdom has deteriorated. This necessitated Niagara guaranteeing certain trade payables of Niagara UK in the aggregate amount of up to (pound)7.15 million (approximately $11.9 million) in order to ensure an orderly supply of raw materials. At September 30, 2003, the Company had borrowed or been advanced $41,442,000 under its revolving credit facilities and the Discount Agreement and had approximately $14,500,000 in available credit thereunder, and the outstanding balance of its term loans was $20,375,000. Working capital of the Company at September 30, 2003 was $40,188,365. CRITICAL ACCOUNTING POLICIES On December 12, 2001, the SEC issued Financial Reporting Release No. 60 which requires a discussion of the critical accounting policies used by companies in the preparation of their financial statements. Note 1 to the Company's audited financial statements for the year ended December 31, 2002 includes a summary of the significant accounting policies used by the Company in the preparation of its financial statements. The Company believes that the following critical accounting policies affect the significant judgments and estimates used in the preparation of the Company's condensed financial statements. The discussion and analysis of the Company's financial condition and results of operations are based upon the Company's condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and the related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates these estimates, including those related to inventory reserves, taxes, doubtful accounts, intangible assets, insurance, litigation, environmental compliance and other contingencies. Management bases its estimates on historical data, when available, professional advice, experience and various assumptions that are believed to be reasonable under the circumstances, the combined results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from these estimates. Revenue from the sale of products is recorded at the time the goods are shipped and title and risk of loss has transferred. Revenue from freight charged to customers is recognized when products are shipped. Provisions for discounts, customer returns and other adjustments are provided for in the period the related sales are recorded based upon historical data. The Company reviews the carrying values of its long-lived and identifiable intangible assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The Company assesses recoverability of these assets by estimating future nondiscounted cash flows. Any long-lived assets held for disposal are reported at the lower of their carrying amounts or fair value less cost to sell. EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations," which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This statement is required to be applied for fiscal years beginning after June 15, 2002. The adoption of this statement as of January 1, 2003 did not have an effect on the Company's financial statements. In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, and Amendment of FASB Statement No. 13, and Technical Corrections." This statement, among other things, rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt," which required that all gains and losses from the extinguishment of debt be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. As a result, the criteria in APB Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," will now be used to classify such gains and losses. SFAS No. 145 also amends SFAS No. 13 to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions. Such provisions of SFAS No. 145 are required to be applied in fiscal years beginning after May 15, 2002. The adoption of this statement as of January 1, 2003 did not have an effect on the Company's financial statements. In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred, as opposed to prior guidance which provided that liability for such exit costs be recognized at the date of an entity's commitment to an exit or disposal plan. This statement is required to be applied to exit or disposal activities that are initiated after December 31, 2002. The adoption of this statement as of January 1, 2003 did not have an effect on the Company's financial statements. In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Guarantees of the Indebtedness of Others," which interprets the guidance in FASB Statement No. 5, "Accounting for Contingencies," relating to a guarantor's accounting for, and disclosure of, certain types of guarantees. Interpretation No. 45 requires that a guarantor recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. Under Interpretation No. 45, the recognition of the liability is required even if it is not probable that payments will be required under the guarantee. Previously, SFAS No. 5 required recognition of a liability only for a probable loss. The recognition requirements of Interpretation No. 45 apply to guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for interim and annual financial statements ending after December 15, 2002. The adoption of Interpretation No. 45 as of January 1, 2003 did not have an effect on the Company's financial statements. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation--Transition and Disclosure--an amendment of FASB Statement No. 123," which amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect on the method used on reported results. The adoption of this statement as of January 1, 2003 did not have an effect on the Company's financial statements. In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin (ARB) No. 51" which defines when a business enterprise must consolidate a variable interest entity. Interpretation No. 46, as amended, applies in the first fiscal year or interim period beginning after December 15, 2003 to entities in which an enterprise holds a variable interest that it acquired before February 1, 2003 and applies immediately to variable interest entities created after January 31, 2003. The Company did not have any variable interest entities as of June 30, 2003. In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends SFAS No. 133 for certain decisions made by the FASB and is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. SFAS No. 149 is to be applied prospectively. The provisions of SFAS No. 149 that relate to SFAS No. 133 implementation issues that have been effective for fiscal quarters that began prior to June 15, 2003 continue to be applicable in accordance with their respective effective dates. The adoption of this statement as of July 1, 2003 did not have an effect on the Company's financial statements. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" which establishes standards for classifying and measuring certain financial instruments with characteristics of both a liability and equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and is otherwise effective at the beginning of the first interim period beginning after June 15, 2003 The adoption of this statement as of July 1, 2003 did not have an effect on the Company's financial statements. FORWARD-LOOKING STATEMENTS The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for certain forward-looking statements. Some of the statements in this Form 10-Q, including, without limitation, in "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," may constitute forward-looking statements. When used in this Form 10-Q, the words "may," "will," "should," "could," "expects," "plans," "anticipates," "intends," "believes," "estimates," "predicts," "projects," "potential," "likely" or "continue" and other similar expressions are intended to identify such forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors, many of which are beyond the control of the Company, that may cause the Company's actual results to be materially different from those expressed or implied by such forward-looking statements, in future filings by Niagara with the SEC, in the Company's press releases or in oral statements made by authorized officers of the Company. The factors discussed under "CAUTIONARY STATEMENT FOR PURPOSES OF THE `SAFE HARBOR' PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995" in Niagara's Report on Form 10-K for the fiscal year ended December 31, 2002, among others, could cause actual results to differ materially from those contained in forward-looking statements made in this Form 10-Q. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's primary market risks include fluctuations in interest rates, variability in interest rate spreads (i.e., prime to LIBOR spreads), exchange rate variability, the credit risk of its customers and the availability to its suppliers of credit insurance on their receivables from the Company. The Company does not trade in derivative financial instruments. Substantially all of the Company's non-trade indebtedness relates to loans made pursuant to the Credit and Facilities Agreements and advances under the Discount Agreement. Interest on the term loan under the Credit Agreement accrues at either the LIBOR rate (for a period specified by Niagara US from time to time) plus 2.85%, or M&T's prime rate plus 1.00%. Interest on revolving credit loans made pursuant to such agreement accrues at either 2.50% above the LIBOR rate (for a period specified by Niagara US from time to time) or M&T's prime rate plus 0.75%. Interest on the term and revolving credit loans under the Facilities Agreement accrues at the BBA LIBOR rate (for a period specified by Niagara UK from time to time) plus 0.15%. Interest on advances under the Discount Agreement accrues at Royal Bank of Scotland's base rate plus 2.0%. Management attempts to reduce market risks associated with the fluctuations in interest rates through the selection of LIBOR periods under the Credit and Facilities Agreements and advance amounts under the Discount Agreement (see "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Liquidity and Capital Resources"). The Company sells its products primarily to customers in North America and Europe. Revenues from sales by Niagara US are collected exclusively in U.S. dollars. Niagara UK's revenues are generally collected in the local currency of its customers. In order to reduce its exposure to fluctuations in exchange rates, Niagara UK purchased foreign exchange contracts in amounts and with expiration dates in line with customer orders. Niagara UK discontinued this practice in February 2002. Following the adoption of the Euro and through September 30, 2003, Niagara UK borrowed funds in foreign currencies and amounts in line with its export sales, and repaid such borrowings upon receipt of funds from its foreign customers. The Company is subject to the economic conditions affecting its customers. The Company's exposure to losses on trade accounts receivable is principally dependent on each customer's financial condition. The Company monitors its exposure for credit losses and maintains allowances for anticipated losses after giving consideration to current delinquency data, historical loss experience, and economic conditions impacting steel service centers and original equipment manufacturers. Management continuously reviews information concerning the financial condition of the Company's customers and believes that the Company's allowance for doubtful accounts is sufficient to cover such risks. In addition, Niagara UK has insured substantially all of its accounts receivable to further reduce its customer credit risk. Generally, these insurance policies provide for payments to Niagara UK of 80% of the unpaid invoiced amounts. As a result of depressed conditions in the manufacturing sector in the United Kingdom including within the overall steel industry, and conditions within the insurance industry following the events of September 11, 2001, the market for credit insurance in the United Kingdom deteriorated. This necessitated Niagara guaranteeing certain trade payables of Niagara UK in the aggregate amount of up to (pound)7.15 million (approximately $11.9 million) in order to ensure an orderly supply of raw materials. ITEM 4. CONTROLS AND PROCEDURES (a) Disclosure Controls and Procedures. The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of September 30, 2003. Based on such evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2003, the Company's disclosure controls and procedures are effective at the reasonable assurance level in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act. (b) Internal Control Over Financial Reporting. There have not been any changes in the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended September 30, 2003 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. Niagara US and Niagara UK are subject to extensive environmental laws and regulations concerning, among other matters, water and air emissions and waste disposal. Under such laws, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), Niagara US and Niagara UK may be responsible for parts of the costs required to remove or remediate previously disposed wastes or hazardous substances at locations they own or operate or at locations owned or operated by third parties where they, or a company from which they acquired assets, arranged for the disposal of such materials. Claims for such costs have been made against LaSalle with respect to six such third-party sites. Management believes that, in five cases, the volumes of the waste allegedly attributable to LaSalle and the share of costs for which it may be liable are de minimis. In three of these cases, LaSalle has entered into de minimis settlement agreements resolving the pending claims of liability. In connection with the fourth site, the United States Environmental Protection Agency (the "EPA") has notified LaSalle that it does not intend to seek cost recovery from it at this time. In the one non-de minimis case, LaSalle has entered into an agreement with a group of other companies alleged to be responsible for remediation of the site in an effort to share proportionately the costs of remediation. LaSalle and this group of companies have also signed an Administrative Order on Consent with the EPA and performed a limited remediation at the site. LaSalle has received insurance settlements in amounts that largely cover the financial contributions it has made for these sites through September 30, 2003. Because liability under CERCLA and analogous state laws is generally joint and several, and because further remediation work may be required at these sites, LaSalle may be required to contribute additional funds. However, based on its volumetric share of wastes disposed and the participation of other potentially liable parties, management believes that LaSalle's share of the additional costs will not have a material adverse effect on the Company's financial position or results of operations. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS. (a) An Annual Meeting of Niagara's Stockholders was held on July 15, 2003. (b) Michael J. Scharf, Gilbert D. Scharf, Frank Archer, Gerald L. Cohn, Andrew R. Heyer and Douglas T. Tansill were elected as directors of Niagara at the Annual Meeting. (c) The matters voted upon at the Annual Meeting were (i) the election of Michael J. Scharf, Gilbert D. Scharf, Frank Archer, Gerald L. Cohn, Andrew R. Heyer and Douglas T. Tansill to hold office until the next Annual Meeting of Stockholders or until their respective successors have been duly elected and qualified, the vote as to which was 7,732,846 for and 61,174 withheld for each of Messrs. Michael Scharf and Gilbert Scharf, 7,735,446 for and 58,574 withheld for Mr. Archer, 7,735,646 for and 58,374 withheld for Mr. Cohn, 7,735,846 for and 58,174 withheld for Mr. Heyer, and 7,749,746 for and 44,274 withheld for Mr. Tansill, and (ii) the ratification of Deloitte & Touche LLP as Niagara's independent accountants for 2003, the vote as to which was 7,788,220 for, 2,600 against and 3,200 abstentions. ITEM 5. OTHER INFORMATION. Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits. 4.1 Thirteenth Amendment to the Revolving Credit and Term Loan Agreement by and among Niagara LaSalle Corporation, LaSalle Steel Company, Manufacturers and Traders Trust Company (individually and as Agent), Citizens Bank of Pennsylvania, PNC Bank, N.A., and Comerica Bank, effective as of September 1, 2003. 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K. During the quarter ended September 30, 2003, Niagara filed three Current Reports on Form 8-K. The first report, dated July 21, 2003, announced the results of Niagara's 2003 Annual Meeting of Stockholders and the appointment of new officers. The second report, dated August 14, 2003, related to the announcement of the Company's results of operations for the three and six months ended June 30, 2003. The third report, dated September 24, 2003, related to the announcement of the completion of the sale of Niagara UK's GB Longmore property in Darlaston. SIGNATURES 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. NIAGARA CORPORATION (Registrant) Date: November 14, 2003 /s/ Michael Scharf ------------------------------------------ Michael Scharf, Chairman, President & Chief Executive Officer Date: November 14, 2003 /s/ Anthony J. Verkruyse ------------------------------------------ Anthony J. Verkruyse, Vice President, Treasurer & Chief Financial Officer

NIAGARA CORP 10-Q