##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-K
 (Mark One) þ
    
    Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the fiscal year ended December 31, 2004  o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
 Commission File No. 333-46607-12 WERNER HOLDING CO. (PA), INC.
 (Exact name of Co-registrant as specified in its charter)
 Pennsylvania
    
    25-0906895(State or other jurisdiction of
    
    (IRS Employer Identification No.)Incorporation or organization)
 93 Werner Rd.
    
    16125Greenville, Pennsylvania
    
    (Zip Code)(Address of principal executive offices)
 (724) 588-2550
(Co-registrants telephone number including area code) Commission File No. 333-46607 WERNER HOLDING CO. (DE), INC.
 (Exact name of Co-registrant as specified in its charter)
 Delaware
    
    25-1581345(State or other jurisdiction of
    
    (IRS Employer Identification No.)Incorporation or organization)
 1105 North Market St.
    
    19899Suite 1300
    
    (Zip Code)Wilmington, Delaware(Address of principal executive offices)
 (302) 478-5723
(Co-registrants telephone number including area code) Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether each of the co-registrants (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. o Yes o No Not applicable
 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of each of the co-registrants
knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. o Not applicable
 Indicate by check mark whether each of the co-registrants is an accelerated filer (as defined
in Rule 12b-2 of the Act). o Yesþ No State the aggregate market value of the voting stock held by non-affiliates of each of the
co-registrants. The aggregate market value shall be computed by reference to the price at which the
stock was sold, or the average bid and asked prices of such stock, as of a specified date within 60
days prior to the date of filing. Not applicable
 Indicate the number of shares outstanding of each of the co-registrants classes of common stock,
as of December 31, 2004: Werner Holding Co. (PA), Inc.
    
    
    1,134.0315
    
    
    shares of Class A Common Stock13,237.9952
    
    
    shares of Class B Common Stock4,083.9698
    
    
    shares of Class C Common Stock603.3543
    
    
    shares of Class D Common Stock27,150.9299
    
    
    shares of Class E Common StockWerner Holding Co. (DE), Inc.
    
    
    1,000 shares of Common Stock
 DOCUMENTS INCORPORATED BY REFERENCENone




---



Index to Annual Report on Form 10-K
Year Ended December 31, 2004 Page No.PART IItem 1.
    
    Business
    
    
    2Item 2.
    
    Properties
    
    
    6Item 3.
    
    Legal Proceedings
    
    
    6Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    6PART IIItem 5.
    
    Market for
Companys Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    7Item 6.
    
    Selected Financial Data
    
    
    8Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    10Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    22Item 8.
    
    Financial Statements and Supplementary Data
    
    
    24Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    61Item 9A.
    
    Controls and Procedures
    
    
    61Item 9B.
    
    Other Information
    
    
    61PART IIIItem 10.
    
    Directors and Executive Officers of the Company
    
    
    61Item 11.
    
    Executive Compensation
    
    
    65Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    71Item 13.
    
    Certain Relationships and Related Transactions
    
    
    75Item 14.
    
    Principal Accountant Fees and Services
    
    
    75PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    76Signatures
    
    
    84Exhibit 31.1 Certification 302-CEOExhibit 31.2 Certification 302-CFO
  FORWARD-LOOKING STATEMENTS This Annual Report onForm 10-Kcontains certain forward-looking statements which include,
among other things, discussions of the Companys (as defined) business and results of operations,
position in its industries, future operations, liquidity and capital resources. These
forward-looking statements are based upon estimates and assumptions made by management of the
Company that, although believed to be reasonable, are inherently uncertain. Therefore, undue
reliance should not be placed upon such statements and estimates. No assurance can be given that
any of such statements or estimates will be realized and it is likely that actual results will
differ materially from those contemplated by such forward-looking statements. The information presented in this Annual Report on Form 10-K relates to Werner Holding Co.
(PA), Inc., a Pennsylvania corporation (Holding (PA)), its wholly-owned subsidiary, Werner
Holding Co. (DE), Inc. (Holding (DE)) and Werner Co., a Pennsylvania corporation and Holding
(DE)s wholly-owned subsidiary (Werner). Holding (PA) has no substantial operations or assets
other than its investment in Holding (DE) and Holding (DE) has no substantial operations or assets
other than its investments in its subsidiaries. As used herein and except as the context otherwise
may require, the Company means Holding (PA), Holding (DE), Werner and all of their consolidated
subsidiaries. 1




---



##### Table of Contents



PART I 
 Item 1. Business. Overview Holding (PA), incorporated in 1945, and Holding (DE), incorporated in 1988, are the holding
companies of Werner Co., a corporation engaged in the manufacture and sale of climbing products and
aluminum extruded products. According to managements estimates, Werner is the nations largest
manufacturer and marketer of ladders and other climbing products. Werners climbing products
include aluminum, fiberglass and wood ladders, scaffolding, stages and planks. The Werner brand
name has over a 50 year history and Werner is the most recognized name by professional end-users of
climbing products in the United States. In addition to climbing products, Werner manufactures and
sells aluminum extruded products and more complex fabricated components to a number of industries,
including the automotive, electronics, and architectural and construction industries. Description of the Business The Company operates in two business segments, Climbing Products and Extruded Products. Climbing Products Werner manufactures approximately 1,100 stock keeping units of fiberglass, aluminum, and wood
climbing products and accessories primarily under the Werner brand and selectively under the Keller
and Stanley brands. The Company produces five principal categories of climbing equipment: (i)
single and twin stepladders; (ii) extension, fixed, and multipurpose ladders; (iii) attic ladders;
(iv) stages, planks, work platforms, and scaffolds; and (v) assorted ladder accessories. The
majority of the Companys climbing products sales are of either aluminum or fiberglass ladders.
Through its development of proprietary aluminum extrusion and fiberglass pultrusion technology, and
its broad sales and distribution system, the Company is a leader in the climbing products industry. The Companys sales and marketing network is directed by an experienced in-house sales team of
national and regional sales managers. The Companys climbing products are sold directly and through
approximately 45 independent, commissioned manufacturers representative organizations, which sell
to four major distribution channels: (i) home improvement, (ii) hardware, (iii) professional and
(iv) other retail. The Companys sales organization is further supported by field merchandisers who
assist customers with product merchandising, point-of-purchase signage and sales techniques. Extruded Products The Company is also a manufacturer of lineal extruded products and highly-engineered
fabricated parts. The Company targets extruded products customers who require special metallurgy,
tight tolerances, unusual shapes, painting, finishing and fabrication requirements. Werner has
implemented sophisticated quality systems, and has been awarded ISO-9002, QS-9000 and TS 16949
certifications. Werner sells aluminum extrusions to customers in the automotive, electronics, architectural
and construction industries who use them in a broad range of products including cellular phone
panels, garage door lift systems, material handling and factory automation equipment, electrical
connectors, recreational vehicle accessories, and commercial lighting and window wall systems. The Companys extruded products sales organization is supplemented by approximately nine
independent manufacturers representative organizations. The Company operates on a make-to-order
basis with most extruded products customers. 2




---



##### Table of Contents



Segments See Note O entitled Segment Information included in the notes to consolidated financial
statements for financial information for each of the Companys business segments. Raw Materials and Suppliers The Company is a major consumer of aluminum and has contracts to provide most of its estimated
aluminum requirements with three principal suppliers. These contracts include stipulated prices
with provisions for price adjustments based on market prices. Two of these contracts will be
renegotiable in 2005 and one will be renegotiable in 2007. The Company has several alternative
sources for its aluminum requirements and does not believe that any one of these contracts is
material to the Companys operations. The Company follows various hedging strategies intended to mitigate the impact of raw material
price fluctuations. From time to time, the Company has utilized futures and option contracts to
hedge the risk associated with price fluctuations for a certain percentage of its forecasted
aluminum raw material requirements. The Companys practice is not to hold derivative commodity
instruments, including aluminum futures and option contracts, for trading purposes. These futures
and option contracts are placed with established metal brokers and can range up to two years in
duration. The Company has several alternative brokers and does not believe that any one of these
contracts is material to the operations of the Company. The Company also has contracts to purchase the basic materials required for fiberglass
pultrusion with its principal suppliers. These contracts are typically one to three years in
length. The Company has several alternative sources for these basic materials and does not believe
that any one of these contracts is material to the operations of the Company. Patents, Trademarks and Licenses No business segment is dependent, to any significant degree, on patents, licenses, franchises
or concessions and the loss of these patents, licenses, franchises or concessions would not have a
material adverse effect on any business segment. The Company owns numerous patents worldwide, none
of which are material to the Companys operations as a whole. These patents expire from time to
time over the next 20 years. The Company holds licenses, franchises and concessions, none of which
individually or in the aggregate is material to the Companys operations as a whole. These
licenses, franchises and concessions vary in duration from one to 15 years. The Company has numerous trademarks that are utilized in its businesses worldwide. The Werner
logo trademark is material to both of the Companys business segments. This well-known trademark
enjoys a reputation for quality and value and, in the climbing products industry, is among the
worlds most trusted brand names. While the Company believes its other trademarks are important to
its business operations, the loss of any of these other trademarks would not have a material
adverse effect on the Companys operations as a whole. Sensitivity to Economic Cycles and Weather Conditions A significant percentage of the Companys sales of climbing products is attributable to new
residential and nonresidential construction in the United States, which are affected by such
cyclical factors as interest rates, inflation, consumer spending habits and employment. Similarly,
a significant percentage of the Companys sales of extruded products is attributable to the new and
used automobile and automotive parts markets, which are also affected by such cyclical factors.
Sales of climbing equipment are also sensitive to prevailing weather conditions. Unusually severe
weather can reduce or defer sales of climbing products by delaying home construction and elective
home maintenance and discouraging do-it-yourself projects, which account for a growing portion of
the Companys sales. 3




---



##### Table of Contents



Backlog Due to the Companys ability to quickly meet production orders and its production forecasting
systems, the Company has no significant backlog in climbing products. Most extruded products are
produced on a make-to-order basis. Competition Management estimates that, while it is the largest U.S. producer of climbing products, there
were approximately 12 principal foreign and domestic competitors in 2004. Foreign manufacturers
compete in U.S. markets primarily on the basis of price. The Company competes in its climbing
products segment on the basis of its reputation for product quality, its well-known brands, its
emphasis on customer service, the breadth of its product lines and its commitment to product
innovation. In its extruded products business, the Company competes with integrated primary aluminum
producers, large independent producers and numerous small independent producers located throughout
the United States. The Company competes in its extruded products segment on the basis of its
specialized extrusion capabilities, customer service and price. Some of the Companys competitors in the climbing products and the extruded products markets
have greater financial resources and are less leveraged than the Company. Some of the Companys
extruded products competitors are larger than the Company. Employees The Company had approximately 1,800 salaried and hourly employees as of December 31, 2004. Of
the 1,300 hourly employees, approximately 1,200 are covered by seven collective bargaining
agreements which expire in 2005 through 2008. The Company plans to renegotiate and renew union
contracts as they expire. The Company believes that its labor relations are satisfactory at all of
its facilities. Additionally, the Juarez, Mexico facility utilized approximately 300 individuals on
a contract basis to operate as of December 31, 2004. Dependence on Key Customers During December 2003, the Company announced that it had entered into a long term strategic
alliance with Lowes Companies, Inc. (Lowes). Under this arrangement, Lowes is the exclusive
source for Werner® branded climbing equipment in the warehouse home center channel. Werner supplies
all of Lowes climbing equipment requirements and with Lowes, jointly promotes and markets Werner®
branded products. In addition, Werner has the opportunity to enter into new climbing equipment
categories at Lowes. Lowes and Werner have jointly committed to developing strategic plans to
increase ladder sales. Other than its alliance with Lowes, the Company does not have contractual
agreements for the supply of products with most of its other climbing products customers. Sales to
Lowes accounted for 32%, 22% and 18% of the Companys net sales in 2004, 2003 and 2002,
respectively. During October 2003, the Company announced that its then largest customer, Home Depot, would
no longer purchase aluminum and fiberglass stepladders from the Company but would instead source
these products directly from China. Werner was also included in an extension ladder supplier line
review at Home Depot that began in October 2003. After careful consideration and extensive
analyses, taking into account the Companys long-term interests, value and brand equity of Werner, the Company announced in
December 2003 that it had decided to discontinue supplying Werner® branded products to Home Depot.
In order to provide for an orderly transition, the Company continued supplying Werner® branded
climbing equipment to Home Depot into the first quarter of 2004. The financial impact of no longer
supplying Home Depot is significant (see Managements Discussion and Analysis of Financial
Condition and Results of Operations-Executive Summary and Current Developments). The loss of
certain other key climbing products customers or a significant decrease in the volume of products
supplied to any of such customers could have a material adverse effect on the Company. Sales to
Home Depot accounted for 27% and 31% of the Companys net sales in 2003 and 2002, respectively. No extruded products customer accounted for more than 10% of the Companys 2004 total net
sales. 4




---



##### Table of Contents



Environmental Regulation The Companys operations are subject to a wide variety of federal, state and local laws and
regulations governing, among other things, emissions to air, discharge to waters, the generation,
handling, storage, transportation, treatment and disposal of hazardous substances and other
materials, and employee health and safety matters. Also, as an owner and/or operator of real
property or a generator of hazardous substances, the Company may be subject to environmental
cleanup liability, regardless of fault, pursuant to the Comprehensive Environmental Response
Compensation and Liability Act or analogous state laws. The Company believes that its operations
and facilities have been and are being operated in compliance in all material respects with
applicable environmental and health and safety laws and regulations. However, the operation of
manufacturing plants entails risks of financial exposure for environmental noncompliance and
cleanup liabilities. Capital and operating expenditures for environmental compliance in 2004 were
not material. There can be no assurance that the Company will not incur costs in the future for
cleanup and other remedial activities that will have a material adverse effect on the Company. In
addition, potentially significant expenditures could be required in order to comply with evolving
environmental and health and safety laws, regulations or requirements that may be adopted or
imposed in the future. Previous Transactions The Recapitalization.On June 11, 2003, a recapitalization of the Company (the
Recapitalization) was completed. On May 7, 2003, the Company entered into a Recapitalization and
Stock Purchase Agreement (the Recapitalization Agreement) with Green Equity Investors III, L.P.
(GEI), an affiliate of Leonard Green & Partners L.P. (Leonard Green), and certain shareholders
of the Company. Pursuant to the Recapitalization Agreement (i) GEI invested $65.0 million in the
Company in exchange for 65,000 shares of Series A Preferred Stock (see Note G to the Companys
consolidated financial statements included herein), (ii) the Company redeemed 39.66% of its
outstanding shares of capital stock for payments totaling $147.0 million and (iii) the Company made
certain other payments including $3.0 million to the holders of options to purchase the Companys
Class C Common Stock in consideration for the cancellation of certain of their vested options
(collectively, the Recapitalization).
The Series A Preferred Stock represented approximately 22% of the outstanding voting shares of
capital stock as of the date of the Recapitalization. The Recapitalization was accounted for as a
leveraged recapitalization at historical cost principally due to the fact that less than 80% of the
voting securities were acquired. As part of the Recapitalization, the Company entered into a $230
million credit facility (see Note E to the Companys consolidated financial statements included
herein) with a syndicate of banks consisting of a $180 million Term Loan and a $50 million
Revolving Credit Facility. The Company used $115.4 million to repay in full its existing senior
credit facility which was terminated as of the date of the Recapitalization. 5




---



##### Table of Contents



Item 2. Properties. The Company believes its manufacturing, warehouse and office facilities are suitable and
adequate. The Company also believes that its facilities are being utilized consistently with the
Companys plans. The Companys principal facilities consist of the: Owned/
    
    ApproximateLocation
    
    Principal Use
    
    Lease Expiration
    
    Square FootageGreenville, PA
    
    Office, Manufacturing, Distribution
    
    Owned
    
    
    640,000Franklin Park, IL
    
    Office, Manufacturing, Distribution
    
    Owned
    
    
    672,000Juarez, Mexico
    
    Manufacturing, Distribution
    
    3/01/15 (1)
    
    
    360,000Carrollton, KY
    
    Manufacturing, Distribution
    
    Owned (2)
    
    
    200,000Merced, CA
    
    Manufacturing, Distribution
    
    12/31/2035 (3)
    
    
    464,000Anniston, AL
    
    Distribution (4)
    
    Owned
    
    
    550,000Bell, CA
    
    Warehouse
    
    4/30/2006
    
    
    39,100Phoenix, AZ
    
    Warehouse
    
    8/31/2009
    
    
    7,300Dallas, TX
    
    Warehouse
    
    6/30/2009
    
    
    16,500Houston, TX
    
    Warehouse
    
    5/31/2006
    
    
    30,200Jefferson, LA
    
    Warehouse
    
    12/31/2009
    
    
    7,800Greensboro, NC
    
    Warehouse
    
    9/30/2012
    
    
    26,600Maryland Heights, MO
    
    Warehouse
    
    9/30/2005
    
    
    5,500Minneapolis, MN
    
    Warehouse
    
    3/31/2011
    
    
    23,600
   (1)
    
    The lease related to the Juarez facility has an initial term of ten years and the Company
has two five-year options to extend the lease beyond its initial term. The Company has the option
to purchase the facility at the end of the initial lease term.(2)
    
    Collateral for Variable Rate
Industrial Building Revenue Bonds issued by the County of Carroll, Kentucky.(3)
    
    Building and
improvements owned by Werner, real property leased under 15 year ground lease with four 5-year
renewals.(4)
    
    Manufacturing operations ceased at the Anniston facility effective November 1, 2004 and the distribution center is expected to cease operations during the second half of
2005. The approximate square footage listed in the table above includes both the manufacturing
and the distribution facility. The Company intends to sell this facility. As of December 31, 2004, the Companys facility at Greenville, Pennsylvania primarily serves
the extruded products segment of the Companys business. All other facilities serve the climbing
products segment of the Companys business. 
 Item 3. Legal Proceedings. The Company is involved from time to time in various legal proceedings and claims incident to
the normal conduct of its business. Although it is impossible to predict the outcome of any pending
legal proceeding, the Company believes that such legal proceedings and claims, individually and in
the aggregate, are either without merit, covered by insurance or adequately reserved for, and will
not have a material adverse effect on its results of operations, financial position or cash flows. 
 Item 4. Submission of Matters to a Vote of Security Holders. None. 6




---



##### Table of Contents



Part II 
 Item 5. Market for Companys Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities. There is no established public trading market for the common stock of either Holding (PA) or
Holding (DE). As of December 31, 2004, all of the issued and outstanding shares of Holding (DE)s
common stock were held by Holding (PA). The number of shareholders of record of each class of
common stock of Holding (PA) as of December 31, 2004 is as follows:  Class A Common Stock: 26 holders 
Class B Common Stock: 109 holders
Class C Common Stock: 28 holders 
Class D Common Stock: 11 holders 
Class E Common Stock: 12 holders No dividends have been paid to common shareholders of Holding (PA) in the last two years and
no dividends are expected to be declared in the near future. Holding (DE) declares and pays from
time to time, certain cash dividends to its sole shareholder, Holding (PA), in order to allow
Holding (PA) to pay certain obligations such as taxes and ordinary course operating expenses not
exceeding $2,000,000 in any fiscal year. The Senior Credit Facility and the Indenture governing the
Notes limit the Companys ability to pay dividends on its capital stock. Holding (DE) has not issued or sold any equity securities within the past three years that
were not registered under the Securities Act of 1933, as amended (the Securities Act). Holding
(PA) has not issued or sold any equity securities within the past three years that were not
registered under the Securities Act, except as follows: (a) On various dates from November 24, 1997
through December 31, 2004, pursuant to Holding (PA)s Stock Option Plan, Holding (PA) has granted
to key employees of Werner non-qualified incentive stock options, exercisable at prices ranging
from $500.00 to $3,100.00 per share, to purchase up to an aggregate of 4,359 shares of Class C
Common Stock as of December 31, 2004. See Note I entitled Stock Incentive Plans in the notes to
consolidated financial statements included herein for additional information. (b) On various dates from January 1, 1999 to October 14, 2002, certain members of
Werners management purchased shares of Holding (PA)s Class C Common Stock at purchase prices
ranging from $2,421.29 to $3,100.00 per share, or an aggregate of approximately $5,878,000
pursuant to Management Stock Purchase Agreements. Certain of these individuals received
secured loans from the Company pursuant to its Stock Loan Plan to finance a portion of the
purchase price paid for the shares of Class C Common Stock in an aggregate amount of
approximately $3,726,000. The balance of such loans, excluding interest thereon, is $610,000
at December 31, 2004. See Note I entitled Stock Incentive Plans in the notes to consolidated
financial statements included herein for additional information. (c) On June 11, 2003, as part of the Recapitalization, Holding (PA) sold to GEI 65,000
shares of Series A Participating Convertible Preferred Stock at an aggregate offering price of
$65,000,000. See Note G entitled Convertible Preferred Stock in the notes to consolidated
financial statements included herein for additional information. (d) On November 10, 2003, as part of the settlement of a shareholders derivative action
entitled Elizabeth Werner, et al v. Eric J. Werner, et al (Civil Action 98-503), Holding (PA)
issued 100 shares of Class B Common Stock to the plaintiffs in exchange for the dismissal with
prejudice of the lawsuit and the full release of claims. The transactions set forth in paragraph (a) above were undertaken in reliance upon the
exemption from the registration requirements of the Securities Act afforded by Rule 701 promulgated
thereunder, as sales by an issuer to employees, directors or officers pursuant to written
compensatory benefit plans or written contracts relating to the compensation of such persons. The
transactions set forth in paragraphs (b), (c) and (d) above were undertaken in reliance upon the
exemption from the registration requirements of the Securities Act afforded by Section 4(2) thereof
and/or Regulation D promulgated thereunder, as sales not involving a public offering. The Company
believes that exemptions other than those specified above may exist with respect to the
transactions set forth above. 7




---



##### Table of Contents



Item 6. Selected Financial Data. The following selected consolidated financial data is that of Holding (PA). Holding (PA) is a
guarantor of the 10% Senior Subordinated Notes due 2007 issued by Holding (DE) in 1997 (the
Notes) and has no substantial operations or assets other than its investment in Holding (DE). As
a result, the consolidated financial condition and results of operations of Holding (PA) are
substantially the same as those of Holding (DE). This table contains selected financial data and is
qualified by the more detailed Consolidated Financial Statements and Notes thereto of Holding (PA).
The selected financial data should be read in conjunction with the Consolidated Financial
Statements and Notes thereto and Managements Discussion and Analysis of Financial Condition and
Results of Operations included elsewhere herein. Years Ended December 312004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000(Dollars in Millions, except Per Share Amounts)Operating Data:Net sales
    
    $
    446.2
    
    
    $
    501.1
    
    
    $
    520.4
    
    
    $
    535.7
    
    
    $
    545.2Cost of sales
    
    
    313.4
    
    
    
    320.3
    
    
    
    343.8
    
    
    
    379.2
    
    

    
    384.5Gross profit
    
    
    132.8
    
    
    
    180.8
    
    
    
    176.6
    
    
    
    156.5
    
    
    
    160.7General and administrative expenses
    
    
    27.4
    
    
    
    28.6
    
    
    
    30.0
    
    
    
    24.0
    
    
    
    29.5Selling and distribution expenses
    
    
    87.5
    
    
    
    89.8
    
    
    
    82.0
    
    
    
    83.1
    
    
    
    85.6Recapitalization expense (a)
    
    
    
    
    
    
    11.5
    
    
    
    
    
    
    
    
    
    
    
    Restructuring and other cost reduction
initiatives (b)
    
    
    9.0
    
    
    
    2.9
    
    
    
    
    
    
    
    
    
    
    
    Benefit plan curtailment and settlement
gains, net
    
    
    

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6.1
    )Plant shutdown costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.1
    )
    
    
    1.1Operating profit
    
    
    8.9
    
    
    
    48.0
    
    
    
    64.6
    
    
    
    49.5
    
    
    
    50.6Other income (expense), net (c)
    
    
    (1.4
    )
    
    
    
    
    
    
    0.3
    
    
    
    0.9
    
    
    
    (2.2
    )Income before interest and taxes
    
    
    7.5
    
    
    
    48.0
    
    
    
    64.9
    
    
    
    50.4
    
    
    
    48.4Interest expense
    
    
    25.2
    
    
    
    24.4
    
    
    
    21.5
    
    
    
    26.1
    
    
    
    27.9Income (loss) before income taxes
    
    
    (17.7
    )
    
    
    23.6
    
    
    
    43.4
    
    
    
    24.3
    
    
    
    20.5Income tax (benefit)
    
    
    (5.8
    )
    
    
    7.4
    
    
    
    16.0
    
    
    
    8.7
    
    
    
    8.2Net income (loss)
    
    $
    (11.9
    )
    
    $
    16.2
    
    
    $
    27.4
    
    
    $
    15.6
    
    
    $
    12.3Convertible preferred stock dividends
and accretion
    
    
    13.4
    
    
    
    6.2
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss) attributable to common
shareholders
    
    $
    (25.3
    )
    
    $
    10.0
    
    
    $
    27.4
    
    
    $
    15.6
    
    
    $
    12.3Balance Sheet Data (at end of period):Cash and cash equivalents
    
    $
    37.0
    
    
    $
    9.6
    
    
    $
    43.2
    
    
    $
    30.5
    
    
    $
    5.5Working capital
    
    
    61.8
    
    
    
    61.4
    
    
    
    75.1
    
    
    
    65.5
    
    
    
    61.2Total assets
    
    
    283.6
    
    
    
    278.6
    
    
    
    298.2
    
    
    
    285.0
    
    
    
    269.9Reserve for product liability and workers
compensation claims (including current)
    
    
    43.4
    
    
    
    47.9
    
    
    
    48.2
    
    
    
    44.1
    
    
    
    38.0Total debt (including current maturities)
    
    
    334.8
    
    
    
    313.1
    
    
    
    261.6
    
    
    
    277.4
    
    
    
    279.5Convertible preferred stock
    
    
    77.7
    
    
    
    64.3
    
    
    
    
    
    
    
    
    
    
    
    Common shareholders equity (deficit)(d)
    
    
    (257.9
    )
    
    
    (231.9
    )
    
    
    (102.3
    )
    
    
    (123.8
    )
    
    
    (131.3
    )Other Financial Data:Cash flow provided by operating activities
    
    
    27.3
    
    
    
    31.8
    
    
    
    41.8
    
    
    
    44.1
    
    
    
    34.6Cash flows (used in) investing activities
    
    
    (8.1
    )
    
    
    (9.4
    )
    
    
    (11.8
    )
    
    
    (16.0
    )
    
    
    (26.7
    )Cash flows provided by (used in) financing
activities
    
    
    8.2
    
    
    
    (55.9
    )
    
    
    (17.2
    )
    
    
    (3.2
    )
    
    
    (3.3
    )Depreciation and amortization(e)
    
    
    21.6
    
    
    
    17.7
    
    
    
    15.9
    
    
    
    14.6
    
    
    
    12.8Capital expenditures
    
    
    9.1
    
    
    
    9.9
    
    
    
    12.1
    
    
    
    19.4
    
    
    
    26.7
 See Notes to Selected Consolidated Historical Financial Data. 8




---



##### Table of Contents



Notes to Selected Consolidated Historical Financial Data
(Dollars in Millions)  (a)
    Recapitalization expense reflects costs incurred in connection with a recapitalization that
occurred in 2003. See Note C to the consolidated financial statements included herein for
additional information.(b)
    As further described in Note P included in the notes to the financial statements, the Company
implemented restructuring and other cost reduction initiatives beginning in 2003. Costs related to
such activities totaled $24.3 in 2004 and $6.4 in 2003. The total costs incurred during 2004
includes $9.0 recorded in Restructuring and other cost reduction initiatives, $8.8 recorded in
Cost of sales and $6.5 recorded in Selling and distribution expenses. The total costs incurred
during 2003 includes $2.9 recorded in Restructuring and other cost reduction initiatives, $2.0
recorded in Cost of sales and $1.5 recorded in Selling and distribution expenses.(c)
    Other income (expense), net for 2004, 2003, 2002, 2001 and 2000 includes $1.3, $0.7, $0.6, $1.3
and $1.9, respectively, of accounts receivable securitization expense.(d)
    The shareholders deficit occurred as a result of a redemption of common stock of $332.9 in
connection with a recapitalization that occurred in 1997. The shareholders deficit increased in
2003 by $147.0 as a result of redemption of common stock that occurred in connection with the
recapitalization that occurred in 2003. See Note C to the consolidated financial statements
included herein for additional information.(e)
    Depreciation and amortization is comprised of the following components in 2004, 2003, 2002,
2001 and 2000: depreciation of property, plant and equipment, $16.6, $12.9, $12.1, $10.4 and $9.1,
respectively; and amortization, $5.0, $4.8, $3.8, $4.2 and $3.7, respectively. Depreciation and
amortization excludes amortization of deferred financing fees and original issue discount. 9




---



##### Table of Contents



Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations. The following discussion should be read in conjunction with the Selected Consolidated
Historical Financial Data, and the Consolidated Financial Statements of the Company and the Notes
thereto included elsewhere in this Annual Report onForm 10-K. In the text below, financial
statement amounts have been rounded and the percentage changes are based on the financial
statements. Executive Summary Operations Werner is the largest U.S. manufacturer and marketer of ladders and other climbing products.
Werner also manufactures and sells aluminum extruded products and more complex fabricated
components. Werners climbing products are sold to four major distribution channels which include
home improvement, other retail, hardware and professional. The Companys climbing products segment
generated 84% of the Companys consolidated net sales during 2004. The extruded products business primarily
involves make-to-order products for the automotive, electronics, architectural and construction
industries. Extruded products generated 16% of consolidated net sales during 2004. Net sales recorded in 2004 totaled $446.2 million which is a decline of $54.9 million, or
11.0%, from net sales recorded in 2003. As previously disclosed, the Company discontinued supplying
its then largest customer, Home Depot, during the first quarter of 2004. The decline in net sales
was due to lower sales to Home Depot which was partially offset by increased sales to other
customers. As also previously disclosed, the Company entered into a long term strategic alliance
with Lowes which began in the first quarter of 2004. Under the arrangement, Lowes is the
exclusive source for Werner® branded climbing equipment in the warehouse home center channel and
Werner supplies all of Lowes climbing equipment requirements. Operating profit in 2004 was $8.9 million which is $39.1 million lower than 2003 operating
profit of $48.0 million. The major factors negatively impacting profitability are rising raw
material and freight costs, higher restructuring and related costs, lower unit sales volumes for
climbing products, a less profitable product mix for climbing products, and increased costs for
climbing products sales incentives, promotions and advertising initiated in response to competitive
pricing pressures. Sales volumes in 2004 are significantly less than 2003. In order to better align the Companys
cost structure with the reduction in sales volumes, a restructuring and downsizing program was
initiated in early 2004 which, in part, accelerated and expanded certain manufacturing and
distribution optimization activities initiated in 2003. A summary of these initiatives include:  
    In February 2004, the Company announced that it planned to gradually phase-out
production at its Anniston, Alabama manufacturing and distribution facility.
Manufacturing operations at this facility ceased effective November 1, 2004 and the
distribution center is expected to cease operations during the second half of 2005. The
Company intends to sell this facility. An active program to locate a buyer was initiated
during the first quarter of 2005.
    During the third quarter of 2003, the Company began manufacturing ladder components and
accessories at a leased facility located in Mexico. In early 2004, the Company began
construction of a large manufacturing and ladder assembly plant in Juarez, Mexico.
Construction was completed and production commenced during the third quarter of 2004.
Production is expected to ramp-up until full capacity is achieved during 2006.
    In early 2004, the Company initiated a program to reduce costs by re-engineering its
selling, general and administrative functions. This program will be continued through
2005. The manufacturing and distribution optimization activities initiated during 2003 included the
transfer of all ladder fabrication and assembly operations in Greenville, Pennsylvania to other
lower cost Company facilities. Substantially all production related to climbing products at the
Greenville facility was discontinued during 2003 and the remaining operations related to climbing
products are expected to cease during 2005. The Company also began an initiative that was completed
in 2004 to focus the Greenville facility on the Extruded Products segment of the Companys
business. During 2004 the Company also ceased production of wood stepladders at its Carrollton,
Kentucky manufacturing facility. Wood stepladder customers are being served by outsourcing 10




---



##### Table of Contents



production to a third party. Wood attic ladder production continues at the Carrollton facility. In
October 2004 the Company announced that it intended to build an addition to the Carrollton facility
for use as a regional distribution center. This decision was re-evaluated during the first quarter
of 2005 and an alternative regional distribution center was selected which will be leased under an
operating lease beginning in 2005. Cumulative costs associated with the above-described activities through 2008, including costs
associated with completing the initiatives begun in 2003, are expected to range from $55 million to
$60 million. Aggregate costs of $30.7 million have been incurred for these activities through the
end of 2004, including the $24.3 million incurred in 2004. The annual benefits expected to be
realized upon implementation of the restructuring initiatives through 2008 are estimated to
approximate $40 million. The restructuring program is expected to continue through 2008 although
initiatives beyond those expected to be implemented during 2005 have not yet been finalized.
Although management believes that these estimates are reasonable, no assurances can be given that
the estimated costs will ultimately be incurred or that the estimated benefits will be realized.
Accordingly, these estimates are forward-looking and may ultimately be materially different than
currently estimated due to the uncertainty of the underlying estimates and assumptions. The
estimated costs include facility exit costs, employee severance and related benefit costs, employee
and equipment relocation costs, costs associated with disposal of fixed assets, duplicate freight
and handling costs during transition and wind-down and start-up costs associated with manufacturing
facilities. Financing Occurring Subsequent to December 31, 2004 During May 2005 the Company successfully closed a $100 million Senior Secured Second Lien Term
Loan. Net proceeds of $91.7 million were used to repay amounts outstanding under the Companys
existing Senior Credit Facility including prepayment of $65.0 million of the Senior Credit Term
Loan and the repayment of the total amount outstanding of $26.7 million under the Senior Credit
Revolving Facility. Effective as of March 31, 2005 an agreement related to the Senior Credit Facility was executed
to, among other things, waive the requirement to comply with the debt leverage and interest
coverage ratios as of March 31, 2005 and to defer the requirement to provide audited financial
statements for the year ended December 31, 2004 until May 10, 2005. Effective May 10, 2005 the
Senior Credit Facility was amended in conjunction with the repayments described above to, among
other things, initiate new financial covenant requirements beginning June 30, 2005 through December
31, 2007. The purpose of the Second Lien Term Loan and the amendment to the Senior Credit Facility was
to provide the Company the liquidity and the covenant relief necessary to successfully complete the
restructuring program. Critical Accounting Policies and Estimates The Consolidated Financial Statements and Notes to Consolidated Financial Statements contain
information that is pertinent to managements discussion and analysis. The preparation of financial
statements in conformity with generally accepted accounting principles requires management to make
estimates and assumptions about future events that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities. Future events and their effects
cannot be determined with absolute certainty. Therefore, the determination of estimates requires
the exercise of judgment based on various assumptions and other factors such as historical
experience, current and expected economic conditions, and in some cases, actuarial techniques. The
Company constantly re-evaluates these significant
factors and makes adjustments where facts and circumstances dictate. Historically, actual
results have not significantly deviated from those determined using the estimates described above.
The Company believes that the following accounting policies are critical due to the degree of
estimation required. The Company provides credit to its customers in the normal course of business, performs
ongoing credit evaluations of its customers and maintains allowances for potential credit losses.
The allowance for doubtful accounts related to trade receivables is determined based on two
methods. The amounts calculated from each of these methods are combined to determine the total
amount reserved. First, an evaluation of specific accounts is conducted when information is
available indicating a customer may not be able to meet its financial obligations. Judgments are
made in these specific cases based on available facts and circumstances, and a specific reserve for
that customer may be recorded to reduce the receivable to the amount that is expected to be
collected. These specific reserves are re-evaluated and adjusted as additional information is
received that impacts the amount reserved. Second, a reserve is established for all customers based
on historical collection and write-off 11




---



##### Table of Contents



experience. The collectibility of trade receivables could be significantly reduced if default rates
are greater than expected or if an unexpected material adverse change occurs in a major customers
ability to meet its financial obligations. The Company must generate sufficient taxable income in future periods to realize the total
value of its deferred tax assets. A valuation allowance that reduces deferred tax assets to the
amount expected to be realized is determined based on projections of taxable income. If the level
of projected taxable income used to determine the valuation allowance is not achieved, the carrying
value of the deferred tax assets will not be realized. The Company maintains third party insurance coverage, subject to certain deductible
provisions, for product liability and workers compensation claims which occur on or after March
31, 1998 and maintains a reserve for the insurance deductibles related to such claims. The reserve
for product liability and workers compensation claims is determined on an undiscounted actuarial
basis. The reserve includes an amount determined from loss reports for individual cases and an
amount, based on past experience, for losses incurred but not reported. The determination of the
reserve is primarily predicated on the assumption that selected claims reporting and payment
patterns, and frequency and severity trends, will continue to apply. The methods and assumptions
used to estimate the resulting reserve are continually reviewed, and any adjustments are reflected
in earnings currently. Actual claims experience will affect the amount of expense ultimately
recognized. Pension assets and liabilities are determined on an actuarial basis and are primarily affected
by the market value of plan assets, estimates of the expected return on plan assets and the
discount rate used to determine the present value of pension liabilities. Actual changes in the
fair market value of plan assets and differences between the actual return on plan assets, the
expected return on plan assets and changes in the selected discount rate will affect the amount of
pension expense ultimately recognized. The Recapitalization In June 2003, the Company completed a recapitalization with GEI, an affiliate of Leonard
Green, and certain shareholders of the Company. Pursuant to the Recapitalization Agreement (i) GEI
invested $65.0 million in the Company in exchange for 65,000 shares of newly issued convertible
preferred stock, (ii) the Company redeemed 39.66% of its outstanding shares of capital stock for
payments totaling $147.0
million and (iii) the Company made certain other payments including $3.0 million to the
holders of options to purchase the Companys capital stock in consideration for the cancellation of
certain of their vested options (collectively, the Recapitalization). The convertible preferred
shares represented approximately 22% of the outstanding voting shares of capital stock as of the
date of the Recapitalization. As part of the Recapitalization, the Company entered into a $230 million senior credit
facility with a syndicate of banks consisting of a $180 million Term Loan and a $50 million
Revolving Credit Facility. The Company paid $115.4 million to repay in full its previous senior
credit facility which was then terminated as of the date of the Recapitalization. The Recapitalization was accounted for as a leveraged recapitalization at historical cost
principally due to the fact that less than 80% of the voting securities were acquired. Results of Operations Year Ended December 31, 2004 as Compared to Year Ended December 31, 2003 Net Sales.Net sales were down $54.9 million, or 11.0%, to $446.2 million for the year 2004
from $501.1 million for 2003. Net sales of climbing products decreased by $59.3 million, or 13.7%, to $373.5 million for
2004 from $432.8 million for 2003. The decline is due to lower sales to Home Depot partially offset
by increased sales to other customers. The increase in sales to other customers is due to higher
unit sales volumes in each of the Companys distribution channels. This was due, in part, to sales
to Lowes under the strategic alliance which began in the first quarter of 2004. Net sales of extruded products of $72.7 million for 2004 increased by $4.3 million, or 6.4%
compared to net sales of $68.3 million recorded in 2003. The increase primarily reflects the impact
of higher aluminum prices. Unit sales volumes in 2004 for extruded products were approximately
equal to 2003 volumes. 12




---



##### Table of Contents



Gross Profit.Gross profit declined by $48.0 million, or 26.6%, to $132.8 million for 2004
from $180.8 million for 2003. Gross profit as a percentage of net sales in 2004 declined to 29.8%
from 36.1% for 2003. The lower gross profit is largely due to lower climbing products sales
volumes, higher raw material costs, a less profitable product mix for climbing products, increased
costs for climbing products sales incentives and promotions in response to competitive pricing
pressures, increased costs related to new product development and introductions, and higher
start-up and realignment costs. The decline in gross profit was partially offset by a decline in
the provision for product liability and workers compensation claims of $4.6 million primarily due
to favorable product liability claims experience. However, these expenses are expected to increase
in 2005 due to the likelihood that claims experience will be less favorable than in 2004 and also
due to the increased cost of providing insurance coverage in excess of deductible provisions.
Previously, the Company has benefited from lower costs related to a five-year insurance program
that ended on December 31, 2004. Cost of sales for 2004 and 2003 include costs of $8.8 million and
$2.0 million, respectively, related to manufacturing inefficiencies associated with winding-down,
starting-up and realigning facilities in connection with the Companys restructuring and other cost
reduction initiatives. General and Administrative Expenses.General and administrative expenses were $27.4 million
in 2004 compared to $28.6 million for 2003, a decline of $1.2 million or 4.4%. The decline in 2004
reflects the absence of all accruals for performance based incentive compensation and lower legal
and professional fees. The decline was partially offset by severance and related costs of $1.3
million recorded in 2004 related to the separation of the chief executive officer, and higher
depreciation related to capitalized computer hardware and software costs. Selling and Distribution Expenses.Selling and distribution expenses of $87.5 million in 2004
are $2.3 million, or 2.6%, less than expenses recorded in 2003. The decline in current year expense
due to the impact of lower sales volumes and changes in customer mix was mostly offset by rising
freight costs, higher advertising costs and costs totaling $6.5 million related to distribution
inefficiencies associated with the Companys restructuring and other cost reduction activities. Restructuring and other Cost Reduction Initiatives.The total costs incurred during 2004 and
2003 relating to the previously described restructuring and other cost reduction activities totals
$24.3 million and $6.4 million, respectively. Costs in 2004 include $9.0 million of costs related
to employee severance and equipment relocation and disposal costs in addition to $8.8 million
recorded in Cost of sales and $6.5 million in Selling and distribution expenses for costs relating
to winding down and starting up manufacturing facilities. Operating Profit.Operating profit declined by $39.1 million to $8.9 million for 2004. The
decline primarily reflects the decline in net sales, a decline in profitability of the Climbing
Products segment and an increase in costs of $17.9 million for restructuring and related activities
recorded in 2004 compared to 2003. The reduction in operating profit due to these factors was
partially offset by the absence of costs totaling $11.5 million that were expensed in 2003 related
to the recapitalization of the Company that occurred on June 11, 2003. Operating profit of the Climbing Products segment decreased by $48.6 million to $12.7 million
in 2004. The decline in profitability primarily reflects the decline in net sales of climbing
products due mostly to lower unit sales volumes, rising raw material costs, a less profitable sales
mix, increased costs for sales incentives, promotions and advertising, increased costs related to
new product development and introductions, a charge for an allocated portion of severance costs
related to separation of the chief executive officer, and higher restructuring and related costs.
Operating costs for 2004 include $22.7 million for restructuring and related costs which were $16.9
million greater than similar costs incurred in 2003. The decline in profitability was partially
offset by a lower provision for product liability and workers compensation claims in 2004. The Extruded Products segment incurred an operating loss of $1.0 million for 2004 compared to
an operating profit of $2.1 million for 2003. The decline in operating profit of $3.1 million is
primarily due to higher workers compensation costs and costs of $1.6 million for restructuring and
related activities recorded in 2004 which were $1.0 million greater than similar costs incurred in
2003. Corporate and Other expenses decreased by $12.6 million for 2004 compared to 2003 primarily
due to the absence of costs totaling $11.5 million that were expensed in connection with a
recapitalization of the Company that occurred in 2003. In addition, expense is lower in 2004 due
to the absence of legal and professional fees associated with shareholders litigation that was
settled in 2003. 13




---



##### Table of Contents



Other Income (Expense), Net.Other income (expense), net was net expense of $1.4 million for
2004, an increase in expense of $1.4 million compared to 2003. The increase in expense is primarily
due to higher costs associated with increased utilization of the accounts receivable securitization
agreement and higher letter of credit fees during 2004. Interest Expense.Interest expense increased by $0.8 million to $25.2 million for 2004 from
$24.4 million for 2003. The increase is due to higher average levels of debt outstanding and higher
average interest rates in 2004 partially offset by the absence of a charge totaling $2.4 million
related to the write-off of unamortized deferred financing fees recorded in 2003 that was
associated with the senior credit facility that was repaid and terminated in connection with a
recapitalization of the Company. Income Taxes (Benefit). As a result of the 2004 pre-tax loss, an income tax benefit of $5.9
million was recorded which is $13.3 million less than the tax expense recorded in 2003. An
effective tax rate of 33% was applied to the 2004 pre-tax loss, compared to an effective tax rate
of 31% that was applied to 2003 pre-tax income. The increase in the effective tax rate is
primarily due to an increase in the valuation allowance related to certain deferred tax assets. Net Income (Loss).Net income declined by $28.1 million to a net loss $11.9 million for 2004
compared to net income of $16.2 million for 2003 as a result of all the above factors. Year Ended December 31, 2003 as Compared to Year Ended December 31, 2002 Net Sales.Net sales were down $19.3 million, or 3.7%, to $501.1 million for 2003 from $520.4
million for 2002. Net sales of climbing products decreased by $11.5 million, or 2.6%, to $432.8
million for 2003 from $444.3 million in 2002. The sales decline primarily reflects lower unit sales
volumes of aluminum and wood stepladders partially offset by higher sales of fiberglass extension
ladders. Net sales of extruded products of $68.3 million for 2003 declined by $7.7 million, or
10.2%, compared to 2002 primarily reflecting lower unit sales volumes due to the continued softness
in the markets served by this segment of the Companys business and the restructuring of certain
low margin accounts to improve profitability. Gross Profit.Despite lower sales, gross profit improved by $4.2 million, or 2.4%, to $180.8
million for 2003 from $176.6 million for 2002. Gross profit as a percentage of net sales in 2003
improved to 36.1% from 33.9% for 2002. The higher gross profit margin is largely due to the
realignment of ladder fabrication and assembly operations in Greenville, Pennsylvania to lower cost
facilities as well as on-going manufacturing productivity improvements and other manufacturing cost
reduction initiatives. An improvement in the profitability of the product mix also contributed to
the higher gross profit margin. These improvements more than offset the effects of lower aluminum
extrusion production volumes. Cost of sales for 2003 includes costs of $2.0 million primarily
related to manufacturing inefficiencies associated with the start-up and realignment of ladder
fabrication and assembly operations that was initiated in the second quarter of 2003. General and Administrative Expenses.General and administrative expenses were $28.6 million
for 2003 compared to $30.0 million for 2002, a decrease of $1.4 million or 4.5%. Expenses for 2002
include severance cost of $1.6 million associated with the separation of a former executive
officer. Excluding this one-time severance cost, general and administrative expenses were $0.2
million higher in 2003 than 2002 due to higher management advisory and consulting fees, higher
pension expense, higher legal and professional expenses (related, in part, to new product
development) and higher depreciation related to capitalized computer hardware and software costs
all of which were largely offset by a
lower provision for performance based incentive compensation. Pension expense increased in
2003 due to lower than expected returns on plan investments during the years 2000 through 2002 and
a decrease in the discount rate used to value pension liabilities which reflects the general
decline in interest rates. Selling and Distribution Expenses.Selling and distribution expenses increased by $7.8
million, or 9.5%, to $89.8 million for 2003 compared to $82.0 million in 2002 which reflects higher
shipping and handling expenses to support supply chain initiatives to continue reducing cycle times
and improving order fill rates. These cost increases more than offset the impact of lower unit
sales volumes. Recapitalization Expense.Recapitalization expense recorded in 2003 totals $11.5 million and
includes a noncash compensation charge of $4.6 million associated with modifying stock options in
connection with the Recapitalization. Recapitalization expense also includes a compensation charge
of $3.0 million related to cancellation payments for certain vested options, transaction bonus
payments totaling $1.7 million paid to certain 14




---



##### Table of Contents



officers and employees of the Company, a noncash charge of $1.3 million related to the deferred
stock plan and, other professional fees and miscellaneous expenses totaling $0.9 million. Restructuring and Other Cost Reduction Initiatives.The Company transferred all ladder
fabrication and assembly operations in Greenville, Pennsylvania to other lower cost Company
facilities beginning in the second quarter of 2003. The Company also began an initiative to focus
the Greenville facility on the Extruded Products segment of the Companys business which will be
completed in 2004. During the third quarter of 2003 the Company began manufacturing component parts
and accessories at a leased facility in Mexico. The total costs incurred during 2003 relating to
the optimization of the Companys manufacturing and distribution operations were $6.4 million which
includes $2.0 million recorded in Cost of sales and $1.5 million in Selling and distribution
expenses. Operating Profit.Operating profit declined by $16.6 million to $48.0 million for 2003 from
$64.6 million for 2002 primarily due to the recognition of $11.5 million of Recapitalization
expense and $6.4 million of costs related to optimization of the Companys manufacturing and
distribution operations. If the impact of the Recapitalization expense and optimization costs is
removed, in addition to removal of the prior year impact of the one-time severance cost of $1.6
million associated with the separation of a former executive officer, operating profit would have
been $65.9 million in the current year which is $0.3 million, or 0.5%, less than 2002. Operating
profit, as adjusted, was essentially equal to 2002 despite a decline in net sales of $19.3 million
which reflects the positive impact of on-going manufacturing productivity improvements and other
manufacturing cost reduction initiatives in addition to an improvement in the profitability of the
product mix. Operating profit of the Climbing Products segment decreased $4.6 million to $61.3 million in
2003. If the impact of optimization costs totaling $5.8 million is removed, in addition to removal
of the prior year impact of a one-time severance cost allocation of $1.3 million, operating profit
of the Climbing Products segment would have declined by $0.1 million to $67.1 million in 2003
compared to 2002. The decrease primarily reflects the negative impact of lower sales and higher
selling and distribution expenses which more than offset the operational improvements. Operating profit of the Extruded Products segment was $2.1 million for 2003 compared to $0.4
million for 2002. If the impact of optimization costs totaling $0.6 million is removed, operating
profit would have been $2.7 million which is $2.3 million more than operating profit for
2002. The improvement in operating profit is primarily due to improvements in the
profitability of the segments sales mix, improved manufacturing performance and lower allocated
severance costs more than offsetting the effects of lower aluminum extrusion production volumes. Corporate and Other expenses increased by $13.8 million for 2003 compared to 2002 primarily
due to Recapitalization expense of $11.5 million recorded in 2003 in addition to higher legal and
professional expenses associated with shareholders litigation that was settled on November 2003,
and higher management advisory and consulting fees. Other Income (Expense), Net.Other income (expense), net declined by $0.3 million from $0.3
million of other income recorded in 2002. During 2003 costs associated with the receivables
purchase agreement, letter of credit fees and certain other costs were higher than in 2002. Interest Expense.Interest expense increased by $2.9 million to $24.4 million for 2003 from
$21.5 million for 2002. The increase is primarily due to the recognition of $2.4 million of
unamortized deferred financing fees in 2003 which was associated with the senior credit facility
that was repaid and terminated effective on the date of the Recapitalization. In addition, the
first quarter of 2002 included a charge of $0.4 million related to the accelerated amortization of
deferred financing fees as a result of a voluntary repayment of debt that occurred in March 2002.
After removing the impact of accelerating the recognition of unamortized deferred financing fees,
interest expense is $0.9 million greater in 2003 primarily due to the higher average debt levels in
2003 resulting from the Recapitalization. Income Taxes. Income taxes declined by $8.6 million to $7.4 million for 2003 reflecting lower
pre-tax income in 2003 and a decrease in the effective tax rate to 31% from 37% in 2002. The
decrease in the effective tax rate is primarily due to lower estimated income tax accruals in 2003. Net Income.Net income declined by $11.2 million to $16.2 million in 2003 from net income of
$27.4 million for 2002 as a result of all the above factors. 15




---



##### Table of Contents



Liquidity and Capital Resources Debt and Other Contractual Obligations The following table provides a summary of the Companys contractual obligations by due date as
of December 31, 2004. Payments Due by PeriodLessthan 1
    
    
    1-3
    
    
    4-5
    
    
    After 5Contractual Obligations(5)
    
    Total
    
    
    year
    
    
    years
    
    
    years
    
    
    years(Dollars in Millions)Debt:Senior Credit Term Loan (1)
    
    $
    155.0
    
    
    $
    22.5
    
    
    $
    60.0
    
    
    $
    72.5
    
    
    $
    Senior Credit Revolving Facility (2)
    
    
    26.7
    
    
    
    
    
    
    
    
    
    
    
    26.7
    
    
    
    Senior Subordinated Notes, due 2007
    
    
    135.0
    
    
    
    
    
    
    
    135.0
    
    
    
    
    
    
    
    Variable Rate Demand Industrial Building
Revenue Bonds, due 2015
    
    
    5.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.0Interest payments on Senior Subordinated
Notes, due 2007
    
    
    40.5
    
    
    
    13.5
    
    
    
    27.0
    
    
    
    
    
    
    
    Receivables Purchase Agreement(3)
    
    
    34.0
    
    
    
    34.0
    
    
    
    
    
    
    
    
    
    
    
    Capital Lease Interest and Principal
Payments
    
    
    19.2
    
    
    
    2.3
    
    
    
    4.3
    
    
    
    3.8
    
    
    
    8.8Operating Lease Payments
    
    
    8.5
    
    
    
    2.3
    
    
    
    2.4
    
    
    
    1.5
    
    
    
    2.3Funding of defined benefit pension plans(4)
    
    
    13.2
    
    
    
    2.6
    
    
    
    2.2
    
    
    
    2.3
    
    
    
    6.1Total Contractual Cash Obligations(5)
    
    $
    437.1
    
    
    $
    77.2
    
    
    $
    230.9
    
    
    $
    106.8
    
    
    $
    22.2
   (1)
    
    The Senior Credit Facility will mature in May 2007 in the event the Companys existing 10%
Senior Subordinated Notes maturing November 15, 2007 (the Notes) are not refinanced or extended
by May 2007. Otherwise, if the Notes are refinanced or extended by May 2007, the maturity date of
the Senior Credit Term Loan will be the earlier of (i) six months prior to the new maturity date of
the Notes or (ii) June 11, 2009. The payments due by period reflected for the Senior Credit Term
Loan represent the contractually committed obligations for principal payments during the term of
the facility assuming the Notes are refinanced or extended by May 2007. The Company has the option
to repay the term loan from time to time, in whole or in part, without premium or penalty. During
May 2005 the Senior Credit Facility was amended and $65.0 million of the Term Loan was prepaid (see
Liquidity and Capital Resources Financing Subsequent to December 31, 2004).(2)
    
    The Senior Credit Facility will mature in May 2007 in the event the Companys existing 10%
Senior Subordinated Notes maturing November 15, 2007 are not refinanced or extended by May 2007.
Otherwise, if the Notes are refinanced or extended by May 2007, the maturity date of the Senior
Credit Revolving Facility will be the earlier of (i) six months prior to the new maturity date of
the Notes or (ii) June 11, 2008. The payments due by period reflected for the Senior Credit
Revolving Facility represent the contractually committed obligations for principal payments during
the term of the facility assuming the Notes are refinanced or extended by May 2007. Available
borrowings under the facility are reduced by amounts issued under a letter of credit subfacility.
The Company executes letters of credit in the normal course of business that ensure payments to
third parties. The aggregate amount of letters of credit issued as of December 31, 2004 was $20.6
million which results in reducing the amount available under the Revolving Credit Facility from $50
million to $29.4 million. Each letter of credit has an expiration date of one year or less.
Management believes the likelihood of demand for payment under these instruments is minimal and
expects no material cash outlays to occur in connection with these instruments. During May 2005 the
Senior Credit Facility was amended and the total amount outstanding of $26.7 million under the
Revolving Credit Facility was repaid (see Liquidity and Capital Resources Financing Subsequent to
December 31, 2004).(3)
    
    The Company maintains a $50 million receivables purchase agreement with a financial
institution and its affiliate (the Receivables Purchase Agreement) which expires in May 2006 but
is subject to annual approvals by both the Company and the financial institution. As of December
31, 2004, the Company utilized $34 million of this facility. Effective during April 2005 a
commitment for a new Accounts Receivable Financing Facility was executed (see Liquidity and Capital
ResourcesCommitment for Accounts Receivable Financing Facility Obtained Subsequent to December 31,
2004).(4)
    
    During 2005 the Company expects to contribute $1.6 million to the trust established for the
non-contributory defined benefit plan which would satisfy the minimum funding requirements of
ERISA. Contributions required for years 2006 16




---



##### Table of Contents



and thereafter have not been determined. Additionally, the Company expects to pay benefits
totaling approximately $1 million to participants of its unfunded non-qualified supplemental
retirement plans during 2005. Funding for this plan for years 2006 through 2014 is estimated
to be $10.6 million. Funding for years beyond 2014 has not been determined.(5)
    
    The table of contractual obligations does not include an estimate of the future interest
payments required on the Companys existing variable rate debt obligations. Debt obligations and
related variable interest rates in effect at December 31, 2004 are detailed in Note E to the
consolidated financial statements provided herein. At December 31, 2004 the Company had $334.8 million of consolidated indebtedness. The
balance of debt includes $133.8 million of Senior Subordinated Notes reflected net of unamortized
original issue discount; a $155.0 million Term Loan; $26.7 million outstanding under the Revolving
Facility, $14.3 million of capitalized lease obligations and $5.0 million of other debt. The Senior
Credit Facility provides for the Term Loan and a $50 million Revolving Facility. The Senior Credit Facility and the Notes contain various restrictive covenants including
restrictions on additional indebtedness, mergers, asset dispositions, restricted payments,
prepayment and amendments of subordinated indebtedness. These covenants also prohibit, among other
things, the payment of cash dividends. The financial covenants of the Senior Credit Facility
require the Company to meet specific interest coverage and maximum leverage ratios and limit
capital expenditures. The Company is in compliance with all its debt covenants as of December 31,
2004. Effective during May 2005 the Senior Credit Facility was amended (see Liquidity and Capital
ResourcesAmendment of the First Lien Senior Credit Facility Subsequent to December 31, 2004). The Company maintains a Receivables Purchase Agreement with a financial institution and its
affiliate to provide additional financing capacity with a maximum availability of $50 million
depending upon the level of accounts receivable and certain other factors. The agreement expires in
May 2006 but is subject to the approval of annual renewals by both the Company and the financial
institution. Under the Receivables Purchase Agreement the Company established a consolidated
wholly-owned subsidiary, Werner Funding Corporation (Funding), which is a special purpose
bankruptcy-remote entity that acquires, on a daily basis, a variable percentage interest of certain
eligible trade receivables generated by the Company. The purchases by Funding are financed through
the sale of an undivided percentage ownership interest in such receivables to the affiliate of the
financial institution. The Receivables Purchase Agreement represents off-balance sheet financing
since the ownership interest of the affiliate in Fundings accounts receivable results in assets
being removed from the balance sheet rather than resulting in a liability to the affiliate of the
financial institution. The Company has agreed to continue servicing the sold receivables for the
financial institution at market rates; therefore no servicing asset or liability has been recorded.
As of December 31, 2004, the Company sold $61.6 million of accounts receivable in exchange for
$34.0 million in cash and an undivided interest in the accounts receivable of $27.4 million. During
January 2005, $3.1 million was paid to reduce the cash provided by the facility from $34.0 million
to $30.9 million as required by the agreement primarily due to the reduction in the balance of
accounts receivable from November to December month-end. Effective during April 2005 a commitment
for a new Accounts Receivable Financing Facility was executed (see Liquidity and Capital
ResourcesCommitment for Accounts Receivable Financing Facility Obtained Subsequent to December 31,
2004). The Company satisfies its working capital needs and capital expenditure requirements primarily
through a combination of its existing cash balance, operating cash flow and sales of accounts
receivable under the Receivables Purchase Agreement. Additional liquidity in 2005 is provided from
the refund received in March 2005 of $10.1 million of federal income taxes previously paid
resulting from the carry-back of the 2004 net loss for federal income tax purposes to earlier
profitable years. The Company believes it has sufficient funds available in the next twelve months
to support debt service requirements, projected capital expenditures and working capital needs
based on projected results of operations and the expected availability under both the Senior Credit
Facility and the Receivables Purchase Agreement. The Companys ability to make scheduled payments of principal on existing indebtedness or to
refinance its indebtedness (including the Notes), or to fund planned capital expenditures or to
finance acquisitions (although the Company has not entered into any pending agreements for
acquisitions), will depend on its future financial and operating performance, which to a certain
extent is subject to general economic, financial, competitive, legislative, regulatory and other
factors that are beyond its control. Based on the current and anticipated level of operations,
management believes that cash flow from operations and available cash, together with available
borrowings under the Senior Credit Facility and sales of accounts receivable under the Receivables
Purchase Agreement, will be adequate to meet the Companys anticipated future requirements for
working capital, budgeted capital expenditures, and scheduled payments of principal and interest on
its indebtedness, including 17




---



##### Table of Contents



the Notes, for the next twelve months. The Company, however, may need to refinance all or a portion
of the principal of the Notes on or prior to maturity. There can be no assurance that the Companys
business will generate sufficient cash flows from operations or that future borrowings will be
available under the Senior Credit Facility and the Receivables Purchase Agreement in an amount
sufficient to enable the Company to service its indebtedness, including the Notes, or make
anticipated capital expenditures and fund potential future acquisitions, if any. In addition, there
can be no assurance that the Company will be able to effect any refinancing on commercially
reasonable terms, or at all. The market value of the Companys pension plan assets at the end of December 31, 2004 and 2003
was less than the accumulated benefit obligation which required the recognition of a minimum
pension liability of $23.1 million ($14.5 million after-tax) and $20.9 million ($12.8 million
after-tax), respectively, based on the provisions of Financial Accounting Standards Board (FASB)
Statement No. 87, Employers Accounting for Pensions.The minimum liability adjustment at December
31, 2004 resulted in an increase to noncurrent liabilities of $23.6 million, an increase to
noncurrent deferred income tax assets of $8.5 million, an increase to shareholders deficit of
$14.5 million and an increase in noncurrent intangible assets of $0.6 million. Pension expense declined by $0.6 million in 2004 to $2.8 million from $3.4 million in 2003
primarily due to a decline in service cost associated with a decline in the number of hourly
participants covered by the plan and a greater expected return on plan assets in 2004 due to a
higher level of trust assets. The assumption selected for the expected return on plan assets is
8.50%. Effective January 1, 2005, the Company changed the assumption to 8.0%. During 2004 the
Company evaluated information provided by its independent investment manager and its pension
consultants, including their review of asset class return expectations based on historical returns
and long-term inflation assumptions. As a result of the review the Company reduced the assumption for the expected return on plan assets
by 0.5% the effect of which would increase 2005 pension expense by approximately $0.2 million. The
discount rate used to value pension liabilities for expense purposes declined to 6.25% in 2004 from
6.50% used in 2003. The decline in the discount rate reflects the general decline in long-term
interest rates. The benchmark consistently used in determining the discount rate is Moodys AA bond
index plus or minus no more than 0.25%. Pension expense in 2005, which will be determined using a
discount rate of 5.75%, is expected to be modestly higher due to the use of the lower discount rate
and the lower expected return on plan assets. In addition, cash contributions to the pension plan
of approximately $1.6 million will be required to be paid to the pension trust during 2005 to meet
the minimum funding requirements of the Employee Retirement Income Security Act (ERISA).
Contributions totaling $5.5 million were paid to the pension trust during 2004 to meet minimum
funding requirements. Cash Flows Net cash provided by operating activities was $27.3 million for 2004 compared to $31.8 million
of cash provided by operating activities during 2003. Cash provided by operating activities was
reduced in the current period due to a year-over-year increase in inventory levels and the use of
cash to reduce liabilities which primarily relates to the payment of deferred incentive
compensation totaling $4.8 million to the Companys chief executive officer who left the employ of
the Company during 2004. Inventories increased by $7.6 million during 2004 largely reflecting the
impact of the time lag for delivery of non-manufactured products sourced from China with FOB
shipping point terms and the increase in production at existing facilities to ensure adequate
inventory is available to maintain customer service levels while the Company rationalizes,
optimizes and starts-up new manufacturing facilities. Additionally, $4.2 million less cash was
generated in 2004 due to lower product liability and workers compensation noncash expense
provisions and higher claims payments in 2004 compared to 2003. These reductions in cash provided
by operating activities during 2004 were partially offset by the year-over-year increase of $14.0
million in borrowings under the Receivables Purchase Agreement and the year-over-year decline in
accounts receivable due in large part to the collection of substantially all the remaining balance
of receivables due from Home Depot. Net cash flows provided by operating activities were $31.8
million in 2003 compared to $41.8 million in 2002. The decline is primarily due to more cash being
used to increase year-over-year levels of accounts receivable and inventories. In addition, $4.5
million less cash was generated in 2003 due to lower product liability and workers compensation
noncash expense provisions and higher claims payments in 2003 compared to 2002. Also, more cash was
used for payroll costs in 2003 resulting in a decrease in accrued payroll of $5.7 million due to
different year-to-year pay period ending dates and a lower accrual for performance based incentive
compensation. Net cash used for investing activities was $8.1 million in 2004 compared to $9.4 million in
2003 which primarily reflects lower capital expenditures partially offset by higher proceeds on
sales of property plant and equipment in 2004. Net cash used in investing activities was $9.4
million in 2003 compared to $11.8 million in 18




---



##### Table of Contents



2002 which primarily reflects lower capital expenditures during 2003 partially offset by proceeds
of $0.5 million realized on the sale of certain property, plant and equipment. Net cash provided by financing activities was $8.2 million in 2004 compared to net cash used
of $55.9 million during 2003. Financing activities in 2004 primarily reflect net borrowings of
$26.7 million under the Revolving Facility partially offset by debt repayments of $18.4 million which
include scheduled Term Loan payments totaling $17.5 million made in 2004. Financing activities in
2003 reflect transactions that primarily related to the Recapitalization of the Company that occurred in 2003. Net cash used for
financing activities was $55.9 million for 2003 compared to net cash used of $17.2 million for
2002. As previously described, financing activities for 2003 reflects transactions that occurred on
the date of the Recapitalization including proceeds from issuance of convertible preferred stock of
$65.0 million, Term Loan proceeds of $180.0 million, payments of $147.0 million to redeem common
stock, repayment of debt totaling $115.4 million and other payments totaling $24.7 million which
includes payments of $3.0 million in connection with stock option cancellations. As a result of the cash flows described above, the balance of cash and cash equivalents at
December 31, 2004 was $37.1 million which is $27.5 million greater than the cash balance at the end
of 2003. At December 31, 2003 the balance of cash and cash equivalents was $9.6 million which was
$33.6 million less than the balance at the end of 2002. Capital Expenditures The Companys capital expenditures were $9.1 million, $9.9 million and $12.1 million in 2004,
2003 and 2002, respectively. Approximately $5 million of the amount expended in each of such years
has been for the renewal and replacement of existing facilities and equipment; thus in an economic
downturn, the Company believes it will be able to adjust the amount spent on capital expenditures
without compromising the base need of its operations. The Company expects to spend approximately
$10 million in 2005 for various capital projects, including cost reduction and new product
development projects and maintenance capital projects. Renewals and replacement of existing
facilities and equipment are expected to be lower going forward than the previous level of
approximately $5 million. Seasonality, Working Capital and Cyclicality Sales of certain products of the Company are subject to seasonal variation. Demand for the
Companys climbing products is affected by residential housing starts and existing home sales,
commercial construction activity, and overall home improvement expenditures. Due to seasonal
factors associated with the construction industry, sales of products and working capital 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/or the Receivables Purchase Agreement to meet any
seasonal variations in its working capital requirements. The residential and commercial
construction markets are sensitive to cyclical changes in the economy. Raw Material Costs and Inflation The Company purchases aluminum, resins, fiberglass and other raw materials from various
suppliers. While all such materials are available from numerous independent suppliers, commodity
raw materials are subject to price fluctuations. There have been historical periods of rapid and
significant movements in the price of aluminum, both upward and downward. Historically, the Company
has entered into futures and option contracts with respect to its purchases of aluminum to minimize
or hedge commodity price fluctuations. See Item 1. Business  Raw Materials and Suppliers and
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. Recently Issued Accounting Standards In December 2004, the FASB issued Statement No. 123R, Share-Based Payment: an amendment of
FASB Statements No. 123, which requires companies to recognize in the income statement the
grant-date fair value of stock options and other equity-based compensation issued to
employees. Statement No. 123R supercedes Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees.The Company is a nonpublic entity as defined by
Statement No. 123R; therefore, the provisions of the interpretation will become effective for the
Company on January 1, 2006. As of the effective date, the Company will be required to follow a fair
value approach using an option-pricing model, such as the Black-Scholes option valuation model, at
the date of a stock option grant. The compensation cost calculated under the fair value method
would be 19




---



##### Table of Contents



amortized over the respective vesting period of the stock option. Based on the equity instruments
awarded through December 31, 2004, the adoption of Statement No. 123R will not have a significant
impact on the Companys results of operations, financial position or cash flows. In November 2004, the FASB issued Statement No. 151, Inventory CostsAn Amendment of
Accounting Research Bulletin No. 43, Chapter 4. Statement No. 151 requires abnormal amounts of
inventory costs related to idle facility, freight, handling costs and scrapped material costs to be
recognized as current period charges. In addition, Statement No. 151 requires that the allocation
of fixed production overheads to the costs of conversion be based on the normal capacity of the
production facilities. Statement No. 151 is effective for costs incurred beginning January 1, 2006.
The adoption of Statement No. 151 is not expected to have a material impact on the Companys
results of operations, financial position or cash flows. On
October 22, 2004, the American Jobs Creation Act (the Jobs Act) was signed into law. Among
other things, the Jobs Act provides tax relief to U.S. domestic manufacturers by providing a tax
deduction for qualified production activities income. For tax years 2005 through 2006, the
deduction will equal 3% of the lesser of qualified production activities income or
taxable income. The percentage rises to 6% in years 2007 through 2009 and 9% thereafter. In
December 2004, the FASB issued FASB Staff Position 109-1, Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on
Qualified Production Activities Provided by the American Jobs Creation Act of 2004(FSP 109-1).
FSP 109-1 requires companies to account for this deduction as a special deduction that will
reduce the estimate of the annual effective tax rate in the period in which the tax deduction is
claimed. The impact of this provision on 2005 and later years is currently being evaluated. Financing Subsequent to December 31, 2004 On May 10, 2005 the Company executed a $100 million Senior Secured Second Lien Credit Facility
(Second Lien Facility) and realized net proceeds of $94,500. Net proceeds of $91,700 were used to
repay amounts outstanding under the Companys existing First Lien Senior Credit Facility (First
Lien Facility) and the remaining cash of $2.8 million was retained for general corporate purposes.
The First Lien Facility debt repaid included prepayment of $65.0 million of the existing First Lien
Term Loan, reducing the balance currently outstanding to $90.0 million, and repayment of the total
amount outstanding of $26.7 million under the First Lien Revolving Credit Facility. The Second Lien
Facility is scheduled to mature on the earlier of December 11, 2009, or May 15, 2007 if the
Companys 10% Senior Subordinated Notes are not refinanced, prior to that date, to a date later
than June 11, 2010. The amount outstanding under the Second Lien Facility will bear interest based on managements
selection of a fluctuating rate option that includes: (i) LIBOR plus an interest margin of 10.00%
or (ii) an alternate base rate plus an interest margin of 9.00%. In either case, 1.50% of the
interest payable will be capitalized as additional loans under the Second Lien Facility. The
alternate base rate is defined as the higher of the prime rate or the Federal Funds rate plus 0.50%. The Second Lien Facility is secured by all of
the assets of the Company and its subsidiaries consistent with those securing the First Lien Facility,
and will be guaranteed by each guarantor under the First Lien Facility. The liens securing the
Second Lien Facility will be second in priority to the liens securing the First Lien Facility and
the Accounts Receivables Financing Facility (see below). The financial covenants of the Second Lien Senior Credit Facility include a maximum ratio of
total secured indebtedness to earnings before interest, taxes, depreciation and amortization
(EBITDA), as defined. Covenants of the Second Lien Facility are substantially similar to those of
the Companys existing Senior Credit Facility as amended (see below). Amendment of the First Lien Senior Credit Facility Subsequent to December 31, 2004 Effective as of March 31, 2005 an agreement related to the First Lien Facility was executed
to, among other things, waive the requirement to comply with the debt leverage and interest
coverage ratios as of March 31, 2005 and to defer the requirement to provide audited financial
statements for the year ended December 31, 2004 until May 10, 2005. Effective as of May 10, 2005 the First Lien Facility was amended in conjunction with the
execution of the Second Lien Facility described above to, among other things, eliminate the
requirement to comply with previously existing debt leverage and cash interest coverage ratios and
to initiate new financial covenant requirements. Each calendar quarter beginning June 30, 2005
through December 31, 2007 certain minimum EBITDA levels 20




---



##### Table of Contents



must be attained and certain maximum ratios must be satisfied, including total secured indebtedness
to EBITDA and total first lien secured indebtedness to EBITDA. In addition, the determination of
the amount of net proceeds from asset sales that must be applied to prepay the First Lien Term Loan
was modified to require 50% of the first $40.0 million of net proceeds and all net proceeds in
excess of $40.0 million be applied to reduce the First Lien Term Loan. The amendment also
permanently waived the requirement to comply with the debt leverage and interest coverage ratios as
of March 31, 2005. The amendment provides for an increase of 0.50% in the annual rate charged on
the Term Loan and Revolving Credit Facility borrowings. The Company anticipates that it will comply with its amended debt covenants for the next
twelve months; however, continued compliance is primarily based on its future financial and
operating performance, which to a certain extent is subject to general economic, financial,
competitive, legislative, regulatory and other factors that are beyond its control. Commitment for Accounts Receivable Financing Facility Obtained Subsequent to December 31, 2004 Effective April 29, 2005, the Company and Werner Funding Corporation (Funding, the Companys
wholly-owned special purpose bankruptcy-remote entity) obtained a commitment for an Accounts
Receivable Financing Facility (Receivables Facility) with a financial institution that will
provide a maximum $50 million revolving line of credit based on a borrowing base calculation. The
amount available will be determined weekly and will be based on 82% of the Companys eligible
accounts receivable reduced by certain amounts that primarily reflect the risk profile of the
Companys customers. The Receivables Facility will expire on the earlier of May 31, 2009 or upon
the expiration of the First Lien Facility.
Funding will acquire all of the Companys trade receivables on a daily basis. The purchases by
Funding will be financed through the sale of a variable percentage ownership interest in such
receivables to the financial institution or institutions acceptable to it. The Company has agreed
to continue servicing the sold receivables for the financial institution; therefore, no servicing
asset or liability will be recorded. The Receivables Facility will be collateralized by the assets
of Funding. Fees on advances under the Receivables Facility will be determined based on managements
selection of an available fluctuating rate option that include LIBOR plus 2.00% or the prime
lending rate plus 1.00%. The agreement also provides for an unused facility fee equal to 0.50% per
annum on the unused portion of the Receivables Facility. Early termination fees of 2.00% and 1.00%
of the aggregate facility will be payable if the Receivables Facility is terminated by the Company
prior to the lapse of one and two years, respectively. Proceeds upon executing the Receivables Facility will be used to repurchase the total
outstanding interest of $30.9 million under the existing Receivables Purchase Agreement and to pay
fees and expenses incurred in connection with the execution of the Receivables Facility. The
Receivables Purchase Agreement will be terminated in conjunction with the execution of the
Receivables Facility. 21




---



##### Table of Contents



Item 7A. Quantitative and Qualitative Disclosures About Market Risk. Market Risk Disclosures.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. The following table provides information about the Companys debt obligations and financial
instruments that are sensitive to changes in interest rates. For debt obligations, the table
presents principal cash flows and related weighted-average interest rates by expected maturity
dates or applicable floating rate index. Fair ValueDecember 31
    
    
    December 312005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    Thereafter
    
    
    Total
    
    
    2004
    
    
    2003(Dollars in Thousands)Liabilities:Long-term debt, including
current portion:Fixed Rate-Notes
    
    $
    
    
    
    $
    
    
    
    $
    135,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    135,000
    
    
    $
    112,050
    
    
    $
    78,300Avg. Interest Rate
    
    
    
    
    
    
    
    
    
    
    10.00
    %
    
    
    
    
    
    
    
    
    
    
    Fixed Rate-Capital
Lease Obligations
    
    $
    1,387
    
    
    $
    1,445
    
    
    $
    1,340
    
    
    $
    1,312
    
    
    $
    1,303
    
    
    $
    7,518
    
    
    $
    14,305
    
    
    $
    14,305
    
    
    $
    2,220Avg. Interest Rate
    
    
    6.65
    %
    
    
    6.66
    %
    
    
    6.66
    %
    
    
    6.67
    %
    
    
    6.68
    %
    
    
    6.17
    %Variable Rate-Debt (1)
    
    $
    22,500
    
    
    $
    27,500
    
    
    $
    32,500
    
    
    $
    71,700
    
    
    $
    27,500
    
    
    $
    5,000
    
    
    $
    186,700
    
    
    $
    186,700
    
    
    $
    177,500Avg. Interest Rate
    
    
    (2
    )
    
    
    (2
    )
    
    
    (2
    )
    
    
    (2
    )
    
    
    (2
    )
    
    
    (3
    )
   (1)
    
    Includes Senior Credit Term Loan, Senior Credit Revolving Facility and the Variable Rate
Industrial Building Revenue Bonds.(2)
    
    Average interest rate on Term Loan and the Revolving
Facility is equal to LIBOR plus 3.50%.(3)
    
    Average interest rate on $5 million Variable Rate Industrial Building Revenue Bonds during 2004
was approximately 2.0%. The Company does not have operations in foreign countries subject to material foreign
currency exchange risk. International sales were not material to the Companys operations for the
year ended December 31, 2004. Accordingly, the Company is not subject to material foreign currency
exchange rate 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 exposed to market risk from changes in the price of aluminum. The Company
manages such risk through the use of aluminum futures and options contracts which is further
detailed below. The Company does not actually take delivery of aluminum that is the subject of the
futures or options contracts. The price of aluminum has increased during 2004 but the negative
impact on the
Companys financial results has been somewhat mitigated by gains on aluminum futures contracts
entered into under the Companys hedging program when aluminum prices were lower. The cost of other
raw materials used in the manufacture of the Companys products that are not covered by the
Companys hedging program, including steel, fiberglass and plastic, also increased during 2004. The
cost of all of these raw materials is expected to continue to rise during 2005. In the case of futures contracts relating to the Extruded Products segment of the business,
the Company agrees to purchase aluminum in the future at a set price relative to a customer firm
order commitment. The futures contract is liquidated prior to settlement. The difference between
the price of aluminum on the date the Company enters into the contract and the price on the
settlement date represents the financial gain or loss on the contract. These futures contracts
qualify for hedge accounting and, therefore, the gain or loss is recognized in 22




---



##### Table of Contents



earnings, together with the offsetting gain or loss due to the changes in the fair value of the
firm commitment, in the period the customer order attributed to the firm commitment is shipped. At
December 31, 2004, the Company had purchased futures contracts, maturing in 2005, for the delivery
of 1.2 million pounds of aluminum at a weighted average contract settlement price of $0.8171 per
pound. At December 31, 2003, the Company had purchased futures contracts, maturing in 2004, for the
delivery of 0.2 million pounds of aluminum at a weighted average contract settlement price of
$0.6599 per pound. The unrecognized gains and losses for the change in fair value of such futures
contracts that qualify for hedge accounting at December 31, 2004 and 2003 were immaterial. At December 31, 2004, the Company had no outstanding futures contracts related to the Climbing
Products segment. The unrecognized realized gain for the change in the fair value of futures
contracts that qualify for hedge accounting that were closed prior to year-end was $0.2 million at
December 31, 2004. At December 31, 2003, the company had purchased futures contracts related to the
Climbing Products segment, maturing in 2004, for the delivery of 21.3 million pounds of aluminum at
a weighted average contract settlement price of $0.6635 per pound. The unrecognized gain (realized
and unrealized) for the change in the fair value of such futures contracts that qualify for hedge
accounting was $2.5 million at December 31, 2003. 23




---



##### Table of Contents



Item 8. Financial Statements and Supplementary Data. Index to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm
    
    
    25Consolidated Balance Sheets December 31, 2004 and 2003
    
    
    26Consolidated Statements of IncomeYears Ended December 31, 2004, 2003 and 2002
    
    
    28Consolidated Statements of Changes in Shareholders Equity (Deficit) 
Years Ended December 31, 2004, 2003 and 2002
    
    
    29Consolidated Statements of Cash Flows Years Ended December 31, 2004, 2003 and 2002
    
    
    30Notes to Consolidated Financial Statements
    
    
    31
 24




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors of
Werner Holding Co. (PA), Inc.: In our opinion, the accompanying consolidated balance sheets and the related consolidated
statements of income, of changes in shareholders equity (deficit) and of cash flows present
fairly, in all material respects, the financial position of Werner Holding Co. (PA), Inc. and its
subsidiaries at December 31, 2004 and 2003, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2004 in conformity with
accounting principles generally accepted in the United States of America. These financial
statements are the responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our audits of these
statements in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP Pittsburgh, Pennsylvania
March 4, 2005, except as it relates to Note U,
as to which the date is May 10, 2005 25




---



##### Table of Contents



WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, except Per Share Amounts) December 312004
    
    
    2003AssetsCurrent assets:Cash and cash equivalents
    
    $
    36,960
    
    
    $
    9,594Accounts receivable
    
    
    24,553
    
    
    
    59,113Allowance for doubtful accounts
    
    
    (1,348
    )
    
    
    (1,950
    )Income taxes receivable
    
    
    9,406
    
    
    
    155Inventories
    
    
    63,254
    
    
    
    55,692Deferred income taxes
    
    
    2,171
    
    
    
    2,308Other
    
    
    2,326
    
    
    
    5,193Total current assets
    
    
    137,322
    
    
    
    130,105Other assets:Deferred income taxes
    
    
    16,266
    
    
    
    17,956Deferred financing fees
    
    
    9,360
    
    
    
    11,043Other
    
    
    6,155
    
    
    
    9,26931,781
    
    
    
    38,268Property, plant and equipment:Land and improvements
    
    
    8,877
    
    
    
    8,807Buildings
    
    
    62,764
    
    
    
    49,694Machinery and equipment
    
    
    178,591
    
    
    
    175,545250,232
    
    
    
    234,046Less accumulated depreciation and amortization
    
    
    141,080
    
    
    
    128,657109,152
    
    
    
    105,389Capital projects in progress
    
    
    5,303
    
    
    
    4,852114,455
    
    
    
    110,241Total assets
    
    $
    283,558
    
    
    $
    278,614
 See notes to consolidated financial statements. 26




---



##### Table of Contents



WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS  Continued
(Dollars in Thousands, except Per Share Amounts) December 312004
    
    
    2003Liabilities, preferred stock and shareholders deficitCurrent liabilities:Accounts payable
    
    $
    23,731
    
    
    $
    15,414Accrued liabilities
    
    
    27,877
    
    
    
    30,114Current maturities of long-term debt
    
    
    23,886
    
    
    
    23,130Total current liabilities
    
    
    75,494
    
    
    
    68,658Long-term obligations:Long-term debt  less current maturities (net of unamortized original
issue discount of $1,194 in 2004 and $1,600 in 2003)
    
    
    310,924
    
    
    
    289,990Reserve for product liability and workers compensation claims
    
    
    43,399
    
    
    
    47,880Other long-term obligations
    
    
    33,920
    
    
    
    39,600Total liabilities
    
    
    463,737
    
    
    
    446,128Convertible preferred stock- Series A, $.01 par value; voting; 65,000
shares authorized, issued and outstanding
    
    
    77,733
    
    
    
    64,347Shareholders deficit:Common stock:Class A  $.01 par value; voting; 3,500 shares authorized;
1,134 shares issued and outstanding in 2004 and 2003
    
    
    
    
    
    
    Class B  $.01 par value; voting; 20,000 shares authorized;
13,238 shares issued and outstanding in 2004 and 2003
    
    
    
    
    
    
    Class C  $.01 par value; non-voting; 30,000 shares authorized;
4,084 shares issued and outstanding in 2004 and 3,316
shares issued and outstanding in 2003
    
    
    
    
    
    
    Class D  $.01 par value; voting; 604 shares authorized, issued
and outstanding in 2004 and 2003
    
    
    
    
    
    
    Class E  $.01 par value; non-voting; 35,000 shares authorized
and 27,151 shares issued and outstanding in 2004 and 2003
    
    
    1
    
    
    
    1Treasury stock, at cost, Class R - 29,816 shares outstanding
in 2003
    
    
    
    
    
    
    (146,983
    )Additional paid-in capital
    
    
    39,891
    
    
    
    198,881Accumulated deficit
    
    
    (282,804
    )
    
    
    (270,918
    )Accumulated other comprehensive income (loss)
    
    
    (14,390
    )
    
    
    (11,543
    )Notes receivable arising from stock loan plan
    
    
    (610
    )
    
    
    (1,299
    )Total shareholders deficit
    
    
    (257,912
    )
    
    
    (231,861
    )Total liabilities, preferred stock and shareholders deficit
    
    $
    283,558
    
    
    $
    278,614
 See notes to consolidated financial statements. 27




---



##### Table of Contents



WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands) For the Years Ended December 312004
    
    
    2003
    
    
    2002Net sales
    
    $
    446,166
    
    
    $
    501,106
    
    
    $
    520,404Cost of sales
    
    
    313,379
    
    
    
    320,266
    
    
    
    343,795Gross profit
    
    
    132,787
    
    
    
    180,840
    
    
    
    176,609General and administrative expenses
    
    
    27,381
    
    
    
    28,638
    
    
    
    29,982Selling and distribution expenses
    
    
    87,510
    
    
    
    89,826
    
    
    
    82,000Recapitalization expense
    
    
    
    
    
    
    11,499
    
    
    
    Restructuring and other cost reduction initiatives
    
    
    8,981
    
    
    
    2,889
    
    
    
    Operating profit
    
    
    8,915
    
    
    
    47,988
    
    
    
    64,627Other income (expense), net
    
    
    (1,409
    )
    
    
    (15
    )
    
    
    324Income before interest and income taxes
    
    
    7,506
    
    
    
    47,973
    
    
    
    64,951Interest expense
    
    
    25,242
    
    
    
    24,407
    
    
    
    21,472Income (loss) before income taxes
    
    
    (17,736
    )
    
    
    23,566
    
    
    
    43,479Income tax (benefit)
    
    
    (5,850
    )
    
    
    7,406
    
    
    
    16,051Net income (loss)
    
    
    (11,886
    )
    
    
    16,160
    
    
    
    27,428Convertible preferred stock dividends and accretion
    
    
    13,386
    
    
    
    6,189
    
    
    
    Net income (loss) attributable to common shareholders
    
    $
    (25,272
    )
    
    $
    9,971
    
    
    $
    27,428
 See notes to consolidated financial statements. 28




---



##### Table of Contents



WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (DEFICIT)
(Dollars in Thousands, except Share Amounts) For the Years Ended December 312004
    
    
    2003
    
    
    2002Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    AmountClass A Common Stock:Balance, beginning of year
    
    
    1,134
    
    
    $
    
    
    
    
    1,880
    
    
    $
    
    
    
    
    1,880
    
    
    $
    Reclassified to Class R and redeemed
    
    
    
    
    
    
    
    
    
    
    (746
    )
    
    
    
    
    
    
    
    
    
    
    Balance, end of year
    
    
    1,134
    
    
    $
    
    
    
    
    1,134
    
    
    $
    
    
    
    
    1,880
    
    
    $
    Class B Common Stock:Balance, beginning of year
    
    
    13,238
    
    
    $
    
    
    
    
    21,775
    
    
    $
    
    
    
    
    21,775
    
    
    $
    Issuance of common stock
    
    
    
    
    
    
    
    
    
    
    100
    
    
    
    
    
    
    
    
    
    
    
    Reclassified to Class R and redeemed
    
    
    
    
    
    
    
    
    
    
    (8,637
    )
    
    
    
    
    
    
    
    
    
    
    Balance, end of year
    
    
    13,238
    
    
    $
    
    
    
    
    13,238
    
    
    $
    
    
    
    
    21,775
    
    
    $
    Class C Common Stock:Balance, beginning of year
    
    
    3,316
    
    
    $
    
    
    
    
    5,516
    
    
    $
    
    
    
    
    5,541
    
    
    $
    Issuance of common stock
    
    
    789
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    260
    
    
    
    Repurchased or reclassified to Class R and redeemed
    
    
    (21
    )
    
    
    
    
    
    
    (2,200
    )
    
    
    
    
    
    
    (285
    )
    
    
    Balance, end of year
    
    
    4,084
    
    
    $
    
    
    
    
    3,316
    
    
    $
    
    
    
    
    5,516
    
    
    $
    Class D Common Stock:Balance, beginning of year
    
    
    604
    
    
    $
    
    
    
    
    1,000
    
    
    $
    
    
    
    
    1,000
    
    
    $
    Reclassified to Class R and redeemed
    
    
    
    
    
    
    
    
    
    
    (396
    )
    
    
    
    
    
    
    
    
    
    
    Balance, end of year
    
    
    604
    
    
    $
    
    
    
    
    604
    
    
    $
    
    
    
    
    1,000
    
    
    $
    Class E Common Stock:Balance, beginning of year
    
    
    27,151
    
    
    $
    1
    
    
    
    45,000
    
    
    $
    
    
    
    
    45,000
    
    
    $
    Reclassified to Class R and redeemed
    
    
    
    
    
    
    
    
    
    
    (17,849
    )
    
    
    
    
    
    
    
    
    
    
    Balance, end of year
    
    
    27,151
    
    
    $
    1
    
    
    
    27,151
    
    
    $
    
    
    
    
    45,000
    
    
    $
    Treasury stock, at cost, Class R, 29,816 shares:Balance, beginning of year
    
    
    
    
    
    $
    (146,983
    )
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Retirement (redemption) of Class R common stock
    
    
    
    
    
    
    146,983
    
    
    
    
    
    
    
    (146,983
    )
    
    
    
    
    
    
    Balance, end of year
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    (146,983
    )
    
    
    
    
    
    $
    Additional Paid-in Capital:Balance, beginning of year
    
    
    
    
    
    $
    198,881
    
    
    
    
    
    
    $
    200,872
    
    
    
    
    
    
    $
    200,947Retirement of Class R common stock
    
    
    
    
    
    
    (146,983
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Noncash compensation charge associated with Recapitalization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,590
    
    
    
    
    
    
    
    Reversal of deferred taxes related to vested stock options cancelled
    
    
    
    
    
    
    (530
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Costs related to redemption of common stock
    
    
    
    
    

    
    
    
    
    
    
    
    
    
    (825
    )
    
    
    
    
    
    
    Convertible preferred in-kind dividends
    
    
    
    
    
    
    (10,272
    )
    
    
    
    
    
    
    (4,630
    )
    
    
    
    
    
    
    Accretion of preferred stock
    
    
    
    
    
    
    (3,114
    )
    
    
    
    
    
    
    (1,559
    )
    
    
    
    
    
    
    Issuance of common stock
    
    
    
    
    
    
    1,911
    
    
    
    
    
    
    
    493
    
    
    
    
    
    
    
    780Repurchase of common stock
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    (60
    )
    
    
    
    
    
    
    (855
    )Balance, end of year
    
    
    
    
    
    $
    39,891
    
    
    
    
    
    
    $
    198,881
    
    
    
    
    
    
    $
    200,872Accumulated Deficit:Balance, beginning of year
    
    
    
    
    
    $
    (270,918
    )
    
    
    
    
    
    $
    (287,078
    )
    
    
    
    
    
    $
    (314,506
    )Net income (loss)
    
    
    
    
    
    
    (11,886
    )
    
    
    
    
    
    
    16,160
    
    
    
    
    
    
    
    27,428Balance, end of year
    
    
    
    
    
    $
    (282,804
    )
    
    
    
    
    
    $
    (270,918
    )
    
    
    
    
    
    $
    (287,078
    )Accumulated Other Comprehensive Income (Loss):Derivative Commodity Instruments: Balance, beginning of year
    
    
    
    
    
    $
    1,262
    
    
    
    
    
    
    $
    (256
    )
    
    
    
    
    
    $
    (1,137
    )Amounts reclassified to income (net of deferred tax of $1,749 in
2004, $204 in 2003 and $807 in 2002)
    
    
    
    
    
    
    2,979
    
    
    
    
    
    
    
    347
    
    
    
    
    
    
    
    1,373Change in fair value of derivative commodity instruments (net of
deferred tax of $2,400 in 2004, $688 in 2003 and $289 in 2002)
    
    
    
    
    
    
    (4,085
    )
    
    
    
    
    
    
    1,171
    
    
    
    
    
    
    
    (492
    )Balance, end of year
    
    
    
    
    
    
    156
    
    
    
    
    
    
    
    1,262
    
    
    
    
    
    
    
    (256
    )Minimum Pension Liability: Balance, beginning of year
    
    
    
    
    
    
    (12,805
    )
    
    
    
    
    
    
    (13,438
    )
    
    
    
    
    
    
    (6,745
    )Adjustment (net of deferred tax of $1,022 in 2004, $372 in 2003
and $3,930 in 2002)
    
    
    
    
    
    
    (1,741
    )
    
    
    
    
    
    
    633
    
    
    
    
    
    
    
    (6,693
    )Balance, end of year
    
    
    
    
    
    
    (14,546
    )
    
    
    
    
    
    
    (12,805
    )
    
    
    
    
    
    
    (13,438
    )Accumulated other comprehensive income (loss), end of year
    
    
    
    
    
    $
    (14,390
    )
    
    
    
    
    
    $
    (11,543
    )
    
    
    
    
    
    $
    (13,694
    )Notes Receivable Arising from Stock Loan Plan:Balance, beginning of year
    
    
    
    
    
    $
    (1,299
    )
    
    
    
    
    
    $
    (2,426
    )
    
    
    
    
    
    $
    (2,383
    )Reduction (increase) in notes receivable related to stock loan plan
    
    
    
    
    
    
    689
    
    
    
    
    
    
    
    1,127
    
    
    
    
    
    
    
    (43
    )Balance, end of year
    
    
    
    
    
    $
    (610
    )
    
    
    
    
    
    $
    (1,299
    )
    
    
    
    
    
    $
    (2,426
    )TOTAL SHAREHOLDERS EQUITY (DEFICIT)
    
    
    
    
    
    $
    (257,912
    )
    
    
    
    
    
    $
    (231,862
    )
    
    
    
    
    
    $
    (102,326
    )COMPREHENSIVE INCOME:Net income (loss)
    
    
    
    
    
    $
    (11,886
    )
    
    
    
    
    
    $
    16,160
    
    
    
    
    
    
    $
    27,428Other comprehensive income (loss)
    
    
    
    
    
    
    (2,847
    )
    
    
    
    
    
    
    2,151
    
    
    
    
    
    
    
    (5,812
    )Total comprehensive income (loss)
    
    
    
    
    
    $
    (14,733
    )
    
    
    
    
    
    $
    18,311
    
    
    
    
    
    
    $
    21,616
 See notes to consolidated financial statements. 29




---



##### Table of Contents



WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands) For the Years Ended December 312004
    
    
    2003
    
    
    2002Operating activitiesNet income (loss)
    
    $
    (11,886
    )
    
    $
    16,160
    
    
    $
    27,428Reconciliation of net income to net cash provided by operating activities:Noncash stock compensation charge associated with Recapitalization
    
    
    
    
    
    
    4,590
    
    
    
    Other Recapitalization expenses
    
    
    
    
    
    
    5,608
    
    
    
    Depreciation, including accelerated depreciation
    
    
    16,670
    
    
    
    12,900
    
    
    
    12,081Amortization of deferred financing fees and original issue discount
    
    
    2,932
    
    
    
    4,882
    
    
    
    2,796Amortization of deferred costs
    
    
    4,974
    
    
    
    4,817
    
    
    
    3,799Provision for losses on accounts receivable
    
    
    12
    
    
    
    379
    
    
    
    803Provision for product liability and workers compensation claims
    
    
    5,269
    
    
    
    9,872
    
    
    
    12,105Payment of product liability and workers compensation claims
    
    
    (9,750
    )
    
    
    (10,197
    )
    
    
    (7,969
    )Deferred income taxes
    
    
    2,969
    
    
    
    (1,943
    )
    
    
    (862
    )Loss on disposition of property, plant and equipment
    
    
    306
    
    
    
    11
    
    
    
    406Changes in operating assets and liabilities:Change in receivables purchase facility
    
    
    14,000
    
    
    
    
    
    
    
    Accounts receivable
    
    
    20,560
    
    
    
    (4,894
    )
    
    
    31Income taxes receivable
    
    
    (9,251
    )
    
    
    1,593
    
    
    
    (247
    )Inventories
    
    
    (7,633
    )
    
    
    (3,162
    )
    
    
    386Accounts payable
    
    
    8,317
    
    
    
    (759
    )
    
    
    (4,841
    )Other assets and liabilities, net
    
    
    (10,176
    )
    
    
    (8,074
    )
    
    
    (4,153
    )Net cash provided by operating activities
    
    
    27,313
    
    
    
    31,783
    
    
    
    41,763Investing activitiesCapital expenditures
    
    
    (9,116
    )
    
    
    (9,923
    )
    
    
    (12,053
    )Proceeds from liquidation of investments
    
    
    58
    
    
    
    61
    
    
    
    209Proceeds from sale of property, plant and equipment
    
    
    937
    
    
    
    450
    
    
    
    Net cash used in investing activities
    
    
    (8,121
    )
    
    
    (9,412
    )
    
    
    (11,844
    )Financing activitiesRepayments of long-term debt after Recapitalization
    
    
    (18,371
    )
    
    
    (7,894
    )
    
    
    Repayments of long-term debt prior to Recapitalization
    
    
    
    
    
    
    (6,992
    )
    
    
    (17,113
    )Net borrowings under revolving credit facility
    
    
    26,700
    
    
    
    
    
    
    
    Issuance of convertible preferred stock
    
    
    
    
    
    
    65,000
    
    
    
    Costs related to issuance of convertible preferred stock
    
    
    
    
    
    
    (6,841
    )
    
    
    Issuance of long-term debt at Recapitalization
    
    
    
    
    
    
    180,000
    
    
    
    Payment of deferred financing fees
    
    
    (842
    )
    
    
    (11,441
    )
    
    
    Redemption of common stock at Recapitalization

    
    
    
    
    
    
    (146,983
    )
    
    
    Costs related to redemption of common stock
    
    
    
    
    
    
    (825
    )
    
    
    Repayments of long-term debt at Recapitalization
    
    
    
    
    
    
    (115,421
    )
    
    
    Payment of other Recapitalization expenses
    
    
    
    
    
    
    (5,608
    )
    
    
    Issuance of common stock
    
    
    
    
    
    
    
    
    
    
    195Repurchase of common stock
    
    
    (2
    )
    
    
    (60
    )
    
    
    (453
    )Repayment of notes receivable arising from stock loan plan
    
    
    689
    
    
    
    1,127
    
    
    
    140Net cash provided (used) in financing activities
    
    
    8,174
    
    
    
    (55,938
    )
    
    
    (17,231
    )Net increase (decrease) in cash and cash equivalents
    
    
    27,366
    
    
    
    (33,567
    )
    
    
    12,688Cash and cash equivalents at beginning of year
    
    
    9,594
    
    
    
    43,161
    
    
    
    30,473Cash and cash equivalents at end of year
    
    $
    36,960
    
    
    $
    9,594
    
    
    $
    43,161
 See notes to consolidated financial statements. 30




---



##### Table of Contents



Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in Thousands, except Share Amounts) A. Description of Business Werner Holding Co. (PA), Inc. through its subsidiaries is a manufacturer of climbing equipment
which includes aluminum, fiberglass and wood ladders, scaffolding, stages and planks, and aluminum
extruded products. The Company operates in two business segments, Climbing Products and Extruded
Products. B. Significant Accounting Policies Basis of Presentation- The consolidated financial statements of Werner Holding Co. (PA), Inc.
include its accounts and the accounts of its wholly-owned subsidiary, Werner Holding Co. (DE),
Inc., and its wholly-owned subsidiaries (collectively the Company). Werner Holding Co. (PA), Inc.
has no substantial operations or assets, other than its investment in Werner Holding Co. (DE), Inc.
The consolidated financial position and results of operations of Werner Holding Co. (PA), Inc. are
substantially the same as those of Werner Holding Co. (DE), Inc. All significant intercompany
accounts and transactions have been eliminated in consolidation. Use of Estimates- The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and assumptions that affect
the amounts reported in the consolidated financial statements and accompanying notes. Actual
results could differ from those estimates. Revenue Recognition Consistent with the guidance provided by the Securities and Exchange
Commissions Staff Accounting Bulletin No. 104, Revenue Recognition, sales are recorded when title
and risk of loss transfer to the customer, which is generally upon customer receipt of the
shipment. Sales are recorded net of allowances for damaged goods returns, as well as various sales
incentives and cash discounts. The Company provides for an allowance for estimated damaged goods
returns, which is recognized as a deduction from sales at the time of sale. The Company also
offers their customers various on-going sales incentive programs for which the Company estimates
the anticipated incentive to be paid and allocates a portion of the estimated cost to each
underlying sales transaction with the customer. Shipping and Handling Fees and Expenses- All shipping and handling fees billed to customers
are classified as revenues. Shipping and handling costs represent costs associated with shipping
products to customers and handling finished goods. Shipping and handling costs of $51,557, $54,466
and $48,026 are included in the caption entitled, Selling and distribution expenses in the
consolidated statements of income for the years ended December 31, 2004, 2003 and 2002,
respectively. Accounts Receivable The Company provides credit to its customers in the normal course of
business. The Companys customers are not concentrated in any specific geographic region. The
Company performs ongoing credit evaluations of its customers and maintains allowances for potential
credit losses which, when realized, have been within the range of managements expectations.
Write-offs of uncollectible accounts receivable totaled $614, $180 and $444 in 2004, 2003 and 2002,
respectively. Inventories Inventories are stated at the lower of cost or market (net realizable value).
Cost was determined by the last-in, first-out (LIFO) method for approximately 77% and 88% of the
inventories at December 31, 2004 and 2003, respectively. Derivative Commodity Instruments- Derivatives are held as part of a formal risk management
policy. For derivatives that qualify for hedge accounting, the Company formally measures the
effectiveness of its hedging relationships both at the hedge inception and on an ongoing basis by
formally assessing the historical and probable future high correlation of changes in the fair value
or expected future cash flows of
the hedged item. The ineffective portions, which were immaterial for the years ended December
31, 2004, 2003 and 2002, are included in the Companys results of operations in the period in which
the ineffectiveness occurs. If the hedging relationship ceases to be highly effective or it becomes
probable that an expected transaction will no longer occur, gains or losses on the derivative are
included in the Companys results of operations. The amount of such gains or losses was immaterial
for the years ended December 31, 2004, 2003 and 2002. 31




---



##### Table of Contents



Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Consolidated Financial Statements  Continued
(Dollars in Thousands, except Share Amounts) The Companys derivatives that qualify for hedge accounting consist of aluminum futures and
option contracts that are designated either as fair value or cash flow hedges. The Company
utilizes aluminum commodity futures and option contracts to manage the market risk of changing
prices associated with customer firm order commitments and a certain percentage of its forecasted
sales. Generally, these contracts cover exposures of one year or less. Futures contracts obligate
the Company to make or receive a payment equal to the net change in value of the contract at its
maturity. Futures and option contracts that qualify are designated as hedges, correspond to the
commitment or forecasted sales period, and are effective in hedging the Companys exposure to
changes in aluminum prices during that cycle. At December 31, 2004 and 2003, the Company had
futures contracts to purchase aluminum totaling $991 and $14,298, respectively. At December 31,
2004, the Company had no outstanding futures contracts related to the Climbing Products segment. At
December 31, 2004, unrecognized gains of $156, net of tax, related to the cash flow hedges is
recognized in other comprehensive income and $167 of unrecognized gains related to fair value
hedges is recognized in other current assets with an offset included in accrued liabilities. At
December 31, 2003, unrecognized gains totaling $1,262, net of tax, on outstanding futures contracts
accounted for as cash flow hedges are recognized in other comprehensive income with a corresponding
offset in other current assets. Additionally, a total of $542 of unrecognized gains related to fair
value hedges is recognized in other current assets with an offset included in accrued liabilities
as of December 31, 2003. Changes in the fair value of derivatives are recorded in results of operations or in other
comprehensive income, depending on whether a derivative qualifies for hedge accounting, and is
designated as a fair value or cash flow hedge. For cash flow hedges, the effective portion of the
change in fair value is recorded in other comprehensive income and is reclassified to the results
of operations in the period in which earnings are impacted by the hedged item or in the period that
the transaction no longer qualifies as a cash flow hedge. No derivative initially designated as a
cash flow hedge ceased to qualify as a cash flow hedge during the years ended December 31, 2004,
2003 and 2002. As of December 31, 2004, all of the $155 gain, net of tax, recognized in other
comprehensive income is expected to be recognized in the Companys results of operations over the
next twelve months. For fair value hedges, the effective portion of the change in fair value of
the derivative and the equal and offsetting change in the firm commitment are recorded on the
balance sheet. The gain or loss on the derivative is recognized in results of operations in the
period in which earnings are impacted by the hedged item. For derivatives that do not qualify for
hedge accounting, the gain or loss is recognized in earnings in the period of change in aluminum
prices. Property, Plant and Equipment- Property,plant and equipment are recorded at cost.
Maintenance and repair costs are charged to expense as incurred. Expenditures that increase
capacities or extend useful lives are capitalized. Depreciation is computed principally using the
straight-line method over the estimated useful lives of the assets. The estimated useful lives for
buildings range from 40 to 45 years and for machinery and equipment range from 3 to 14 years. The
net book value of capitalized lease assets, which primarily consist of manufacturing facilities,
machinery and equipment, was $15,111 and $2,163 at December 31, 2004 and 2003, respectively. Useful
lives for capitalized lease assets are limited to the lease term. Interest is capitalized in connection with major capital projects. The capitalized interest is
recorded
as part of the asset to which it relates and is amortized over the assets estimated useful
life. In 2004, 2003 and 2002, interest costs of $78, $195 and $428, respectively, were capitalized.
Interest costs incurred in 2004, 2003 and 2002 totaled $25,320, $24,602 and $21,900, respectively. Long-lived assets are periodically reviewed for impairment. Impairment is recognized when
events or changes in circumstances indicate that the carrying amount of the asset, or related group
of assets, may not be recoverable. If the expected future undiscounted cash flows are less than the
carrying amount, an impairment loss is recognized at that time as the difference between the
carrying amount and the fair value of the assets or group of assets. Measurement of fair value may
be based upon appraisals, market values of similar assets or discounted cash flows. Internal Use Software- Statement of Position (SOP) 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use,requires the capitalization of certain costs
applicable to internal use software, including associated hardware costs, external direct material
and service costs, and 32




---



##### Table of Contents



Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Consolidated Financial Statements  Continued
(Dollars in Thousands, except Share Amounts) employee payroll and payroll related costs. Amortization of capitalized software costs was $3,176,
$2,594, and $2,018 in 2004, 2003 and 2002, respectively. The unamortized balance of computer
software costs capitalized was $11,870 and $14,979 at December 31, 2004 and 2003, respectively.
Capitalized computer software costs, which are included in machinery and equipment in the
accompanying balance sheet, are amortized over periods ranging from 3 to 7 years. Reserve for Product Liability and Workers Compensation Claims- The Company maintains third
party insurance coverage, subject to certain deductible provisions, for product liability and
workers compensation claims which occur on or after March 31, 1998 and maintains a reserve for the
insurance deductibles related to such claims which totals $43,399 and $47,880 at December 31, 2004
and 2003, respectively. The reserve for product liability and workers compensation claims is
determined on an undiscounted actuarial basis and includes an amount derived from loss reports for
individual cases and an amount, based on past experience, for losses incurred but not reported. The
resulting actuarial loss estimates are expressed as a range of reasonable estimates which is
expected to include the loss that ultimately will occur. The reserve is within the range of
reasonable estimates. While management believes that the reserve is adequate, the ultimate
liability may be in excess of or less than the amount provided. The methods for making such
estimates and for establishing the resulting reserve are continually reviewed, and any adjustments
are reflected in earnings currently. Accordingly, the reserve for product liability and workers
compensation claims was reduced by approximately $6,200 during the fourth quarter of 2004 primarily
as a result of a reduction in the actuarys estimate of ultimate losses due to favorable product
liability claims experience. Prior to March 31, 1998, the Company operated a captive insurance
company that maintained reserves for product liability and workers compensation claims of the
Company (see Note M). Stock-Based Compensation- The Company has a stock option plan which is described more fully
in Note I. The Company measures stock-based compensation costs using the intrinsic value method of
accounting pursuant to Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employeesand related interpretations. In connection with the Recapitalization (see Note C) the
Company modified its existing stock options which resulted in a corresponding noncash compensation
charge totaling $4,590 (see Note I). Accordingly, pro forma compensation costs are zero for periods
subsequent to the Recapitalization related to the then-existing stock options because all such
costs have been recorded as expense in the consolidated statement of income as a result of
recording the noncash compensation charge. Stock options were granted during the second quarter of
2004 to purchase 3,082 shares of Class C Common Stock at an exercise price of $500 per share. Had
compensation costs for stock options been determined using the fair market value method of FASB
Statement No. 123, Accounting for Stock-Based
Compensation, the effect on net income (loss) would have been as follows: For the Years Ended December 312004
    
    
    2003
    
    
    2002Net income, as reported
    
    $
    (11,886
    )
    
    $
    16,160
    
    
    $
    27,428Less total stock-based employee compensation
costs determined using fair value method, net
of related tax effects
    
    
    
    
    
    
    103
    
    
    
    318Pro forma net income
    
    $
    (11,886
    )
    
    $
    16,057
    
    
    $
    27,110
 The pro forma compensation costs indicated above are zero for periods after the
Recapitalization primarily because all remaining outstanding options were modified. In connection
with the Recapitalization (see Note C) the Company modified its existing stock options which
resulted in corresponding noncash compensation charge totaling $4,590 (see Note I). Accordingly,
pro forma compensation costs are zero for periods subsequent to the Recapitalization because all
such costs have been recorded as expense in the consolidated statement of income as a result of
recording the noncash compensation charge. The weighted average fair value of options granted during 2002 estimated using the
Black-Scholes option pricing model was $775.11. The fair value of each option grant was determined
using weighted average assumptions of risk-free interest rates of 4.31% for grants in 2002 and an
average life of options of 7.1 years and expected volatility and dividend yield of 0% for grants.
No options were granted during 2003 and fair value of options granted during 2004 was zero. 33




---



##### Table of Contents



Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Consolidated Financial Statements  Continued
(Dollars in Thousands, except Share Amounts) Retirement Benefits- Net periodic pension cost is recognized for the cost of the Companys
qualified and non-qualified defined benefit plans based on the requirements of FASB Statement No.
87, Employers Accounting for Pensions. The cost of benefits provided under the Companys
postretirement programs is determined based on the requirements of FASB Statement No. 106,
Employers Accounting for Postretirement Benefits Other Than Pensions. Income Taxes Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between financial statement carrying amounts of existing
assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period that includes the
enactment date. The Company has reflected the necessary deferred tax assets and liabilities in the
accompanying balance sheets. A valuation allowance is established when necessary to reduce deferred
tax assets to the amount expected to be realized. Deferred Financing Fees- Amortization of deferred financing fees is computed using the
effective interest method and recognized as interest expense. Amortization of $2,356 and $394 of
deferred financing fees was accelerated during 2003 and 2002, respectively (see Note E). Advertising- The Company expenses all advertising as incurred. These expenses totaled
$13,429,
$15,738 and $16,062 for years 2004, 2003 and 2002, respectively. Statement of Cash Flows- Cash and cash equivalents include cash on hand, demand deposits and
short-term highly liquid debt instruments purchased with an original maturity of three months or
less. Fair Values of Financial Instruments The Companys disclosures for financial instruments are
as follows: Cash and cash equivalents The amounts reported in the balance sheet for cash and
cash equivalents bear interest at prevailing market rates and therefore approximate fair
value. Accounts Receivable and Accounts Payable- The amounts reported approximate fair
value. Long-term debt- The carrying amounts of the Companys borrowings under its credit
agreements and the Variable Rate Demand Industrial Building Revenue Bonds, bear interest at
prevailing market rates and therefore approximate their fair value at December 31, 2004 and
2003. The fair value (based upon prevailing market rates) of the outstanding borrowings of
the Senior Subordinated Notes at December 31, 2004 and 2003 was $112,050 and $78,300,
respectively. Derivative instruments- The fair value of the Companys derivative instruments is
recorded in the balance sheet. Recently Issued Accounting Standards- In December 2004, the FASB issued Statement No.
123R,
Share-Based Payment: an amendment of FASB Statements No. 123, which requires companies to recognize
in the income statement the grant-date fair value of stock options and other equity-based
compensation issued to employees. Statement No. 123R supersedes Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees.The Company is a nonpublic entity as defined by
Statement No. 123R; therefore, the provisions of the interpretation will become effective for the
Company on January 1, 2006. As of the effective date, the Company will be required to follow a fair
value approach using an option-pricing model, such as the Black-Scholes option valuation model, at
the date of a stock option grant. The compensation cost calculated under the fair value method
would be amortized over the respective vesting period of the stock option. Based on the equity
instruments awarded through December 31, 2004, the adoption of Statement No. 123R will not have a
significant impact on the Companys results of operations, financial position or cash flows. 34




---



##### Table of Contents



Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Consolidated Financial Statements  Continued
(Dollars in Thousands, except Share Amounts) In November 2004, the FASB issued Statement No. 151, Inventory CostsAn Amendment of
Accounting Research Bulletin No. 43, Chapter 4. Statement No. 151 requires abnormal amounts of
inventory costs related to idle facility, freight, handling costs and scrapped material costs to be
recognized as current period charges. In addition, Statement No. 151 requires that the allocation
of fixed production overheads to the costs of conversion be based on the normal capacity of the
production facilities. Statement No. 151 is effective for costs incurred beginning January 1, 2006.
The adoption of Statement No. 151 is not expected to have a material impact on the Companys
results of operations, financial position or cash flows. On
October 22, 2004, the American Jobs Creation Act (the Jobs Act) was signed into law. Among
other things, the Jobs Act provides tax relief to U.S. domestic manufacturers by providing a tax
deduction for qualified production activities income. For tax years 2005 through 2006, the
deduction will equal 3% of the lesser of qualified production activities income or
taxable income. The percentage rises to 6% in years 2007 through 2009 and 9% thereafter. In
December 2004, the FASB issued
FASB Staff Position 109-1,
Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on
Qualified Production Activities Provided by the American Jobs Creation Act of 2004(FSP 109-1).
FSP 109-1 requires companies to account for this deduction as a special deduction that will
reduce the estimate of the annual effective tax rate in the period in which the tax deduction is
claimed. The impact of this provision on 2005 and later years is currently being evaluated. C. Recapitalization In June 2003, the Company completed a recapitalization with Green Equity Investors III, L.P.
(GEI), an affiliate of Leonard Green & Partners L.P. (Leonard Green), and certain shareholders
of the Company. Pursuant to the Recapitalization Agreement (i) GEI invested $65,000 in the Company
in exchange for 65,000 shares of Series A Preferred Stock (see Note G), (ii) the Company redeemed
39.66% of its outstanding shares of capital stock for payments totaling $146,983 and (iii) the
Company made certain other payments including $3,017 to the holders of options to purchase the
Companys Class C Common Stock in consideration for the cancellation of certain of their vested
options (collectively, the Recapitalization). The Series A Preferred Stock represented
approximately 22% of the outstanding voting shares of capital stock as of the date of the
Recapitalization. The Recapitalization was accounted for as a leveraged recapitalization at
historical cost principally due to the fact that less than 80% of the voting securities were
acquired. As part of the Recapitalization, the Company entered into a $230,000 credit facility (see Note
E) with a syndicate of banks consisting of a $180,000 Term Loan and a $50,000 Revolving Credit
Facility. The Company used $115,421 to repay in full its previous senior credit facility which was
then terminated as of the date of the Recapitalization. Additional sources of cash to complete the Recapitalization included the Companys Receivables
Purchase Agreement, existing cash on-hand and employee stock loan repayments related to the capital
stock redeemed. The following is a summary of the sources and uses of cash resulting from, and in
connection with, the Recapitalization: 35




---



##### Table of Contents



Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Consolidated Financial Statements  Continued
(Dollars in Thousands, except Share Amounts) Sources of Cash:Term Loan proceeds
    
    $
    180,000Issuance of convertible preferred stock
    
    
    65,000Additional borrowings under Receivables Purchase Agreement
    
    
    20,000Existing cash
    
    
    20,916Employee repayment of stock loans
    
    
    1,202Total
    
    $
    287,118Uses of Cash:Redemption of common stock
    
    $
    146,983Repay existing term loans
    
    
    115,421Payments in connection with stock option cancellations
    
    
    3,017Costs associated with Recapitalization
    
    
    21,697Total
    
    $
    287,118
 Costs associated with the Recapitalization include $4,050 to obtain the consent of holders of
the Companys 10% Notes (see Note E), a one-time Leonard Green equity commitment fee of $2,500,
transaction bonuses of $1,725 paid to certain officers and employees of the Company, a $1,000
credit refinance advisory services fee paid to INVESTCORP S.A. (Investcorp) and other fees
primarily related
to investment banking, legal and accounting services and other associated costs totaling
$12,422. Recapitalization expense reflected on the income statement for the year ended December 31,
2003 totals $11,499 and includes a noncash compensation charge of $4,590 associated with modifying
stock options (see Note I), payments totaling $3,017 in connection with stock option cancellations,
transaction bonus payments totaling $1,725, a noncash charge of $1,301 related to the deferred
stock plan (see Note I) and other miscellaneous costs totaling $866. Other costs totaling $19,106
incurred in connection with the Recapitalization were reflected as deferred financing costs, as a
reduction of the proceeds from the issuance of the convertible preferred stock or as costs related
to the repurchase of common stock. D. Inventories Inventories are as follows: December 312004
    
    
    2003Finished goods
    
    $
    41,668
    
    
    $
    34,009Work-in-process
    
    
    10,879
    
    
    
    12,328Raw materials and supplies
    
    
    20,430
    
    
    
    18,134Total inventories, which approximates replacement cost
    
    
    72,977
    
    
    
    64,471Less excess of cost over LIFO stated values
    
    
    9,723
    
    
    
    8,779Net inventories
    
    $
    63,254
    
    
    $
    55,692
 36




---



##### Table of Contents



Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Consolidated Financial Statements  Continued
(Dollars in Thousands, except Share Amounts) E. Debt In 2003 the Company entered into a $230,000 Senior Credit Facility with a syndicate of banks
consisting of a $180,000 Term Loan and a $50,000 Revolving Credit Facility (collectively, the
Senior Credit Facility). The Senior Credit Facility will mature in May 2007 in the event the
Companys existing 10% Senior Subordinated Notes maturing November 15, 2007 (the Notes) are not
refinanced or extended by May 2007. Otherwise, if the Notes are refinanced or extended by May 2007,
the maturity date of the Senior Credit Facility will be the earlier of (i) six months prior to the
new maturity date of the Notes or (ii) (A) for the Revolving Credit Facility, June 11, 2008 and (B)
for the Term Loan, June 11, 2009. A summary of debt outstanding is as follows: December 312004
    
    
    2003Senior Credit Facility:Term Loan
    
    $
    155,000
    
    
    $
    172,500Revolving Credit Facility
    
    
    26,700
    
    
    
    Senior Subordinated Notes, due 2007, net of unamortized
original issue discount of $1,194 in 2004 and $1,600 in 2003
    
    
    133,806
    
    
    
    133,400Variable Rate Demand Industrial Building Revenue Bonds,
due 2015 (1)
    
    
    5,000
    
    
    
    5,000Capital lease obligations
    
    
    14,304
    
    
    
    2,220Total debt
    
    
    334,810
    
    
    
    313,120Less current maturities of long-term debt
    
    
    23,886
    
    
    
    23,130Debt classified as long-term
    
    $
    310,924
    
    
    $
    289,990
   (1)
    
    Included in current maturities as of
December 31, 2003, reclassified to long-term
debt at December 31, 2004. See below for additional information. Effective during May 2005 the Company successfully executed a $100,000 Senior Secured
Second Lien Credit Facility (see Note U). Senior Credit Facility Subject to refinancing or extension of the Notes as discussed above, the remaining balance of
the Term Loan is payable in aggregate principal amounts of $22,500 in 2005, $27,500 in 2006,
$32,500 in 2007, $45,000 in 2008 and $27,500 in 2009. Borrowings under the Senior Credit Facility
bear interest at alternative floating rate structures at managements option and are collateralized
by the capital stock of each of the Companys subsidiaries and substantially all the assets of the
Company and its subsidiaries, except for Werner Funding Corporation. The Term Loan interest rate
was 5.47% and 3.88% at December 31, 2004 and 2003, respectively. The Company may draw amounts under the $50,000 Revolving Credit Facility for general corporate
purposes and working capital requirements. At December 31, 2004 and 2003 the amount outstanding
under the revolver was $26,700 and $0, respectively. The revolver interest rate was 7.75% at
December 31, 2004. The availability under the revolver is reduced by amounts issued under a letter
of credit subfacility which totals $20,551 at December 31, 2004. An annual commitment fee of 0.75%
is paid on the average daily unused amount of the Revolving Credit Facility. The Senior Credit Facility was amended in May 2004 to change the debt leverage and interest
coverage ratio covenants for years 2004 and 2005 to be less restrictive. The amendment provided for
an increase in certain fees including an increase of 0.75% in the annual rate charged on the Term
Loan and an increase of 0.25% in the annual commitment fee that is charged on the unused portion of
the Revolving Credit Facility. The Company incurred costs totaling $842 in connection with the
Amendment during the second quarter of 2004. The costs have been deferred and are being amortized
over the remaining life of the facility using the effective interest method along with previously
existing unamortized costs. 37




---



##### Table of Contents



Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Consolidated Financial Statements  Continued
(Dollars in Thousands, except Share Amounts) Deferred financing fees totaling $7,165 were incurred in 2003 in connection with obtaining the
Senior Credit Facility. These costs have been deferred and are being amortized over the life of the
facility using the effective interest method. The remaining unamortized deferred financing fees
totaling $2,356 associated with the credit facility terminated on the date of the Recapitalization
were recognized as interest expense in 2003. Additional interest expense of $394 was recorded in
2002 due to accelerated amortization of deferred financing fees associated with changes in the
then existing senior credit facility. A significant repayment of the Senior Credit Facility Term Loan and Revolving Credit Facility
occurred in May 2005 (see Note U). The Notes The principal amount of the Notes is $135,000 and they mature on November 15, 2007. Interest
at 10% on the Notes is payable semi-annually in arrears on May 15 and November 15. The Notes are
general unsecured obligations of the Company ranking subordinate in right of payment to all
existing and future senior indebtedness of the Company. The Notes rank pari passuin right of
payment with all other indebtedness of the Company that is subordinated to the senior indebtedness
of the Company. In connection with the Recapitalization, consent fees totaling $4,050 were paid in 2003 to the
holders of the Notes and certain other costs totaling $226 were incurred in connection with the
modification
of the Indenture to permit the redemption of common stock on the date of the Recapitalization.
These fees and costs have been deferred and will be amortized over the remaining life of the Notes
using the effective interest method. The Notes are redeemable at the Companys option at 101.667% during the twelve months
beginning November 15, 2004 and at 100% thereafter (expressed as a percentage of principal amount). Industrial Building Revenue Bonds Variable Rate Demand Industrial Building Revenue Bonds totaling $5,000 were issued in order to
finance the Companys acquisition of land and equipment and the subsequent construction of a
climbing products manufacturing facility located in Carrollton, Kentucky. During 2003 the Company
announced that it would close the Kentucky manufacturing facility during 2004. As a result, the
redemption of the bonds likely would have been required in 2004 if the facility had been closed.
Accordingly, the liability for the bonds was classified as a current liability and included in the
caption, Current maturities of long-term debt in the accompanying balance sheet as of December
31, 2003. After further review of the Companys distribution requirements during 2004, it was
decided not to close the facility until other alternatives are evaluated, including expansion of
the Carrollton facility for use as a regional distribution center. Since a final decision has not
yet been made and production of attic ladders continues at that facility, the $5 million Bonds are
not required to be repaid prior to maturity. The bonds bear interest at a variable rate established weekly which may not exceed 15% per
annum (2.0% and 1.5% at December 31, 2004 and 2003, respectively). The interest rate on the bonds
may be converted to a fixed rate upon the satisfaction of certain conditions. Prior to a conversion
to a fixed rate, the bonds are subject to purchase from the holder upon demand at a price equal to
principal plus accrued interest. On or prior to the date of conversion to a fixed rate, the bonds
are subject to redemption, in whole or in part, at the option of the Company. After conversion to a
fixed rate, the bonds are subject to redemption, as a whole or in part, at the Companys option, on
or after the tenth anniversary of the conversion, at annual redemption prices varying from 103% to
100% of the principal outstanding. Certain property and equipment having an original cost of $3,889
are pledged as collateral for the bonds. Covenants The Senior Credit Facility and the Notes contain various restrictive covenants including
restrictions on additional indebtedness, mergers, asset dispositions, restricted payments,
prepayment and amendments of subordinated indebtedness. These covenants also prohibit, among other
things, the payment of cash dividends. 38




---



##### Table of Contents



Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Consolidated Financial Statements  Continued
(Dollars in Thousands, except Share Amounts) The financial covenants of the Senior Credit Facility require the Company to meet specific interest
coverage and maximum leverage ratios and limit capital expenditures. The Company is in compliance with all its debt covenants as of December 31, 2004. Effective as
of March 31 and May 10, 2005, the Senior Credit Facility was amended to modify certain financial
covenants and provide for other changes (see Note U). Scheduled Principal Payments Subject to refinancing or extension of the Notes as discussed above, the aggregate amount of
scheduled principal payments, excluding repayments of obligations under capital leases, is $22,500
in 2005, $27,500 in 2006, $167,500 in 2007, $71,700 in 2008, and $27,500 in 2009 and $5,000
thereafter. Capitalized Lease Obligations Future minimum lease payments under capital leases are as follows: 2005
    
    $
    2,2922006
    
    
    2,2572007
    
    
    2,0592008
    
    
    1,9442009
    
    
    1,848Thereafter
    
    
    8,778Total minimum payments
    
    
    19,178Less amount representing interest
    
    
    4,874Capital lease obligations
    
    
    14,304Less current maturities
    
    
    1,386Long-term capital lease obligations
    
    $
    12,918
 In March 2004, the Company executed a lease contract relating to the construction of a large
manufacturing facility located in Juarez, Mexico. Under the contract, the obligations of an
unrelated third party lessee were guaranteed by the Company. During the quarter ended September 30,
2004, construction was completed and the Company assumed all obligations under the lease. The lease
met the accounting criteria to be categorized as a capital lease which resulted in an asset
recorded in property, plant and equipment and an offsetting amount recorded as debt of $12,684. The
amount recorded was based on the present value of the future lease payments. The Company has the
option to purchase the leased property at the end of the initial term. The initial lease term is
ten years and the Company also has two five-year options to extend the lease beyond its initial
term. F. Sale of Accounts Receivable The Company maintains a Receivables Purchase Agreement (the Receivables Purchase
Agreement) with a financial institution and its affiliate to provide additional financing capacity with a
maximum availability of $50,000 depending upon the level of accounts receivable and certain other
factors. The agreement expires in May 2006 but will continue subject to the approval of annual
renewals by both the Company and the financial institution. Under the Receivables Purchase
Agreement, the Company established a consolidated wholly-owned subsidiary, Werner Funding
Corporation (Funding), which is a special purpose bankruptcy-remote entity that acquires, on a
daily basis, a variable percentage interest of certain eligible trade receivables generated by the
Company. The purchases by Funding are financed through the sale of an undivided percentage
ownership interest in such receivables to the affiliate of the financial institution. The Company
has agreed to continue servicing the sold receivables for the financial institution at market
rates; therefore no servicing asset or liability has been recorded. 39




---



##### Table of Contents



Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Consolidated Financial Statements  Continued
(Dollars in Thousands, except Share Amounts) As of December 31, 2004 and 2003 the Company had transferred, on a recurring basis, $61,564
and $84,549 of accounts receivable in exchange for $34,000 and $20,000 in cash and an undivided
interest in accounts receivable of $27,355 and $64,483, respectively. In accordance with the
provisions of FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities, the transactions have been recorded as a sale of receivables to
a qualified special purpose entity. The ongoing cost associated with the Receivables Purchase
Agreement, which represents a return to investors in the purchased interests, as well as the cost
of implementation and the loss on the sale of accounts receivable, is reported in the accompanying
consolidated statements of income in the caption,
Other income (expense), net. These costs totaled $1,259, $695 and $607 in 2004, 2003 and
2002, respectively. The interest rates on the purchased interests at December 31, 2004 and 2003
were 2.20% and 1.13%, respectively. As of December 31, 2004 the Company had drawn the maximum
available under the Receivables Purchase Agreement. The key economic assumptions used to measure the undivided interest at the date of the
securitization for securitizations completed in 2004 were a discount rate of 3.95% and an estimated
life of approximately two months. At December 31, 2004 an immediate adverse change in the discount
rate or estimated life of 10% and 20% would not result in a significant reduction in the fair value
of the undivided interest. These sensitivities are hypothetical and should be used with caution.
Changes in fair value based on changes in assumptions generally cannot be extrapolated because the
relationship of the change in assumption to the change in fair value may not be linear. Also, the
effect of a variation in a particular assumption on the fair value of the retained interest is
calculated without changing any other assumption. In reality, changes in one factor may result in
changes in another. The accompanying consolidated balance sheets at December 31, 2004 and 2003 reflect an
allowance for doubtful accounts that relates, in large part, to accounts receivable representing
the undivided interest in the assets of the financial institution affiliate. Effective during April 2005 a commitment for a new Accounts Receivable Financing Facility was
executed (see Note U). G. Convertible Preferred Stock Ranking and Liquidation Preference The $65,000 of Series A Preferred Stock issued in connection with the
Recapitalization ranks senior to
all outstanding classes of common stock of the Company with respect to dividends and as to
distributions upon the liquidation, winding-up and dissolution of the Company. Each share had an
initial liquidation preference of $1,000 and the holders thereof are entitled to receive dividends
thereon at an annual rate equal to 14%, payable quarterly, from the date the Series A Preferred
Stock was first issued until December 31, 2008. The dividends may be paid in cash or, at the
election of the Company, in lieu of cash by increasing the liquidation preference by the amount of
unpaid dividends. However, the Companys debt covenants prohibit the payment of cash dividends (see
Note E). Preferred Dividends During 2004 and 2003 quarterly preferred dividends in the amount of $10,272 and $4,630,
respectively, were paid and, in lieu of cash dividend payments, the liquidation preference of the
Series A Preferred Stock was increased by the amount of the dividends. The dividends were recorded
by reducing additional paid-in capital and increasing the balance of convertible preferred stock.
The dividends, which increased the liquidation preference of preferred stock to $79,902 as of
December 31, 2004, are presented as an adjustment to arrive at net income attributable to common
shareholders in the consolidated statements of income. Conversion into Common Stock Holders of the Series A Preferred Stock can convert all or any of the shares of the Series A
Preferred Stock into shares of Class F Common Stock of the Company, at any time or from time to
time, at a conversion 40




---



##### Table of Contents



Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Consolidated Financial Statements  Continued
(Dollars in Thousands, except Share Amounts) rate equal to the liquidation preference divided by $4,929.66 (such multiple, the Conversion
Rate). If dividends are unpaid at the election of the Company, the Conversion Rate will increase
by 14% per year, compounded quarterly from the date of issue through the third anniversary.
Therefore, over time (but in any event not beyond the third anniversary of the date issued), each
share of Series A Preferred Stock will be convertible into a greater number of shares of Class F
Common Stock. If all of the Series A Preferred shares had been converted as of December 31, 2004,
16,208 shares of Class F Common Stock would have been issued. Redemption Each holder of Series A Preferred Stock will have the right to require the Company to redeem,
in whole or in part, such holders shares if certain events occur (the Put Events). Put Events
include a change of control, the sale of all or substantially all the assets of the Company, or an
initial public offering (each as specifically defined by the Recapitalization Agreement). On or
after January 1, 2007 and prior to December 31, 2008, any or all holders of Series A Preferred
Stock may elect to have their shares redeemed, in whole or in part, (the Elective Put). The
redemption price for the Put Events and the Elective Put will be 130.8% of the liquidation
preference if the event giving rise to the redemption right occurs prior to the first anniversary
of the date issued or, if the event giving rise to the redemption right occurs on or after the
first anniversary of the date issued, at a redemption price equal to 112% in 2004, 110% in 2005,
108% in 2006 and 106% in 2007 and thereafter. Preferred Stock Accretion As a result of the Elective Put discussed above, the Series A Preferred Stock will have a
redemption price equal to 106% of the liquidation preference effective on January 1, 2007. At the
date of issuance, the preferred stock was recorded net of associated issuance costs of $6,841. The
recorded value of the preferred stock will be accreted to its redemption value through December 31,
2006 using the effective interest method. Accretion recorded during 2004 and 2003 was $3,114 and
$1,559, respectively. The accretion of preferred stock is subtracted from net income in calculating
net income attributable to common shareholders for purposes of presenting the consolidated
statements of income. Voting Rights The holders of Series A Preferred Stock are entitled to vote on all matters which the holders
of common stock of the Company are entitled to vote, and are accorded such number of votes per
share of Series A Preferred Stock as the number of common shares then issuable upon such shares
conversion. As long as any shares of Series A Preferred Stock remain outstanding, the Company will not
amend its charter so as to affect adversely the special rights, powers, preferences, privileges or
voting rights of the Series A Preferred Stock without the consent of the holders of at least a
majority of the then outstanding shares of Series A Preferred Stock. H. Shareholders Equity Shareholder Agreement At closing of the Recapitalization, the Company, Investcorp and certain affiliates (the
Investcorp Investors), GEI (with its affiliates, the GEI Investors), and certain members of the
Werner and Solot families (the Family Shareholders) entered into an amended and restated
shareholder agreement (the Shareholder Agreement) to provide, among other things, that the Board
of Directors of the Company will consist of nine members initially, consisting of not less than
four designated by the Investcorp Investors, two designated by the Family Shareholders and two
designated by the GEI Investors, with the ninth director being the Companys Chief Executive
Officer. On June 11, 2006, the GEI Investors will have the right to designate a third member to the
Board of Directors, bringing the total at such time to ten directors. The right of the Investcorp
Investors, the Family Shareholders or the GEI Investors to appoint directors
under the Shareholder Agreement will terminate as to any such group if it ceases to own at
least 50% of the aggregate equity position that it owned immediately after the closing of the
Recapitalization. 41




---



##### Table of Contents



Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Consolidated Financial Statements  Continued
(Dollars in Thousands, except Share Amounts) Voting Rights Holders of the Class A Common Stock and Class B Common Stock are entitled to one vote per
share and holders of the Class D Common Stock are entitled to approximately 50.7 votes per share.
Class C Common Stock and Class E Common Stock have no voting rights. Upon the occurrence of a sale
of 100% of the outstanding equity securities of the Company, a sale of substantially all the assets
of the Company or a public offering of any equity securities of the Company (Triggering Event),
each outstanding share of Class A Common Stock, Class B Common Stock, Class C Common Stock, Class D
Common Stock and Class E Common Stock will convert into one share of Common Stock of the Company.
This additional class of common stock with a par value of $.01 per share is authorized (125,896
shares under the Companys Articles of Incorporation), but no shares were issued or outstanding at
December 31, 2004 and 2003. When issued, this class of Common Stock of the Company will have one
vote per share. Other Agreements In connection with the Recapitalization, the Companys agreement for management and consulting
services with Investcorp International, Inc. (III), an affiliate of Investcorp, was amended to
provide consulting services through November 24, 2007. The amended agreement provides for the
Company to pay III an annual fee of $1,500 for the annual period ending November 24, 2003 and
$1,000 for each annual period thereafter. The agreement will terminate on the earlier of November
24, 2007, the date on which III ceases to own at least 50% of the aggregate equity of the Company
or on the date of an initial public offering, as defined. The Company entered into a management and consulting agreement with Leonard Green in
connection with the Recapitalization. The agreement provides for the Company to pay Leonard Green
$455 for services for the period through November 23, 2003 and $1,000 for services and expenses for
each annual period thereafter through November 25, 2008. The agreement will terminate on the
earlier of November 25, 2008, the date on which Leonard Green ceases to own at least 50% of the
Companys Series A Preferred Stock (including any shares of common stock issued upon conversion) or
on the date of an initial public offering, as defined. I. Stock Incentive Plans Stock Option Plan The Werner Holding Co. (PA), Inc. 1997 Stock Incentive Plan, as amended, (the Stock Option
Plan) is administered by the Companys Board of Directors. Pursuant to the Stock Option Plan,
certain directors, employees and officers of the Company are given an opportunity to acquire shares
of the Companys Class C Common Stock (the Class C Stock) through the grant of non-qualified and
qualified stock options, stock appreciation rights and restricted stock. The options granted under
the Stock Option Plan are exercisable at no less than the fair market value of the Class C Stock at
the time of grant and vest on the seventh anniversary of the grant date with the possibility for
accelerated vesting based, in part, on the achievement of certain financial targets as provided for
in the Stock Option Plan. The Stock Option Plan also provides for vesting of certain percentages of
the options in the event of an Initial Public Offering or Approved Sale as defined in the Stock
Option Plan. Options issued pursuant to the Stock Option Plan expire on the thirtieth day following
the seventh anniversary of the grant date. A total of 6,504 shares of Class C Stock have been
reserved for issuance under the Plan. In connection with the Recapitalization (see Note C) the Company accelerated the vesting of
2,368 options, paid option holders $3,017 in consideration for the cancellation of 1,235 vested
options, extended the life of the remaining vested options to 30 days after November 24, 2007 and
cancelled the remaining 3,007 issued and outstanding unvested options. A noncash compensation
charge totaling $4,590 associated
with the extension of the life of the options was recorded effective on the date of the
Recapitalization. The charge was determined based on the excess of the fair value of the Companys
common stock on the date of the Recapitalization compared to the exercise price of the options. 42




---



##### Table of Contents



Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Consolidated Financial Statements  Continued
(Dollars in Thousands, except Share Amounts) Presented below is a summary of the Stock Option Plan activity: WeightedAverageStock
    
    
    ExerciseOptions
    
    
    PriceOutstanding at January 1, 2002
    
    
    6,120
    
    
    $
    2,436.77Granted
    
    
    700
    
    
    $
    3,000.00Exercised
    
    
    
    
    
    
    Forfeited
    
    
    700
    
    
    $
    2,425.39Outstanding at December 31, 2002
    
    
    6,120
    
    
    $
    2,502.49Cancelled in connection with the Recapitalization
    
    
    4,242
    
    
    $
    2,509.90Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited
    
    
    20
    
    
    $
    2,428.47Outstanding at December 31, 2003
    
    
    1,858
    
    
    $
    2,486.37Granted
    
    
    3,082
    
    
    $
    500.00Exercised
    
    
    
    
    
    
    Forfeited
    
    
    581
    
    
    $
    2,421.29Outstanding at December 31, 2004
    
    
    4,359
    
    
    $
    1,090.60
 Stock options outstanding and exercisable as of December 31, 2004 are summarized as follows: Options Outstanding
    
    
    Options ExercisableWeighted
    
    
    Weighted
    
    
    
    
    
    
    WeightedRange of
    
    
    
    
    
    average
    
    
    average
    
    
    
    
    
    
    averageexercise
    
    
    
    
    
    remaining
    
    
    exercise
    
    
    
    
    
    
    exerciseprice
    
    Number
    
    
    contractual
    
    
    price
    
    
    Number
    
    
    priceper share
    
    of shares
    
    
    life (years)
    
    
    per share
    
    
    of shares
    
    
    per share$500.00
    
    
    3,082
    
    
    
    7.0
    
    
    $
    500.00
    
    
    
    
    
    
    $
    $2,421.29-$2,450.00
    
    
    1,078
    
    
    
    3.0
    
    
    $
    2,423.85
    
    
    
    1,078
    
    
    $
    2,423.85$3,000.00-$3,100.00
    
    
    199
    
    
    
    3.0
    
    
    $
    3,015.08
    
    
    
    199
    
    
    $
    3,015.084,359
    
    
    
    5.8
    
    
    $
    1,090.60
    
    
    
    1,277
    
    
    $
    2,515.98
 At December 31, 2003, options were exercisable for 1,858 shares at a weighted average
exercise price of $2,486.27. At December 31, 2002, options were exercisable for 745 shares at a
weighted average exercise price of $2,430.40. During 2004, 2003 and 2002, options for 581, 20 and
185 shares, respectively, which were exercisable by employees, were cancelled upon termination of
employment. The Company has entered into certain management stock purchase agreements, pursuant to which
certain members of the Companys management are given the opportunity to purchase shares of the
Companys Class C Stock from either the Company or certain of the Investcorp Investors (the Stock
Purchase Plan). Shares of Class C Stock purchased under the Stock Purchase Plan were 260 in 2002.
No shares were purchased in 2004 or 2003. As permitted by the Stock Purchase Plan, 21, 12 and 285
shares were repurchased and retired during 2004, 2003 and 2002, respectively, from participants who
terminated employment. The Class C Stock purchased pursuant to the Stock Purchase Plan carries
certain restrictions. In conjunction with the adoption of the Stock Purchase Plan, the Company also
adopted the Werner Holding Co. (PA), Inc. Stock Loan Plan (the Stock Loan Plan) to finance a
portion of the purchase price paid for the shares acquired under the Stock Purchase Plan. At
December 31, 2004 and 2003, notes outstanding under the Stock Loan Plan were $610 and $1,299,
respectively. The notes are full recourse and bear interest at rates comparable to interest rates
paid on the Companys third party credit arrangements and mature in seven years or upon sale of the
shares. All shares purchased pursuant to the terms of the Stock Loan Plan are pledged to the
Company. The 43




---



##### Table of Contents



Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Consolidated Financial Statements  Continued
(Dollars in Thousands, except Share Amounts) notes are classified as a reduction of shareholders equity in the Companys consolidated balance
sheet. In connection with the Recapitalization, 658 shares of Class C Stock issued pursuant to the
management stock purchase agreements were redeemed in 2003 and the associated notes outstanding
under the Stock Loan Plan totaling $887 were repaid. Deferred Incentive Compensation The Company has employment contracts with several key employees the most significant of which
is the contract with the Companys chief executive officer. The employment contract with the Companys former chief executive officer provided for
deferred incentive compensation associated with retention and with the Werner Co. Deferred Stock
Plan which was adopted effective August 1999 (the Deferred Stock Plan). The separation of the
former chief executive officer as an employee of the Company during 2004 resulted in the
extinguishment of all associated deferred incentive compensation liabilities. Retention incentive
compensation, including associated interest, totaling $2,076 was paid during 2004. This liability
for retention incentive compensation totaled $1,851 at December 31, 2003 and was included in the
caption Accrued liabilities in the accompanying balance sheet (see Note Q). The liability related
to the Deferred Stock Plan was also extinguished during 2004 by the payment of $2,752 which
represented the balance of the deferred compensation dollar account including related interest
through the date of payment and the reclassification of a $1,911 liability to Additional paid-in
capital in the accompanying balance sheet upon issuing 789.187 shares of Class C Common Stock in
connection with a 1999 award of restricted stock units. All such shares shall continue to be
subject to certain terms and conditions set forth in the Deferred Stock Plan including limitations
on transfer of ownership. In addition, 623.2647 of such shares shall continue to be subject to
certain repurchase and put rights. The liability related to the Deferred Stock Plan totaled $4,540
at December 31, 2003 and was included in noncurrent liabilities (see Note R). Pursuant to the
Deferred Stock Plan, the Companys former chief executive officer was either granted or earned an
aggregate 1,308 stock units in 1999 which were payable in equivalent whole shares of Class C Common
Stock subject to certain conditions. The expense associated with the stock units was recognized
during the three year vesting period which ended in 2002. In connection with the Recapitalization,
the Deferred Stock Plan was amended and restated effective as of May 2003 (the Amended Deferred
Stock Plan). The Amended Deferred Stock Plan provided for cancellation of 518.813 stock units and
the establishment of a deferred compensation dollar account with an initial value of $2,558. The
initial value represented $4,929.66 for each stock unit cancelled. The amendment resulted in a
noncash charge of $1,301 in 2003 to reflect the incremental increase in the liability. The Company entered into an employment agreement with its new chief executive officer
effective January 4, 2005. Among other things, the employment agreement provides for the potential
to earn up to $5,000 total long-term performance compensation. Long-term performance compensation
of
$1,000 will be vested pro-rata equally over five years beginning January 2005. Vesting is
accelerated in the event of a change in majority ownership of the Company or upon the termination
of the chief executive officer without cause, as defined. Long-term performance compensation of
$3,000 will be vested pro-rata equally over five years upon achievement of annual performance based
targets determined by the Companys Board of Directors. Vesting is accelerated in the event of a
change in majority ownership of the Company, performance significantly above agreed upon targets or
upon the termination of the chief executive officer without cause, as defined. Long-term
performance compensation of $1,000 will be vested upon closing of a transaction involving a change
in the majority ownership of the Company. 44




---



##### Table of Contents



Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Consolidated Financial Statements  Continued
(Dollars in Thousands, except Share Amounts) J. Supplemental Cash Flow Information Supplemental cash flow information is summarized as follows: For the Years Ended December 312004
    
    
    2003
    
    
    2002Cash paid during the year for:Interest
    
    $
    21,956
    
    
    $
    19,022
    
    
    $
    19,476Income taxes, net of refunds
    
    $
    431
    
    
    $
    7,758
    
    
    $
    17,160Supplemental disclosure of non-cash financing
activities:Capital lease obligations incurred
    
    $
    12,954
    
    
    $
    1,417
    
    
    $
    921Common stock issued in connection with a 1999
award of restricted stock units (see Note I)
    
    $
    1,911
    
    
    $
    
    
    
    $
    Issuance of common stock in exchange for notes
receivable arising from stock loan plan
    
    $
    
    
    
    $
    
    
    
    $
    585Cancellation of notes receivable arising from
stock loan plan in connection with repurchase
of common stock
    
    $
    
    
    
    $
    (15
    )
    
    $
    (402
    )
 K. Income Taxes The components of income taxes (benefit) are as follows: For the Years Ended December 312004
    
    
    2003
    
    
    2002Current tax (benefit):Federal
    
    $
    (8,728
    )
    
    $
    6,874
    
    
    $
    13,532State and local
    
    
    (91
    )
    
    
    201
    
    
    
    1,492(8,819
    )
    
    
    7,075
    
    
    
    15,024Deferred taxes:Federal
    
    
    2,409
    
    
    
    115
    
    
    
    1,096State and local
    
    
    560
    
    
    
    216
    
    
    
    (69
    )2,969
    
    
    
    331
    
    
    
    1,027Total
    
    $
    (5,850
    )
    
    $
    7,406
    
    
    $
    16,051
 45




---



##### Table of Contents



Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Consolidated Financial Statements  Continued
(Dollars in Thousands, except Share Amounts) Income taxes (benefit) for
financial reporting varied from income taxes (benefit) at the federal
statutory rate as folows: For the Years Ended December 312004
    
    
    2003
    
    
    2002Income tax (benefit) at federal statutory rate
    
    $
    (6,207
    )
    
    $
    8,248
    
    
    $
    15,218State and local income taxes, net of federal benefit
    
    
    (594
    )
    
    
    422
    
    
    
    775Adjustments to estimated income tax accruals
    
    
    (332
    )
    
    
    (1,169
    )
    
    
    Change in federal capital loss carryforward
    
    
    343
    
    
    
    
    
    
    
    120Change in valuation allowance
    
    
    908
    
    
    
    
    
    
    
    (120
    )Other, net
    
    
    32
    
    
    
    (95
    )
    
    
    58Income taxes
    
    $
    (5,850
    )
    
    $
    7,406
    
    
    $
    16,051
 Significant components of the Companys deferred tax assets and liabilities are as follows: December 312004
    
    
    2003Deferred tax liabilities:Depreciation
    
    $
    12,789
    
    
    $
    14,148Estimated income tax accruals
    
    
    
    
    
    
    Capitalized supplies
    
    
    2,152
    
    
    
    2,128Aluminum futures contracts
    
    
    91
    
    
    
    741Other
    
    
    228
    
    
    
    378Total deferred tax liabilities
    
    
    15,260
    
    
    
    17,395Deferred tax assets:Provision for product liability and workers compensation claims
    
    
    16,065
    
    
    
    17,717Accrued vacation
    
    
    1,276
    
    
    
    1,443Accrued employee retirement benefits
    
    
    7,663
    
    
    
    5,574Deferred compensation
    
    
    5,870
    
    
    
    8,088Accrued expenses and other reserves
    
    
    2,823
    
    
    
    4,583Capital losses
    
    
    464
    
    
    
    807State net operating loss carryforward, net of federal benefit
    
    
    1,212
    
    
    
    25435,373
    
    
    
    38,466Valuation allowance
    
    
    (1,676
    )
    
    
    (807
    )Total deferred tax assets
    
    
    33,697
    
    
    
    37,659Net deferred tax assets
    
    $
    18,437
    
    
    $
    20,264
 FASB Statement No. 109, Accounting for Income Taxes, requires that deferred tax assets be
reduced by a valuation allowance if it is more likely than not that some portion or all of the
deferred tax assets will not be realized. During 2004, an additional valuation allowance was
established because the realization of deferred tax assets relating to certain capital losses,
state net operating losses and foreign tax credits carryforwards is uncertain. The Company believes
that it will have taxable income in future periods sufficient to fully recognize its remaining
deferred tax assets. The state net operating loss carryforwards total $22,683 and expire during the
years 2009 through 2024. As of December 31, 2004 the Company recorded a net income tax receivable which includes an
expected refund of federal income taxes previously paid of $10,062. The refund results from
carrying back the net operating loss incurred in 2004 for federal income tax purposes to an earlier
year. A federal tax refund totaling $10,062 was received in March 2005, 46




---



##### Table of Contents



Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Consolidated Financial Statements  Continued
(Dollars in Thousands, except Share Amounts) L. Operating Leases The Company leases certain real estate and various equipment under long-term operating leases.
Total rent expense amounted to $4,374, $3,651 and $3,241 for 2004, 2003 and 2002, respectively. Future minimum rental commitments as of December 31, 2004 for all noncancellable operating
leases are as follows: 2005
    
    $
    2,2692006
    
    
    1,3952007
    
    
    1,0462008
    
    
    7952009
    
    
    719Thereafter
    
    
    2,255Total
    
    $
    8,479
 M. Commitments and Contingencies The Company has contracts to provide most of its estimated aluminum requirements with three
principal suppliers. These contracts include stipulated prices, with provisions for price
adjustments based on market prices. Two contracts are renegotiable in 2005 and one in 2007. Until March 31, 1998, the Company provided insurance for its product liability and workers
compensation claims through a subsidiary that was dissolved in 1998. On March 31, 1998, the Company
transferred the outstanding product and workers compensation liabilities for losses incurred on or
prior to March 31, 1998 to a commercial insurance provider who assumed all product and workers
compensation liabilities for losses incurred prior to March 31, 1998 up to an aggregate limit of
$75,000. Holding (PA) has agreed to indemnify the commercial insurance company for losses in excess
of this limit. Based on information known to date, the Company believes that the ultimate amount of
such losses will not exceed $75,000. Letters of credit are issued to guarantee the Companys performance under certain contractual
obligations. A letter of credit in the amount of $14,842 has been issued to an insurance company to
guarantee the payment of certain claims under the Companys product liability and workers
compensation programs. Repayment of principal plus certain accrued interest of the Companys
outstanding Variable Rate Demand Industrial Building Revenue Bonds is guaranteed by a letter of
credit in the amount of $5,109. Other letters of credit have been issued totaling $600. Letters of
credit, which have a term of one year or less, total $20,551 at December 31, 2004. Management
believes the likelihood of demand for payment under these instruments is minimal and expects no
material cash outlays to occur in connection with these instruments. The Company is involved from time to time in various legal proceedings and claims incident to
the normal conduct of its business. Although it is impossible to predict the outcome of any pending
legal proceeding, the Company believes that such legal proceedings and claims individually and in
the aggregate are either without merit, covered by insurance or adequately reserved for, and will
not have a material adverse effect on its results of operations, financial position or cash flows. 47




---



##### Table of Contents



Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Consolidated Financial Statements  Continued
(Dollars in Thousands, except Share Amounts) N. Employee Retirement and Benefit Plans The Company sponsors a non-contributory defined benefit plan that covers certain hourly and
salaried employees. Benefit accruals for salaried employees are frozen under the plan. Other
unfunded non-qualified supplemental retirement plans which provide a defined pension benefit in
excess of limits imposed by federal tax law to certain key employees are maintained but benefit
accruals are frozen. The Company also sponsors postretirement term life insurance plans which cover
substantially all employees and postretirement health care and other benefit plans which provide
benefits to certain key employees. A December 31 date is used to determine benefit measurements for
all the Companys pension and postretirement plans. The following provides a reconciliation of benefit obligations, plan assets and funded status of
the plans: Pension Benefits
    
    
    Postretirement Benefits2004
    
    
    2003
    
    
    2004
    
    
    2003Change in Projected Benefit ObligationBenefit obligation at January 1
    
    $
    63,560
    
    
    $
    59,516
    
    
    $
    2,928
    
    
    $
    2,815Curtailment
    
    
    
    
    
    
    (51
    )
    
    
    
    
    
    
    (23
    )Service cost
    
    
    659
    
    
    
    914
    
    
    
    68
    
    
    
    64Interest cost
    
    
    3,845
    
    
    
    3,866
    
    
    
    182
    
    
    
    181Plan amendment
    
    
    
    
    
    
    
    
    
    
    (93
    )
    
    
    Actuarial loss
    
    
    3,804
    
    
    
    2,519
    
    
    
    392
    
    
    
    3Benefits paid
    
    
    (3,928
    )
    
    
    (3,204
    )
    
    
    (176
    )
    
    
    (112
    )Benefit obligation at December 31
    
    
    67,940
    
    
    
    63,560
    
    
    
    3,301
    
    
    
    2,928Change in Plan AssetsFair value of assets at January 1
    
    
    29,935
    
    
    
    26,277
    
    
    
    
    
    
    
    Actual return on plan assets
    
    
    2,766
    
    
    
    4,859
    
    
    
    
    
    
    
    Employer contributions
    
    
    6,582
    
    
    
    2,003
    
    
    
    176
    
    
    
    112Benefits paid
    
    
    (3,928
    )
    
    
    (3,204
    )
    
    
    (176
    )
    
    
    (112
    )Fair value of assets at December 31
    
    
    35,355
    
    
    
    29,935
    
    
    
    
    
    
    
    Funded status  (underfunded)
    
    
    (32,585
    )
    
    
    (33,625
    )
    
    
    (3,301
    )
    
    
    (2,928
    )Unrecognized transition obligation
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    2Unrecognized prior service cost
    
    
    563
    
    
    
    601
    
    
    
    191
    
    
    
    298Unrecognized net actuarial loss
    
    
    23,088
    
    
    
    20,325
    
    
    
    1,217
    
    
    
    886Net amount recognized
    
    $
    (8,934
    )
    
    $
    (12,699
    )
    
    $
    (1,891
    )
    
    $
    (1,742
    )Amounts recognized in the Consolidated
Balance Sheets consist of:Other long-term obligations:Accrued employee retirement benefits
    
    $
    (7,938
    )
    
    $
    (11,705
    )
    
    $
    (1,781
    )
    
    $
    (1,630
    )Minimum pension liability
    
    
    (23,651
    )
    
    
    (20,924
    )
    
    
    
    
    
    
    Accrued liabilities
    
    
    (996
    )
    
    
    (996
    )
    
    
    (110
    )
    
    
    (112
    )Other noncurrent assets:Intangible pension asset
    
    
    563
    
    
    
    601
    
    
    
    
    
    
    
    Accumulated other comprehensive
income (loss)
    
    
    23,088
    
    
    
    20,325
    
    
    
    
    
    
    
    Net amount recognized
    
    $
    (8,934
    )
    
    $
    (12,699
    )
    
    $
    (1,891
    )
    
    $
    (1,742
    )Increase (decrease) in the pre-tax minimum
pension liability included in Accumulated
Other Comprehensive Income (Loss)
    
    $
    2,763
    
    
    $
    (1,006
    )
 48




---



##### Table of Contents



Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Consolidated Financial Statements  Continued
(Dollars in Thousands, except Share Amounts) During 2003 the benefit obligation for pension and postretirement benefits was reduced by $51
and $23, respectively, due to a curtailment that resulted from the reduction in employment at the
Companys Greenville, Pennsylvania facility (see Note P). The curtailment did not impact 2003 net
periodic benefit cost. As of December 31, 2004 and 2003, the accumulated benefit obligations for all pension plans
totaled $67,940 and $63,560, respectively, which exceeded the fair value of plan assets at each
respective date. The assumed health care trend rate for 2004 is 12% decreasing ratably to 5% in the year 2011
and remaining constant thereafter. If this annual rate would increase by 1%, the accumulated
postretirement benefit obligation would increase by $225 and postretirement benefit cost would
increase by $19 in 2004. A 1% decrease in the health care trend rate would decrease the accumulated
postretirement benefit obligation by $182 and postretirement benefit cost for 2004 would decrease

by $15. Net periodic pension and other postretirement benefit costs consist of the following components: Pension Benefits
    
    
    Postretirement Benefits2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002Components of net periodic
benefit costService cost
    
    $
    659
    
    
    $
    914
    
    
    $
    750
    
    
    $
    68
    
    
    $
    64
    
    
    $
    59Interest cost
    
    
    3,845
    
    
    
    3,866
    
    
    
    3,680
    
    
    
    182
    
    
    
    181
    
    
    
    175Expected return on plan assets
    
    
    (2,591
    )
    
    
    (2,324
    )
    
    
    (2,696
    )
    
    
    
    
    
    
    
    
    
    
    Amortization of transition obligation
    
    
    
    
    
    
    
    
    
    
    (222
    )
    
    
    
    
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    38
    
    
    
    38
    
    
    
    8
    
    
    
    14
    
    
    
    19
    
    
    
    19Amortization of actuarial loss
    
    
    866
    
    
    
    938
    
    
    
    399
    
    
    
    60
    
    
    
    35
    
    
    
    26Net periodic benefit cost
    
    $
    2,817
    
    
    $
    3,432
    
    
    $
    1,919
    
    
    $
    324
    
    
    $
    299
    
    
    $
    279Weighted average assumptions used
to determine benefit obligations
at December 31Discount rate
    
    
    5.75
    %
    
    
    6.25
    %
    
    
    6.50
    %
    
    
    5.75
    %
    
    
    6.25
    %
    
    
    6.50
    %Expected return on plan assets
    
    
    8.50
    %
    
    
    8.50
    %
    
    
    8.50
    %
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/ARate of compensation increase
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/AWeighted average assumptions used
to determine net periodic benefit cost
for years ended December 31Discount rate
    
    
    6.25
    %
    
    
    6.50
    %
    
    
    7.00
    %
    
    
    6.25
    %
    
    
    6.50
    %
    
    
    7.00
    %Expected return on plan assets
    
    
    8.50
    %
    
    
    8.50
    %
    
    
    8.50
    %
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/ARate of compensation increase
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
 49




---



##### Table of Contents



Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Consolidated Financial Statements  Continued
(Dollars in Thousands, except Share Amounts) The Companys pension asset allocation at December 31, 2004 and 2003, and asset target
allocation in effect as of December 31, 2004 are as follows: Percentage of Plan AssetsTarget
    
    
    December 31Asset Category
    
    Allocation
    
    
    2004
    
    
    2003Equity securities
    
    40% to 75%
    
    
    73
    %
    
    
    71
    %Debt securities
    
    25% to 60%
    
    
    27
    %
    
    
    29
    %100
    %
    
    
    100
    %
 The Company retains professional investment advisors to invest pension assets consistent with
the Companys established investment strategies. The objectives of the Companys investment
strategies are to produce a total return commensurate with the portfolios risk, to maximize return
on assets by investing primarily in equity securities, to diversify investments within asset
classes to reduce the impact of losses in a single asset class and to invest in compliance with all
applicable federal, state and local laws, rules and regulations. Effective January 1, 2005 the Company changed the assumption for the expected return on plan
assets to 8.0% from 8.5% used previously. During 2004 the Company evaluated information provided by
its independent investment manager and its pension consultants, including their review of asset
class return expectations based on historical returns and long-term inflation assumptions. As a
result of the review the Company reduced the assumption for the expected return on plan assets by
0.5%. During 2005 the Company expects to contribute $1,628 to the trust established for the
qualified defined benefit plan which would satisfy the minimum funding requirements of ERISA. The
expected benefits the trust will pay to retirees during the next ten years are combined with the
expected benefits to be paid pursuant to the non-qualified supplemental retirement plans and
reflected in the column entitled Pension Benefits in the table below. The benefits for the
supplemental retirement plans and the postretirement benefit plans (also reflected below) are paid
directly by the Company. Pension
    
    
    PostretirementBenefits
    
    
    Benefits2005
    
    $
    3,559
    
    
    $
    1752006
    
    
    3,618
    
    
    
    1792007
    
    
    3,763
    
    
    
    1782008
    
    
    3,814
    
    
    
    1752009
    
    
    3,917
    
    
    
    177Five years thereafter
    
    
    22,093
    
    
    
    930$
    40,764
    
    
    $
    1,814
 In December 2003 the Medicare Prescription Drug, Improvement and Modernization Act of 2003
(the Act) became effective. The Act established a prescription drug benefit under Medicare as
well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit
that is at least the actuarial equivalent to Medicare Part D. The Company sponsors a
postretirement health care benefit plan
which provides prescription drug benefits to certain key employees. The Act had no impact on
the Companys results of operations, financial position or cash flows. The Company also sponsors a defined contribution plan which covers substantially all of its
employees. For certain employees covered by a collective bargaining agreement, contributions are
based on negotiated rates and hours worked; for others, contributions are based on a percentage of
employees contributions and are increased based on a combination of the participants age and
length of service. The expense related to these plans was $1,868, $2,630 and $2,754 in 2004, 2003
and 2002, respectively. 50




---



##### Table of Contents



Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Consolidated Financial Statements  Continued
(Dollars in Thousands, except Share Amounts) The Company also participates in various multi-employer plans pursuant to collective
bargaining agreements. In connection with these plans, the Company contributed and charged to
expense $399, $387 and $425 in 2004, 2003 and 2002, respectively. O. Segment Information The Company classifies its business into 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 earnings. The
accounting policies of the reportable segments are the same as those described in the summary of
significant accounting policies. For the Years Ended December 312004
    
    
    2003
    
    
    2002Net salesClimbing Products
    
    $
    373,501
    
    
    $
    432,781
    
    
    $
    444,336Extruded Products
    
    
    72,665
    
    
    
    68,325
    
    
    
    76,068$
    446,166
    
    
    $
    501,106
    
    
    $
    520,404Operating profit (loss)Climbing Products
    
    $
    12,696
    
    
    $
    61,260
    
    
    $
    65,895Extruded Products
    
    
    (986
    )
    
    
    2,143
    
    
    
    354Corporate and Other
    
    
    (2,795
    )
    
    
    (15,415
    )
    
    
    (1,622
    )$
    8,915
    
    
    $
    47,988
    
    
    $
    64,627Depreciation and amortizationClimbing Products
    
    $
    17,961
    
    
    $
    13,806
    
    
    $
    13,237Extruded Products
    
    
    1,663
    
    
    
    1,769
    
    
    
    1,687Corporate and Other
    
    
    4,952
    
    
    
    7,024
    
    
    
    3,752$
    24,576
    
    
    $
    22,599
    
    
    $
    18,676Identifiable assetsClimbing Products
    
    $
    198,289
    
    
    $
    191,701
    
    
    $
    214,434Extruded Products
    
    
    40,584
    
    
    
    37,260
    
    
    
    40,539Corporate and Other
    
    
    44,685
    
    
    
    49,653
    
    
    
    43,270$
    283,558
    
    
    $
    278,614
    
    
    $
    298,243Capital expendituresClimbing Products
    
    $
    5,944
    
    
    $
    6,335
    
    
    $
    5,772Extruded Products
    
    
    1,315
    
    
    
    1,727
    
    
    
    1,341Corporate and Other
    
    
    1,857
    
    
    
    1,861
    
    
    
    4,940$
    9,116
    
    
    $
    9,923
    
    
    $
    12,053
 Operating profit (loss) for Corporate and Other includes various corporate expenses not
allocated to the reportable segments and eliminations. Other income (expense), net reflected in
the consolidated statements of income is also not allocated to the reportable segments. Operating profit (loss) for 2004 for the Climbing Products segment includes $8,337 of costs
related to restructuring and other cost reduction initiatives and $14,316 of associated startup and
realignment costs. Operating profit (loss) for 2004 also includes the impact of a severance cost
allocation of $1,101 associated with the separation of the former chief executive officer. Year
2003 operating profit (loss) includes $2,508 of costs related to manufacturing and distribution
optimization and $3,246 of associated startup and realignment costs. Operating profit (loss) for
year 2002 includes the impact of severance costs of approximately $1,300 associated with the
separation of a former executive officer. 51




---



##### Table of Contents



Werner Holding Co. (PA), Inc. and Subsidiaries Notes
to Consolidated Financial Statements  Continued
(Dollars in Thousands, except Share Amounts) Operating profit (loss) for the Extruded Products segment for 2004 includes $644 of costs
related to restructuring and other cost reduction initiatives and $964 of associated startup and
realignment costs. Operating profit (loss) for 2004 also includes the impact of a severance cost
allocation of $154 associated with the separation of the former chief executive officer. Year 2003
operating profit (loss) includes $381 of costs related to manufacturing and distribution
optimization and $236 of associated startup and realignment costs. Operating profit (loss) for year
2002 includes the impact of severance costs of approximately $300 associated with the separation of
a former executive officer. Operating profit (loss) for Corporate and Other for 2003 includes Recapitalization expenses of
$11,499 (see Note C). Included in depreciation and amortization reflected above for Corporate and
Other is amortization of original issue discount associated with the Notes and amortization of
deferred financing fees aggregating $2,932, $4,882 and $2,796 for years 2004, 2003 and 2002,
respectively. The Companys revenues are primarily derived from customers domiciled in the United States. As
of December 31, 2004, substantially all of the Companys long-lived assets are located in the
United States. Climbing Products net sales to one or more significant customers individually exceeded 10% of
the Companys net sales in 2004, 2003 and 2002 as described below. No customer included in the
Extruded Products segment accounted for more than 10% of the Companys net sales in any of the past
three years. During December 2003, the Company announced that it entered into a long term strategic
alliance with Lowes Companies, Inc. (Lowes). Lowes is the exclusive source for Werner® branded
climbing equipment in the warehouse home center channel. Under this arrangement, Werner supplies
all of Lowes climbing equipment requirements and with Lowes, will jointly promote and market
Werner® branded products. Werner has the opportunity to enter into new climbing equipment
categories at Lowes. In addition, Lowes and Werner have jointly committed to developing strategic
plans to increase ladder sales. Sales to Lowes accounted for $141,726, or 32%; $109,180, or 22%;
and $92,352, or 18% of the Companys net sales in years 2004, 2003 and 2002, respectively. As previously reported, during October 2003 the Company was informed by its then largest
customer, Home Depot, that it would no longer purchase aluminum and fiberglass stepladders from the
Company but would instead source these products directly from China. Werner was also included in an
extension ladder supplier line review at Home Depot that began in October 2003. After careful
consideration and extensive analyses, taking into account the Companys long-term interests, value
and brand equity of Werner, the Company decided to discontinue supplying Werner® branded products
to Home Depot. In order to provide for an orderly transition, the Company continued supplying
Werner® branded climbing equipment to Home Depot into the first quarter of 2004. Sales of all
products to Home Depot accounted for $136,051, or 27%; $161,339, or 31% of the Companys net sales
in years 2003 and 2002, respectively. P. Restructuring and Other Cost Reduction Initiatives A restructuring and downsizing program was initiated in early 2004 which, in part, accelerates
and expands the manufacturing and distribution optimization activities initiated in 2003. During
the second quarter of 2003, the Company transferred all ladder fabrication and assembly operations
in Greenville, Pennsylvania to other lower cost Company facilities and began an initiative to focus
the Greenville facility on the Extruded Products segment of the Companys business. Substantially
all production related to climbing products at the Greenville facility was discontinued during 2003
and the remaining operations related to climbing products are expected to cease during 2005. In February 2004, the Company announced that it plans to gradually phase-out production at its Anniston, Alabama manufacturing and distribution facility. Manufacturing operations ceased at
this facility effective November 1, 2004 and the facilitys distribution center is expected to
cease operations during the second half of 2005. Depreciation expense for this facility is being
recognized on an accelerated basis through the date operations are expected to cease. The Company
intends to sell this facility. 52




---



##### Table of Contents



Werner Holding Co. (PA), Inc. and Subsidiaries Notes to
Consolidated Financial Statements  Continued
(Dollars in Thousands, except Share Amounts) In early 2004, the Company initiated a program to reduce costs by re-engineering its selling,
general and administrative functions which primarily resulted in charges of severance and
termination benefits due to headcount reductions. Costs incurred in connection with the above-described activities during 2004 and 2003 are
included in the income statement caption entitled, Restructuring and other cost reduction
initiatives and consist of the following: For the Years Ended December 312004
    
    
    2003Equipment relocation and disposal costs
    
    $
    2,671
    
    
    $
    1,335Accelerated depreciation
    
    
    2,411
    
    
    
    Employee severance and termination benefits
    
    
    3,027
    
    
    
    932Other associated costs
    
    
    872
    
    
    
    622$
    8,981
    
    
    $
    2,889
 The liability for severance and termination benefits totaled $10 at December 31, 2003. During
2004, expense of $3,017 was recorded and payments totaling $2,362 were disbursed resulting in a
liability for severance and termination benefits of $665 at December 31, 2004. The liability
accrued at December 31, 2004 is expected to be paid in 2005. The costs reflected above are costs associated with exit or disposal activities as defined by
FASB Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activitiesor costs
incurred in connection with exit activities recorded pursuant to Statement No. 112, Employers
Accounting for Postemployment Benefits.Management believes there are other costs related to the
restructuring activities that are both nonrecurring and incremental. These costs include start-up
and wind-down costs associated with manufacturing facilities and duplicate freight and handling
costs. These costs, which are recorded in the income statement captions, Cost of sales and
Selling and distribution expenses, were as follows: For the Years Ended December 312004
    
    
    2003Cost of sales
    
    $
    8,781
    
    
    $
    2,027Selling and distribution expenses
    
    
    6,499
    
    
    
    1,455$
    15,280
    
    
    $
    3,482
 The total costs associated with the above-described restructuring activities are expected to
range from $55,000 to $60,000 through 2009. Costs incurred through December 31, 2004 total $30,632. 53




---



##### Table of Contents



Werner Holding Co. (PA), Inc. and Subsidiaries Notes to
Consolidated Financial Statements  Continued
(Dollars in Thousands, except Share Amounts) Q. Accrued Liabilities Accrued liabilities consist of the following: December 312004
    
    
    2003Advertising, promotions and allowances
    
    $
    14,288
    
    
    $
    12,523Payroll
    
    
    4,214
    
    
    
    6,318Interest
    
    
    3,552
    
    
    
    3,120Deferred incentive compensation (see Note I)
    
    
    
    
    
    
    1,851Net option contract obligation liabilities
    
    
    167
    
    
    
    Other
    
    
    5,656
    
    
    
    6,302Total
    
    $
    27,877
    
    
    $
    30,114
 R. Other Long-term Obligations Other long-term obligations are comprised of the following: December 312004
    
    
    2003Accrued employee retirement benefits
    
    $
    9,719
    
    
    $
    13,336Minimum pension liability
    
    
    23,651
    
    
    
    20,924Deferred incentive compensation (see Note I)
    
    
    
    
    
    
    4,540Other
    
    
    550
    
    
    
    800Total
    
    $
    33,920
    
    
    $
    39,600
 S. Other Income (Expense), Net Other income (expense), net is comprised of the following: For the Years Ended December 312004
    
    
    2003
    
    
    2002Accounts receivable securitization expense
    
    $
    (1,259
    )
    
    $
    (695
    )
    
    $
    (607
    )Miscellaneous income (expense), net
    
    
    (150
    )
    
    
    680
    
    
    
    931Total
    
    $
    (1,409
    )
    
    $
    (15
    )
    
    $
    324
 During 2003 the Company settled a shareholders derivative action which 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 98-503). In exchange for the dismissal with prejudice of
the lawsuit and the full release of claims, the plaintiffs received 100 shares of Class B common
stock issued by the Company and 100 shares of Class B common stock transferred to the plaintiffs by the individual defendants.
In connection with the settlement a charge was recorded relating to the issuance of 100 shares of
Class B common stock in the fourth quarter of 2003. 54




---



##### Table of Contents



Werner Holding Co. (PA), Inc. and Subsidiaries Notes to
Consolidated Financial Statements  Continued
(Dollars in Thousands, except Share Amounts) T. Supplemental Guarantor Information As discussed in Note E, the Companys debt includes borrowings under the Senior Credit
Facility and the Notes. The issuer of the debt is Werner Holding Co. (DE), Inc. (the Issuer).
Werner Holding Co. (PA), Inc. (the Parent Company) has provided a full, unconditional, joint and
several guaranty of the Issuers obligation under the Senior Credit Facility and the Notes. In
addition, the Issuers wholly-owned subsidiaries, except for Werner Funding Corporation,
(collectively, the Guarantor Subsidiaries) have provided full, unconditional, joint and several
guarantees of the Senior Credit Facility and the Notes. Following is condensed consolidated financial information for the Parent Company, the Issuer,
the Guarantor Subsidiaries and Werner Funding Corporation (the Non-Guarantor Subsidiary).
Separate financial statements of the Issuer and the Guarantor Subsidiaries are not required to be
presented under Rule 3-10 of Regulation S-X and they would not provide additional information that
is material to investors. Further, 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 at
subsidiaries are, therefore, reflected in the respective investment accounts of the Parent Company
and the Issuer. The investment in subsidiaries and intercompany balances and transactions have been
eliminated in consolidation. Income taxes are allocated generally on a separate return basis with
reimbursement for losses utilized on a consolidated basis in accordance with a tax sharing
agreement between the Company and each of its subsidiaries. 55




---



##### Table of Contents



Werner Holding Co. (PA), Inc. and Subsidiaries Notes to
Consolidated Financial Statements  Continued
(Dollars in Thousands, except Share Amounts) Supplemental Condensed Consolidating Balance SheetsCombined
    
    
    Non-Parent
    
    
    
    
    
    
    Guarantor
    
    
    GuarantorCompany
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiary
    
    
    Eliminations
    
    
    ConsolidatedDecember 31, 2004AssetsCurrent assets:Accounts receivable
    
    $
    
    
    
    $
    
    
    
    $
    572
    
    
    $
    23,981
    
    
    $

    
    
    
    $
    24,553Inventories, net
    
    
    
    
    
    
    
    
    
    
    63,254
    
    
    
    
    
    
    
    
    
    
    
    63,254Other current assets
    
    
    725
    
    
    
    (4,812
    )
    
    
    53,206
    
    
    
    396
    
    
    
    
    
    
    
    49,515Total current assets
    
    
    725
    
    
    
    (4,812
    )
    
    
    117,032
    
    
    
    24,377
    
    
    
    
    
    
    
    137,322Property, plant and equipment, net
    
    
    
    
    
    
    1
    
    
    
    114,454
    
    
    
    
    
    
    
    
    
    
    
    114,455Investment in subsidiaries
    
    
    (198,532
    )
    
    
    (112,381
    )
    
    
    6,868
    
    
    
    
    
    
    
    304,045
    
    
    
    Other assets
    
    
    
    
    
    
    10,389
    
    
    
    21,392
    
    
    
    
    
    
    
    
    
    
    
    31,781Total Assets
    
    $
    (197,807
    )
    
    $
    (106,803
    )
    
    $
    259,746
    
    
    $
    24,377
    
    
    $
    304,045
    
    
    $
    283,558Liabilities, Preferred Stock and
Shareholders Equity (Deficit)Current liabilities:Other current liabilities
    
    $
    
    
    
    $
    26,053
    
    
    $
    49,400
    
    
    $
    41
    
    
    $
    
    
    
    $
    75,494Intercompany payable (receivable)
    
    
    (17,628
    )
    
    
    (227,330
    )
    
    
    227,490
    
    
    
    17,468
    
    
    
    
    
    
    
    Total current liabilities
    
    
    (17,628
    )
    
    
    (201,277
    )
    
    
    276,890
    
    
    
    17,509
    
    
    
    
    
    
    
    75,494Long-term debt
    
    
    
    
    
    
    293,006
    
    
    
    17,918
    
    
    
    
    
    
    
    
    
    
    
    310,924Other long-term liabilities
    
    
    
    
    
    
    
    
    
    
    77,319
    
    
    
    
    
    
    
    
    
    
    
    77,319Convertible preferred stock
    
    
    77,733
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    77,733Total equity (deficit)
    
    
    (257,912
    )
    
    
    (198,532
    )
    
    
    (112,381
    )
    
    
    6,868
    
    
    
    304,045
    
    
    
    (257,912
    )Total Liabilities, Preferred
Stock and Equity (Deficit)
    
    $
    (197,807
    )
    
    $
    (106,803
    )
    
    $
    259,746
    
    
    $
    24,377
    
    
    $
    304,045
    
    
    $
    283,558December 31, 2003AssetsCurrent assets:Accounts receivable
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    59,113
    
    
    $
    
    
    
    $
    59,113Inventories, net
    
    
    
    
    
    
    
    
    
    
    55,692
    
    
    
    
    
    
    
    
    
    
    
    55,692Other current assets
    
    
    79
    
    
    
    115
    
    
    
    14,911
    
    
    
    195
    
    
    
    
    
    
    
    15,300Total current assets
    
    
    79
    
    
    
    115
    
    
    
    70,603
    
    
    
    59,308
    
    
    
    
    
    
    
    130,105Property, plant and equipment, net
    
    
    
    
    
    
    1
    
    
    
    110,240
    
    
    
    
    
    
    
    
    
    
    
    110,241Investment in subsidiaries
    
    
    (182,600
    )
    
    
    (103,428
    )
    
    
    7,621
    
    
    
    
    
    
    
    278,407
    
    
    
    Other assets
    
    
    
    
    
    
    11,954
    
    
    
    26,314
    
    
    
    
    
    
    
    
    
    
    
    38,268Total Assets
    
    $
    (182,521
    )
    
    $
    (91,358
    )
    
    $
    214,778
    
    
    $
    59,308
    
    
    $
    278,407
    
    
    $
    278,614Liabilities, Preferred Stock and
Shareholders Equity (Deficit)Current liabilities:Other current liabilities
    
    $
    (768
    )
    
    $
    25,281
    
    
    $
    44,361
    
    
    $
    (216
    )
    
    $
    
    
    
    $
    68,658Intercompany payable (receivable)
    
    
    (14,239
    )
    
    
    (222,439
    )
    
    
    184,775
    
    
    
    51,903
    
    
    
    
    
    
    
    Total current liabilities
    
    
    (15,007
    )
    
    
    (197,158
    )
    
    
    229,136
    
    
    
    51,687
    
    
    
    
    
    
    
    68,658Long-term debt
    
    
    
    
    
    
    288,400
    
    
    
    1,590
    
    
    
    
    
    
    
    
    
    
    
    289,990Other long-term liabilities
    
    
    
    
    
    
    
    
    
    
    87,480
    
    
    
    
    
    
    
    
    
    
    
    87,480Convertible preferred stock
    
    
    64,347
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    64,347Total equity (deficit)
    
    
    (231,861
    )
    
    
    (182,600
    )
    
    
    (103,428
    )
    
    
    7,621
    
    
    
    278,407
    
    
    
    (231,861
    )Total Liabilities, Preferred
Stock and Equity (Deficit)
    
    $
    (182,521
    )
    
    $
    (91,358
    )
    
    $
    214,778
    
    
    $
    59,308
    
    
    $
    278,407
    
    
    $
    278,614
 56




---



##### Table of Contents



Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Consolidated Financial Statements  Continued
(Dollars in Thousands, except Share Amounts) Supplemental Condensed Consolidating Statements of IncomeCombined
    
    
    Non-Parent
    
    
    
    
    
    
    Guarantor
    
    
    GuarantorCompany
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiary
    
    
    Eliminations
    
    
    ConsolidatedFor the Year Ended
December 31, 2004Net sales
    
    $
    
    
    
    $
    
    
    
    $
    446,166
    
    
    $
    
    
    
    $
    
    
    
    $
    446,166Cost of sales
    
    
    
    
    
    
    
    
    
    
    313,379
    
    
    
    
    
    
    
    
    
    
    
    313,379Gross profit
    
    
    
    
    
    
    
    
    
    
    132,787
    
    
    
    
    
    
    
    
    
    
    
    132,787Selling, general and administrative
expenses
    
    
    
    
    
    
    15
    
    
    
    114,876
    
    
    
    
    
    
    
    
    
    
    
    114,891Restructuring and other cost
reduction initiatives
    
    
    
    
    
    
    
    
    
    
    8,981
    
    
    
    
    
    
    
    
    
    
    
    8,981Operating (loss) profit
    
    
    
    
    
    
    (15
    )
    
    
    8,930
    
    
    
    
    
    
    
    
    
    
    
    8,915Other income (expense), net
    
    
    (12,481
    )
    
    
    (6,431
    )
    
    
    (3,085
    )
    
    
    1,705
    
    
    
    18,883
    
    
    
    (1,409
    )Interest income (expense)
    
    
    1,073
    
    
    
    (9,867
    )
    
    
    (13,585
    )
    
    
    (2,863
    )
    
    
    
    
    
    
    (25,242
    )Income (loss) before income taxes
(benefit)
    
    
    (11,408
    )
    
    
    (16,313
    )
    
    
    (7,740
    )
    
    
    (1,158
    )
    
    
    18,883
    
    
    
    (17,736
    )Income taxes (benefit)
    
    
    478
    
    
    
    (3,758
    )
    
    
    (2,165
    )
    
    
    (405
    )
    
    
    
    
    
    
    (5,850
    )Net income
    
    $
    (11,886
    )
    
    $
    (12,555
    )
    
    $
    (5,575
    )
    
    $
    (753
    )
    
    $
    18,883
    
    
    $
    (11,886
    )For the Year Ended
December 31, 2003Net sales
    
    $
    
    
    
    $
    
    
    
    $
    501,106
    
    
    $
    
    
    
    $
    
    
    
    $
    501,106Cost of sales
    
    
    
    
    
    
    
    
    
    
    320,266
    
    
    
    
    
    
    
    
    
    
    
    320,266Gross profit
    
    
    
    
    
    
    
    
    
    
    180,840
    
    
    
    
    
    
    
    
    
    
    
    180,840Selling, general and administrative
expenses
    
    
    
    
    
    
    14
    
    
    
    118,450
    
    
    
    
    
    
    
    
    
    
    
    118,464Recapitalization expense
    
    
    
    
    
    
    
    
    
    
    11,499
    
    
    
    
    
    
    
    
    
    
    
    11,499Restructuring and other cost
reduction initiatives
    
    
    
    
    
    
    
    
    
    
    2,889
    
    
    
    
    
    
    
    
    
    
    
    2,889Operating (loss) profit
    
    
    
    
    
    
    (14
    )
    
    
    48,002
    
    
    
    
    
    
    
    
    
    
    
    47,988Other income (expense), net
    
    
    15,677
    
    
    
    18,875
    
    
    
    (1,992
    )
    
    
    2,614
    
    
    
    (35,189
    )
    
    
    (15
    )Interest income (expense)
    
    
    898
    
    
    
    (5,479
    )
    
    
    (17,159
    )
    
    
    (2,667
    )
    
    
    
    
    
    
    (24,407
    )Income (loss) before income taxes
(benefit)
    
    
    16,575
    
    
    
    13,382
    
    
    
    28,851
    
    
    
    (53
    )
    
    
    (35,189
    )
    
    
    23,566Income taxes (benefit)
    
    
    415
    
    
    
    (2,193
    )
    
    
    9,203
    
    
    
    (19
    )
    
    
    
    
    
    
    7,406Net income
    
    $
    16,160
    
    
    $
    15,575
    
    
    $
    19,648
    
    
    $
    (34
    )
    
    $
    (35,189
    )
    
    $
    16,160For the Year Ended
December 31, 2002Net sales
    
    $
    
    
    
    $
    
    
    
    $
    520,404
    
    
    $
    
    
    
    $
    
    
    
    $
    520,404Cost of sales
    
    
    
    
    
    
    
    
    
    
    343,795
    
    
    
    
    
    
    
    
    
    
    
    343,795Gross profit
    
    
    
    
    
    
    
    
    
    
    176,609
    
    
    
    
    
    
    
    
    
    
    
    176,609Selling, general and administrative
expenses
    
    
    4
    
    
    
    5
    
    
    
    111,973
    
    
    
    
    
    
    
    
    
    
    
    111,982Operating (loss) profit
    
    
    (4
    )
    
    
    (5
    )
    
    
    64,636
    
    
    
    
    
    
    
    
    
    
    
    64,627Other income (expense), net
    
    
    26,988
    
    
    
    28,581
    
    
    
    (2,465
    )
    
    
    3,115
    
    
    
    (55,895
    )
    
    
    324Interest income (expense)
    
    
    831
    
    
    
    (2,796
    )
    
    
    (16,517
    )
    
    
    (2,990
    )
    
    
    
    
    
    
    (21,472
    )Income (loss) before income taxes
(benefit)
    
    
    27,815
    
    
    
    25,780
    
    
    
    45,654
    
    
    
    125
    
    
    
    (55,895
    )
    
    
    43,479Income taxes (benefit)
    
    
    387
    
    
    
    (1,103
    )
    
    
    16,723
    
    
    
    44
    
    
    
    
    
    
    
    16,051Net income
    
    $
    27,428
    
    
    $
    26,883
    
    
    $
    28,931
    
    
    $
    81
    
    
    $
    (55,895
    )
    
    $
    27,428
 57




---



##### Table of Contents



Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Consolidated Financial Statements  Continued
(Dollars in Thousands, except Share Amounts) Supplemental Condensed Consolidating Statements of Cash FlowsCombined
    
    
    Non-Parent
    
    
    
    
    
    
    Guarantor
    
    
    GuarantorCompany
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiary
    
    
    ConsolidatedFor the Year Ended
December 31, 2004Net cash from operating activities
    
    $
    791
    
    
    $
    (3,525
    )
    
    $
    30,048
    
    
    $
    (1
    )
    
    $
    27,313Net cash from investing activities
    
    
    (3,389
    )
    
    
    (4,833
    )
    
    
    101
    
    
    
    
    
    
    
    (8,121
    )Net cash from financing activities
    
    
    2,598
    
    
    
    8,358
    
    
    
    (2,782
    )
    
    
    
    
    
    
    8,174Net increase (decrease) in cash
and cash equivalents
    
    
    
    
    
    
    
    
    
    
    27,367
    
    
    
    (1
    )
    
    
    27,366Cash and cash equivalents at
beginning of year
    
    
    1
    
    
    
    2
    
    
    
    9,588
    
    
    
    3
    
    
    
    9,594Cash and cash equivalents at
end of year
    
    $
    1
    
    
    $
    2
    
    
    $
    36,955
    
    
    $
    2
    
    
    $
    36,960For the Year Ended
December 31, 2003Net cash from operating activities
    
    $
    5,847
    
    
    $
    (1,733
    )
    
    $
    27,668
    
    
    $
    1
    
    
    $
    31,783Net cash from investing activities
    
    
    (2,764
    )
    
    
    10,671
    
    
    
    (17,319
    )
    
    
    
    
    
    
    (9,412
    )Net cash from financing activities
    
    
    (3,082
    )
    
    
    (8,937
    )
    
    
    (43,919
    )
    
    
    
    
    
    
    (55,938
    )Net increase (decrease) in cash
and cash equivalents
    
    
    1
    
    
    
    1
    
    
    
    (33,570
    )
    
    
    1
    
    
    
    (33,567
    )Cash and cash equivalents at
beginning of year
    
    
    
    
    
    
    1
    
    
    
    43,158
    
    
    
    2
    
    
    
    43,161Cash and cash equivalents at
end of year
    
    $
    1
    
    
    $
    2
    
    
    $
    9,588
    
    
    $
    3
    
    
    $
    9,594For the Year Ended
December 31, 2002Net cash from operating activities
    
    $
    675
    
    
    $
    (2,213
    )
    
    $
    43,303
    
    
    $
    (2
    )
    
    $
    41,763Net cash from investing activities
    
    
    (557
    )
    
    
    18,535
    
    
    
    (29,822
    )
    
    
    
    
    
    
    (11,844
    )Net cash from financing activities
    
    
    (118
    )
    
    
    (16,325
    )
    
    
    (788
    )
    
    
    
    
    
    
    (17,231
    )Net increase (decrease) in cash
and cash equivalents
    
    
    
    
    
    
    (3
    )
    
    
    12,693
    
    
    
    (2
    )
    
    
    12,688Cash and cash equivalents at
beginning of year
    
    
    
    
    
    
    4
    
    
    
    30,465
    
    
    
    4
    
    
    
    30,473Cash and cash equivalents at
end of year
    
    $
    
    
    
    $
    1
    
    
    $
    43,158
    
    
    $
    2
    
    
    $
    43,161
 58




---



##### Table of Contents



Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Consolidated Financial Statements  Continued
(Dollars in Thousands, except Share Amounts) U. Subsequent Events Financing Subsequent to December 31, 2004 On May 10, 2005 the Company executed a $100,000 Senior Secured Second Lien Credit Facility
(Second Lien Facility) and realized net proceeds of $94,500. Net proceeds of $91,700 were used to
repay amounts outstanding under the Companys existing First Lien Senior Credit Facility (First
Lien Facility and referred to as the Senior Credit Facility in Note E) and the remaining cash of
$2,800 was retained for general corporate purposes. The First Lien Facility debt repaid included
prepayment of $65,000 of the existing First Lien Term Loan, reducing the balance currently
outstanding to $90,000, and repayment of the total amount outstanding of $26,700 under the First
Lien Revolving Credit Facility. The Second Lien Facility is scheduled to mature on the earlier of
December 11, 2009, or May 15, 2007 if the Companys 10% Senior Subordinated Notes are not
refinanced, prior to that date, to a date later than June 11, 2010. The amount outstanding under the Second Lien Facility will bear interest based on managements
selection of a fluctuating rate option that includes: (i) LIBOR plus an interest margin of 10.00%
or (ii) an alternate base rate plus an interest margin of 9.00%. In either case, 1.50% of the
interest payable will be capitalized as additional loans under the Second Lien Facility. The
alternate base rate is defined as the higher of the prime rate or the Federal Funds rate plus
0.50%. The Second Lien Facility is secured by all of the assets of the Company and its subsidiaries
consistent with those securing the First Lien Facility, and will be guaranteed by each guarantor
under the First Lien Facility. The liens securing the Second Lien Facility will be second in
priority to the liens securing the First Lien Facility and the Accounts Receivables Financing
Facility (see below). The financial covenants of the Second Lien Senior Credit Facility include a maximum ratio of
total secured indebtedness to earnings before interest, taxes, depreciation and amortization
(EBITDA), as defined. Covenants of the Second Lien Facility are substantially similar to those of
the Companys existing Senior Credit Facility as amended (see below). Amendment of the First Lien Senior Credit Facility Subsequent to December 31, 2004 Effective as of March 31, 2005 an agreement related to the First Lien Facility was executed
to, among other things, waive the requirement to comply with the debt leverage and interest
coverage ratios as of March 31, 2005 and to defer the requirement to provide audited financial
statements for the year ended December 31, 2004 until May 10, 2005. Effective as of May 10, 2005 the First Lien Facility was amended in conjunction with the
execution of the Second Lien Facility described above to, among other things, eliminate the
requirement to comply with previously existing debt leverage and cash interest coverage ratios and
to initiate new financial covenant requirements. Each calendar quarter beginning June 30, 2005
through December 31, 2007 certain minimum EBITDA levels must be attained and certain maximum ratios
must be satisfied, including total secured indebtedness to EBITDA and total first lien secured
indebtedness to EBITDA. In addition, the determination of the amount of net proceeds from asset
sales that must be applied to prepay the First Lien Term Loan was modified to require 50% of the
first $40,000 of net proceeds and all net proceeds in excess of $40,000 be applied to reduce the
First Lien Term Loan. The amendment also permanently waived the requirement to comply with the debt
leverage and interest coverage ratios as of March 31, 2005. The amendment provides for an increase
of 0.50% in the annual rate charged on the Term Loan and Revolving Credit Facility borrowings. Commitment for Accounts Receivable Financing Facility Obtained Subsequent to December 31,
2004 Effective April 29, 2005, the Company and Werner Funding Corporation (Funding, the Companys
wholly-owned special purpose bankruptcy-remote entity) obtained a commitment for an Accounts
Receivable Financing Facility (Receivables Facility) with a financial institution that will
provide a maximum $50,000 revolving line of credit based on a borrowing base calculation. The
amount available will be determined weekly and will be based on 82% of the Companys eligible
accounts receivable reduced by certain amounts that primarily reflect the risk profile of the
Companys customers. The Receivables Facility will expire on the earlier of 59




---



##### Table of Contents



Werner Holding Co. (PA), Inc. and Subsidiaries Notes to
Consolidated Financial Statements  Continued
(Dollars in Thousands, except Share Amounts) May 31, 2009 or upon the expiration of the First Lien Facility. Funding will acquire all of the
Companys trade receivables on a daily basis. The purchases by Funding will be financed through the
sale of a variable percentage ownership interest in such receivables to the financial institution
or institutions acceptable to it. The Company has agreed to continue servicing the sold receivables
for the financial institution; therefore, no servicing asset or liability will be recorded. The
Receivables Facility will be collateralized by the assets of Funding. Fees on advances under the Receivables Facility will be determined based on managements
selection of an available fluctuating rate option that include LIBOR plus 2.00% or the prime
lending rate plus 1.00%. The agreement also provides for an unused facility fee equal to 0.50% per
annum on the unused portion of the Receivables Facility. Early termination fees of 2.00% and 1.00%
of the aggregate facility will be payable if the Receivables Facility is terminated by the Company
prior to the lapse of one and two years, respectively. Proceeds upon executing the Receivables Facility will be used to repurchase the total
outstanding interest of $30,900 under the existing Receivables Purchase Agreement (see Note F) and
to pay fees and expenses incurred in connection with the execution of the Receivables Facility.
The Receivables Purchase Agreement will be terminated in conjunction with the execution of the
Receivables Facility. 60




---



##### Table of Contents



Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. 
 Item 9A. Controls and Procedures.  (a)
    Evaluation of Disclosure Controls and Procedures The Chief Executive Officer and Chief Financial Officer have evaluated the Companys
disclosure controls and procedures as of the end of the period covered by this report and have
concluded that these controls and procedures are effective.  (b)
    Changes in Internal Control over Financial Reporting There have been no significant changes in the internal control over financial reporting that
occurred during the three months ended December 31, 2004, that have materially affected, or are
reasonably likely to materially affect, the Companys internal control over financial reporting. 
 Item 9B. Other Information. None. 
 Part III 
 Item 10. Directors and Executive Officers of the Company. The following table sets forth the name, age and principal position of each of the directors
of Holding (PA), Holding (DE) and the executive officers of the Company. The individuals who
constitute the Board of Directors of Holding (PA) also constitute the Board of Directors of Holding
(DE) except as noted below. Each director of Holding (PA) and Holding (DE) will hold office until the next annual meeting
of shareholders of Holding (PA) and Holding (DE), respectively, or until his successor has been
elected and qualified. Officers of the Company are appointed by the respective Boards of Directors
of Holding (PA) and its subsidiaries and serve at the discretion of such Boards, subject to any
applicable employment agreements. Name
    
    Age
    
    Position(s)Donald M. Werner
    
    
    71
    
    
    Chairman of the Board of DirectorsSteven R. Richman
    
    
    44
    
    
    President and Chief Executive Officer, Director (1)Dennis G. Heiner
    
    
    61
    
    
    President and Chief Executive Officer, Director (2)Steven R. Bentson
    
    
    55
    
    
    Vice President, ManufacturingJohn J. Fiumefreddo
    
    
    50
    
    
    Senior Vice President, Product Development (3)Larry V. Friend
    
    
    58
    
    
    Vice President, Chief Financial Officer and TreasurerEdward W. Gericke
    
    
    47
    
    
    Senior Vice President, SalesPeter R. OCoin
    
    
    57
    
    
    Senior Vice President, Operations (4)John M. Remmers
    
    
    43
    
    
    Senior Vice President, Product Marketing and Development (5)Eric J. Werner
    
    
    42
    
    
    Vice President, Secretary and General Counsel, DirectorJames F. Hardymon
    
    
    70
    
    
    DirectorPeter J. Nolan
    
    
    46
    
    
    DirectorDana R. Snyder
    
    
    58
    
    
    Director (6)Christopher J. Stadler
    
    
    40
    
    
    DirectorThomas J. Sullivan
    
    
    42
    
    
    DirectorMichael S. Wong
    
    
    33
    
    
    Director
   (1)
    
    Mr. Richman was appointed President, Chief Executive Officer and a Director of the
Company effective January 4, 2005. 61




---



##### Table of Contents



(2)
    
    Mr. Heiner left the Company effective October 29, 2004. He continued to serve as a Director of
the Company through December 31, 2004.(3)
    
    Mr. Fuimefreddo resigned effective January 7, 2005.(4)
    
    Mr. OCoin resigned effective March 31, 2005.(5)
    
    Mr. Remmers was appointed Senior Vice President, Product Marketing and Development effective
March 14, 2005.(6)
    
    In addition to his responsibilities as director, Mr. Snyder served as Interim President and
Chief Executive Officer during the period September 27, 2004 through January 4, 2005 and continued
to serve in a consulting capacity during the transition period resulting from the appointment of
Mr. Richman as President and Chief Executive Officer through January 31, 2005. Donald M. Wernerserved as President and Chief Executive Officer of Holding (PA) from May 1997
until his retirement in January 2000. From 1995 to 1997, Mr. Werner was President of Werner Ladder
Co. Prior to 1995, Mr. Werner served in various positions with the Company including Sales Manager,
Vice President-Marketing and Senior Vice President-Corporate Sales and Marketing. Mr. Werner also
holds various directorships at subsidiaries of Holding (PA). Mr. Werner served as Chairman of the
American Hardware Manufacturers Association and served on the boards of directors of the
Scaffolding Industry Association and the Hardware Group Association. Mr. Werner is the father of
Eric J. Werner. Steven P. Richman,was appointed President and Chief Executive Officer of the Company
effective January 4, 2005. Prior to joining the Company, Mr. Richman was the President and General
Manager of the Skil and Bosch Power Tools business units of the Robert Bosch Tool Corporation since
2001. From 1998 to 2001, Mr. Richman was the Senior Vice President Sales and Marketing of Skil and
Bosch Power Tools. Prior to his tenure with Bosch, Mr. Richman was Vice President Sales and
Marketing of Murray Inc., a worldwide outdoor power equipment manufacturer. Mr. Richman was also
appointed to serve in various director and officer positions with subsidiaries of Werner Holding
Co. (PA), Inc. effective January 4, 2005. Dennis G. Heinerserved as President and Chief Executive Officer of Holding (PA) beginning
January 1, 2000 and Holding (DE) and Werner beginning June 1999. Effective on October 29, 2004 he
left the Company but continued to serve as a director of the Company until December 31, 2004. Prior
to joining the Company, Mr. Heiner served as Executive Vice President of Black & Decker Corporation
since 1989 and was its President-Hardware & Building Products Group Worldwide from 1998 to 1999.
Mr. Heiner was President-Security Hardware Worldwide from 1992 to 1998, President-Household
Products Worldwide from 1986 to 1992 and Group Vice President-U.S. Household Products from 1985 to
1986. Prior to Black & Decker, Mr. Heiner served as Division President for Beatrice Companies Inc.
Window Coverings Division and as Vice President-Finance and then President for their Del Mar Window
Coverings Division. Mr. Heiner held various directorships and officerships at subsidiaries of
Holding (PA) through December 31, 2004. He currently is a director of Franklin Covey Co. Steven R. Bentsonhas served as Vice President, Manufacturing of the Company since July 2001.
From 1992 through 2000, he was employed by Pentair Inc. where he served as Vice
President-Operations for Porter-Cable, President of Century Manufacturing and President of
DeVilbiss Air Power Company. Mr. Bentson was employed by Black & Decker from 1979 through 1992
serving in both engineering and operations management positions including Plant Manager of the
Outdoor Products Plant and Superintendent of the Professional Power Tool Plant. John J. Fiumefreddowas appointed Senior Vice President, Product Development in May 2003. He
resigned from the Company effective January 7, 2005. He joined the Company as Vice President,
Engineering and New Product Development in July 2002. Prior to joining the Company, Mr. Fiumefreddo was employed at Black & Decker from 1997 through 2002 where he held the positions of Vice
President-Engineering, Vice President-Product Planning & Development and Vice President-Strategic
Manufacturing Operations. From 1987 through 1997, Mr. Fiumefreddo was Director of Engineering with
Kohler Co. Larry V. Friendwas appointed Vice President, Chief Financial Officer and Treasurer in January
2001. He joined the Company in April 1999 as Vice President and Controller and was appointed Vice
President-Finance in June 2000. Mr. Friend also holds various officerships at subsidiaries of
Holding (PA). Prior to joining the Company, Mr. Friend was an independent financial consultant in
1998 and 1999. During 1996 and 1997, he served as President and CEO of the North and Central
American operations of Ceramicas Industriales, S. A. 62




---



##### Table of Contents



Mr. Friend was Vice President and Chief Financial Officer of Universal Rundle Corporation from 1990
until 1996 and held Vice President, Controller and other finance positions at National Forge
Company from 1982 until 1990. Between 1968 and 1981, Mr. Friend was employed by Price Waterhouse
(now PricewaterhouseCoopers LLP). Edward W. Gerickewas appointed Senior Vice President, Sales for Werner Ladder Co. in January
2001. He joined the Company in January 1998 as Vice President, Sales. Prior to joining the Company,
Mr. Gericke was employed by Huffy/True Temper from May 1987 to January 1998 where he held multiple
positions in sales, marketing and operations; the most recent of which was Vice President, Sales
and Marketing. Peter R. OCoinwas appointed Senior Vice President, Operations in March 2002. Mr. OCoin
resigned from the Company effective on March 31, 2005. Prior to his resignation, Mr. OCoin held
various officerships at subsidiaries of Holding (PA). Prior to joining the Company, he was
President and Chief Executive Officer of West American Rubber Company from 2000 to 2001. From 1993
to 1999, Mr. OCoin was Vice President, Manufacturing of Kwikset Corporation, a division of Black &
Decker. Prior to that, Mr. OCoin held various positions at General Electric Company, the most
recent of which was General Manager of General Electric Lighting. John M. Remmerswas appointed Senior Vice President, Product Marketing and Development on
March 14, 2005. Prior to joining the Company, Mr. Remmers was employed by the Robert Bosch Tool
Corporation for 12 years where he held multiple positions, the most recent of which was Senior Vice
President of New Product Development. Prior to his employment with Bosch, Mr. Remmers held
management positions with Inland Steel Industries, Inc., General Electric Company, Ford Motor
Company and Motorola, Inc. Eric J. Wernerjoined the Company in 1988 as Secretary and Corporate Counsel. He has served as
Vice President of the Company since 1999 and General Counsel of the Company since 1993. In April
2004, Mr. Werner was elected a director of Holding (PA). Mr. Werner also holds various officerships
at subsidiaries of Holding (PA). Prior to joining the Company, Mr. Werner was an associate at the
law firm of OConnor, Broude, Snyder and Aronson. Mr. Werner was elected to the Companys board
effective April 7, 2004. He also holds various directorships and officerships at subsidiaries of
Holding (PA). Mr. Werner is the son of Donald M. Werner. James F. Hardymonbecame a director of Holding (PA) in May 2001. Mr. Hardymon was an executive
with Textron, Inc. for ten years and retired as Chairman and Chief Executive Officer in 1999. Prior
to that, Mr. Hardymon was employed by Emerson Electric Company for 28 years and held various
positions including Vice Chairman, Chief Operating Officer, President and director. Mr. Hardymon is
a director of Air Products and Chemicals, Inc., Lexmark International, Inc., Circuit City Stores,
Inc., Schneider Electric, S.A., American Standard Companies, Inc. and Championship Auto Racing
Teams, Inc. Mr. Hardymon is a member of the advisory boards of Investcorp and Proudfoot Consulting
Company. Peter J. Nolanbecame a director of Holding (PA) in June 2003. Mr. Nolan is a managing partner
of Leonard Green & Partners, L.P. since 1997. Mr. Nolan is also a manager of GEI Capital IV, LLC,
an affiliate of Leonard Green & Partners, L.P. Prior to joining Leonard Green & Partners, L.P., Mr.
Nolan was a Managing Director and Co-Head of Donaldson, Lufkin & Jenrettes Los Angeles Investment
Banking Division, which he joined in 1990. Prior to 1990, Mr. Nolan was a First Vice President in
corporate finance at Drexel Burnham Lambert from 1986 to 1990, a Vice President at Prudential
Securities, Inc. from 1982 to 1986, and an Associate at Manufacturers Hanover Trust. Mr. Nolan is
a director of FTD, Inc., Activision, Inc. and Liberty Group Publishing, Inc. Dana R. Snyderhas served as a director of Holding (PA) since May 2002. He also served as the
Companys Interim President and Chief Executive Officer from September 21, 2004 through January 4,
2005. Mr. Snyder was an executive with Ply Gem Industries, Inc. for two years and retired as
President, Chief Operating Officer and director in 1997. Prior to that, Mr. Snyder was employed for
six years by The Stolle Corporation, a subsidiary of Alcoa Inc., and held various positions including President
of Alcoa Construction Products Group. From 1986 to 1989 Mr. Snyder served as President of the wood
products group of Kusan, Inc. Christopher J. Stadlerhas served as director of Holding (PA) since November 1997. He has been
an executive of Investcorp or one or more of its wholly-owned subsidiaries since April 1996 and is
a member of 63




---



##### Table of Contents



Investorps steering committee. Prior to joining Investcorp, Mr. Stadler was a director with CS
First Boston Corporation. Mr. Stadler is a director of US Unwired, Inc. and Saks Incorporated. Thomas J. Sullivanhas served as director of Holding (PA) since July 1999. Mr. Sullivan has
been an executive of Investcorp or one or more of its wholly-owned subsidiaries since April 1996.
Prior to joining Investcorp, Mr. Sullivan was Vice President and Treasurer of the Leslie Fay
Companies, Inc. (now Leslie Fay Company, Inc.). Mr. Sullivan is a director of US Unwired, Inc. Michael S. Wongbecame a director of Holding (PA) in June 2003. Mr. Wong has been an executive
of Leonard Green & Partners, L.P. since 1998. Previously, he worked in the merchant banking
division of The Blackstone Group in New York and at Donaldson, Lufkin & Jenrette in Los Angeles. Director Compensation Neither Holding (PA) nor Holding (DE) pays any remuneration to executives of Investcorp,
Leonard Green or any additional remuneration to its employees for serving as directors. Directors
who are not employees of Holding (PA), Holding (DE), Investcorp or Leonard Green receive an annual
retainer fee in the amount of $10,000 plus $10,000 for attending each board meeting subject to an
annual maximum of $50,000 per director. All directors are reimbursed for any expenses incurred in
attending meetings. Shareholder Agreement At closing of the Recapitalization, the Company, Investcorp and certain affiliates (the
Investcorp Investors), GEI (with its affiliates, the GEI Investors), and certain members of the
Werner and Solot families (the Family Shareholders) entered into an amended and restated
shareholder agreement (the Shareholder Agreement) to provide, among other things, that the Board
of Directors of the Company will consist of nine members initially, consisting of not less than
four designated by the Investcorp Investors, two designated by the Family Shareholders and two
designated by the GEI Investors, with the ninth director being the Companys Chief Executive
Officer. On June 11, 2006, the GEI Investors will have the right to designate a third member to the
Board of Directors, bringing the total at such time to ten directors. The right of the Investcorp
Investors, the Family Shareholders or the GEI Investors to appoint directors under the Shareholder
Agreement will terminate as to any such group if it ceases to own at least 50% of the aggregate
equity position that it owned immediately after the closing of the Recapitalization. Audit Committee Financial Expert The Board of Directors of Holding (PA) has determined that Thomas J. Sullivan, who is chairman
of the audit committee, is an audit committee financial expert and is independent as those terms
are defined in the securities laws. Code of Ethics The Company has adopted a code of ethics that applies to each of the Companys executive
officers, senior finance personnel and directors. The Company will provide to any person, without
charge, upon written request to the Companys General Counsel, a copy of the Companys code of
ethics that applies to the above mentioned officers and employees. 64




---



##### Table of Contents



Item 11. Executive Compensation. Summary Compensation Table The following table sets forth information concerning annual and long-term compensation for
the last three fiscal years awarded to, earned by or paid to the Chief Executive Officer of the
Company and each of the other four most highly compensated executive officers whose remuneration
exceeded $100,000 (collectively, the Named Executive Officers). The current compensation
arrangements for each of these officers are described in Employment Arrangements below. Long-TermCompensationSecuritiesDeferred
    
    
    UnderlyingName and Principal
    
    
    
    
    
    
    
    
    
    
    
    Other Annual
    
    
    Stock
    
    
    Options/SARSPositions
    
    Year
    
    Salary
    
    
    Bonus
    
    
    Compensation
    
    
    Units ($)
    
    
    (shares)Steven P.
Richman (1)
President, Chief
Executive OfficerDennis G. Heiner (2)
    
    2004
    
    $
    454,808
    
    
    $
    
    
    
    $
    1,690,934
    
    
    $
    
    
    
    
    President, Chief
    
    2003
    
    
    571,154
    
    
    
    
    
    
    
    1,685,960
    
    
    
    
    
    
    
    Executive Officer
    
    2002
    
    
    543,265
    
    
    
    715,000
    
    
    
    470,012
    
    
    
    
    
    
    
    Steven R. Bentson (3)
    
    2004
    
    
    266,827
    
    
    
    
    
    
    
    20,723
    
    
    
    
    
    
    
    Vice President,
    
    2003
    
    
    259,615
    
    
    
    
    
    
    
    351,719
    
    
    
    
    
    
    
    Manufacturing
    
    2002
    
    
    243,269
    
    
    
    225,000
    
    
    
    21,791
    
    
    
    
    
    
    
    Larry V. Friend (4)
    
    2004
    
    
    220,000
    
    
    
    
    
    
    
    23,268
    
    
    
    
    
    
    
    Vice President,
    
    2003
    
    
    228,462
    
    
    
    
    
    
    
    402,412
    
    
    
    
    
    
    
    Chief Financial Officer
    
    2002
    
    
    217,307
    
    
    
    190,000
    
    
    
    27,399
    
    
    
    
    
    
    
    and TreasurerEdward W. Gericke (5)
    
    2004
    
    
    220,000
    
    
    
    
    
    
    
    23,159
    
    
    
    
    
    
    
    Senior Vice President,
    
    2003
    
    
    228,462
    
    
    
    
    
    
    
    441,992
    
    
    
    
    
    
    
    Sales
    
    2002
    
    
    214,615
    
    
    
    170,000
    
    
    
    12,882
    
    
    
    
    
    
    
    Peter R. OCoin (6)
    
    2004
    
    
    291,827
    
    
    
    
    
    
    
    34,358
    
    
    
    
    
    
    
    Senior Vice President,
    
    2003
    
    
    285,577
    
    
    
    
    
    
    
    454,425
    
    
    
    
    
    
    
    Operations
    
    2002
    
    
    218,320
    
    
    
    230,000
    
    
    
    77,853
    
    
    
    
    
    
    
    450
   (1)
    
    Mr. Richman was appointed President and Chief Executive Officer of the Company effective
January 4, 2005.(2)
    
    Mr. Heiner left the Company effective October 29, 2004 but continued to serve as a director
of the Company until December 31, 2004. The amount shown for Mr. Heiner under Other Annual
Compensation reflects payments of $10,102, $14,087 and $8,734 in respect of life insurance
premiums paid by the Company in 2004, 2003 and 2002, respectively, $19,038, $28,694 and
$27,163 in respect of Company contributions made under the 401(k) Plan in 2004, 2003 and 2002,
respectively, $7,695, and $8,391 of imputed income arising from the personal use of a Company
provided automobile in 2003 and 2002, respectively, payments of $4,559 and $2,732 in respect
of medical examination costs paid by the Company in 2004 and 2003, respectively, retention
incentive compensation as set forth in his employment contract of $236,377, $440,551 and
$425,724 in 2004, 2003 and 2002, respectively, $122,809 and $71,633 of interest earned in 2004
and 2003, respectively, on the balance of the deferred compensation dollar account, $1,050,000
severance 65




---



##### Table of Contents



payment paid in 2004 upon Mr. Heiners separation pursuant to an employment agreement, $156,773
paid in 2004 upon separation pursuant to a cash bonus agreement dated May 20, 2003, $78,919
representing the fair market value of Class C Common Stock distributed in 2004 upon Mr. Heiners
separation pursuant to the Werner Co. Deferred Stock Plan, $31,395 relating to the fair value of a
Company provided vehicle and a personal computer provided in 2004 upon separation, $870,568 in
consideration for cancellation of certain vested options in 2003 in connection with the
Recapitalization and $250,000 transaction bonus in 2003 upon consummation of the Recapitalization.
Note that the balance of retention incentive compensation and the deferred compensation dollar
account was paid during 2004 upon Mr. Heiners separation.(3)
    The amount shown for Mr. Bentson under Other Annual Compensation reflects payments of
$1,470 and $1,350 in respect of life insurance premiums paid by the Company in 2003 and
2002, respectively, $14,350, $15,192 and $14,159 in respect of Company contributions made
under the 401(k) Plan in 2004, 2003 and 2002, respectively, $6,373, $6,373 and $6,282 of
imputed income arising from the personal use of a Company provided automobile in 2004,
2003 and 2002, respectively, $2,700 for moving expenses in 2001, $78,684 in consideration
for cancellation of certain vested options in 2003 in connection with the Recapitalization
and $250,000 transaction bonus in 2003 upon consummation of the Recapitalization.(4)
    The amount shown for Mr. Friend under Other Annual Compensation reflects payments of $2,679 and
$2,525 in respect of life insurance premiums paid by the Company in 2003 and 2002, respectively,
$14,350, $15,477 and $14,494 in respect of Company contributions made under the 401(k) Plan in
2004, 2003 and 2002, respectively, and $6,938, $6,938 and $10,380 of imputed income arising from
the personal use of a Company provided automobile in 2004, 2003 and 2002, respectively, $1,980 in
respect of medical examination costs paid by the Company in 2004, $127,318 in consideration for
cancellation of certain vested options in 2003 in connection with the Recapitalization and $250,000
transaction bonus in 2003 upon consummation of the Recapitalization.(5)
    The amount shown for Mr. Gericke under Other Annual Compensation reflects payments of $729 and
$672 in respect of life insurance premiums paid by the Company in 2003 and 2002, respectively,
$11,104, $11,846 and $11,046 in respect of Company contributions made under the 401(k) Plan in
2003, 2002 and 2001, respectively, $613, $917 and $1,164 of imputed income arising from the
personal use of a Company provided automobile in 2004, 2003 and 2002, respectively, $11,442 and
$11,442 for financial planning services in 2004 and 2003, respectively, $167,058 in consideration
for cancellation of certain vested options in 2003 in connection with the Recapitalization and
$250,000 transaction bonus in 2003 upon consummation of the Recapitalization.(6)
    Mr. OCoin resigned from the Company effective March 31, 2005. The amount shown for Mr. OCoin
under Other Annual Compensation reflects payments of $3,545 and $2,659 in respect of life insurance
premiums paid by the Company in 2003 and 2002, respectively, $14,350, $19,055 and $11,906 in
respect of Company contributions made under the 401(k) Plan in 2004, 2003 and 2002, respectively,
$6,125, $5,863 and $7,004 of imputed income arising from the personal use of a Company provided
automobile in 2004, 2003 and 2002, respectively, payments of $3,206 and $2,452 in respect of
medical examination costs paid by the Company in 2004 and 2003, respectively, $24,152 and $56,284
for moving expenses in 2003 and 2002, respectively, $11,587 for financial planning services in
2003, $137,771 in consideration for cancellation of certain vested options in 2003 in connection
with the Recapitalization and $250,000 transaction bonus in 2003 upon consummation of the
Recapitalization. Employment Arrangements The Company has entered into employment agreements with certain officers and employees
including each of the Named Executive Officers. The employment agreements for the Named Executive
Officers are collectively referred to as the Employment Agreements. The Employment Agreements provide for an initial base annual salary in the following amounts: $525,000 for Dennis G.
Heiner, $225,000 for Steven R. Bentson, $160,000 for Larry V. Friend, $200,000 for Edward W.
Gericke, and $275,000 for Peter R. OCoin. Thereafter, base salaries are subject to annual reviews.
In addition to such executives salary, the Employment Agreements also provide for an annual bonus
payment up to a maximum of 100% of annual salary for Dennis G. Heiner, 60% of annual salary for
Steven R. Bentson, 40% of annual salary for Larry V. Friend, 60% of annual salary for Edward W.
Gericke, and 65% for Peter R. OCoin. This bonus is reduced, within a range of board discretion, to
the extent that the Company falls short of EBITDA targets specified in the Employment Agreements.
The 66




---



##### Table of Contents



Employment Agreements further provide for an additional cash bonus payable at the discretion of the
Companys Board of Directors. The employment agreement for Dennis G. Heiner also provides for
retention incentive compensation each year up to an additional $360,000, plus interest on amounts
unpaid, contingent upon Mr. Heiner remaining in the employ of the Company until the fifth
anniversary of his commencement date. During 2004 the fifth anniversary of his commencement date
occurred and retention incentive compensation plus interest totaling $2,076,411 was paid. Under the
Employment Agreements, Holding (PA) may only terminate such executives employment, without
obligation for severance, for cause. Except with respect to Dennis G. Heiner, if an executives
employment is terminated without cause or if an executive terminates his employment for good
reason, the Company must (i) pay such executive a lump sum equal to 12 months base salary in
effect at the time of such separation, and the most recent annual bonus paid (or earned but not yet
paid) prior to termination of employment, and (ii) continue such executives employee benefits for
12 months 24 months or until Mr. Heiner receives similar benefits from subsequent employment
whichever occurs earlier. The Employment Agreements define cause as conviction of embezzlement or
other felony involving fraud with respect to performance of duties and, subject to notice and
opportunity to cure, willful engagement in gross misconduct concerning duties. Good reason is
defined as a reduction in salary, bonus opportunities or employee benefits from the level in effect
as of the commencement date of the respective employment contract, adverse changes in duties and
forced relocation. Mr. Heiner was paid a lump sum of $1,050,000 in 2004 in connection with his
separation from the Company. This payment is listed in the column entitled, Other Annual
Compensation in the Summary Compensation Table for Mr. Heiner. In addition, employee benefits will
continue for a maximum of 24 months subsequent to his termination date as provided by the
employment agreement. The Company has entered into an employment agreement with Mr. Steven P. Richman effective upon
his appointment as President and Chief Executive Officer of the Company on January 4, 2005. The
employment agreement provides for a base annual salary of $400,000. In addition to such executives
salary, the employment agreement also provides for an annual bonus payment up to a maximum of 75%
of annual salary. This bonus is reduced, within a range of board discretion, to the extent that the
Company falls short of EBITDA targets specified in the employment agreement. The employment
agreement further provides for an additional cash bonus payable at the discretion of the Companys
Board of Directors. The employment agreement also provides for the potential to earn up to
$5,000,000 total long-term performance compensation. Long-term performance compensation of
$1,000,000 will be vested pro-rata equally over five years. Vesting is accelerated in the event of
a change in majority ownership of the Company or upon the termination of Mr. Richman without cause.
Long-term performance compensation of $3,000,000 will be vested pro-rata equally over five years
upon achievement of annual performance based targets determined by the Companys Board of
Directors. Vesting is accelerated in the event of a change in majority ownership of the Company,
performance significantly above agreed upon targets or upon the termination of Mr. Richman without
cause. Long-term performance compensation of $1,000,000 will be vested upon closing of a
transaction involving a change in the majority ownership of the Company. Under the employment
agreement, Werner Co. may only terminate Mr. Richmans employment, without obligation to accelerate
vesting or for severance if the termination is due to cause. If Mr. Richmans employment is
terminated without cause or if Mr. Richman terminates his employment for good reason, the Company
must (i) pay such executive a lump sum equal to 12 months base salary, (ii) pay the most recent
annual bonus paid (or earned but not yet paid) prior to termination of employment and (iii) if
termination date is after June 30, pay the bonus that the executive earned but did not yet receive
for such year, pro-rated for the period such executive worked. Transaction Bonus Payments During 2003 certain officers and employees of the Company, including each of the Named
Executive Officers, received transaction bonus payments upon consummation of the Recapitalization.
Each Named Executive Officer received a transaction bonus payment in the amount of $250,000 which
is listed in the column entitled, Other Annual Compensation in the Summary Compensation Table. Cash Bonus Agreements In connection with the Recapitalization, certain officers and employees of the Company,
including each of the Named Executive Officers, entered into agreements which provides for the
right to receive specified cash bonus amounts if the Companys annual Earnings before Interest,
Taxes, Depreciation and Amortization (EBITDA), as defined, exceeds stated targets for years 2003,
2004 and 2005. The payment of the cash bonus would occur upon the earlier of a change in economic
beneficial ownership of the Company of greater than 50% 67




---



##### Table of Contents



or upon an Initial Public Offering becoming effective. The agreements will terminate and the
Company will have no obligation to pay on the earlier of December 31, 2008 or upon the termination
of employment. The agreement entered into with Dennis G. Heiner was modified to provide for payment
of a lump sum of $156,773 in 2004 upon his separation from service. This payment is listed in the
column entitled, Other Annual Compensation in the Summary Compensation Table for Mr. Heiner. Management Stock Incentive Plan In November 1997, Holding (PA) adopted a stock incentive plan, pursuant to which options to
purchase Class C Common Stock may be granted to employees and directors of the Company. From
December 1998 through June 2004 the Company issued options to certain members of senior management,
including certain of the Named Executive Officers. Awards granted under the plan to employees
include a provision terminating the award upon termination of employment under certain
circumstances or accelerating the receipt of benefits upon the occurrence of specified events,
including any change of control of Holding (PA). Each option is subject to certain vesting
provisions. To the extent not earlier vested or terminated, all options will vest on the seventh
anniversary of the date of grant and will expire 30 days thereafter if not exercised. Upon the
termination of an optionees employment with the Company, Holding (PA) has certain rights to
repurchase, and the optionee has certain rights to require an affiliate of Investcorp to repurchase
(subject to the right, granted to Holding (PA), to repurchase such shares instead of the Investcorp
affiliate), the Class C Common Stock purchased by the optionee pursuant to the exercise of his
option(s). Option/SAR Grants in Last Fiscal Year Number of
    
    
    % of totalSecurities
    
    
    Options/SARsUnderlying
    
    
    Granted to
    
    
    
    
    
    
    
    
    
    
    GrantOption/SAR
    
    
    Employees
    
    
    Exercise
    
    
    Expiration
    
    
    DateName
    
    Granted
    
    
    in Fiscal Year
    
    
    Price
    
    
    Date
    
    
    Value(1)Steven R. Bentson
    
    
    250
    
    
    
    8.1
    %
    
    $
    500.00
    
    
    July 1, 2011
    
    $
    Larry V. Friend
    
    
    250
    
    
    
    8.1
    %
    
    $
    500.00
    
    
    July 1, 2011
    
    $
    Edward W. Gericke
    
    
    250
    
    
    
    8.1
    %
    
    $
    500.00
    
    
    July 1, 2011
    
    $
    Peter R. OCoin
    
    
    250
    
    
    
    8.1
    %
    
    $
    500.00
    
    
    July 1, 2011
    
    $
    
    Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year End Options/SAR Values Number of SecuritiesUnderlying Unexercised
    
    
    Value of Unexercised in-Shares
    
    
    
    
    
    
    Options/SARs
    
    
    the-Money Options/SARsAcquired on
    
    
    Value
    
    
    at Fiscal Year End
    
    
    at Fiscal Year End ($)Name
    
    Exercise (#)
    
    
    Realized ($)
    
    
    Exercisable
    
    
    Unexercisable
    
    
    Exercisable
    
    
    UnexercisableDennis G. Heiner
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    
    
    
    $
    Steven R. Bentson
    
    
    
    
    
    
    
    
    
    
    48
    
    
    
    250
    
    
    
    
    
    
    
    Larry V. Friend
    
    
    
    
    
    
    
    
    
    
    77
    
    
    
    250
    
    
    
    
    
    
    
    Edward W. Gericke
    
    
    
    
    
    
    
    
    
    
    101
    
    
    
    250
    
    
    
    
    
    
    
    Peter R. OCoin
    
    
    
    
    
    
    
    
    
    
    109
    
    
    
    250
    
    
    
    
    
    
    
    
 In connection with the Recapitalization, an option cancellation agreement with each of the
option holders, including each of the Named Executive Officers, was executed which provided for
cancellation of a 68




---



##### Table of Contents



portion of the options in exchange for cash. Payments under the option cancellation agreements for
the Named Executive Officers are listed in the column entitled, Other Annual Compensation in the
Summary Compensation Table. Stock Loan Plan In November 1997, Holding (PA) adopted a Stock Loan Plan in order to make loans to certain
members of management entering into stock purchase agreements (the Loan Participants). Loans made
pursuant to the Stock Loan Plan mature in seven years, and bear interest at the Companys effective
borrowing rate which is comparable to the rates under the Revolving Facility of the Senior Credit
Facility and the Receivables Purchase Agreement. Holding (PA) negotiates with each Loan Participant
the amount of principal to be paid from such Loan Participants annual bonus. The Stock Loan Plan
requires each Loan Participant to enter into a pledge agreement and to execute a secured promissory
note. No shares were purchased under the Stock Loan Plan in either 2003 or 2004. In connection with the Recapitalization, 39.6646% of shares issued pursuant to the management
stock purchase agreements were redeemed during 2003 and the associated stock loans provided under
the Stock Loan Plan aggregating $887,000 were repaid. The balance of Mr. Heiners Stock Loan Plan was repaid in 2004 in conjunction with his
separation from the Company. Deferred Stock Plan Effective August 1999, the Company adopted the Werner Co. Deferred Stock Plan (the Deferred
Stock Plan). The Deferred Stock Plan is administered by a committee of the Board of Directors of
the Company (the Committee). Pursuant to the Deferred Stock Plan, Dennis G. Heiner (the
Participant) was given the opportunity on or before December 31 of each year to make an
irrevocable election to defer all or part of his salary and/or bonus for the next year subject to
the approval of the Committee. If the Participant makes, and the Committee approves, such an
election, the Committee shall grant to the Participant Stock Units (as hereinafter defined)
determined by dividing the portion of the Participants deferred salary and/or bonus by the fair
market value of a share of Class C Common Stock as of the applicable pay date. Under the Deferred
Stock Plan, the Participant is entitled to receive Stock Units which are defined as non-voting
units of measurement which are deemed for recordkeeping purposes to be equivalent to shares of
Class C Common Stock, such that, one Stock Unit is equal to one outstanding share of the Companys
Class C Common Stock. Distribution of benefits under the Deferred Stock Plan shall be made to the
Participant on the first business day of the first month following his termination of service, or
immediately upon a change in control, and shall be made in an equivalent whole number of shares of
Class C Common Stock. The Company has certain rights to repurchase the shares of Class C Common
Stock distributed to the Participant upon the cessation of his employment or upon a sale or initial
public offering of the Company as defined in the Deferred Stock Plan. Under the Deferred Stock Plan
as of December 31, 1999, Mr. Heiner has earned 275 Stock Units from salary and bonus compensation.
In addition, Mr. Heiner received 1,033 Stock Units pursuant to his employment agreement. Such Stock
Units vested over a three-year period from the date of his employment through June 15, 2002 and the
Company recognized the related compensation expense over the three-year vesting period which ended
in 2002. In connection with the Recapitalization, the Deferred Stock Plan was amended and restated
effective as of May 2003 (the Amended Deferred Stock Plan). The Amended Deferred Stock Plan
provided for cancellation of 518.813 Stock Units and the establishment of a deferred compensation
dollar account with an initial value of $2,557,572. The initial value represents $4,929.66 for each
Stock Unit cancelled. The deferred compensation dollar account is fully vested and interest is
credited on the amount unpaid. Interest totaling $122,809 and $71,633 was credited during 2004 and
2003, respectively, and is listed in the column entitled, Other Annual Compensation in the
Summary Compensation Table for Mr. Heiner. In connection with Mr. Heiners separation from the Company, the distribution of the balance
of the deferred compensation dollar account, including accrued interest, totaling $2,752,014 was
made in 2004. In addition, the remaining Stock Units totaling 789.187 were converted into Class C
Common Stock on November 1, 2004. All such shares shall continue to be subject to certain terms and conditions set forth in
the Deferred 69




---



##### Table of Contents



Stock Plan including limitations on transfer of ownership. In addition, 623.2647 of such shares
shall continue to be subject to certain repurchase and put rights. Pension Plans The benefits for all salaried employees under the Retirement Plan for Employees of Werner
Holding Co. (DE), Inc. (the Retirement Plan), a funded, tax-qualified defined benefit pension
plan, and for certain stated executives under the Werner Holding Co. (DE), Inc. Supplemental
Pension Plan A and/or the Werner Holding Co. (DE), Inc. Supplemental Pension Plan B (the
Supplemental Pension Plans) were frozen as of December 31, 2000. Effective January 1, 2001,
Company contributions under the 401(k) Plan were increased. No further benefits will accrue under
the Retirement Plan or the Supplemental Pension Plans for service after December 31, 2000. The
following table shows the annual benefits accrued as of December 31, 2000 for each of the Named
Executive Officers. These amounts would be payable at age 65. SupplementalRetirement
    
    

    PensionName
    
    Plan
    
    
    Plan
    
    
    TotalDennis G. Heiner
    
    $
    3,562
    
    
    $
    
    
    
    $
    3,562Steven R. Bentson
    
    
    
    
    
    
    
    
    
    
    Larry V. Friend
    
    
    3,891
    
    
    
    1,770
    
    
    
    5,661Edward W. Gericke
    
    
    6,017
    
    
    
    
    
    
    
    6,017Peter R. OCoin
    
    
    
    
    
    
    
    
    
    
    
 The Supplemental Pension Plans are unfunded, non-qualified plans which provide lifetime annual
pension benefits to certain stated executives in excess of benefits payable under the Retirement
Plan, due to Retirement Plan limitations imposed by the Employee Retirement Income Security Act
(ERISA), plus additional other benefits. Supplemental Pension Plan A covers all members of the
Companys former Management Committee and Supplemental Pension Plan B covers most of the elected
corporate officers. Supplemental Pension Plan benefits are a function of service and final average
compensation (both frozen as of December 31, 2000). Executives must have spent at least ten years
of service as either an elected salaried corporate officer or a member of the former Management
Committee of the Company and retire from the Company after age 55 to be eligible. Eligibility for
benefits under the Supplemental Pension Plans is conditioned upon participants compliance with a
non-competition agreement. Committees of the Board of Directors;
Compensation Committee Interlocks and Insider Participation The full Board of Directors of Werner determines the compensation for management of Werner.
Dennis G. Heiner was a member of the Board of Directors of Werner through December 31, 2004. Eric
J. Werner is a member of the Board of Directors. The compensation for the Named Executive Officers
is determined under each such officers employment agreement. None of the executive officers of the Company served on the Board of Directors or on the
compensation committee of any other entity, the officers of which served on any of the Boards of
Directors of the Company. 70




---



##### Table of Contents



Item 12. Security Ownership of Certain Beneficial Owners and Management. PRINCIPAL SHAREHOLDERS All of the outstanding voting stock of Holding (DE) is owned by Holding (PA). The following
table sets forth certain information regarding the beneficial ownership of the capital stock of
Holding (PA). The Class A Common Stock, Class B Common Stock, Class D Common Stock and the Series A
Preferred Stock are the only classes of Holding (PA)s capital stock that have the power to vote.
The Class A Common Stock and Class B Common Stock each possess the right to one vote per share. The
Class D Common Stock possesses the right to 50.6818 votes per share. Holders of a share of Series A
Preferred Stock are entitled to the number of votes per share equal to the number of shares of
Common Stock issuable upon conversion of such share of Series A Preferred Stock. Investcorp and the
Investcorp Investors beneficially own approximately 50% of the outstanding voting stock of Holding
(PA). GEI and the GEI Investors beneficially own approximately 27% of the outstanding voting stock
of Holding (PA). In addition, the Investcorp Investors own 2,326 shares of Class C Common Stock and
27,151 shares of Class E Common Stock. See Security Ownership of Certain Beneficial Owners and
Management-Shareholder Agreement. The table sets forth as of December 31, 2004 (i) each person known by the Company to be the
beneficial owner of more than 5% of each class of voting stock of Holding (PA), (ii) each person
who is a director of Holding (PA) or Named Executive Officer of the Company who is known to
beneficially own shares of voting stock of Holding (PA) and (iii) all directors of Holding (PA) and
executive officers of the Company as a group. Unless otherwise indicated, each of the shareholders
shown in the table below has sole voting and investment power with respect to the shares
beneficially owned. Number of
    
    
    PercentShares(1)
    
    
    of ClassClass A Voting StockNoel Berk-Rauch
    
    
    86
    
    
    
    7.6
    %Aleena R. Shapiro (2)
    
    
    66
    
    
    
    5.9
    %Howard L. Solot (3)
    
    
    167
    
    
    
    14.7
    %Donald M. Werner
    
    
    183
    
    
    
    16.2
    %Eric J. Werner
    
    
    37
    
    
    
    3.3
    %Richard L. Werner (4)
    
    
    200
    
    
    
    17.6
    %Ronald E. Werner (5)
    
    
    144
    
    
    
    12.7
    %All directors and executive officers as a group,
including certain of the above named persons
    
    
    220
    
    
    
    19.4
    %
 Number of
    
    
    PercentShares(1)
    
    
    of ClassClass B Voting StockJeffrey R. Ackerman (6)
    
    
    781
    
    
    
    5.9
    %Bruce D. Werner Trust (7)
    
    
    837
    
    
    
    6.3
    %Craig R. Werner Family Limited Partnership
    
    
    902
    
    
    
    6.8
    %Michael E. Werner Revocable Trust (8)
    
    
    898
    
    
    
    6.8
    %Donald M. Werner (9)
    
    
    348
    
    
    
    2.6
    %Eric J. Werner (10)
    
    
    829
    
    
    
    6.3
    %Ronald E. Werner (11)
    
    
    1,120
    
    
    
    8.5
    %All directors and executive officers as a group,
including certain of the above named persons
    
    
    1,176
    
    
    
    8.9
    %including certain of the above named persons
    
    
    1,176
    
    
    
    8.9
    %
 71




---



##### Table of Contents



Number of
    
    
    PercentShares(1)
    
    
    of ClassClass D Voting StockINVESTCORP S.A. (12) (13)
    
    
    603
    
    
    
    100.0
    %SIPCO Limited (14)
    
    
    603
    
    
    
    100.0
    %CIP Limited (15) (16)
    
    
    555
    
    
    
    92.0
    %Ballet Limited (15) (16)
    
    
    56
    
    
    
    9.2
    %Denary Limited (15) (16)
    
    
    56
    
    
    
    9.2
    %Gleam Limited (15) (16)
    
    
    56
    
    
    
    9.2
    %Highlands Limited (15) (16)
    
    
    56
    
    
    
    9.2
    %Noble Limited (15) (16)
    
    
    56
    
    
    
    9.2
    %Outrigger Limited (15) (16)
    
    
    56
    
    
    
    9.2
    %Quill Limited (15) (16)
    
    
    56
    
    
    
    9.2
    %Radial Limited (15) (16)
    
    
    56
    
    
    
    9.2
    %Shoreline Limited (15) (16)
    
    
    56
    
    
    
    9.2
    %Zinnia Limited (15) (16)
    
    
    56
    
    
    
    9.2
    %INVESTCORP Investment Equity Limited (13)
    
    
    48
    
    
    
    8.0
    %
 Number of
    
    
    
    
    
    
    PercentShares(1)
    
    
    
    
    
    
    of ClassSeries A Preferred StockLeonard Green & Partners, L.P. (17)
    
    
    65,000
    
    
    
    
    
    
    
    100.0
    %Green Equity Investors III, L.P. (17)
    
    
    64,120
    
    
    
    
    
    
    
    98.6
    %Werner Co.  Investment LLC (17)
    
    
    880
    
    
    
    
    
    
    
    1.4
    %
   (1)
    
    As used in the table above, a beneficial owner of a security includes any person who, directly
or indirectly, through contract, arrangement, understanding, relationship, or otherwise has or
shares (i) the power to vote, or direct the voting of, such security or (ii) investment power which
includes the power to dispose, or to direct the disposition of, such security. In addition, a
person is deemed to be the beneficial owner of a security if that person has the right to acquire
beneficial ownership of such security within 60 days.(2)
    
    Ms. Shapiro does not directly own any stock in Holding (PA). The number of shares shown as
owned are held in the name of Rauch Trust of which Aleena R. Shapiro is Trustee. Ms. Shapiro
disclaims the beneficial ownership of such shares.(3)
    
    Includes 22 shares of Class A Stock held in the name of Mr. Solots spouse, Janet F. Solot.(4)
    
    Includes 199.74 shares of Class A Stock held in the name of Richmond Drive Enterprises, L.P., a
limited partnership, the general partners of which are Mr. Werner and Lois S. Werner. Lois S.
Werner is the spouse of Mr. Werner.(5)
    
    Includes 144.11 shares of Class A Stock held in the name of the Florence J. Werner Irrevocable
Trust of which Ronald E. Werner is the trustee. Mr. Werner disclaims the beneficial ownership of
such shares.(6)
    
    Includes 757 shares of Class B Stock held in the name of Jeffrey R. Ackerman, Successor Trustee
of the Elizabeth W. Ackerman Trust dated December 18, 1967. Mr. Ackerman disclaims the beneficial
ownership of such shares.(7)
    
    Includes 10.44 shares of Class B Stock held as joint tenant with Tammy H. Werner and 235.91
shares of Class B Stock held in the name of the Bruce D. Werner Family Limited Partnership. 72




---



##### Table of Contents



(8)
    
    Includes 108.59 shares of Class B Stock held in the name of the Laura W. Werner Revocable
Trust, 62.10 shares of Class B Stock held in the name of the Jonathan C. Werner Gift Trust, 34.79
shares of Class B Stock held in the name of the Margot A. Werner Gift Trust and 62.10 shares of
Class B Stock held in the name of the Stephanie N. Werner Gift Trust.(9)
    
    Includes 13.06 shares of Class B Stock owned with Barbara Werner as joint tenants and 53.10
shares of Class B Stock held in the name of Barbara Werner.(10)
    
    Includes 17.79 shares of Class B Stock owned with Melanie R. Werner as joint tenants, 165.66
shares of Class B Stock held in the name of Melanie R. Werner, Custodian for Isabelle N. Werner and
165.66 shares of Class B Stock held in the name of Melanie R. Werner, Custodian for Sophia K.
Werner.(11)
    
    Includes 691.28 shares of Class B Stock held in the name of the Robert I. Werner Irrevocable
Trust and 120.78 shares of Class B Stock held in the name of the Florence J. Werner Irrevocable
Trust. Mr. Werner disclaims the beneficial ownership of all of these shares.(12)
    
    Investcorp does not directly own any stock in Holding (PA). The number of shares shown as
owned by Investcorp includes all of the shares owned by INVESTCORP Investment Equity Limited (see
(13) below). Investcorp owns no stock in Ballet Limited, Denary Limited, Gleam Limited, Highlands
Limited, Noble Limited, Outrigger Limited, Quill Limited, Radial Limited, Shoreline Limited, Zinnia
Limited, or in the beneficial owners of these entities (see (16) below). Investcorp may be deemed
to share beneficial ownership of the shares of voting stock held by these entities because the
entities have entered into revocable management services or similar agreements with an affiliate of
Investcorp, pursuant to which each such entity has granted such affiliate the authority to direct
the voting and disposition of the Holding (PA) voting stock owned by such entity for so long as
such agreement is in effect. Investcorp is a Luxembourg corporation with its address at 37 rue
Notre-Dame, Luxembourg.(13)
    
    INVESTCORP Investment Equity Limited is a Cayman Islands corporation, and a wholly-owned
subsidiary of Investcorp, with its address at P.O. Box 1111, West Wind Building, George Town, Grand
Cayman, Cayman Islands.(14)
    
    SIPCO Limited may be deemed to control Investcorp through its ownership of a majority of a
companys stock that indirectly owns a majority of Investcorps shares. SIPCO Limiteds address is
P.O. Box 1111, West Wind Building, George Town, Grand Cayman, Cayman Islands.(15)
    
    CIP Limited (CIP) owns no stock in Holding (PA). CIP indirectly owns less than 0.1% of the
stock in each of Ballet Limited, Denary Limited, Gleam Limited, Highlands Limited, Noble Limited,
Outrigger Limited, Quill Limited, Radial Limited, Shoreline Limited and Zinnia Limited (see (16)
below). CIP may be deemed to share beneficial ownership of the shares of voting stock of Holding
(PA) held by such entities because CIP acts as a director of such entities and the ultimate
beneficial shareholders of each of those entities have granted to CIP revocable proxies in
companies that own those entities stock. None of the ultimate beneficial owners of such entities beneficially owns individually more
than 5% of Holding (PA)s voting stock.(16)
    
    Each of CIP Limited, Ballet Limited, Denary Limited, Gleam Limited, Highlands Limited, Noble
Limited, Outrigger Limited, Quill Limited, Radial Limited, Shoreline Limited and Zinnia Limited is
a Cayman Islands corporation with its address at P.O. Box 2197, West Wind Building, George Town,
Grand Cayman, Cayman Islands.(17)
    
    Leonard Green & Partners, L.P. (Leonard Green) does not own directly any stock in Holding
(PA). The numbers of shares shown as owned by Leonard Green includes all the shares owned by Green
Equity Investors, L.P. and Werner Co.  Investment LLC, affiliates of Leonard Green. 73




---



##### Table of Contents



Shareholder Agreement The Shareholder Agreement provides for, among other things, the following: GEI Drag-Along Right if Shares are not Fully Redeemed in an Elective Put If, on or after January 1, 2007 and on or prior to December 31, 2008, and so long as the GEI
Investors continue to meet their Retention Condition, holders of the Series A Preferred Stock
notify Holding (PA) that they wish to exercise an Elective Put, and Holding (PA) does not fully
redeem the shares subject to the Elective Put as and when required, the GEI Investors will
effectively be able to cause the sale of Holding (PA), such that, subject to certain limitations,
each of the other shareholders party to the Shareholder Agreement will be required either to sell
their shares in a drag-along sale or agree to vote their shares in favor of a sale transaction that
requires shareholder approval. Advance Notice in Connection with Exercise of the Elective Put Right At any time on or after October 31, 2006, the GEI Investors may notify the Company that they
intend to exercise the Elective Put right. Upon receipt of such notice, the Company will engage an
investment banking firm and take such other steps as it determines are reasonably designed to
effect a merger, consolidation, reorganization, recapitalization or sale of all or substantially
all of the assets of the Company prior to June 30, 2007. Upon request of the GEI Investors, the
Company will engage an additional investment banking firm designated by the GEI Investors to assist
in such process. Right of First Offer The Shareholder Agreement provides that if a GEI Investor desires to transfer any of its
Series A Preferred Stock or common shares issued or issuable upon their conversion, other than to
an affiliate or as part of a tag-along transfer, as discussed below, it must first offer the
Investcorp Investors, and then Holding (PA), the opportunity to purchase all, but not less than
all, of the offered shares. If the Investcorp Investors elect to purchase fewer than all of the
offered shares, Holding (PA) will have the option of purchasing the remaining shares. If the
Investcorp Investors and Holding (PA) in the aggregate elect to purchase fewer than all of the
offered shares, they shall not be entitled to purchase any of the offered shares and the GEI
Investor shall have the right to sell the offered shares to a third party on terms not materially
less favorable to the GEI Investor than those set forth in the offer to the Investcorp Investors
and Holding (PA). Tag-Along Rights The Shareholder Agreement provides that if the holders of a majority of the outstanding shares
of common stock (including, for these purposes, common shares issuable upon conversion of the
Series A Preferred Stock) (Common Stock Equivalents) propose to sell not less than 20% of the
issued and outstanding shares of common stock and Common Stock Equivalents to a third party (other
than to an affiliate), each of the other shareholders that are party to the New Shareholder
Agreement shall have the right, but not the obligation, to participate pro rata in the sale on the
same terms and conditions. Investcorp Investors Drag-Along Rights The Shareholder Agreement provides that if the Investcorp Investors propose to sell at least
80% of the shares of Class D Common Stock (which was issued to the Investcorp Investors in the 1997
Recapitalization) then outstanding to a third party (other than to an affiliate), the Investcorp
Investors shall have the right to compel the GEI Investors to sell (1) the same percentage of the
common stock owned by the GEI Investors as the percentage of the Class D Common Stock to be sold,
on the same terms and conditions as the Investcorp Investors are able to obtain and (2) all of the
shares of Series A Preferred Stock then outstanding for cash consideration equal to the greater of
(x) the redemption price the holders would have received had the drag-along sale constituted a
Change of Control and (y) the price per share that a holder of Series A Preferred Stock would have
received had it fully converted its shares into common stock. 74




---



##### Table of Contents



Pre-emptive Rights The Shareholder Agreement provides that if Holding (PA) proposes to issue or sell any New
Securities, as defined below, the GEI Investors, the Family Shareholders and the Investcorp
Investors will have the right, but not the obligation, to purchase a pro rata portion of the
offering in order to maintain their percentage ownership of Holding (PA)s equity securities. New
Securities means any authorized but unissued shares, and any treasury shares, of capital stock of
Holding (PA) and all rights, options or warrants to purchase capital stock, or securities of any
type whatsoever that are, or may become, convertible into capital stock, subject to certain
customary exceptions. 
 Item 13. Certain Relationships and Related Transactions. Agreements with Certain Shareholders and Directors In connection with the Recapitalization, the Companys agreement for management and consulting
services with Investcorp International, Inc. (III) was amended to provide consulting services
through November 24, 2007. The amended agreement provides for the Company to pay III an annual fee
of $1,500,000 for the annual period ending November 24, 2003 and $1,000,000 for each annual period
thereafter. The agreement will terminate on the earlier of November 24, 2007, the date on which III
ceases to own at least 50% of the aggregate equity of the Company or on the date of an initial
public offering, as defined. The Company entered into a management and consulting agreement with Leonard Green in
connection with the Recapitalization. The agreement provides for the Company to pay Leonard Green
$455,000 for services for the period through November 23, 2003 and $1,000,000 for services and
expenses for each annual period thereafter through November 25, 2008. The agreement will terminate
on the earlier of November 25, 2008, the date on which Leonard Green ceases to own at least 50% of
the Companys Series A Preferred Stock (including any shares of common stock issued upon
conversion) or on the date of an initial public offering, as defined. Effective September 27, 2004 the Company entered into a consulting services agreement under
which Dana R. Snyder provided certain consulting services designated by the Companys board of
directors through January 31, 2005 including serving as the Companys Interim President and Chief
Executive Officer during the period September 27, 2004 through January 4, 2005. Mr. Snyder
continued to serve in a consulting capacity during the transition period resulting from the
appointment of Mr. Richman as President and Chief Executive Officer until January 31, 2005. Fees
paid in connection with the agreement totaled $37,500 per month. 
 Item 14. Principal Accountant Fees and Services. Aggregate fees for professional services rendered for the Company by PricewaterhouseCoopers
LLP (PwC) for the years ended December 31, 2004 and 2003 were: For Years Ended December 312004
    
    
    2003(Dollars in thousands)Audit Services
    
    $
    400
    
    
    $
    383Audit-Related Services
    
    
    34
    
    
    
    158Tax Fees
    
    
    235
    
    
    
    216All Other Fees (1)
    
    
    74
    
    
    
    285Total(2)
    
    $
    743
    
    
    $
    1,042
  (1)
    Fees relate to provision of actuarial and associated employee benefit plan consulting
services. Under the Sarbanes-Oxley Act, actuarial services subject to contracts in
existence as of May 6, 2003 could continue to be provided through March 31, 2004. The
Company elected to continue to receive necessary actuarial services from PwC during 2003
pursuant to an engagement letter dated March 3, 2003. Effective in October 2003, the
Company retained another actuarial firm to replace PwC effective for most services
provided beginning January 1, 2004. PwC actuarial services were provided during 2004
related to services permitted to be performed under the provisions of the Sarbanes-Oxley
Act. 75




---



##### Table of Contents



(2)
    Effective November 10, 2003, the Audit Committee adopted the Audit and Non-Audit
Services Pre-Approval Policy. Commencing with 2003, the Audit Committee pre-approved all
the fees and services included within the scope of this policy. The Audit Committee did
not utilize the de minimis exception in 2003 which allows for pre-approval of non-audit
services that aggregate less than five percent of total fees paid to the independent
auditor to be waived under certain circumstances. The Audit fees for years ended December 31, 2004 and 2003 relate to professional services
rendered for the audits of the consolidated financial statements of the Company and assistance with
and review of documents filed with the SEC. The Audit-Related fees for the years ended December 31, 2004 and 2003 include $34,000 and
$45,000, respectively, for assurance and related services in connection with employee benefit plan
audits required by government regulations. Audit-Related fees for the year ended December 31, 2003
include $113,000 for services provided in connection with the Recapitalization. The Tax fees for the years ended December 31, 2004 and 2003 were for services related to tax
compliance, including the preparation of tax returns, tax planning and tax advice and assistance
with tax audits and appeals. 
 Part IV 
 Item 15. Exhibits and Financial Statement Schedules.  (a)
    (1) Financial Statements:The financial statements set forth in the Index are filed as part of this Annual Report on Form
10-K.  (2)
    Financial Statement Schedules: The
information required by schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission is provided elsewhere herein or is either not
required or is inapplicable and therefore has been omitted.  (3)
    Exhibits: 76




---



##### Table of Contents



ExhibitNumber
    
    Description of Exhibit2
    
    Recapitalization and Stock Purchase Agreement, dated as of May 7,
2003, among Werner Holding Co. (PA), Inc., Green Equity Investors III,
L.P., and certain shareholders of Werner Holding Co. (PA), Inc.,
including Exhibit C thereto (filed as Exhibit 99.1 to Co-Registrants
Current Report on Form 8-K filed May 8, 2003 and incorporated herein
by reference).3.1
    
    Certificate of Incorporation of Werner Holding Co. (DE), Inc. (filed
as Exhibit 3.1 to Co-Registrants Form S-4 Registration Statement No.
333-46607 and incorporated herein by reference).3.2
    
    By-laws of Werner Holding Co. (DE), Inc. (filed as Exhibit 3.2 to
Co-Registrants Form S-4 Registration Statement No. 333-46607 and
incorporated herein by reference).3.3
    
    Amended and Restated Articles of Incorporation of Werner Holding Co.
(PA), Inc. (filed as Exhibit 3.3 to Co-Registrants Quarterly Report
on Form 10-Q for the quarter ended June 30, 2000 and incorporated
herein by reference).3.4
    
    Articles of Amendment of the Amended and Restated Articles of
Incorporation of Werner Holding Co. (PA), Inc. (filed as Exhibit 3.4
to Co-Registrants Quarterly Report on Form 10-Q for the quarter ended
June 30, 2003 and incorporated herein by reference).3.5
    
    Werner Holding Co. (PA), Inc. Statement With Respect to the Powers,
Preferences and Relative, Optional and Other Special Rights of Series
A Participating Convertible Preferred Stock and Qualifications,
Limitations and Restrictions Thereof (filed as Exhibit 3.5 to
Co-Registrants Quarterly Report on Form 10-Q for the quarter ended
June 30, 2003 and incorporated herein by reference).3.6
    
    Werner Holding Co. (PA), Inc. Statement of Correction to Statement
with Respect to Powers, Preferences and Relative Optional and Other
Special Rights of Series A Participating Convertible Preferred Stock
and Qualifications, Limitations and Restrictions Thereof (filed as
Exhibit 3.6 to Co-Registrants Annual Report on Form 10-K for the year
ended December 31, 2003 and incorporated herein by reference).3.7
    
    Amended and Restated By-laws of Werner Holding Co. (PA), Inc. (filed
as Exhibit 3.6 to Co-Registrants Quarterly Report on Form 10-Q for
the quarter ended June 30, 2003 and incorporated herein by reference).3.8
    
    Amended and Restated By-laws of Werner Holding Co. (PA), Inc. (filed
as Exhibit 3.4 to Co-Registrants Quarterly Report on Form 10-Q for
the quarter ended June 30, 2002 and incorporated herein by reference).3.9
    
    Articles of Incorporation of Werner Co. (filed as Exhibit 3.5 to
Co-Registrants Form S-4 Registration Statement No. 333-46607 and
incorporated herein by reference).3.10
    
    By-laws of Werner Co. (filed as Exhibit 3.6 to Co-Registrants Form
S-4 Registration Statement No. 333-46607 and incorporated herein by
reference).3.11
    
    Certificate of Incorporation of WIP Technologies, Inc. (filed as
Exhibit 3.19 to Co-Registrants Form S-4 Registration Statement No.
333-46607 and incorporated herein by reference).3.12
    
    By-laws of WIP Technologies, Inc. (filed as Exhibit 3.20 to
Co-Registrants Form S-4 Registration Statement No. 333-46607 and
incorporated herein by reference).3.13
    
    Certificate of Incorporation of Werner Funding Corporation (filed as
Exhibit 3.9 to Co-Registrants Annual Report on Form 10-K for the year
ended December 31, 1998 and incorporated herein by reference).
 77




---



##### Table of Contents



ExhibitNumber
    
    Description of Exhibits3.14
    
    By-laws of Werner Funding Corporation (filed as Exhibit 3.10 to
Co-Registrants Annual Report on Form 10-K for the year ended December
31, 1998 and incorporated herein by reference).3.15
    
    Amendment to By-laws of WIP Technologies, Inc. (filed as Exhibit 3.11
to Co-Registrants Annual Report on Form 10-K for the year ended
December 31, 1999 and incorporated herein by reference).4.1
    
    Indenture between the Company and IBJ Schroder Bank & Trust Company,
as Trustee, dated as of November 24, 1997 (filed as Exhibit 4.1 to
Co-Registrants Form S-4 Registration Statement No. 333-46607 and
incorporated herein by reference).4.2
    
    Form of Note (included as Exhibit B to Exhibit 4.1 in Co-Registrants
Form S-4 Registration Statement No. 333-46607 and incorporated herein
by reference).4.3
    
    Registration Rights Agreement among the Company, Chase Securities
Inc., Donaldson, Lufkin & Jenrette Securities Corporation and Goldman
Sachs & Co. dated November 24, 1997 (filed as Exhibit 1.2 in
Co-Registrants Form S-4 Registration Statement No. 333-46607 and
incorporated herein by reference).4.4
    
    Form of Letter of Transmittal (filed as Exhibit 1.3 in Co-Registrants
Form S-4 Registration Statement No. 333-46607 and incorporated herein
by reference).4.5
    
    Supplemental Indenture dated as of June 11, 2003, by and among Werner
Holding Co. (DE), Inc., The Bank of New York (as successor trustee to
IBJ Schroder Bank & Trust Company) and the guarantors under the
Indenture dated as of November 24, 1997 (filed as Exhibit 10.4 to
Co-Registrants Quarterly Report on Form 10-Q for the quarter ended
June 30, 2003 and incorporated herein by reference).10.1
    
    Amended and Restated Shareholder Agreement, dated as of June 11, 2003,
by and among Werner Holding Co. (PA), Inc., Investcorp Investment
Equity Limited, the other holders of shares of Class D Common Stock of
Werner Holding Co. (PA), Inc. and the other individuals listed on the
signature pages thereto (filed as Exhibit 10.11 to Co-Registrants
Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 and
incorporated herein by reference).10.2
    
    Bonus Agreement, dated as of May 19, 2003, by and between Werner
Holding Co. (PA), Inc. and Larry V. Friend (filed as Exhibit 10.21 to
Co-Registrants Quarterly Report on Form 10-Q for the quarter ended
June 30, 2003 and incorporated herein by reference).10.3
    
    Bonus Agreement, dated as of May 20, 2003, by and between Werner
Holding Co. (PA), Inc. and Steven R. Bentson (filed as Exhibit 10.22
to Co-Registrants Quarterly Report on Form 10-Q for the quarter ended
June 30, 2003 and incorporated herein by reference).10.4
    
    Management Stock Incentive Plan, established by Werner Holding Co.
(PA), Inc. as of November 24, 1997 (filed as Exhibit 10.4 to
Co-Registrants Form S-4 Registration Statement No. 333-46607 and
incorporated herein by reference).10.5
    
    Form of Stock Option Agreements pursuant to Stock Incentive Plan
between Werner Holding Co. (PA), Inc. and certain employees (filed as
Exhibit 10.5 to Co-Registrants Form S-4 Registration Statement No.
333-46607 and incorporated herein by reference).10.6
    
    Trust Indenture, dated as of September 1, 1990, between the County of
Carroll, Kentucky, and Dai-Ichi Kangyo Trust Company (filed as Exhibit
10.6 to Co-Registrants Amendment No. 1 to Form S-4 Registration
Statement No. 333-46607 and incorporated herein by reference).10.7
    
    Variable Rate Demand Industrial Building Revenue Bonds issued by the
County of Carroll, Kentucky (filed as Exhibit 10.7 to Co-Registrants
Amendment No. 1 to Form S-4 Registration Statement No. 333-46607 and
incorporated herein by reference).
 78




---



##### Table of Contents



ExhibitNumber
    
    Description of Exhibits10.8
    
    Lease Agreement, dated as of September 1, 1990, between County of
Carroll, Kentucky, and Kentucky Ladder Company (filed as Exhibit 10.8
to Co-Registrants Amendment No. 1 to Form S-4 Registration Statement
No. 333-46607 and incorporated herein by reference).10.9
    
    Employment Agreement between Werner Co. and Peter R. OCoin (filed as
Exhibit 10.1 to Co-Registrants Quarterly Report on Form 10-Q for the
quarter ended June 30, 2002 and incorporated herein by reference).10.10
    
    Registration Rights Agreement, dated as of June 11, 2003, by Werner
Holding Co. (PA), Inc for the benefit of certain shareholders (filed
as Exhibit 10.12 to Co-Registrants Quarterly Report on Form 10-Q for
the quarter ended June 30, 2003 and incorporated herein by reference).10.11
    
    Werner Holding Co. (PA), Inc. 1997 Stock Loan Plan (filed as Exhibit
10.11 to Co-Registrants Form S-4 Registration Statement No. 333-46607
and incorporated herein by reference).10.12
    
    Credit Agreement, dated as of June 11, 2003, among Werner Holding Co.
(DE), Inc., Citigroup Global Markets Inc., as Syndication Agent,
Citigroup Global Markets Inc. and J. P. Morgan Securities, Inc., as
Joint Lead Arrangers and Joint Bookrunners, and JPMorgan Chase Bank as
Administrative Agent (filed as Exhibit 10.7 to Co-Registrants
Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 and
incorporated herein by reference).10.13
    
    Form of Second Stock Option Modification Agreement (filed as Exhibit
10.1 to Co-Registrants Quarterly Report on Form 10-Q for the quarter
ended June 30, 2000 and incorporated herein by reference).10.14
    
    Amended and Restated Retirement Plan for Employees of Werner Holding
Co. (DE), Inc. (filed as Exhibit 10.14 to Co-Registrants Annual
Report on Form 10-K for the year ended December 31, 2000 and
incorporated herein by reference).10.15
    
    First Amendment to the Retirement Plan for Employees of Werner Holding
Co. (DE), Inc. Thereof (filed as Exhibit 10.15 to Co-Registrants
Annual Report on Form 10-K for the year ended December 31, 2003 and
incorporated herein by reference).10.16
    
    Second Amendment to the Retirement Plan for Employees of Werner
Holding Co. (DE), Inc. Thereof (filed as Exhibit 10.16 to
Co-Registrants Annual Report on Form 10-K for the year ended December
31, 2003 and incorporated herein by reference).10.17
    
    Amended and Restated Supplemental Pension Plan A Applicable to Key
Executives of Werner Holding Co. (DE), Inc., its Parent and
Subsidiaries (filed as Exhibit 10.15 to Co-Registrants Annual Report
on Form 10-K for the year ended December 31, 2000 and incorporated
herein by reference).10.18
    
    Amended and Restated Supplemental Pension Plan B Applicable to Elected
Salaried Corporate Officers of Werner Holding Co. (DE), Inc., its
Parent and Subsidiaries (filed as Exhibit 10.16 to Co-Registrants
Annual Report on Form 10-K for the year ended December 31, 2000 and
incorporated herein by reference).10.19
    
    Werner Co. Short Term Variable Pay Bonus Compensation Plan (filed as
Exhibit 10.2 to Co-Registrants Quarterly Report on Form 10-Q for the
quarter ended June 30, 2000 and incorporated herein by reference).10.20
    
    Amended and Restated Werner Holding Co. (DE), Inc. Employee Savings
Plan Thereof (filed as Exhibit 10.20 to Co-Registrants Annual Report
on Form 10-K for the year ended December 31, 2003 and incorporated
herein by reference).
 79




---



##### Table of Contents



ExhibitNumber
    
    Description of Exhibits10.21
    
    Form of Management Stock Purchase Agreement between Stepup Limited,
Werner Holding Co. (PA), Inc. and certain individuals (filed as
Exhibit 10.19 to Co-Registrants Form S-4 Registration Statement No.
333-46607 and incorporated herein by reference).10.22
    
    Form of Loan and Pledge Agreement of Werner Holding Co. (PA), Inc.
(filed as Exhibit 10.20 to Co-Registrants Form S-4 Registration
Statement No. 333-46607 and incorporated herein by reference).10.23
    
    Amended and Restated Agreement for Management Advisory, Strategic
Planning and Consulting Services between Werner Holding Co. (DE), Inc.
and Investcorp International Inc. effective as of June 11, 2003 (filed
as Exhibit 10.8 to Co-Registrants Quarterly Report on Form 10-Q for
the quarter ended June 30, 2003 and incorporated herein by reference).10.24
    
    Management Services Agreement, dated as of June 11, 2003, among Werner
Holding Co. (DE), Inc. and Leonard Green & Partners, L.P. (filed as
Exhibit 10.6 to Co-Registrants Quarterly Report on Form 10-Q for the
quarter ended June 30, 2003 and incorporated herein by reference).10.25
    
    Amendment to Management Services Agreement, dated as of November 25,
2003, among Werner Holding Co. (DE), Inc. and Leonard Green &
Partners, L.P. Thereof (filed as Exhibit 10.25 to Co-Registrants
Annual Report on Form 10-K for the year ended December 31, 2003 and
incorporated herein by reference).10.26
    
    Employment Agreement, dated as of July 9, 2001, between Werner Co. and
Steve Bentson (filed as Exhibit 10.23 to Co-Registrants Annual Report
on Form 10-K for the year ended December 31, 2002 and incorporated
herein by reference).10.27
    
    Employment Agreement dated as of September 30, 2001 between Werner Co.
and Edward W. Gericke (filed as Exhibit 10.38 to Co-Registrants
Annual Report on Form 10-K for the year ended December 31, 2001 and
incorporated herein by reference).10.28
    
    Indemnity Agreement, dated March 31, 1998, between National Union Fire
Insurance Company of Pittsburgh, PA, and Werner Holding Co. (PA), Inc.
(filed as Exhibit 10.29 to Co-Registrants Amendment No. 1 to Form S-4
Registration Statement No. 333-46607 and incorporated herein by
reference).10.29
    
    Receivables Purchase Agreement, dated as of May 29, 1998, among Werner
Funding Corporation, Werner Co., Market Street Funding Corporation and
PNC Bank, National Association (filed as Exhibit 10.1 to
Co-Registrants Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998 and incorporated herein by reference).10.30
    
    Purchase and Sale Agreement, dated as of May 29, 1998, between Werner
Funding Corporation and Werner Co. (filed as Exhibit 10.2 to
Co-Registrants Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998 and incorporated herein by reference).10.31
    
    Amendment No. 1 to Werner Holding Co. (PA), Inc. Stock Loan Plan
(filed as Exhibit 10.1 to Co-Registrants Quarterly Report on Form
10-Q for the quarter ended March 31, 1999 and incorporated herein by
reference).10.32
    
    Premium Conversion Plan of Werner Holding Co. (DE), Inc. (filed as
Exhibit 10.36 to Co-Registrants Annual Report on Form 10-K for the
year ended December 31, 1998 and incorporated herein by reference).10.33
    
    Employment Agreement, dated as of May 26, 1999, between Werner Co. and
Dennis G. Heiner (filed as Exhibit 10.2 to Co-Registrants Quarterly
Report on Form 10-Q for the quarter ended June 30, 1999 and
incorporated herein by reference).
 80




---



##### Table of Contents



ExhibitNumber
    
    Description of Exhibits10.34
    
    Amendment No. 3 to Werner Holding Co. (PA), Inc. Stock Incentive Plan
(filed as Exhibit 10.1 to Co-Registrants Quarterly Report on Form
10-Q for the quarter ended March 31, 2000 and incorporated herein by
reference).10.35
    
    Employment Agreement dated as of April 5, 1999, as amended by
Amendment No. 1 dated May 31, 2000 and Amendment No. 2 dated October
31, 2001, between Werner Co. and Larry V. Friend (filed as Exhibit
10.40 to Co-Registrants Annual Report on Form 10-K for the year ended
December 31, 2001 incorporated herein by reference).10.36
    
    Amendment No. 1 to Werner Holding Co. (PA), Inc. Stock Incentive Plan
(filed as Exhibit 10.40 to Co-Registrants Annual Report on Form 10-K
for the year ended December 31, 1999 and incorporated herein by
reference).10.37
    
    Management Stock Purchase Agreement between Investcorp Werner
Holdings, L.P., Werner Holding Co. (PA), Inc. and Dennis G. Heiner
dated December 30, 1999 (filed as Exhibit 10.42 to Co-Registrants
Annual Report on Form 10-K for the year ended December 31, 1999
incorporated herein by reference).10.38
    
    Stock Option Agreement between Werner Holding Co. (PA), Inc. and
Dennis G. Heiner dated December 30, 1999 (filed as Exhibit 10.43 to
Co-Registrants Annual Report on Form 10-K for the year ended December
31, 1999 incorporated herein by reference).10.39
    
    Amendment No. 2 to Werner Holding Co. (PA), Inc. Stock Incentive Plan
(filed as Exhibit 10.44 to Co-Registrants Annual Report on Form 10-K
for the year ended December 31, 1999 incorporated herein by
reference).10.40
    
    Amendment No. 4 to Werner Holding Co. (PA), Inc. Stock Incentive Plan
(filed as Exhibit 10.2 to Co-Registrants Quarterly Report on Form
10-Q for the quarter ended March 31, 2003 and incorporated herein by
reference).10.41
    
    First Amendment to Receivables Purchase Agreement, dated as of May 28,
2003, among Werner Funding Corporation, Werner Co., Market Street
Funding Corporation and PNC Bank, National Association (filed as
Exhibit 10.1 to Co-Registrants Quarterly Report on Form 10-Q for the
quarter ended June 30, 2003 and incorporated herein by reference).10.42
    
    First Amendment to Purchase and Sale Agreement, dated as of May 28,
2003, among Werner Funding Corporation and Werner Co. (filed as
Exhibit 10.2 to Co-Registrants Quarterly Report on Form 10-Q for the
quarter ended June 30, 2003 and incorporated herein by reference).10.43
    
    Amendment No. 5 to Werner Holding Co. (PA), Inc. Stock Incentive Plan
(filed as Exhibit 10.5 to Co-Registrants Quarterly Report on Form
10-Q for the quarter ended June 30, 2003 and incorporated herein by
reference).10.44
    
    Amendment No. 6 to Werner Holding Co. (PA), Inc. Stock Incentive Plan
Thereof (filed as Exhibit 10.44 to Co-Registrants Annual Report on
Form 10-K for the year ended December 31, 2003 and incorporated herein
by reference).10.45
    
    Amended and Restated Werner Co. Deferred Stock Plan, effective as of
May 2003 (filed as Exhibit 10.9 to Co-Registrants Quarterly Report on
Form 10-Q for the quarter ended June 30, 2003 and incorporated herein
by reference).10.46
    
    Consent to Stock Unit Adjustment, by Dennis G. Heiner, dated June 2,
2003 (filed as Exhibit 10.10 to Co-Registrants Quarterly Report on
Form 10-Q for the quarter ended June 30, 2003 and incorporated herein
by reference).
 81




---



##### Table of Contents



ExhibitNumber
    
    Description of Exhibits10.47
    
    Option Cancellation Agreement, dated as of May 20, 2003, by and
between Werner Holding Co. (PA), Inc. and Dennis G. Heiner (filed as
Exhibit 10.13 to Co-Registrants Quarterly Report on Form 10-Q for the
quarter ended June 30, 2003 and incorporated herein by reference).10.48
    
    Option Cancellation Agreement, dated as of May 15, 2003, by and
between Werner Holding Co. (PA), Inc. and Peter R. OCoin (filed as
Exhibit 10.14 to Co-Registrants Quarterly Report on Form 10-Q for the
quarter ended June 30, 2003 and incorporated herein by reference).10.49
    
    Option Cancellation Agreement, dated as of May 20, 2003, by and
between Werner Holding Co. (PA), Inc. and Edward W. Gericke Thereof
(filed as Exhibit 10.49 to Co-Registrants Annual Report on Form 10-K
for the year ended December 31, 2003 and incorporated herein by
reference).10.50
    
    Option Cancellation Agreement, dated as of May 19, 2003, by and
between Werner Holding Co. (PA), Inc. and Larry V. Friend (filed as
Exhibit 10.16 to Co-Registrants Quarterly Report on Form 10-Q for the
quarter ended June 30, 2003 and incorporated herein by reference).10.51
    
    Option Cancellation Agreement, dated as of May 20, 2003, by and
between Werner Holding Co. (PA), Inc. and Steven R. Bentson (filed as
Exhibit 10.17 to Co-Registrants Quarterly Report on Form 10-Q for the
quarter ended June 30, 2003 and incorporated herein by reference).10.52
    
    Bonus Agreement, dated as of May 20, 2003, by and between Werner
Holding Co. (PA), Inc. and Dennis G. Heiner (filed as Exhibit 10.18 to
Co-Registrants Quarterly Report on Form 10-Q for the quarter ended
June 30, 2003 and incorporated herein by reference).10.53
    
    Bonus Agreement, dated as of May 15, 2003, by and between Werner
Holding Co. (PA), Inc. and Peter R. OCoin (filed as Exhibit 10.19 to
Co-Registrants Quarterly Report on Form 10-Q for the quarter ended
June 30, 2003 and incorporated herein by reference).10.54
    
    Bonus Agreement, dated as of May 20, 2003, by and between Werner
Holding Co. (PA), Inc. and Edward W. Gericke (filed as Exhibit 10.54
to Co-Registrants Annual Report on Form 10-K for the year ended
December 31, 2003 and incorporated herein by reference).10.55
    
    First Amendment dated as of May 6, 2004 to the Credit Agreement, dated
as of June 11, 2003, among Werner Holding Co. (DE), Inc., the several
lenders from time to time parties to the Credit Agreement, Citigroup
Global Markets Inc. and J.P. Morgan Securities, Inc. as joint lead
arrangers and joint bookrunners, and JPMorgan Chase Bank, as
administrative agent for the Lenders (filed as Exhibit 10.1 to
Co-Registrants Quarterly Report on Form 10-Q for the quarter ended
March 31, 2004 and incorporated herein by reference).10.56
    
    Amendment No. 1 to Employment Agreement entered into as of January 1,
2004, by and between Werner Co. and Peter R. OCoin (filed as Exhibit
10.2 to Co-Registrants Quarterly Report on Form 10-Q for the quarter
ended March 31, 2004 and incorporated herein by reference).10.57
    
    Amendment No. 2 to Employment Agreement entered into as of January 1,
2004, by and between Werner Co. and Dennis G. Heiner (filed as Exhibit
10.3 to Co-Registrants Quarterly Report on Form 10-Q for the quarter
ended March 31, 2004 and incorporated herein by reference).10.58
    
    Amendment No. 3 to Employment Agreement entered into as of January 1,
2004, by and between Werner Co. and Larry V. Friend (filed as Exhibit
10.4 to Co-Registrants Quarterly Report on Form 10-Q for the quarter
ended March 31, 2004 and incorporated herein by reference).10.59
    
    Second Amendment to Receivables Purchase Agreement, dated as of May
26, 2004, among Werner Funding Corporation, Werner Co., Market Street
Funding Corporation and PNC Bank, National Association (filed as
Exhibit 10.1 to Co-Registrants Quarterly Report on Form 10-Q for the
quarter ended June 30, 2004 and incorporated herein by reference).
 82




---



##### Table of Contents



ExhibitNumber
    
    Description of Exhibits10.60
    
    Second Amendment to Purchase and Sale Agreement, dated as of May 26,
2004, among Werner Funding Corporation and Werner Co. (filed as
Exhibit 10.2 to Co-Registrants Quarterly Report on Form 10-Q for the
quarter ended June 30, 2004 and incorporated herein by reference).10.61
    
    Third Amendment to Receivables Purchase Agreement, dated as of July
30, 2004, among Werner Funding Corporation, Werner Co., Market Street
Funding Corporation and PNC Bank, National Association (filed as
Exhibit 10.3 to Co-Registrants Quarterly Report on Form 10-Q for the
quarter ended June 30, 2004 and incorporated herein by reference).10.62
    
    Amendment No. 7 to Werner Holding Co. (PA), Inc. Stock Incentive Plan
(filed as Exhibit 10.4 to Co-Registrants Quarterly Report on Form
10-Q for the quarter ended June 30, 2004 and incorporated herein by
reference).10.63
    
    Consulting Service Agreement dated as of September 30, 2004 between
DRS Consulting, Inc. and Werner Holding Co. (PA), Inc. (filed as
Exhibit 10.1 to Co-Registrants Current Report on Form 8-K dated
October 29, 2004 and incorporated herein by reference).10.64
    
    Separation Agreement and Release dated as of October 19, 2004 between
Dennis G. Heiner, Werner Holding Co. (PA), Inc. and Werner Co. (filed
as Exhibit 10.2 to Co-Registrants Current Report on Form 8-K dated
October 29, 2004 and incorporated herein by reference).10.65
    
    Employment Agreement between Werner Co. and Steven P. Richman
effective January 4, 2005 (filed as Exhibit 10.1 to Co-Registrants
Current Report on Form 8-K dated December 9, 2004 and incorporated
herein by reference).10.66
    
    Amendment No. 1 to Employment Agreement entered into as of January 1,
2004, by and between Werner Co. and Steven R. Bentson (filed as
Exhibit 10.1 to Co-Registrants Quarterly Report on Form 10-Q for the
quarter ended September 30, 2004 and incorporated herein by
reference).21
    
    Subsidiaries of the Company.31.1
    
    Certification of Chief Executive Officer pursuant to the
Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer pursuant to the
Sarbanes-Oxley Act of 2002.
 83




---



##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Co-registrants have duly caused this report to be signed on their behalf by the undersigned,
thereunto duly authorized. WERNER HOLDING CO. (PA), INC.
    
    

    WERNER HOLDING CO. (DE), INCBy:
    /s/ STEVEN P. RICHMAN
    
    
    By:
    /s/ STEVEN P. RICHMANSteven P. Richman
    
    
    
    Steven P. RichmanPresident
    
    
    
    President
 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Co-registrants and in the capacities
indicated on May 10, 2005. /s/ DONALD M. WERNER
    
    Chairman of the Board of Directors of Co-registrantsDonald M. Werner/s/ STEVEN P. RICHMAN
    
    President and Chief Executive Officer of Holding (PA) and Holding (DE)Steven P. Richman
    
    (Principal
Executive Officer of Co-registrants), Director/s/ LARRY V. FRIEND
    
    Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer andLarry V. Friend
    
    Principal Accounting Officer of Co-registrants)/s/ ERIC J. WERNER
    
    Vice President, Secretary, General Counsel and DirectorEric J. Werner/s/ JAMES F. HARDYMON
    
    DirectorJames F. Hardymon/s/ PETER J. NOLAN
    
    DirectorPeter J. Nolan/s/ DANA R. SNYDER
    
    DirectorDana R. Snyder/s/ CHRISTOPHER J. STADLER
    
    DirectorChristopher J. Stadler/s/ THOMAS J. SULLIVAN
    
    DirectorThomas J. Sullivan/s/ MICHAEL S. WONG
    
    DirectorMichael S. Wong
 84