##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-K (Mark One) x
    
    Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the fiscal year ended December 31, 2003  o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
 Commission File No. 333-46607-12WERNER HOLDING CO. (PA), INC.
(Exact name of Co-registrant as specified in its charter)
    
    Commission File No. 333-46607WERNER HOLDING CO. (DE), INC.
(Exact name of Co-registrant as specified in its charter)
 Pennsylvania
(State or other jurisdiction of
Incorporation or organization)
    
    25-0906895
(IRS Employer Identification No.)
    
    Delaware
(State or other jurisdiction of
Incorporation or organization)
    
    25-1581345
(IRS Employer Identification No.)
 93 Werner Rd.
Greenville, Pennsylvania
(Address of principal executive offices)
    
    16125
(Zip Code)
    
    1105 North Market St.
Suite 1300
Wilmington, Delaware
(Address of principal executive offices)
    
    19899
(Zip Code)
 (724) 588-2550
(Co-registrants telephone number including area code)
    
    (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. x Yes o No Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of 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 Yes x 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, 2003: Werner Holding Co. (PA), Inc.
    
    1,134.0315 shares of Class A Common Stock13,237.9952 shares of Class B Common Stock3,315.9002 shares of Class C Common Stock603.3543 shares of Class D Common Stock27,150.9299 shares of Class E Common Stock
 Werner Holding Co. (DE), Inc. 1,000 shares of Common Stock DOCUMENTS INCORPORATED BY REFERENCE None




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Index to Annual Report on Form 10-K
Year Ended December 31, 2003 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 and Related Stockholder Matters
    
    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
    
    20Item 8. Financial Statements and Supplementary Data
    
    22Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    55Item 9A. Controls and Procedures
    
    55PART IIIItem 10. Directors and Executive Officers of the Company
    
    55Item 11. Executive Compensation
    
    59Item 12. Security Ownership of Certain Beneficial Owners and Management
    
    64Item 13. Certain Relationships and Related Transactions
    
    68Item 14. Principal Accountant Fees and Services
    
    68PART IVItem 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
    
    69Signatures
    
    76Exhibit 3.6 Statement Regarding Preferred StockExhibit 10.15 First Amd to Retirement Plan for EmpExhibit 10.16 Second Amd to Retirement Pln for EmpExhibit 10.20 Amd and Rstd Employee Savings PlanExhibit 10.25 Employment AgreementExhibit 10.44 Amendment No. 6 to Stock Incent PlanExhibit 10.49 Option Cancellation AgreementExhibit 10.54 Bonus AgreementExhibit 21 SubsidiariesExhibit 31.1 Certification of CEOExhibit 31.2 Certification of 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




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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 51 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 and QS-9000 certifications by Underwriters Laboratories. 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




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Segments See Note O entitled Segment Information included in the notes to
consolidated financial statements which is incorporated herein by
reference. Raw Materials and Suppliers The Company is a major consumer of aluminum and has contracts to
provide most of its estimated aluminum requirements with four principal
suppliers. These contracts include stipulated prices with provisions for
price adjustments based on market prices. Three of these contracts will
be renegotiable in 2004 and one will be renegotiable in 2008. 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 has implemented various hedging strategies to mitigate
the impact of raw material price fluctuations. To hedge the risk
associated with price fluctuations for a certain percentage of its
forecasted aluminum raw material requirements, the Company has utilized
futures and option contracts. 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




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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 2003. 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 2,500 salaried and hourly employees
as of December 31, 2003. Of the 1,800 hourly employees, approximately
1,300 are covered by seven collective bargaining agreements which expire
in 2004 through 2006. 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. 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 will be the exclusive source
for Werner® branded climbing equipment in the warehouse home center
channel. Werner will supply all of Lowes climbing equipment
requirements and with Lowes, will jointly promote and market Werner®
branded products. In addition, Werner will have 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 22%, 18% and 16%
of the Companys net sales in 2003, 2002 and 2001, respectively. During October 2003, the Company announced that its largest
customer, Home Depot, would no longer purchase aluminum and fiberglass
stepladders from the Company but would instead source these products
directly form China. Werner was also included in an extension ladder
supplier line review at The 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 also announced in December 2003 that it had decided to
discontinue supplying Werner® branded products to The Home Depot. In
order to provide for an orderly transition, the Company continued
supplying Werner® branded climbing equipment to The Home Depot into the
first quarter of 2004. The financial impact of no longer supplying Home
Depot is expected to be 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%, 31% and 32% of the Companys
net sales in 2003, 2002 and 2001, respectively. No extruded products customer accounted for more than 10% of the
Companys 2003 total net sales. 4




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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 2003 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 represents
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 new $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 Revolving Credit facility was not utilized on the
date of the Recapitalization. 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




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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. As
further described in Note P to the consolidated financial statements
included herein, operations at the Carrolton, Kentucky and Anniston,
Alabama facilities are expected to end in 2004 and 2005, respectively,
and the Company intends to sell these facilities. Werners corporate
headquarters are located at 93 Werner Rd., Greenville, Pennsylvania
16125. The Companys principal facilities consist of the following: Owned/
    
    ApproximateLocation
    
    Principal Use
    
    Lease Expiration
    
    Square FootageGreenville, PA
    
    Office, Manufacturing, Distribution
    
    Owned
    
    
    640,000Franklin Park, IL
    
    Office, Manufacturing, Distribution
    
    Owned
    
    
    672,000Anniston, AL
    
    Manufacturing, Distribution
    
    Owned
    
    
    550,000Carrollton, KY
    
    Manufacturing, Distribution
    
    Owned (1)
    
    
    200,000Merced, CA
    
    Manufacturing, Distribution
    
    12/31/2035 (2)
    
    
    464,000Juarez, Mexico
    
    Manufacturing, Distribution
    
    7/31/2006
    
    
    30,000Bell, CA
    
    Warehouse
    
    4/30/2006
    
    
    39,100Phoenix, AZ
    
    Warehouse
    
    1/14/2006
    
    
    14,500Dallas, TX
    
    Warehouse
    
    6/30/2004
    
    
    16,480Houston, TX
    
    Warehouse
    
    5/31/2006
    
    
    30,200Jefferson, LA
    
    Warehouse
    
    4/30/2004
    
    
    7,800Greensboro, NC
    
    Warehouse
    
    4/30/2004
    
    
    15,200Maryland Heights, MO
    
    Warehouse
    
    9/30/2004
    
    
    8,700Minneapolis, MN
    
    Warehouse
    
    8/31/2005
    
    
    11,900
  (1)
    
    Collateral for Variable Rate Industrial Building Revenue
Bonds issued by the County of Carroll, Kentucky.(2)
    
    Building and improvements owned by Werner, real property
leased under 15 year ground lease with four 5-year renewals. As of December 31, 2003, the Companys facilities at Greenville,
Pennsylvania, Franklin Park, Illinois, Anniston, Alabama, and Merced,
California, serve both the climbing products and extruded products
segments of its business. All other facilities primarily serve the
climbing products segment of the Companys business. During 2004,
Greenville will cease serving the climbing products business and become
dedicated to the extruded products 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




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Part II 
 Item 5. Market for Companys Common Equity and Related Stockholder Matters. There is no established public trading market for the common stock
of either Holding (PA) or Holding (DE). As of December 31, 2003, 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, 2003 is as follows: Class A Common
Stock: 26 holders
Class B Common Stock: 108 holders
Class C Common Stock: 29 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 the November 24, 1997 through
December 31, 2003, 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
$2,421.29 to $3,100.00 per share, to purchase up to an aggregate of
1,858 shares of Class C Common Stock as of December 31, 2003. 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 December 31,
2003, 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 $1,299,000 at December 31,
2003. 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. 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) and (c) 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




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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 (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 312003
    
    2002
    
    2001
    
    2000
    
    1999(Dollars in Millions, except Per Share Amounts)Operating Data:Net sales
    
    $
    501.1
    
    
    $
    520.4
    
    
    $
    535.7
    
    
    $
    545.2
    
    
    $
    503.7Cost of sales
    
    
    320.3
    
    
    
    343.8
    
    
    
    379.2
    
    
    
    384.5
    
    
    

    348.6Gross profit
    
    
    180.8
    
    
    
    176.6
    
    
    
    156.5
    
    
    
    160.7
    
    
    
    155.1General and administrative expenses
    
    
    28.6
    
    
    
    30.0
    
    
    
    24.0
    
    
    
    29.5
    
    
    
    29.9Selling and distribution expenses
    
    
    89.8
    
    
    
    82.0
    
    
    
    83.1
    
    
    
    85.6
    
    
    
    77.1Recapitalization expense (a)
    
    
    11.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Manufacturing and distribution
optimization costs (b)
    
    
    2.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Benefit plan curtailment and settlement
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    gains, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6.1
    )
    
    
    Plant shutdown costs
    
    
    
    
    
    
    
    
    
    
    (0.1
    )
    
    
    1.1
    
    
    
    Operating profit
    
    
    48.0
    
    
    
    64.6
    
    
    
    49.5
    
    
    
    50.6
    
    
    
    48.1Other income (expense), net (c)
    
    
    
    
    
    
    0.3
    
    
    
    0.9
    
    
    
    (2.2
    )
    
    
    (2.0
    )Income before interest and taxes
    
    
    48.0
    
    
    
    64.9
    
    
    
    50.4
    
    
    
    48.4
    
    
    
    46.1Interest expense
    
    
    24.4
    
    
    
    21.5
    
    
    
    26.1
    
    
    
    27.9
    
    
    
    27.1Income before income taxes
    
    
    23.6
    
    
    
    43.4
    
    
    
    24.3
    
    
    
    20.5
    
    
    
    19.0Income taxes
    
    
    7.4
    
    
    
    16.0
    
    
    
    8.7
    
    
    
    8.2
    
    
    
    7.7Net income
    
    $
    16.2
    
    
    $
    27.4
    
    
    $
    15.6
    
    
    $
    12.3
    
    
    $
    11.3Balance Sheet Data (at end of period):Cash and cash equivalents
    
    $
    9.6
    
    
    $
    43.2
    
    
    $
    30.5
    
    
    $
    5.5
    
    
    $
    0.9Working capital
    
    
    61.4
    
    
    
    75.1
    
    
    
    65.5
    
    
    
    61.2
    
    
    
    61.5Total assets
    
    
    278.6
    
    
    
    298.2
    
    
    
    285.0
    
    
    
    269.9
    
    
    
    255.4Reserve for product liability and workers
compensation claims (including current)
    
    
    47.9
    
    
    
    48.2
    
    
    
    44.1
    
    
    
    38.0
    
    
    
    29.8Total debt (including current maturities)
    
    
    313.1
    
    
    
    261.6
    
    
    
    277.4
    
    
    
    279.5
    
    
    
    278.9Convertible preferred stock
    
    
    64.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common shareholders equity
(deficit)(d)
    
    
    (231.9
    )
    
    
    (102.3
    )
    
    
    (123.8
    )
    
    
    (131.3
    )
    
    
    (143.9
    )Other Financial Data:Cash flow provided by operating activities
    
    
    31.8
    
    
    
    41.8
    
    
    
    44.1
    
    
    
    34.6
    
    
    
    27.6Cash flows used in investing activities
    
    
    (9.4
    )
    
    
    (11.8
    )
    
    
    (16.0
    )
    
    
    (26.7
    )
    
    
    (32.5
    )Cash flows used in financing activities
    
    
    (55.9
    )
    
    
    (17.2
    )
    
    
    (3.2
    )
    
    
    (3.3
    )
    
    
    (3.6
    )Depreciation and amortization(e)
    
    
    17.7
    
    
    
    15.9
    
    
    
    14.6
    
    
    
    12.8
    
    
    
    13.3Capital expenditures
    
    
    9.9
    
    
    
    12.1
    
    
    
    19.4
    
    
    
    26.7
    
    
    
    20.5
 See Notes to Selected Consolidated Historical Financial Data. 8




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##### 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)
    
    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. The total costs incurred during 2003
relating to the optimization of the Companys manufacturing and
distribution operations were $6.4 million which includes $2.9
recorded in Manufacturing optimization and distributions costs,
$2.0 recorded in Cost of sales and $1.5 recorded in Selling
and distribution expenses. See Note P to the consolidated
financial statements included herein for additional information.  (c)
    
    Other income (expense), net for 2003, 2002, 2001, 2000 and
1999 includes $0.7, $0.6, $1.3, $1.9 and $1.5, 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. As a result of this
recapitalization, certain affiliates of INVESTCORP S.A.
(Investcorp) and certain other international investors
organized by Investcorp made an equity investment of
approximately $122.7, representing approximately 67% of the
outstanding capital stock and voting power of the Company. 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 2003, 2002, 2001, 2000 and 1999: depreciation of
property, plant and equipment, $12.9, $12.1, $10.4, $9.1 and
$8.8, respectively; and amortization, $4.8, $3.8, $4.2, $3.7 and
$4.5, respectively. Depreciation and amortization excludes
amortization of deferred financing fees and original issue
discount. 9




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##### 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 and Current Developments 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 distributions channels which
include home improvement and other retail, hardware and professional.
The Companys climbing products segment generated 86% of the Companys
consolidated net sales in 2003. The extruded products business primarily
involves make-to-order products for the automotive, electronics,
architectural and construction industries. Extruded products generated
14% of 2003 consolidated net sales. The Companys financial performance has benefited over the last
three years from the successful implementation of manufacturing
productivity improvements and other cost reduction initiatives. The
improvement is reflected in changes in the gross profit margin which was
36.1% in 2003, 33.9% in 2002 and 29.2% in 2001. Financial performance
has improved despite declining net sales. Net sales were $501.1 million
in 2003, $520.4 million in 2002 and $535.7 million in 2001. The decline
in total net sales in 2003 of $19.3 million is primarily attributable to
a $25.3 million decline in net sales to Home Depot. Net sales of the Climbing Products segment to two significant
customers each exceeded 10% of the Companys total net sales in 2003.
The Home Depot and Lowes Companies, Inc. (Lowes) accounted for 27%
and 22%, respectively, of 2003 net sales. Two significant events
occurred in late 2003 relating to each of these customers. During October 2003, the Company announced that it was informed by
Home Depot that it will 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 The 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 The
Home Depot. In order to provide for an orderly transition, the Company
continued supplying Werner® branded climbing equipment to The Home Depot
into the first quarter of 2004. If the Company had discontinued
supplying Home Depot as of January 1, 2003, net sales and operating
profit for 2003 would have been approximately $136 million and $39
million less than reported. These amounts do not include any benefits
relating to restructuring and downsizing. During December 2003, the Company entered into a long term
strategic alliance with Lowes. Under this arrangement, Lowes will be
the exclusive source for Werner® branded climbing equipment in the
warehouse home center channel. Under this arrangement, Werner will
supply all of Lowes climbing equipment requirements and with Lowes,
will jointly promote and market Werner® branded products. In addition,
Werner will have 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. Although management believes Werner is now better positioned for
long-term profitable growth, the loss of Home Depot will result in a
significant reduction in sales volume in 2004 compared to 2003. In order
to better align the Companys cost structure with the reduced sales
volumes, a restructuring and downsizing program was initiated in early
2004 which, in part, accelerates and expands certain manufacturing and
distribution optimization activities initiated in 2003. A summary of
these initiatives include:  
    
    In February 2004 the Company announced that it
plans to gradually phase-out production at its Anniston,
Alabama manufacturing and distribution operations. All
operations at this facility are expected to end no later
than the first quarter of 2005. The Company intends to sell
this facility.
    
    During the third quarter of 2003, the Company
began having manufacturing ladder components and
accessories manufactured at a leased facility located in
Mexico. In early 2004, the Company 10




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##### Table of Contents



initiated plans to
construct a large manufacturing facility and implement a
ladder assembly plant in Juarez, Mexico to be fully
operational by late 2004.
    
    In early 2004 the Company initiated a program
to reduce costs by re-engineering its selling, general and
administrative functions. 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. The Company also began an initiative to focus the
Greenville facility on the Extruded Products segment of the Companys
business. All production related to climbing products at the Greenville
facility will cease during 2004. In addition, the Company announced on
October 23, 2003 that it will close its manufacturing facility located
in Carrollton, Kentucky that currently manufactures wood climbing
products. Production at the facility is expected to cease by mid-2004.
The Company intends to sell this facility. Wood ladder customers will
continue to be served by outsourcing production to a third party. Costs associated with the above-described activities, including costs associated with
completing the initiatives began in 2003, are expected to range from $20 million to $25
million mostly during 2004. The annual benefits expected to be realized upon implementation
of restructuring initiatives are estimated to range between
$15 million and $20 million. 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. As a result of the anticipated reduction in sales volume for the
year 2004, the Company may not be in compliance with its existing debt
covenants during the second half of the year. Discussions with the
Companys senior lenders have been initiated to modify the existing debt
covenants to provide for continued compliance throughout the term of the
facility. Although management believes that it will be able to effect
acceptable modifications in its debt covenants, no assurance can be
given that the Company will be able to maintain compliance in the
future. 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
general reserve is established for all customers based on historical
collection and write-off 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. 11




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##### Table of Contents



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 On June 11, 2003, the previously announced Recapitalization of the
Company was completed. On May 7, 2003, the Company entered into a
Recapitalization Agreement 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 represent
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 new
$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 Revolving Credit facility was not utilized on the date of the
Recapitalization. The Company paid $115.4 million to repay in full its
existing senior credit facility which was 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, 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. 12




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##### Table of Contents



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 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. Manufacturing and Distribution Optimization Costs.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. 13




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##### Table of Contents



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. Year Ended December 31, 2002 as Compared to Year Ended December 31,
2001 Net Sales.Net sales were down $15.3 million, or 2.9%, to $520.4
million for 2002 from $535.7 million for 2001. Net sales of climbing
products decreased by $12.2 million, or 2.7%, to $444.3 million for 2002
from $456.5 million for 2001. The sales decline reflects lower unit
sales volumes related primarily to wood stepladders and to a major
customer lowering its inventory levels mostly during the first quarter.
Net sales of extruded products of $76.1 million for 2002 declined by
$3.1 million, or 3.9%, compared to 2001. The decline in sales is
primarily due to the impact of lower aluminum prices and continued
softness in the markets served by this segment of the Companys
business. Gross Profit.Gross profit improved by $20.1 million, or 12.8%, to
$176.6 million for 2002 from $156.5 million for 2001 despite lower net
sales. Gross profit as a percentage of net sales in 2002 improved to
33.9% from 29.2% for 2001. The higher gross profit is largely due to
manufacturing productivity improvements and other manufacturing cost
reduction initiatives. Lower aluminum and other material costs as well
as product mix improvements also contributed to the higher gross profit.
On March 27, 2003, the Company announced that it will gradually phase
out its ladder, stages, scaffold and plank assembly, fabrication and
distribution operations in Greenville, Pennsylvania. The Company will
continue to maintain its corporate headquarters, remelt, aluminum
extrusion, extruded products fabrication and fiberglass pultrusion
operations in Greenville. The Companys wage and benefit costs at its
Greenville manufacturing facility are higher than at its other
facilities. This initiative, which is part of the Companys continuous
improvement program to optimize its operations and reduce manufacturing
costs, will result in the permanent layoff of approximately 500
employees at the Greenville facility. General and Administrative Expenses.General and administrative
expenses were $30.0 million for 2002 compared to $24.1 million for 2001,
an increase of $5.9 million or 24.6%. The increase is due, in part, to
severance cost of $1.6 million recognized in the first quarter of 2002
associated with the separation of a former executive officer. Excluding
this one-time severance cost, general and administrative expenses
increased by $4.3 million, or 17.8%, in 2002. The increase reflects
higher performance based compensation and related expense accruals
associated with improved profitability and higher depreciation related
to capitalized computer hardware and software costs. These increases
more than offset the absence of severance and related expenses
associated with the reduction in salaried employees that occurred during
the second quarter of 2001. Selling and Distribution Expenses.Selling and distribution
expenses declined by $1.1 million, or 1.4%, to $82.0 million for 2002
compared to $83.1 million for 2001 primarily reflecting the impact of
lower unit sales volumes, changes in customer mix and lower freight
rates. Operating Profit.Operating profit improved by $15.1 million, or
30.6%, to $64.6 million for 2002 from $49.5 million for 2001. Operating
profit of the Climbing Products segment increased $12.8 million, or
24.1%, to $65.9 million in 2002 including a charge of $1.3 million for
an allocated portion of severance costs related to the separation of a
former executive officer. Excluding the one-time severance cost
allocation, operating profit of the Climbing Products segment in the
current period would have increased by $14.1 million, or 26.6%, from
$53.1 million in 2001. The improvement in the profitability of climbing
products reflects manufacturing productivity 14




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##### Table of Contents



improvements and other cost
reduction initiatives as well as lower material costs and product mix
improvements. Operating income of the Extruded Products segment was
$0.4 million for 2002 compared to break-even in 2001. The increase in
operating profit of $0.4 million is primarily due to improved
manufacturing performance. Corporate and Other expenses declined by $2.0
million in 2002 compared to 2001 primarily due to reduced manufacturing
consulting expenses associated with implementing manufacturing
productivity improvement initiatives. Other Income (Expense), Net.Other income (expense), net declined
by $0.6 million from net income of $0.9 million in 2001 to net income of
$0.3 million in 2002. The decline is due to lower net investment income
related to investments formerly held by MIICA, the Companys captive
insurance subsidiary that was dissolved in 1998, and the absence of
interest received in 2001 related to an overpayment of income tax
liabilities. The decline was partially offset by lower costs associated
with the receivables purchase agreement resulting from lower utilization
and interest rates during 2002. Interest Expense.Interest expense declined by $4.6 million to
$21.5 million for 2002 from $26.1 million for 2001 which primarily
reflects the favorable impact of lower interest rates and lower levels
of debt in the current year. Accelerated amortization of deferred
financing fees of $0.4 million was recorded in 2002 as a result of a $15
million voluntary repayment of term loans under the Senior Credit
Facility made by the Company in March 2002. Accelerated amortization of
the deferred financing fees of $0.7 million was recorded in 2001
associated with the reduction in borrowing capacity resulting from the
amendment of the then existing Senior Credit Facility effective July 24,
2001. Income Taxes. Income taxes increased $7.4 million to $16.1 million
for 2002 from $8.7 million for 2001 reflecting higher pre-tax income in
2002 and an increase in the effective tax rate to 37% from 36% in 2001.
The increase in the effective tax rate is primarily due to lower
estimated income tax accruals in 2001. Net Income.Net income improved by $11.8 million to $27.4 million
for the year ended December 31, 2002 from net income of $15.6 million
for the year ended December 31, 2001 as a result of the factors
described above. 15




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##### 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, 2003. Payments Due by PeriodLessthan 1
    
    1-3
    
    4-5
    
    After 5Contractual Obligations
    
    Total
    
    year
    
    years
    
    years
    
    years(Dollars in Millions)Debt:Senior Credit Term Loan
(1)
    
    $
    172.5
    
    
    $
    17.5
    
    
    $
    50.0
    
    
    $
    77.5
    
    
    $
    27.5Senior Subordinated Notes, due 2007
    
    
    135.0
    
    
    
    
    
    
    
    
    
    
    
    135.0
    
    
    
    Variable Rate Demand Industrial Building
Revenue Bonds (2)
    
    
    5.0
    
    
    
    5.0
    
    
    
    
    
    
    
    
    
    
    
    Receivables Purchase
Agreement (3)
    
    
    20.0
    
    
    
    20.0
    
    
    
    
    
    
    
    
    
    
    
    Capital Lease Payments
    
    
    2.6
    
    
    
    0.8
    
    
    
    1.1
    
    
    
    0.5
    
    
    
    0.2Operating Lease Payments
    
    
    7.1
    
    
    
    1.8
    
    
    
    2.3
    
    
    
    0.9
    
    
    
    2.1Funding of defined benefit pension
plans (4)
    
    
    9.0
    
    
    
    9.0
    
    
    
    
    
    
    
    
    
    
    
    Revolving Credit Facility (5)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Contractual Cash Obligations
    
    $
    351.2
    
    
    $
    54.1
    
    
    $
    53.4
    
    
    $
    213.9
    
    
    $
    29.8
  (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 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 and (ii) December 31, 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. The Company has the option to repay the
term loan from time to time, in whole or in part, without premium
or penalty.(2)
    
    The Variable Rate Demand Industrial Building Revenue Bonds
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 Kentucky. During 2003
the Company announced that it will close the Kentucky
manufacturing facility during 2004. Although the bonds are
scheduled to mature in 2015, the redemption of the bonds probably
will be required in 2004 as a result of the facility closing.(3)
    
    The Company maintains a $50 million receivables purchase
agreement with a financial institution and its affiliate (the
Receivables Purchase Agreement) which will expire in May 2005
subject to annual approvals by both the Company and the financial
institution. As of December 31, 2003, the Company utilized $20
million of this facility.(4)
    
    During 2004 the Company expects to contribute approximately
$8 million to the trust established for the non-contributory
defined benefit plan which would satisfy the minimum funding
requirements of ERISA. Additionally, the Company expects to pay
benefits totaling approximately $1 million to participants of its
unfunded non-qualified supplemental retirement plans.
Contributions and funding required for years 2005 and thereafter
have not yet been determined.(5)
    
    The new 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 Revolving Facility will be the
earlier of (i) six months prior to the new maturity date of the
Notes and (ii) June 11, 2008. Available borrowings under the
Companys Revolving Credit 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 at February 29, 2004 was $20.2 million which
results in reducing the amount available under the Revolving
Credit Facility from $50 million to $29.8 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. 16




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##### Table of Contents



The Companys liquidity and capital resources were significantly
impacted as a result of the Recapitalization that occurred on June 11,
2003. Total long-term debt and related current maturities increased by
$51.5 million to $313.1 million as of December 31, 2003 compared to the
amounts at December 31, 2002. Other significant changes in capital
resources and liquidity in connection with the Recapitalization are
summarized in the following sources and uses of cash (in millions of
dollars): Sources of Cash:Term Loan proceeds
    
    $
    180.0Issuance of convertible preferred stock
    
    
    65.0Additional borrowings under Receivables Purchase Agreement
    
    
    20.0Existing cash
    
    
    20.9Employee repayment of stock loans
    
    
    1.2Total
    
    $
    287.1Uses of Cash:Redemption of common stock
    
    $
    147.0Repay existing term loans
    
    
    115.4Payments in connection with stock option cancellations
    
    
    3.0Costs associated with Recapitalization
    
    
    21.7Total
    
    $
    287.1
 The balance of long-term debt and current maturities which totals
$313.1 million at December 31, 2003 includes $133.4 million of Senior
Subordinated Notes reflected net of unamortized original issue discount;
a $172.5 million Term Loan issued in connection with the Senior Credit Facility; and $7.2
million of other debt. The Senior Credit Facility provides for the
Term Loan and a $50 million Revolving Facility of which $29.8 million
was available for borrowing at February 29, 2004. 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, maximum leverage, and capital expenditure
requirements. The Company is in compliance with all its debt covenants
effective December 31, 2003. As a result of the anticipated reduction in
sales volume for the year 2004, the Company may not be in compliance
with its existing debt covenants during the second half of the year.
Discussions with the Companys senior lenders have been initiated to
modify the existing debt covenants to provide for continued compliance
throughout the term of the Senior Credit Facility. Although management
believes that it will be able to effect acceptable modifications in its
debt covenants, no assurance can be given that the Company will be able
to maintain compliance in the future. 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,
which originally was to expire in May 2003, was extended for a three
year period 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, 2003,
the Company sold $84.5 million of accounts receivable in exchange for
$20.0 million in cash and an undivided interest in the accounts
receivable of $64.5 million. An additional $23.9 million of financing
was available under the Receivables Purchase Agreement at December 31,
2003. 17




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##### Table of Contents



The Company satisfies its working capital needs and capital
expenditure requirements primarily through a combination of operating
cash flow, borrowings under the Senior Credit Facility and sales of
accounts receivable under the Receivables Purchase Agreement. 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 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 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, 2003 and 2002 was less than the accumulated benefit
obligation which required the recognition of a minimum pension liability
of $20.9 million ($12.8 million after-tax) and $22.0 million ($13.4
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, 2003 resulted in an increase in noncurrent liabilities of $20.9
million, an increase in noncurrent deferred income tax assets of $7.5
million, a decrease in shareholders equity of $12.8 million and an
increase in noncurrent intangible assets of $0.6 million. Pension expense increased by $1.5 million in 2003 to $3.4 million
from $1.9 million in 2002 primarily due to lower than expected returns
on plan investments during years 2000 through 2002 and a decrease in the
discount rate used to value pension liabilities from 7.00% to 6.50%. The
assumption selected for the expected long-term rate of return on assets
is 8.50%. This rate reflects historical returns on equity and fixed
income securities provided by independent investment professionals and
also reflects the plans typical asset allocation among equity and fixed
income securities. The decline in the discount rate, which is used to
value pension liabilities, reflects the general decline in interest
rates. The benchmark consistently used in determining the discount rate
is Moodys AA bond index plus or minus no more than 25 basis points.
Pension expense in 2004, which will be determined using a discount rate
of 6.25%, is expected to be comparable to 2003 expense. In addition,
cash contributions to the pension plan of approximately $8.0 million
will be required to be paid to the pension trust during 2004 to meet the
minimum funding requirements of the Employee Retirement Income Security
Act (ERISA). In 2003 $1.0 million was paid to the pension trust. Cash Flows 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 flows provided by
operating activities were $41.8 million for 2002 compared to $44.1
million provided by operating activities for 2001. The increase in net
income in 2002 improved operating cash flows; however, less cash was
generated from reducing accounts receivable and inventories in 2002 than
in 2001. These factors, in addition to an increase in payments of
product liability and workers compensation claims, accounted for most
of the net decrease in cash provided by operating activities of $2.4
million in 2002. Net cash used in investing activities was $9.4 million in 2003
compared to $11.8 million in 2002 which primarily reflects lower capital
expenditures during 2003 partially offset by proceeds of $0.5 million
realized on the 18




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##### Table of Contents



sale of certain property, plant and equipment. Net cash
used for investing activities was $11.8 million for 2002 compared to
$16.0 million for 2001 primarily reflecting lower capital expenditures
during 2002 partially offset by lower proceeds received on the disposal
of investments formerly held by MIICA. 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. Net cash used for financing
activities was $17.2 million for 2002 compared to $3.2 million for 2001
which primarily reflects increased repayments of debt in the current
period. The Senior Credit Facility allows the Company to voluntarily
repay the principal amount of Term Loans from time to time, in whole or
in part, without premium or penalty. In March 2002 the Company
voluntarily repaid $15 million of Term Loans. Capital Expenditures The Companys capital expenditures were $9.9 million, $12.1 million
and $19.4 million, in 2003, 2002 and 2001, 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 2004 for various capital projects, including cost reduction
and new product development projects and maintenance capital projects. 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. 19




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##### 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 312004
    
    2005
    
    2006
    
    2007
    
    2008
    
    Thereafter
    
    Total
    
    2003
    
    2002(Dollars in Thousands)Liabilities:Long-term debt, including
current portion:Fixed Rate-Notes
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    135,000
    
    
    $
    
    
    
    $
    
    
    
    $
    135,000
    
    
    $
    78,300
    
    
    $
    135,675Avg. Interest Rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10.00
    %
    
    
    
    
    
    
    Fixed Rate-Capital
Leases
    
    $
    630
    
    
    $
    484
    
    
    $
    441
    
    
    $
    255
    
    
    $
    174
    
    
    $
    236
    
    
    $
    2,220
    
    
    $
    2,220
    
    
    $
    1,386Avg. Interest Rate
    
    
    7.40
    %
    
    
    6.92
    %
    
    
    6.74
    %
    
    
    6.66
    %
    
    
    6.58
    %
    
    
    6.09
    %Variable
Rate-Bonds and Term
Loan
    
    $
    22,500
    
    
    $
    22,500
    
    
    $
    27,500
    
    
    $
    32,500
    
    
    $
    45,000
    
    
    $
    27,500
    
    
    $
    177,500
    
    
    $
    177,500
    
    
    $
    127,197Avg. Interest Rate
    
    
    (1),(2)
    
    
    
    (1
    )
    
    
    (1
    )
    
    
    (1
    )
    
    
    (1
    )
    
    
    (1
    )
  (1)
    
    Average interest rate on Term Loan is equal to LIBOR plus 2.75%.(2)
    
    Average interest rate on $5 million Variable Rate Industrial Building Revenue Bonds during 2003 was approximately 1.5%. 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,
2003. 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 option contracts. The Company does not actually take
delivery of aluminum that is the subject of the futures contracts. 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 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, 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. At December 31, 2002,
the Company had purchased futures contracts, maturing in 2003, for the
delivery of 35.4 million pounds of aluminum at a weighted average
contract settlement price of $0.665 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, 2003 and 2002 were
immaterial. 20




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##### Table of Contents



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. During the fourth quarter of 2002, the Company began
buying futures contracts relating to the Climbing Products segment of
the business whereby it agrees to purchase aluminum in the future at a
set price to manage its exposure to
variable cash flows of forecasted sales. The futures contracts are
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 did not qualify for hedge accounting
in 2002. As a result, the gain or loss on these futures contracts was
recognized in earnings in the period of the change in aluminum prices.
The gains and losses recognized by the Company during 2002, including
the unrealized loss for the change in fair value of open futures
contracts at December 31, 2002, were immaterial. Option contracts relating to the Climbing Products segment of the
business, all qualify for hedge accounting. Through the end of the third
quarter of 2002, the Company created a collar by purchasing call options
and selling put option contracts for aluminum with a net initial
investment near zero to hedge its exposure to variable cash flows of
forecasted sales of Climbing Products. Price movement inside the collar
was not protected by the derivatives. Whereas, price movement outside
the collar or strike price provides either a financial gain or loss
(depending upon price movement) if the option is exercised or when the
position is closed. The gain or loss on the option contract is
recognized in earnings, together with the offsetting gain or loss due to
the changes in the actual purchase price of aluminum outside the collar,
in the period that the forecasted sale affects earnings. All option
contracts expired by May 2003. At December 31, 2002, the Company had
purchased call option contracts and sold put option contracts, maturing
in 2003, covering 18.0 million pounds of aluminum at strike prices
ranging from $.611 to $.729 per pound. The Company had net option
contract obligation liabilities of $0.4 million at December 31, 2002. 21




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##### Table of Contents



Item 8. Financial Statements and Supplementary Data. Index to Consolidated Financial Statements Report of Independent Auditors
    
    
    23Consolidated Balance Sheets
    
    
    24Consolidated Statements of Income
    
    
    26Consolidated Statements of Changes in Shareholders Equity (Deficit)
    
    
    27Consolidated Statements of Cash Flows
    
    
    28Notes to Consolidated Financial Statements
    
    
    29
 22




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##### Table of Contents



Report of Independent Auditors 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,
2003 and 2002, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2003 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
auditing standards generally accepted in the United States of America, which
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 LLPPittsburgh, PAFebruary 26, 2004
 23




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##### Table of Contents



WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, except Per Share Amounts) December 312003
    
    2002AssetsCurrent assets:Cash and cash equivalents
    
    $
    9,594
    
    
    $
    43,161Accounts receivable
    
    
    59,113
    
    
    
    54,219Allowance for doubtful accounts
    
    
    (1,950
    )
    
    
    (1,800
    )Prepaid income taxes
    
    
    155
    
    
    
    1,748Inventories
    
    
    55,692
    
    
    
    52,530Deferred income taxes
    
    
    2,308
    
    
    
    1,062Other
    
    
    5,193
    
    
    
    1,598Total current assets
    
    
    130,105
    
    
    
    152,518Other assets:Deferred income taxes
    
    
    17,956
    
    
    
    18,521Deferred financing fees
    
    
    11,043
    
    
    
    4,078Other
    
    
    9,269
    
    
    
    10,71038,268
    
    
    
    33,309Property, plant and equipment:Land and improvements
    
    
    8,807
    
    
    
    8,793Buildings
    
    
    49,694
    
    
    
    48,211Machinery and equipment
    
    
    175,545
    
    
    
    167,344234,046
    
    
    
    224,348Less accumulated depreciation and amortization
    
    
    128,657
    
    
    
    121,032105,389
    
    
    
    103,316Capital projects in progress
    
    
    4,852
    
    
    
    9,100110,241
    
    
    
    112,416Total assets
    
    $
    278,614
    
    
    $
    298,243
 See notes to consolidated financial statements. 24




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##### Table of Contents



WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - Continued
(Dollars in Thousands, except Per Share Amounts) December 312003
    
    2002Liabilities, preferred stock and shareholders deficitCurrent liabilities:Accounts payable
    
    $
    15,414
    
    
    $
    16,173Accrued liabilities
    
    
    30,114
    
    
    
    33,655Current maturities of long-term debt
    
    
    23,130
    
    
    
    27,622Total current liabilities
    
    
    68,658
    
    
    
    77,450Long-term obligations:Long-term
debt - less current maturities (net of unamortized original
issue discount of $1,600 in 2003 and $2,007 in 2002)
    
    
    289,990
    
    
    
    233,954Reserve for product liability and workers compensation claims
    
    
    47,880
    
    
    
    48,205Other long-term obligations
    
    
    39,600
    
    
    
    40,959Total liabilities
    
    
    446,128
    
    
    
    400,568Convertible preferred stock- Series A, $.01 par value; voting; 65,000
shares authorized; 65,000 issued and outstanding
    
    
    64,347
    
    
    
    Shareholders deficit:Common stock:Class A
- $.01 par value; voting; 3,500 shares authorized and
1,134 shares issued and outstanding in 2003; 5,000 shares
authorized and 1,880 issued and outstanding in 2002
    
    
    
    
    
    
    Class B
- $.01 par value; voting; 20,000 shares authorized and
13,238 shares issued and outstanding in 2003; 25,000
shares authorized and 21,775 issued and outstanding in 2002
    
    
    
    
    
    
    Class C
- $.01 par value; non-voting; 30,000 shares authorized and
3,316 shares issued and outstanding in 2003; 45,000 shares
authorized and 5,516 shares issued and outstanding in 2002
    
    
    
    
    
    
    Class D
- $.01 par value; voting; 604 shares authorized, issued
and outstanding in 2003; 1,000 shares authorized, issued
and outstanding in 2002
    
    
    
    
    
    
    Class E
- $.01 par value; non-voting; 35,000 shares authorized
and 27,151 shares issued and outstanding in 2003; 50,000
authorized and 45,000 shares issued and outstanding in 2002
    
    
    1
    
    
    
    1Treasury stock, at cost, Class R - 29,816 shares
    
    
    (146,983
    )
    
    
    Additional paid-in capital
    
    
    198,881
    
    
    
    200,872Accumulated deficit
    
    
    (270,918
    )
    
    
    (287,078
    )Accumulated other non-owner changes in equity
    
    
    (11,543
    )
    
    
    (13,694
    )Notes receivable arising from stock loan plan
    
    
    (1,299
    )
    
    
    (2,426
    )Total shareholders deficit
    
    
    (231,861
    )
    
    
    (102,325
    )Total liabilities, preferred stock and shareholders deficit
    
    $
    278,614
    
    
    $
    298,243
 See notes to consolidated financial statements. 25




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##### Table of Contents



WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands) For the Years Ended December 312003
    
    2002
    
    2001Net sales
    
    $
    501,106
    
    
    $
    520,404
    
    
    $
    535,685Cost of sales
    
    
    320,266
    
    
    
    343,795
    
    
    
    379,161Gross profit
    
    
    180,840
    
    
    
    176,609
    
    
    
    156,524General and administrative expenses
    
    
    28,638
    
    
    
    29,982
    
    
    
    24,056Selling and distribution expenses
    
    
    89,826
    
    
    
    82,000
    
    
    
    83,127Recapitalization expense
    
    
    11,499
    
    
    
    
    
    
    
    Manufacturing and distribution optimization costs
    
    
    2,889
    
    
    
    
    
    
    
    Plant shutdown costs
    
    
    
    
    
    
    
    
    
    
    (148
    )Operating profit
    
    
    47,988
    
    
    
    64,627
    
    
    
    49,489Other income (expense), net
    
    
    (15
    )
    
    
    324
    
    
    
    941Income before interest and income taxes
    
    
    47,973
    
    
    
    64,951
    
    
    
    50,430Interest expense
    
    
    24,407
    
    
    
    21,472
    
    
    
    26,148Income before income taxes
    
    
    23,566
    
    
    
    43,479
    
    
    
    24,282Income taxes
    
    
    7,406
    
    
    
    16,051
    
    
    
    8,727Net income
    
    
    16,160
    
    
    
    27,428
    
    
    
    15,555Convertible preferred stock dividends and accretion
    
    
    6,189
    
    
    
    
    
    
    
    Net income attributable to common shareholders
    
    $
    9,971
    
    
    $
    27,428
    
    
    $
    15,555
 See notes to consolidated financial statements. 26




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WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (DEFICIT)
(Dollars in Thousands, except Per Share Amounts) For the Years Ended December 312003
    
    2002
    
    2001Shares
    
    Amount
    
    Shares
    
    Amount
    
    Shares
    
    AmountClass A Common Stock:Balance, beginning of year
    
    
    1,880
    
    
    $
    
    
    
    
    1,880
    
    
    $
    
    
    
    
    1,880
    
    
    $
    Reclassified to Class R and redeemed
    
    
    (746
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance, end of year
    
    
    1,134
    
    
    $
    
    
    
    
    1,880
    
    
    $
    
    
    
    
    1,880
    
    
    $
    Class B Common Stock:Balance, beginning of year
    
    
    21,775
    
    
    $
    
    
    
    
    21,775
    
    
    $
    
    
    
    
    21,775
    
    
    $
    Issuance of common stock
    
    
    100
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Reclassified to Class R and redeemed
    
    
    (8,637
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance, end of year
    
    
    13,238
    
    
    $
    
    
    
    
    21,775
    
    
    $
    
    
    
    
    21,775
    
    
    $
    Class C Common Stock:Balance, beginning of year
    
    
    5,516
    
    
    $
    
    
    
    
    5,541
    
    
    $
    
    
    
    
    5,674
    
    
    $
    Issuance of common stock
    
    
    
    
    
    
    
    
    
    
    260
    
    
    
    
    
    
    
    60
    
    
    
    Repurchased or reclassified to Class R and redeemed
    
    
    (2,200
    )
    
    
    
    
    
    
    (285
    )
    
    
    
    
    
    
    (193
    )
    
    
    Balance, end of year
    
    
    3,316
    
    
    $
    
    
    
    
    5,516
    
    
    $
    
    
    
    
    5,541
    
    
    $
    Class D Common Stock:Balance, beginning of year
    
    
    1,000
    
    
    $
    
    
    
    
    1,000
    
    
    $
    
    
    
    
    1,000
    
    
    $
    Reclassified to Class R and redeemed
    
    
    (396
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance, end of year
    
    
    604
    
    
    $
    
    
    
    
    1,000
    
    
    $
    
    
    
    
    1,000
    
    
    $
    Class E Common Stock:Balance, beginning of year
    
    
    45,000
    
    
    $
    1
    
    
    
    45,000
    
    
    $
    1
    
    
    
    45,000
    
    
    $
    1Reclassified to Class R and redeemed
    
    
    (17,849
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance, end of year
    
    
    27,151
    
    
    $
    1
    
    
    
    45,000
    
    
    $
    1
    
    
    
    45,000
    
    
    $
    1Treasury stock, at cost, Class R, 29,816 shares:Balance, beginning of year
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Redemption of Class R common stock on Recapitalization Date
    
    
    
    
    
    
    (146,983
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance, end of year
    
    
    
    
    
    $
    (146,983
    )
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Additional Paid-in Capital:Balance, beginning of year
    
    
    
    
    
    $
    200,872
    
    
    
    
    
    
    $
    200,947
    
    
    
    
    
    
    $
    201,272Noncash compensation charge associated with Recapitalization
    
    
    
    
    
    
    4,590
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Costs related to redemption of common stock
    
    
    
    
    
    
    (825
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Convertible preferred in-kind dividends
    
    
    
    
    
    
    (4,630
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accretion of preferred stock
    
    
    
    
    
    
    (1,559
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of common stock
    
    
    
    
    
    
    493
    
    
    
    
    
    
    
    780
    
    
    
    
    
    
    
    147Repurchase of common stock
    
    
    
    
    
    
    (60
    )
    
    
    
    
    
    
    (855
    )
    
    
    
    
    
    
    (472
    )Balance, end of year
    
    
    
    
    
    $
    198,881
    
    
    
    
    
    
    $
    200,872
    
    
    
    
    
    
    $
    200,947Accumulated Deficit:Balance, beginning of year
    
    
    
    
    
    $
    (287,078
    )
    
    
    
    
    
    $
    (314,506
    )
    
    
    
    
    
    $
    (330,061
    )Net income
    
    
    
    
    
    
    16,160
    
    
    
    
    
    
    
    27,428
    
    
    
    
    
    
    
    15,555Balance, end of year
    
    
    
    
    
    $
    (270,918
    )
    
    
    
    
    
    $
    (287,078
    )
    
    
    
    
    
    $
    (314,506
    )Accumulated Other Non-owner Equity Changes:Derivative Commodity Instruments: Balance, beginning of year
    
    
    
    
    
    $
    (256
    )
    
    
    
    
    
    $
    (1,137
    )
    
    
    
    
    
    $
    Cumulative effect of accounting change (net of deferred tax of $69)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (118
    )Amounts reclassified to income (net of deferred tax of $204 in
2003, $807 in 2002
and $1,037 in 2001)
    
    
    
    
    
    
    347
    
    
    
    
    
    
    
    1,373
    
    
    
    
    
    
    
    1,766Change in fair value of derivative commodity Instruments (net of
deferred tax of $688 in 2003, $289 in 2002 and $1,635 in 2001)
    
    
    
    
    
    
    1,171
    
    
    
    
    
    
    
    (492
    )
    
    
    
    
    
    
    (2,785
    )Balance, end of year
    
    
    
    
    
    
    1,262
    
    
    
    
    
    
    
    (256
    )
    
    
    
    
    
    
    (1,137
    )Minimum Pension Liability: Balance, beginning of year
    
    
    
    
    
    
    (13,438
    )
    
    
    
    
    
    
    (6,745
    )
    
    
    
    
    
    
    Adjustment (net of deferred tax of $372 in 2003, $3,930 in 2002
and $3,962 in 2001)
    
    
    
    
    
    
    633
    
    
    
    
    
    
    
    (6,693
    )
    
    
    
    
    
    
    (6,745
    )Balance, end of year
    
    
    
    
    
    
    (12,805
    )
    
    
    
    
    
    
    (13,438
    )
    
    
    
    
    
    
    (6,745
    )Total accumulated other non-owner equity changes, end of year
    
    
    
    
    
    $
    (11,543
    )
    
    
    
    
    
    $
    (13,694
    )
    
    
    
    
    
    $
    (7,882
    )Notes Receivable Arising from Stock Loan Plan:Balance, beginning of year
    
    
    
    
    
    $
    (2,426
    )
    
    
    
    
    
    $
    (2,383
    )
    
    
    
    
    
    $
    (2,468
    )Reduction (increase) in notes receivable related to stock loan plan
    
    
    
    
    
    
    1,127
    
    
    
    
    
    
    
    (43
    )
    
    
    
    
    
    
    85Balance, end of year
    
    
    
    
    
    $
    (1,299
    )
    
    
    
    
    
    $
    (2,426
    )
    
    
    
    
    
    $
    (2,383
    )TOTAL SHAREHOLDERS EQUITY (DEFICIT)
    
    
    
    
    
    $
    (231,861
    )
    
    
    
    
    
    $
    (102,325
    )
    
    
    
    
    
    $
    (123,823
    )COMPREHENSIVE INCOME:Net income
    
    
    
    
    
    $
    16,160
    
    
    
    
    
    
    $
    27,428
    
    
    
    
    
    
    $
    15,555Accumulated other non-owner equity changes
    
    
    
    
    
    
    2,151
    
    
    
    
    
    
    
    (5,812
    )
    
    
    
    
    
    
    (7,882
    )Total comprehensive income
    
    
    
    
    
    $
    18,311
    
    
    
    
    
    
    $
    21,616
    
    
    
    
    
    
    $
    7,673
 See notes to consolidated financial statements. 27




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##### Table of Contents



WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands) For the Years Ended December 312003
    
    2002
    
    2001Operating activitiesNet income
    
    $
    16,160
    
    
    $
    27,428
    
    
    $
    15,555Reconciliation 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
    
    
    12,900
    
    
    
    12,081
    
    
    
    10,456Amortization of deferred financing fees and original issue discount
    
    
    4,882
    
    
    
    2,796
    
    
    
    3,310Amortization of deferred costs
    
    
    4,817
    
    
    
    3,799
    
    
    
    4,189Provision for losses on accounts receivable
    
    
    379
    
    
    
    803
    
    
    
    635Provision for product liability and workers compensation claims
    
    
    9,872
    
    
    
    12,105
    
    
    
    11,844Payment of product liability and workers compensation claims
    
    
    (10,197
    )
    
    
    (7,969
    )
    
    
    (5,770
    )Deferred income taxes
    
    
    (1,943
    )
    
    
    (862
    )
    
    
    3,016Loss on disposition of property, plant and equipment
    
    
    11
    
    
    
    406
    
    
    
    Impairment of investments
    
    
    
    
    
    
    
    
    
    
    303Changes in operating assets and liabilities:Accounts receivable
    
    
    (4,894
    )
    
    
    31
    
    
    
    4,082Prepaid income taxes
    
    
    1,593
    
    
    
    (247
    )
    
    
    532Inventories
    
    
    (3,162
    )
    
    
    386
    
    
    
    7,702Accounts payable
    
    
    (759
    )
    
    
    (4,841
    )
    
    
    (2,288
    )Other assets and liabilities, net
    
    
    (8,074
    )
    
    
    (4,153
    )
    
    
    (9,420
    )Net cash provided by operating activities
    
    
    31,783
    
    
    
    41,763
    
    
    
    44,146Investing activitiesCapital expenditures
    
    
    (9,923
    )
    
    
    (12,053
    )
    
    
    (19,402
    )Proceeds from sale of investments
    
    
    
    
    
    
    
    
    
    
    2,096Proceeds from liquidation of investments
    
    
    61
    
    
    
    209
    
    
    
    1,197Proceeds from sale of property, plant and equipment
    
    
    450
    
    
    
    
    
    
    
    127Net cash used in investing activities
    
    
    (9,412
    )
    
    
    (11,844
    )
    
    
    (15,982
    )Financing activitiesIssuance 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
    
    
    (11,441
    )
    
    
    
    
    
    
    (192
    )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
    
    
    
    
    
    
    195
    
    
    
    37Repurchase of common stock
    
    
    (60
    )
    
    
    (453
    )
    
    
    (278
    )Repayments of long-term debt prior to Recapitalization
    
    
    (6,992
    )
    
    
    (17,113
    )
    
    
    (2,776
    )Repayments of long-term debt after Recapitalization
    
    
    (7,894
    )
    
    
    
    
    
    
    Repayment of notes receivable arising from stock loan plan
    
    
    1,127
    
    
    
    140
    
    
    
    Net cash used in financing activities
    
    
    (55,938
    )
    
    
    (17,231
    )
    
    
    (3,209
    )Net (decrease) increase in cash and cash equivalents
    
    
    (33,567
    )
    
    
    12,688
    
    
    
    24,955Cash and cash equivalents at beginning of year
    
    
    43,161
    
    
    
    30,473
    
    
    
    5,518Cash and cash equivalents at end of year
    
    $
    9,594
    
    
    $
    43,161
    
    
    $
    30,473
 See notes to consolidated financial statements. 28




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##### Table of Contents



Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in Thousands, except Per 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 -Sales are recorded when product is shipped and when title
and risk of loss transfer to the customer consistent with the guidance provided
by the Securities and Exchange Commissions Staff Accounting Bulletin No. 104,
Revenue Recognition. Shipping and Handling Fees and Expenses- All shipping and handling fees billed
to customers are classified as revenues and all shipping and handling costs are
removed from revenues when presenting the income statement. Shipping and
handling costs represent costs associated with shipping products to customers
and handling finished goods. Shipping and handling costs of $54,466, $48,026
and $50,330 are included in the caption entitled, Selling and distribution
expenses in the consolidated statements of income for the years ended December
31, 2003, 2002 and 2001, 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 $180, $444 and $616 in 2003, 2002
and 2001, 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 88% and 90% of the inventories at December 31, 2003 and 2002,
respectively. Derivative Commodity Instruments Effective January 1, 2001, the Company
adopted the Financial Accounting Standards Boards (the FASB) Statement No.
133, Accounting for Derivative Instruments and Hedging Activities,as amended
by Statement No. 137 and No. 138. The fair value of all outstanding derivatives
is recorded on the balance sheet. The adoption of Statement No. 133 resulted in
a net of tax transition loss of $118 recorded by the Company effective on
January 1, 2001 as a cumulative-effect adjustment to accumulated other
comprehensive income to recognize the fair value of all derivatives. 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, 2003, 2002 and 2001, 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 29




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##### Table of Contents



Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands, except Per Share Amounts) 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, 2003, 2002 and 2001. The Companys derivatives that qualify for hedge accounting consist of aluminum
futures and options 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, 2003 and 2002,
the Company had futures contracts to purchase aluminum totaling $14,298 and
$6,820, respectively. At December 31, 2003, unrecognized pre-tax gains totaling $2,003
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
cash flow hedges and fair value hedges is recognized in other current assets
with an offset included in accrued
liabilities. The change in fair value of futures contracts at December 31, 2002
was a loss of $140. At December 31, 2002 the Company had purchased call option
contracts and sold put option contracts covering 18.0 million pounds of
aluminum, respectively. The net option contract obligation liability was $401
at December 31, 2002. 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, 2003, 2002 and 2001. As of
December 31, 2003, all of the $1,262 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 machinery and equipment, was $2,163 and $1,353 at December 31, 2003 and
2002, respectively. 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 2003, 2002 and 2001,
interest costs of $195, $428 and $1,273, respectively, were capitalized.
Interest costs incurred in 2003, 2002 and 2001 totaled $24,602, $21,900 and
$27,421, 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 of
the asset, an impairment loss is recognized at that time. Measurement of
impairment 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
employee payroll and payroll related costs. Amortization of capitalized
software costs was $2,594, $2,018 and $1,042 in 30




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Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands, except Per Share Amounts) 2003, 2002 and 2001,
respectively. The unamortized balance of computer software costs capitalized
was $14,979 and $16,719 at December 31, 2003 and 2002, 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 $47,880 and $48,205 at December
31, 2003 and 2002, 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. 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. 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 would have
been as follows: For the Years Ended December 312003
    
    2002
    
    2001Net income, as reported
    
    $
    16,160
    
    
    $
    27,428
    
    
    $
    15,555Less total stock-based employee compensation
costs determined using fair value method, net
of related tax effects
    
    
    103
    
    
    
    318
    
    
    
    422Pro forma net income
    
    $
    16,057
    
    
    $
    27,110
    
    
    $
    15,133
 The pro forma compensation costs indicated above are zero for periods after
the Recapitalization 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 and 2001
estimated using the Black-Scholes option pricing model was $775.11 and $725.81
per share, respectively. The fair value of each option grant was determined
using weighted average assumptions of risk-free interest rates of 4.31% and
5.07%; for grants in 2002 and 2001, respectively, and an average life of
options of 7.1 years and expected volatility and dividend yield of 0% for
grants in 2002 and 2001. No options were granted during 2003. Retirement Benefits- Net periodic pension cost is recognized for the cost of
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. 31




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Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands, except Per Share Amounts) 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. Amortization of $2,356, $394 and $716 of
deferred financing fees was accelerated during 2003, 2002 and 2001,
respectively (see Note E). Advertising- The Company expenses all advertising as incurred. These expenses
totaled $15,738, $16,062 and $13,992 for years 2003, 2002 and 2001,
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 carrying amounts reported in the balance
sheet for cash and cash equivalents bear interest at prevailing market rates
and therefore 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, 2003 and 2002. The fair value (based upon prevailing
market rates) of the outstanding borrowings of the Senior Subordinated Notes at
December 31, 2003 and 2002 was $78,300 and $135,675, respectively. Derivative instruments- The fair value of the Companys derivative
instruments is recorded in the balance sheet. Recently Issued Accounting Standards- In June 2001, the FASB issued Statement
No. 143, Accounting for Asset Retirement Obligations, which provides accounting
requirements for retirement obligations associated with tangible long-lived
assets. The obligations affected are those for which there is a legal
obligation to settle as a result of existing or enacted law. The adoption of
Statement No. 143 effective as of January 1, 2003 did not have a material
impact on the Companys results of operations, financial position or cash
flows. In June 2002, the FASB issued Statement No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. This statement requires companies
to recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
Examples of costs covered by the standard include lease termination costs and
certain employee severance costs that are associated with a restructuring,
discontinued operation, plant closing, or other exit or disposal activity.
Statement No. 146 applies to all exit or disposal activities initiated on or
after January 1, 2003. The adoption of Statement No. 146 impacted the timing of
liability recognition associated with such activities (see Note P). In November 2002, the FASB issued Interpretation No. 45, Guarantors Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others. The interpretation elaborates on the disclosures to be
made in interim and annual financial statements about obligations under certain
guarantees. It also requires the recognition of a liability at the inception of
a guarantee equal to the fair value of the obligation undertaken in issuing the
guarantee. The disclosure requirements are effective for financial statements
of interim and annual periods ending after December 15, 2002 (see Note M). The
initial measurement and recognition provisions are required to be applied on a
prospective basis to guarantees issued or modified effective as of January 1,
2003. The adoption of the requirements of the interpretation did not have a
material impact on the Companys results of operations, financial position or
cash flows. 32




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Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands, except Per Share Amounts) In December 2002, the FASB issued Statement No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure, which amended Statement No. 123,
Accounting for Stock-Based Compensation. The new standard provides alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. Additionally, the statement
amends the disclosure requirements of Statement No. 123 to require prominent
disclosures in the annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the
method used on reported results. This statement is effective for financial
statements for fiscal years ending after December 15, 2002. In compliance with
Statement No. 148, the Company elected to continue to apply the intrinsic value
method in accounting for its stock-based employee compensation arrangement as
defined by Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employee, and has provided the required disclosures in Note B. In April 2003, the FASB issued Statement No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities.The Statement amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under
Statement No. 133. This Statement is effective for contracts entered into or
modified after June 30, 2003 and for hedging relationships designated after
June 30, 2003. The adoption of Statement No. 149 did not have a material impact
on the Companys results of operations, financial position or cash flows. In May 2003, the FASB issued Statement No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity.The
Statement changes the accounting for certain financial instruments that, under
previous guidance, issuers could account for as equity. The new Statement
requires that those instruments be classified as liabilities in statements of
financial position. Most of the guidance in Statement 150 is effective for all
financial instruments entered into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim period beginning
after June 15, 2003. Effective during the quarter ended June 30, 2003, the
Company classified its newly issued Convertible Preferred Stock (see Note G)
consistent with the provisions of Statement No. 150. In December 2003, the FASB issued SFAS No. 132 (revised 2003), Employers
Disclosures about Pensions and Other Postretirement Benefits, which requires
disclosures of additional details about plan assets, benefit obligations, cash
flows, benefit costs and other relevant information. In addition to expanded
annual disclosures, the various elements of pension and other postretirement
benefit costs will be required to be disclosed on a quarterly basis. Statement
No. 132 (revised 2003) is effective for fiscal years ending after December 15,
2003, and for quarters beginning after December 15, 2003. The adoption of this
statement had no impact on the Companys results of operations, financial
position or cash flows. C. Recapitalization On June 11, 2003, the previously announced 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
$65,000 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 represents 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 new $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 Revolving Credit facility was
not utilized on the date of the Recapitalization. The Company used $115,421 to
repay in full its existing senior credit facility which was terminated as of
the date of the Recapitalization. 33




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Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands, except Per Share Amounts) 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: 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 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. D. Inventories Inventories are as follows: December 312003
    
    2002Finished goods
    
    $
    34,009
    
    
    $
    33,525Work-in-process
    
    
    12,328
    
    
    
    11,770Raw materials and supplies
    
    
    18,134
    
    
    
    17,085Total inventories, which approximates replacement cost
    
    
    64,471
    
    
    
    62,380Less excess of cost over LIFO stated values
    
    
    8,779
    
    
    
    9,850Net inventories
    
    $
    55,692
    
    
    $
    52,530
 34




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Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands, except Per Share Amounts) E. Debt As part of the Recapitalization (see Note C), the Company entered into a new
$230,000 senior credit facility with a syndicate of banks consisting of a
$180,000 Term Loan and a $50,000 Revolving Credit Facility. The new 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 and
(ii) (A) for the Revolving Credit Facility, June 11, 2008 and (B) for the Term
Loan, December 31, 2009. A summary of debt outstanding is as follows: December 312003
    
    2002Senior Credit Term Loans paid on June 11, 2003
    
    $
    
    
    
    $
    122,197Senior Credit Term Loan issued June 11, 2003
    
    
    172,500
    
    
    
    Senior Subordinated Notes, due 2007, net of unamortized
original issue discount of $1,600 in 2003 and $2,007 in 2002
    
    
    133,400
    
    
    
    132,993Variable Rate Demand Industrial Building Revenue Bonds (1)
    
    
    5,000
    
    
    
    5,000Capital lease obligations
    
    
    2,220
    
    
    
    1,386Total debt
    
    
    313,120
    
    
    
    261,576Less current maturities
    
    
    23,130
    
    
    
    27,622Debt classified as long-term
    
    $
    289,990
    
    
    $
    233,954
  (1) Included in current maturities as of December 31, 2003. See below for additional information. 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
$17,500 in 2004, $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 (3.88%
at December 31, 2003) 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 Company may draw amounts under the Revolving Credit Facility for general
corporate purposes and working capital requirements. The availability under the
$50,000 Revolving Credit Facility, under which no amount was outstanding as of
December 31, 2003, is reduced by amounts issued under a letter of credit
subfacility which totals $22,851 at December 31, 2003. The letters of credit
issued under the subfacility was reduced to $20,201 in February 2004 (see Note
M). An annual commitment fee of 0.50% is paid on the average daily unused
amount of the Revolving Credit Facility. Deferred financing fees totaling $7,165 were incurred in connection with
obtaining the new Senior Credit Facility. These costs will be deferred and
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
expensed in June 2003. Additional interest expense of $394 and $716 was
recorded in 2002 and 2001, respectively, due to accelerated amortization of
deferred financing fees associated with changes in the then-existing senior
credit facility. 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 35




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Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands, except Per Share Amounts) 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
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 103.333% during the twelve
months beginning November 15, 2003, 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 Kentucky. During 2003 the Company announced that it will close the
Kentucky manufacturing facility during 2004 (see Note P). Although the bonds
are scheduled to mature in 2015, the redemption of the bonds probably will be
required in 2004 as a result of the facility closing. Accordingly, the
liability for the bonds is 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. The bonds bear interest at a variable rate established weekly which may not
exceed 15% per annum (1.5% and 1.9% at December 31, 2003 and 2002,
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. The financial covenants of the Senior Credit Facility require the
Company to meet specific interest coverage, maximum leverage, and capital
expenditure requirements. The Company is in compliance with all its debt covenants as of December 31,
2003. As a result of the anticipated reduction in sales volume for the year
2004 (see Note O), the Company may not be in compliance with its existing debt
covenants during the second half of the year. Discussions with the Companys
senior lenders have been initiated to modify the existing debt covenants to
provide for continued compliance throughout the term of the Senior Credit
Facility. Although management believes that it will be able to effect
acceptable modifications in its debt covenants, no assurance can be given that
the Company will be able to maintain compliance in the future. Other No short-term borrowings were outstanding at December 31, 2003 or 2002. 36




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Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands, except Per Share Amounts) Future minimum lease payments under capital leases are as follows: 2004
    
    $
    7712005
    
    
    5772006
    
    
    5002007
    
    
    2912008
    
    
    195Thereafter
    
    
    260Total minimum payments
    
    
    2,594Less amount representing interest
    
    
    374Capital lease obligations
    
    
    2,220Less current maturities
    
    
    630Long-term capital lease obligations
    
    $
    1,590
 Subject to refinancing or extension of the Notes as discussed above, the
aggregate amount of scheduled principal payments, excluding obligations under
capital leases, is $22,500 in 2004, $22,500 in 2005, $27,500 in 2006, $167,500
in 2007, $45,000 in 2008, and $27,500 in 2009 and none thereafter. The amount
due for year 2004 includes $5,000 of Industrial Building Revenue Bonds because
redemption of the bonds probably will be required during 2004 as a result of
closing the facility located in Kentucky. 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. Effective in
May 2003, the Company and the financial institution agreed to extend the
Receivables Purchase Agreement for a period of three years, 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. As of December 31, 2003 and 2002 the Company had transferred, on a recurring
basis, $84,549 and $78,765 of accounts receivable in exchange for $20,000 in
cash and an undivided interest in accounts receivable of $64,483 and $58,704,
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 $695, $607 and $1,289 in 2003, 2002 and 2001, respectively. The
interest rates on the purchased interests at December 31, 2003 and 2002 were
1.13% and 1.40%, respectively. As of December 31, 2003, $23,900 was available
but unused 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 2003 were a discount
rate of 2.12% and an estimated life of approximately two months. At December
31, 2003 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. 37




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Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands, except Per Share Amounts) The accompanying consolidated balance sheets at December 31, 2003 and 2002
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. 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 2003 quarterly preferred dividends in the amount of $4,630 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
$69,630 as of December 31, 2003, 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 will be able to 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 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, 2003, 14,125 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 38




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Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands, except Per Share Amounts) stock will be accreted to its redemption value through December 31,
2006 using the effective interest method. Accretion recorded during 2003 was
$1,559. 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. 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, 2003 and 2002. 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) 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 39




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Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands, except Per Share Amounts) 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. Presented below is a summary of the Stock Option Plan activity: WeightedAverageStock
    
    ExerciseOptions
    
    PriceOutstanding at January 1, 2001
    
    
    6,305
    
    
    $
    2,427.75Granted
    
    
    935
    
    
    $
    2,450.00Exercised
    
    
    
    
    
    
    Forfeited
    
    
    1,120
    
    
    $
    2,457.65Outstanding at December 31, 2001
    
    
    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
    
    
    $
    2,486.37
 40




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##### Table of Contents



Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands, except Per Share Amounts) Stock options outstanding and exercisable as of December 31, 2003 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$2,421.29-$2,450.00
    
    
    1,659
    
    
    
    4.0
    
    
    $
    2,422.95
    
    
    
    1,659
    
    
    $
    2,422.95$3,000.00-$3,100.00
    
    
    199
    
    
    
    4.0
    
    
    
    3,015.08
    
    
    
    199
    
    
    
    3,015.081,858
    
    
    
    4.0
    
    
    $
    2,486.27
    
    
    
    1,858
    
    
    $
    2,486.27
 At December 31, 2002, options were exercisable for 745 shares at a weighted
average exercise price of $2,430.40. At December 31, 2001, options were
exercisable for 930 shares at a weighted average exercise price of $2,428.59.
During 2003, 2002 and 2001, options for 20, 185 and 48 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). In 2002 and
2001, shares of Class C Stock purchased under the Stock Purchase Plan were 260
and 60 shares, respectively. No shares were purchased in 2003. As required by
the Stock Purchase Plan, 12, 285 and 193 shares were repurchased and retired
during 2003, 2002 and 2001, respectively, from participants who terminated
employment. In connection with the Recapitalization, 658 shares of Class C
Stock issued pursuant to the management stock purchase agreements were redeemed
and the associated notes outstanding under the Stock Loan Plan totaling $887
were repaid. 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,
2003 and 2002, notes outstanding under the Stock Loan Plan were $1,299 and
$2,426, respectively. The notes are full recourse and bear interest at rates
determined based on 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 notes are classified as a reduction of
shareholders equity in the Companys consolidated balance sheet. 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
that provides 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 retention incentive compensation liability,
including interest on the amount unpaid, will become payable during 2004.
Accordingly, $1,852 is classified as a current liability and included in the
caption Accrued liabilities in the accompanying balance sheet as of December
31, 2003. The remaining liability for deferred incentive compensation relates
to the Deferred Stock Plan and totals $4,540 at December 31, 2003. This
liability is included in noncurrent liabilities at December 31, 2003 (see Note
R). Pursuant to the Deferred Stock Plan, the Companys chief executive officer
was either granted or earned an aggregate 1,308 stock units in 1999 which are
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 represents $4,929.66 for each stock unit cancelled. The amendment
resulted in a noncash charge of $1,301 to reflect the incremental increase in the liability. The deferred compensation dollar
account is fully vested and interest is credited on the amount unpaid. Benefits
are payable on the first business day of the first month following his
termination of service, or immediately upon a change in control. 41




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Werner Holding Co. (PA),
Inc, and Subsidiaries
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands, except Per Share Amounts) J. Supplemental Cash Flow Information Supplemental cash flow information is summarized as follows: For the Years Ended December 312003
    
    2002
    
    2001Cash paid during the year for:Interest
    
    $
    19,022
    
    
    $
    19,476
    
    
    $
    24,827Income taxes, net of refunds
    
    $
    7,758
    
    
    $
    17,160
    
    
    $
    5,179Supplemental disclosure of non-cash financing
activities:Capital lease obligations incurred
    
    $
    1,417
    
    
    $
    921
    
    
    $
    270Issuance of common stock in exchange for notes
receivable arising from stock loan plan
    
    $
    
    
    
    $
    585
    
    
    $
    110Cancellation of notes receivable arising from
stock loan plan in connection with repurchase
of common stock
    
    $
    (15
    )
    
    $
    (402
    )
    
    $
    (195
    )
 K. Income Taxes The components of income taxes (benefit) are as follows: For the Years Ended December 312003
    
    2002
    
    2001Current taxes:Federal
    
    $
    6,874
    
    
    $
    13,532
    
    
    $
    5,197State and local
    
    
    201
    
    
    
    1,492
    
    
    
    5147,075
    
    
    
    15,024
    
    
    
    5,711Deferred taxes:Federal
    
    
    115
    
    
    
    1,096
    
    
    
    2,804State and local
    
    
    216
    
    
    
    (69
    )
    
    
    212331
    
    
    
    1,027
    
    
    
    3,016Total
    
    $
    7,406
    
    
    $
    16,051
    
    
    $
    8,727
 42




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Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands, except Per Share Amounts) Income taxes (benefit) for financial reporting purposes varied from
income taxes (benefit) at the federal statutory rate as follows: For the Years Ended December 312003
    
    2002
    
    2001Income taxes at federal statutory rate
    
    $
    8,248
    
    
    $
    15,218
    
    
    $
    8,499State and local income taxes, net of federal benefit
    
    
    422
    
    
    
    775
    
    
    
    469Adjustments to estimated income tax accruals
    
    
    (1,169
    )
    
    
    
    
    
    
    (950
    )Change in federal capital loss carryforward
    
    
    
    
    
    
    120
    
    
    
    64Change in valuation allowance
    
    
    
    
    
    
    (120
    )
    
    
    (64
    )Other, net
    
    
    (95
    )
    
    
    58
    
    
    
    709Income taxes
    
    $
    7,406
    
    
    $
    16,051
    
    
    $
    8,727
 Significant components of the Companys deferred tax assets and
liabilities are as follows: December 312003
    
    2002Deferred tax liabilities:Depreciation
    
    $
    14,148
    
    
    $
    11,934Estimated income tax accruals
    
    
    
    
    
    
    3,443Capitalized supplies
    
    
    2,128
    
    
    
    1,964Aluminum futures contracts
    
    
    741
    
    
    
    (149
    )Other
    
    
    378
    
    
    
    374Total deferred tax liabilities
    
    
    17,395
    
    
    
    17,566Deferred tax assets:Provision for product liability and workers compensation claims
    
    
    17,717
    
    
    
    17,901Accrued vacation
    
    
    1,443
    
    
    
    1,377Accrued employee retirement benefits
    
    
    5,574
    
    
    
    7,612Deferred compensation
    
    
    8,088
    
    
    
    6,440Accrued expenses and other reserves
    
    
    4,583
    
    
    
    3,244Capital losses
    
    
    807
    
    
    
    2,619State net operating loss carryforward, net of federal benefit
    
    
    254
    
    
    
    57538,466
    
    
    
    39,768Valuation allowance
    
    
    (807
    )
    
    
    (2,619
    )Total deferred tax assets
    
    
    37,659
    
    
    
    37,149Net deferred tax assets
    
    $
    20,264
    
    
    $
    19,583
 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. As realization of deferred tax assets relating to
certain capital losses is considered uncertain, a valuation allowance
has been recorded. The Company believes that it will have taxable income
in future periods sufficient to fully recognize its remaining deferred
tax assets. The Company has state net operating loss carryforwards of $4,875
that expire during the years 2016 through 2021. 43




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Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands, except Per Share Amounts) L. Operating Leases The Company leases certain real estate and various equipment under
long-term operating leases. Total rent expense amounted to $3,651,
$3,241 and $3,690 for 2003, 2002 and 2001, respectively. Future minimum rental commitments as of December 31, 2003 for all
noncancellable operating leases are as follows: 2004
    
    $
    1,7852005
    
    
    1,4262006
    
    
    8762007
    
    
    5382008
    
    
    356Thereafter
    
    
    2,103Total
    
    $
    7,084
 M. Commitments and Contingencies The Company has contracts to provide most of its estimated aluminum
requirements with four principal suppliers. These contracts include
stipulated prices, with provisions for price adjustments based on market
prices. Three contracts are renegotiable in 2004 and one in 2008. Until March 31, 1998, the Company provided insurance for its
product liability and workers compensation claims through the
Manufacturers Indemnity and Insurance Company of America (MIICA).
MIICA was a captive insurance company which was dissolved in 1998. On
March 31, 1998, the Company transferred MIICAs outstanding product and
workers compensation liabilities for losses incurred on or prior to
March 31, 1998 to a commercial insurance provider (the MIICA Insurance
Transfer). Under the terms of the agreements governing the MIICA
Insurance Transfer, the commercial insurance provider assumed all of
MIICAs 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
$250. Letters of credit, which have a term of one year or less, total
$20,201 at February 29, 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. 44




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Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands, except Per 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 Benefits2003
    
    2002
    
    2003
    
    2002Change in Projected Benefit ObligationBenefit obligation at January 1
    
    $
    59,516
    
    
    $
    53,795
    
    
    $
    2,815
    
    
    $
    2,592Curtailment
    
    
    (51
    )
    
    
    
    
    
    
    (23
    )
    
    
    Service cost
    
    
    914
    
    
    
    750
    
    
    
    64
    
    
    
    59Interest cost
    
    
    3,866
    
    
    
    3,680
    
    
    
    181
    
    
    
    175Plan amendment
    
    
    
    
    
    
    536
    
    
    
    
    
    
    
    Actuarial loss
    
    
    2,519
    
    
    
    3,992
    
    
    
    3
    
    
    
    202Benefits paid
    
    
    (3,204
    )
    
    
    (3,237
    )
    
    
    (112
    )
    
    
    (213
    )Benefit obligation at December 31
    
    
    63,560
    
    
    
    59,516
    
    
    
    2,928
    
    
    
    2,815Change in Plan AssetsFair value of assets at January 1
    
    
    26,277
    
    
    
    32,848
    
    
    
    
    
    
    
    Actual return (loss) on plan assets
    
    
    4,859
    
    
    
    (4,253
    )
    
    
    
    
    
    
    Employer contributions
    
    
    2,003
    
    
    
    919
    
    
    
    112
    
    
    
    213Benefits paid
    
    
    (3,204
    )
    
    
    (3,237
    )
    
    
    (112
    )
    
    
    (213
    )Fair value of assets at December 31
    
    
    29,935
    
    
    
    26,277
    
    
    
    
    
    
    
    Funded
status - (underfunded)
    
    
    (33,625
    )
    
    
    (33,239
    )
    
    
    (2,928
    )
    
    
    (2,815
    )Unrecognized transition obligation
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    2Unrecognized prior service cost
    
    
    601
    
    
    
    639
    
    
    
    298
    
    
    
    317Unrecognized net actuarial loss
    
    
    20,325
    
    
    
    21,331
    
    
    
    886
    
    
    
    942Net amount recognized
    
    $
    (12,699
    )
    
    $
    (11,269
    )
    
    $
    (1,742
    )
    
    $
    (1,554
    )Amounts recognized in the Consolidated
Balance Sheets consist of:Other long-term obligations:Accrued employee retirement benefits
    
    $
    (11,705
    )
    
    $
    (11,937
    )
    
    $
    (1,630
    )
    
    $
    (1,348
    )Minimum pension liability adjustment
    
    
    (20,924
    )
    
    
    (21,969
    )
    
    
    
    
    
    
    Accrued liabilities
    
    
    (996
    )
    
    
    (1,871
    )
    
    
    (112
    )
    
    
    (206
    )Other noncurrent assets:Prepaid pension liability
    
    
    
    
    
    
    2,538
    
    
    
    
    
    
    
    Intangible pension asset
    
    
    601
    
    
    
    639
    
    
    
    
    
    
    
    Accumulated other non-owner changes
in equity
    
    
    20,325
    
    
    
    21,331
    
    
    
    
    
    
    
    Net amount recognized
    
    $
    (12,699
    )
    
    $
    (11,269
    )
    
    $
    (1,742
    )
    
    $
    (1,554
    )
 45




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Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands, except Per 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, 2003 and 2002, the accumulated benefit
obligations for all pension plans totaled $63,560 and $59,516,
respectively, which exceeded the fair value of plan assets at each
respective date. The assumed health care trend rate for 2003 is 8.6% decreasing
ratably to 5% in the year 2010 and remaining constant thereafter. If
this annual rate would increase by 1%, the accumulated postretirement
benefit obligation would increase by $2,113 and postretirement benefit
cost would increase by $18 in 2003. A 1% decrease in the health care
trend rate would decrease the accumulated postretirement benefit
obligation by $1,801 and postretirement benefit cost for 2003 would
decrease by $15. Net periodic pension and other postretirement benefit costs consist
of the following components: Pension Benefits
    
    Postretirement Benefits2003
    
    2002
    
    2001
    
    2003
    
    2002
    
    2001Components of net periodic
benefit costService cost
    
    $
    914
    
    
    $
    750
    
    
    $
    611
    
    
    $
    64
    
    
    $
    59
    
    
    $
    52Interest cost
    
    
    3,866
    
    
    
    3,680
    
    
    
    3,612
    
    
    
    181
    
    
    
    175
    
    
    
    153Expected return on plan assets
    
    
    (2,324
    )
    
    
    (2,696
    )
    
    
    (3,203
    )
    
    
    
    
    
    
    
    
    
    
    Amortization of transition obligation
    
    
    
    
    
    
    (222
    )
    
    
    (237
    )
    
    
    
    
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    38
    
    
    
    8
    
    
    
    8
    
    
    
    19
    
    
    
    19
    
    
    
    Amortization of actuarial loss
    
    
    938
    
    
    
    399
    
    
    
    
    
    
    
    35
    
    
    
    26
    
    
    
    24Net periodic benefit cost
    
    $
    3,432
    
    
    $
    1,919
    
    
    $
    791
    
    
    $
    299
    
    
    $
    279
    
    
    $
    229Weighted average assumptions used
to determine benefit obligations
at 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/AWeighted average assumptions used
to determine net periodic benefit cost
for years ended December 31Discount rate
    
    
    6.50
    %
    
    
    7.00
    %
    
    
    7.50
    %
    
    
    6.50
    %
    
    
    7.00
    %
    
    
    7.50
    %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/A
 46




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Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands, except Per Share Amounts) The Companys pension asset allocation at December 31, 2003 and
2002, and asset target allocation in effect as of December 31, 2003 are
as follows: Percentage of Plan AssetsTarget
    
    December 31Asset Category
    
    Allocation
    
    2003
    
    2002Equity securities
    
    40% to 75%
    
    
    71
    %
    
    
    71
    %Debt securities
    
    25% to 60%
    
    
    29
    %
    
    
    29
    %Real estate
    
    None
    
    
    0
    %
    
    
    0
    %Other
    
    None
    
    
    0
    %
    
    
    0
    %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. The expected return on plan assets assumption of 8.5% is based on
the actual long-term historical returns of a portfolio of equity and
fixed income securities assuming a typical target asset allocation. During 2004 the Company expects to contribute approximately $8,000
to the trust established for the non-contributory defined benefit plan
which would satisfy the minimum funding requirements of ERISA and
expects to pay benefits totaling approximately $1,000 to participants of
its unfunded supplemental retirement plans. 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 actuarially equivalent to
Medicare Part D. The Company sponsors a postretirement health care
benefit plan which provides prescription drug benefits to certain key
employees. The Company has not yet determined what changes would be
required to its current benefit programs to qualify for the federal
subsidy. The impact of the Act on the Companys results of operations,
financial position or cash flows is not expected to be significant. 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 $2,630, $2,754 and $2,774 in 2003, 2002 and
2001, respectively. 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 $387, $425 and
$441 in 2003, 2002, and 2001, respectively. 47




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##### Table of Contents



Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands, except Per Share Amounts) 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 312003
    
    2002
    
    2001Net salesClimbing Products
    
    $
    432,781
    
    
    $
    444,336
    
    
    $
    456,515Extruded Products
    
    
    68,325
    
    
    
    76,068
    
    
    
    79,170$
    501,106
    
    
    $
    520,404
    
    
    $
    535,685Operating profit (loss)Climbing Products
    
    $
    61,260
    
    
    $
    65,895
    
    
    $
    53,115Extruded Products
    
    
    2,143
    
    
    
    354
    
    
    
    (27
    )Corporate and Other
    
    
    (15,415
    )
    
    
    (1,622
    )
    
    
    (3,599
    )$
    47,988
    
    
    $
    64,627
    
    
    $
    49,489Depreciation and amortizationClimbing Products
    
    $
    13,806
    
    
    $
    13,237
    
    
    $
    12,011Extruded Products
    
    
    1,769
    
    
    
    1,687
    
    
    
    1,519Corporate and Other
    
    
    7,024
    
    
    
    3,752
    
    
    
    4,425$
    22,599
    
    
    $
    18,676
    
    
    $
    17,955Identifiable assetsClimbing Products
    
    $
    191,701
    
    
    $
    214,434
    
    
    $
    201,559Extruded Products
    
    
    37,260
    
    
    
    40,539
    
    
    
    37,926Corporate and Other
    
    
    49,653
    
    
    
    43,270
    
    
    
    45,524$
    278,614
    
    
    $
    298,243
    
    
    $
    285,009Capital expendituresClimbing Products
    
    $
    6,335
    
    
    $
    5,772
    
    
    $
    10,422Extruded Products
    
    
    1,727
    
    
    
    1,341
    
    
    
    3,039Corporate and Other
    
    
    1,861
    
    
    
    4,940
    
    
    
    5,941$
    9,923
    
    
    $
    12,053
    
    
    $
    19,402
 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 Corporate and Other for
the year 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 $4,882,
$2,796, and $3,310 for years 2003, 2002 and 2001, respectively. Operating profit (loss) for year 2003 for the Climbing Products
segment includes $2,508 of costs related to manufacturing and
distribution optimization and $3,246 of associated startup and
realignment costs. For the Extruded Products segment, operating profit
(loss) for year 2003 includes $381 of costs related to manufacturing and
distribution optimization and $236 of associated startup and realignment
costs (see Note P). Operating profit (loss) for year 2002 for the Climbing Products and
Extruded Products segments includes the impact of severance costs of
approximately $1,300 and $300, respectively, associated with the
separation of a former executive officer. 48




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Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands, except Per Share Amounts) The Companys revenues are primarily derived from customers
domiciled in the United States. As of December 31, 2003, substantially
all of the Companys long-lived assets are located in the United States. Climbing Products net sales to two significant customers
individually exceeded 10% of the Companys net sales in 2003, 2002 and
2001 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 will be the exclusive source for Werner® branded climbing
equipment in the warehouse home center channel. Under this arrangement,
Werner will supply all of Lowes climbing equipment requirements and
with Lowes, will jointly promote and market Werner® branded products.
Werner will have 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 $109,180, or 22%; $92,352, or 18%; and $83,130,
or 16% of the Companys net sales in years 2003, 2002 and 2001,
respectively. As previously reported, during October 2003 the Company was
informed by its largest customer, Home Depot, that it will no longer
purchase aluminum and fiberglass stepladders from the Company but would
instead source these products directly form China. Werner was also
included in an extension ladder supplier line review at The 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 The Home Depot. In order to provide for an
orderly transition, the Company continued supplying Werner® branded
climbing equipment to The Home Depot into the first quarter of 2004.
Sales of all products to The Home Depot accounted for $136,051, or 27%;
$161,339, or 31%; and $169,124, or 32% of the Companys net sales in
years 2003, 2002 and 2001, respectively. P. Restructuring and Other Cost Reduction Initiatives During the second quarter of 2003, the Company transferred all
ladder fabrication and assembly operations in Greenville, Pennsylvania
to other lower cost Company facilities. The Company also began an
initiative during the second quarter to focus the Greenville facility on
the Extruded Products segment of the Companys business. All production
related to climbing products at the Greenville facility will cease
during 2004. In addition, the Company announced on October 23, 2003
that it will close its manufacturing facility located in Carrollton,
Kentucky that currently manufacturers wood climbing products. Production
at the facility is expected to cease in mid-2004. The Company intends to
sell this facility. Wood ladder customers will continue to be served by
outsourcing production to a third party. In February 2004 the Company
announced that it plans to gradually phase-out production at its
Anniston, Alabama manufacturing and distribution operations. All
operations at this facility are expected to end not later than the first
quarter of 2005. The Company also intends to sell this facility. Costs incurred in connection with exit or disposal activities
during the year 2003 are included in the income statement caption
entitled, Manufacturing and distributions optimization costs and
consist of the following: Facility and other exit costs
    
    $
    1,335Employee severance and termination benefits
    
    
    932Other associated costs
    
    
    622Recorded as Manufacturing and distribution optimization costs
    
    $
    2,889
 Of the $2,899 costs incurred during 2003, only $10 remains unpaid
as of December 31, 2003. 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 Activities.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. For year 2003, these costs total $3,482 and
include $2,027 recorded in the income statement caption, Cost of sales and $1,455 recorded
in Selling and distribution expenses. 49




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Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands, except Per Share Amounts) Q. Accrued Liabilities Accrued liabilities consist of the following: December 312003
    
    2002Advertising, promotions and allowances
    
    $
    12,523
    
    
    $
    11,512Payroll
    
    
    6,318
    
    
    
    11,981Interest
    
    
    3,120
    
    
    
    2,422Deferred incentive compensation
    
    
    1,851
    
    
    
    Net option contract obligation liabilities
    
    
    
    
    
    
    401Other
    
    
    6,302
    
    
    
    7,339Total
    
    $
    30,114
    
    
    $
    33,655
 R. Other Long-term Obligations Other long-term obligations are comprised of the following: December 312003
    
    2002Accrued
employee retirement benefits
    
    $
    13,336
    
    
    $
    13,284Minimum
pension liability adjustment
    
    
    20,924
    
    
    
    21,969Deferred
incentive compensation
    
    
    4,540
    
    
    
    4,579Other
    
    
    800
    
    
    
    1,127Total
    
    $
    39,600
    
    
    $
    40,959
 S. Other Income (Expense), Net Other income (expense), net is comprised of the following: For the Years Ended December 312003
    
    2002
    
    2001Accounts receivable securitization expense
    
    $
    (695
    )
    
    $
    (607
    )
    
    $
    (1,289
    )Investment income (losses) related to MIICA investments
    
    
    
    
    
    
    187
    
    
    
    627Miscellaneous income (expense), net
    
    
    680
    
    
    
    744
    
    
    
    1,603Total
    
    $
    (15
    )
    
    $
    324
    
    
    $
    941
 In March 1998, an action was filed in the United States District
Court for the Western District of Pennsylvania entitled Elizabeth
Werner, et al v. Eric J. Werner, et al (Civil Action 98-503). On
November 10, 2003, the Company and the individual defendants entered
into a settlement agreement with the plaintiffs in this action. In
exchange for the dismissal with prejudice of the lawsuit and the full
release of claims, the plaintiffs will receive 100 shares of Class B
common stock to be issued by the Company and 100 shares of Class B
common stock to be transferred to the plaintiffs by the individual
defendants. The Company has received a waiver of certain provisions of
the Shareholder Agreement which is necessary in order to issue the
shares of stock to the plaintiffs. 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. 50




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##### Table of Contents



Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands, except Per 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 Guarantor Subsidiaries are not presented because
management has determined that they would not provide additional
information that is material to investors. Therefore, each of the
Guarantor Subsidiaries is combined in the presentation below. Further,
separate financial statements of the Issuer have not been provided as
management has determined that they would not provide information that
is material to investors, as the Issuer has no substantial operations or
assets, other than its investment in its subsidiaries. Investments in subsidiaries are accounted for on the equity method
of accounting. Earnings 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. 51




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Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands, except Per Share Amounts) Supplemental Condensed Consolidating Balance SheetsCombined
    
    Non-Parent
    
    
    
    
    
    Guarantor
    
    GuarantorCompany
    
    Issuer
    
    Subsidiaries
    
    Subsidiary
    
    Eliminations
    
    ConsolidatedDecember 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
    
    
    $
    278,614December 31, 2002AssetsCurrent assets:Accounts receivable
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    54,219
    
    
    $
    
    
    
    $
    54,219Inventories, net
    
    
    
    
    
    
    
    
    
    
    52,530
    
    
    
    
    
    
    
    
    
    
    
    52,530Other current assets
    
    
    127
    
    
    
    280
    
    
    
    45,356
    
    
    
    6
    
    
    
    
    
    
    
    45,769Total current assets
    
    
    127
    
    
    
    280
    
    
    
    97,886
    
    
    
    54,225
    
    
    
    
    
    
    
    152,518Property, plant and equipment, net
    
    
    
    
    
    
    1
    
    
    
    112,415
    
    
    
    
    
    
    
    
    
    
    
    112,416Investment in subsidiaries
    
    
    (114,826
    )
    
    
    (87,728
    )
    
    
    7,656
    
    
    
    
    
    
    
    194,898
    
    
    
    Other assets
    
    
    
    
    
    
    5
    
    
    
    33,294
    
    
    
    10
    
    
    
    
    
    
    
    33,309Total Assets
    
    $
    (114,699
    )
    
    $
    (87,442
    )
    
    $
    251,251
    
    
    $
    54,235
    
    
    $
    194,898
    
    
    $
    298,243Liabilities and Shareholders
Equity (Deficit)Current liabilities:Other current liabilities
    
    $
    (899
    )
    
    $
    32,344
    
    
    $
    46,186
    
    
    $
    (181
    )
    
    $
    
    
    
    $
    77,450Intercompany payable (receivable)
    
    
    (11,475
    )
    
    
    (233,049
    )
    
    
    197,764
    
    
    
    46,760
    
    
    
    
    
    
    
    Total current liabilities
    
    
    (12,374
    )
    
    
    (200,705
    )
    
    
    243,950
    
    
    
    46,579
    
    
    
    
    
    
    
    77,450Long-term debt
    
    
    
    
    
    
    228,089
    
    
    
    5,865
    
    
    
    
    
    
    
    
    
    
    
    233,954Other long-term liabilities
    
    
    
    
    
    
    
    
    
    
    89,164
    
    
    
    
    
    
    
    
    
    
    
    89,164Total equity (deficit)
    
    
    (102,325
    )
    
    
    (114,826
    )
    
    
    (87,728
    )
    
    
    7,656
    
    
    
    194,898
    
    
    
    (102,325
    )Total Liabilities and Equity
(Deficit)
    
    $
    (114,699
    )
    
    $
    (87,442
    )
    
    $
    251,251
    
    
    $
    54,235
    
    
    $
    194,898
    
    
    $
    298,243
 52




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##### Table of Contents



Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands, except Per Share Amounts) Supplemental Condensed Consolidating Statements of IncomeCombined
    
    Non-Parent
    
    
    
    
    
    Guarantor
    
    GuarantorCompany
    
    Issuer
    
    Subsidiaries
    
    Subsidiary
    
    Eliminations
    
    ConsolidatedFor 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
    
    
    
    
    
    
    
    
    
    
    
    11,499Manufacturing and distributionoptimization costs
    
    
    
    
    
    
    
    
    
    
    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
    )
    
    $
    27,428For the Year Ended
December 31, 2001Net sales
    
    $
    
    
    
    $
    
    
    
    $
    535,685
    
    
    $
    
    
    
    $
    
    
    
    $
    535,685Cost of sales
    
    
    
    
    
    
    
    
    
    
    379,161
    
    
    
    
    
    
    
    
    
    
    
    379,161Gross profit
    
    
    
    
    
    
    
    
    
    
    156,524
    
    
    
    
    
    
    
    
    
    
    
    156,524Selling, general and administrative
expenses
    
    
    12
    
    
    
    51
    
    
    
    107,120
    
    
    
    
    
    
    
    
    
    
    
    107,183Plant shutdown costs
    
    
    
    
    
    
    
    
    
    
    (148
    )
    
    
    
    
    
    
    
    
    
    
    (148
    )Operating (loss) profit
    
    
    (12
    )
    
    
    (51
    )
    
    
    49,552
    
    
    
    
    
    
    
    
    
    
    
    49,489Other income (expense), net
    
    
    15,029
    
    
    
    15,838
    
    
    
    (3,072
    )
    
    
    4,670
    
    
    
    (31,524
    )
    
    
    941Interest income (expense)
    
    
    1,039
    
    
    
    (1,676
    )
    
    
    (21,548
    )
    
    
    (3,963
    )
    
    
    
    
    
    
    (26,148
    )Income (loss) before income taxes
(benefit)
    
    
    16,056
    
    
    
    14,111
    
    
    
    24,932
    
    
    
    707
    
    
    
    (31,524
    )
    
    
    24,282Income taxes (benefit)
    
    
    501
    
    
    
    (737
    )
    
    
    8,716
    
    
    
    247
    
    
    
    
    
    
    
    8,727Net income
    
    $
    15,555
    
    
    $
    14,848
    
    
    $
    16,216
    
    
    $
    460
    
    
    $
    (31,524
    )
    
    $
    15,555
 53




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##### Table of Contents



Werner Holding Co. (PA), Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands, except Per Share Amounts) Supplemental Condensed Consolidating Statements of Cash FlowsCombined
    
    Non-Parent
    
    
    
    
    
    Guarantor
    
    GuarantorCompany
    
    Issuer
    
    Subsidiaries
    
    Subsidiary
    
    ConsolidatedFor 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
    
    
    $
    43,161For the Year Ended
December 31, 2001Net cash from operating activities
    
    $
    327
    
    
    $
    (2,284
    )
    
    $
    46,100
    
    
    $
    3
    
    
    $
    44,146Net cash from investing activities
    
    
    (86
    )
    
    
    4,394
    
    
    
    (20,290
    )
    
    
    
    
    
    
    (15,982
    )Net cash from financing activities
    
    
    (241
    )
    
    
    (2,128
    )
    
    
    (840
    )
    
    
    
    
    
    
    (3,209
    )Net increase (decrease) in cash
and cash equivalents
    
    
    
    
    
    
    (18
    )
    
    
    24,970
    
    
    
    3
    
    
    
    24,955Cash and cash equivalents at
beginning of year
    
    
    
    
    
    
    22
    
    
    
    5,495
    
    
    
    1
    
    
    
    5,518Cash and cash equivalents at
end of year
    
    $
    
    
    
    $
    4
    
    
    $
    30,465
    
    
    $
    4
    
    
    $
    30,473
 54




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##### 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 fourth quarter of 2003,
that have materially affected, or are reasonably likely to materially
affect, the Companys internal control over financial reporting. 
 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
    
    
    70
    
    
    Chairman of the Board of DirectorsDennis G. Heiner
    
    
    60
    
    
    President and Chief Executive Officer, DirectorSteven R. Bentson
    
    
    54
    
    
    Vice President, ManufacturingJohn J. Fiumefreddo
    
    
    49
    
    
    Senior Vice President, Product DevelopmentLarry V. Friend
    
    
    57
    
    
    Vice President, Chief Financial Officer and TreasurerEdward W. Gericke
    
    
    46
    
    
    Senior Vice President, SalesPeter R. OCoin
    
    
    56
    
    
    Senior Vice President, OperationsEric J. Werner
    
    
    41
    
    
    Vice President, Secretary and General CounselJames F. Hardymon
    
    
    69
    
    
    DirectorPeter J. Nolan
    
    
    45
    
    
    DirectorDana R. Snyder
    
    
    57
    
    
    DirectorHoward L. Solot
    
    
    66
    
    
    DirectorChristopher J. Stadler
    
    
    39
    
    
    DirectorThomas J. Sullivan
    
    
    41
    
    
    DirectorMichael S. Wong
    
    
    32
    
    
    Director
 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 and the cousin of Howard L. Solot. 55




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##### Table of Contents



Dennis G. Heinerhas served as President and Chief Executive
Officer of Holding (PA) since January 1, 2000 and Holding (DE) and
Werner since June 1999. 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 holds various directorships and officerships at subsidiaries of
Holding (PA) and 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 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. 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 also holds 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. 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. 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 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 board of Investcorp and Proudfoot Consulting Company. 56




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##### Table of Contents



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., VCA Antech Inc. and Activision, Inc. Dana R. Snyderhas served as a director of Holding (PA) since May
2002. 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. Howard L. Solothas served as director of Holding (PA) since 1974.
He has served as Executive Vice President and Chief Operating Officer of
Holding (PA) from 1995 until his retirement in March of 1999. He joined
the Company in 1959 and has held various planning, systems, engineering
and manufacturing related positions, including Plant Manager, Division
General Manager, Vice President-Engineering and Corporate Planning and
Senior Vice President-Manufacturing. Mr. Solot also holds various
director positions at subsidiaries of Holding (PA). Mr. Solot served as
a member of the board of directors of the Aluminum Extruders Council.
Mr. Solot is the cousin of Donald M. Werner. 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
Investcorps steering committee. Prior to joining Investcorp, Mr. Stadler
was a director with CS First Boston Corporation. Mr. Stadler is a
director of CSK Auto Corporation, 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. 57




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##### Table of Contents



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
Companies 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. 58




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##### 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)Dennis G. Heiner(1)
    
    
    2003
    
    
    $
    571,154
    
    
    $
    
    
    
    $
    1,685,960
    
    
    $
    
    
    
    
    President, Chief
    
    
    2002
    
    
    
    543,265
    
    
    
    715,000
    
    
    
    470,012
    
    
    
    
    
    
    
    Executive Officer
    
    
    2001
    
    
    
    525,000
    
    
    
    350,000
    
    
    
    450,506
    
    
    
    
    
    
    
    Steven R. Bentson(2)
    
    
    2003
    
    
    
    259,615
    
    
    
    
    
    
    
    351,719
    
    
    
    
    
    
    
    Vice President,
    
    
    2002
    
    
    
    243,269
    
    
    
    225,000
    
    
    
    21,791
    
    
    
    
    
    
    
    Manufacturing
    
    
    2001
    
    
    
    103,846
    
    
    
    65,000
    
    
    
    10,585
    
    
    
    
    
    
    
    200Larry V. Friend(3)
    
    
    2003
    
    
    
    228,462
    
    
    
    
    
    
    
    402,412
    
    
    
    
    
    
    
    Vice President,
    
    
    2002
    
    
    
    217,307
    
    
    
    190,000
    
    
    
    27,399
    
    
    
    
    
    
    
    Chief Financial Officer
    
    
    2001
    
    
    
    199,123
    
    
    
    80,000
    
    
    
    21,426
    
    
    
    
    
    
    
    100and TreasurerEdward W. Gericke(4)
    
    
    2003
    
    
    
    228,462
    
    
    
    
    
    
    
    441,992
    
    
    
    
    
    
    
    Senior Vice President,
    
    
    2002
    
    
    
    214,615
    
    
    
    170,000
    
    
    
    12,882
    
    
    
    
    
    
    
    Sales
    
    
    2001
    
    
    
    187,767
    
    
    
    125,000
    
    
    
    11,926
    
    
    
    
    
    
    
    140Peter R. OCoin (5)
    
    
    2003
    
    
    
    285,577
    
    
    
    
    
    
    
    454,425
    
    
    
    
    
    
    
    Senior Vice President,
    
    
    2002
    
    
    
    218,320
    
    
    
    230,000
    
    
    
    77,853
    
    
    
    
    
    
    
    450Operations since March 2002
  (1)
    
    The amount shown for Mr. Heiner under Other Annual Compensation
reflects payments of $14,087, $8,734, and $10,966 in respect of
life insurance premiums paid by the Company in 2003, 2002 and 2001,
respectively, $28,694, $27,163 and $26,250 in respect of Company
contributions made under the 401(k) Plan in 2003, 2002 and 2001,
respectively, $7,695, $8,391 and $9,187 of imputed income arising
from the personal use of a Company provided automobile in 2003,
2002 and 2001, respectively, payments of $2,732 in respect of
medical examination costs paid by the Company in 2003, retention
incentive compensation as set forth in his employment contract of
$440,551, $425,724 and $404,103 in 2003, 2002 and 2001,
respectively, $71,633 of interest earned in 2003 on the balance of
the deferred compensation dollar account, $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.(2)
    
    The amount shown for Mr. Bentson under Other Annual
Compensation reflects payments of $1,470, $1,350 and $582 in
respect of life insurance premiums paid by the Company in 2003,
2002 and 2001, respectively, $15,192, $14,159 and $5,885 in respect
of Company contributions made under the 401(k) Plan in 2003, 2002
and 2001, respectively, $6,373, $6,282 and $1,418 of imputed income
arising from the personal use of a Company provided automobile in
2003, 2002 and 2001, 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. 59




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##### Table of Contents



(3)
    
    The amount shown for Mr. Friend under Other Annual Compensation
reflects payments of $2,679, $2,525, and $2,103 in respect of life
insurance premiums paid by the Company in 2003, 2002 and 2001,
respectively, $15,477, $14,494 and $12,323 in respect of Company
contributions made under the 401(k) Plan in 2003, 2002 and 2001,
respectively, and $6,938, $10,380 and $7,000 of imputed income
arising from the personal use of a Company provided automobile in
2003, 2002 and 2001, respectively, $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.(4)
    
    The amount shown for Mr. Gericke under Other Annual
Compensation reflects payments of $729, $672 and $391 in respect of
life insurance premiums paid by the Company in 2003, 2002 and 2001,
respectively, $11,846, $11,046 and $9,861 in respect of Company
contributions made under the 401(k) Plan in 2003, 2002 and 2001,
respectively, $917, $1,164 and $1,674 of imputed income arising
from the personal use of a Company provided automobile in 2003,
2002 and 2001, respectively, $11,442 for financial planning
services in 2003, $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.(5)
    
    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,
$19,055 and $11,906 in respect of Company contributions made under
the 401(k) Plan in 2003 and 2002, respectively, $5,863 and $7,004
of imputed income arising from the personal use of a Company
provided automobile in 2003 and 2002, respectively, payments of $2,452 in respect of medical
examination costs paid by the Company in 2003, $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 a 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. 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 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. 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, 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. With respect to Dennis G. Heiner, if Mr.
Heiners employment is terminated without cause or if he terminates his
employment for good reason, the Company must (i) pay Mr. Heiner a lump
sum equal to the sum of $1,050,000 and two times the most recent annual
bonus paid (or earned but not yet paid) prior to his termination of
employment and (ii) continue his employee benefits for a period of 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. 60




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##### Table of Contents



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. No cash
bonus is payable related to year 2003. 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% or upon a 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. 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 October 2002 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). No options were issued or exercised during
2003. Aggregated Option/SAR
Exercises in Last Fiscal Yearand 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
    
    
    
    
    
    
    
    
    
    
    528
    
    
    
    
    
    
    $
    
    
    
    $
    Steven R. Bentson
    
    
    
    
    
    
    
    
    
    
    48
    
    
    
    
    
    
    
    
    
    
    
    Larry V. Friend
    
    
    
    
    
    
    
    
    
    
    77
    
    
    
    
    
    
    
    
    
    
    
    Edward W. Gericke
    
    
    
    
    
    
    
    
    
    
    101
    
    
    
    
    
    
    
    
    
    
    
    Peter R. OCoin
    
    
    
    
    
    
    
    
    
    
    109
    
    
    
    
    
    
    
    
    
    
    
    
 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
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. 61




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##### Table of Contents



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 using 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. Shares with an
aggregate fair market value of $780,000 and $147,000 were purchased in
2002 and 2001, respectively, pursuant to the Stock Loan Plan and
management stock purchase agreements. No shares were purchased in 2003. In connection with the Recapitalization, 39.6646% of shares issued
pursuant to the management stock purchase agreements were redeemed and
the associated stock loans provided under the Stock Loan Plan
aggregating $887,000 were repaid. 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) is 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 2002 and 2001, the Company recognized
$366,000 and $840,000, respectively, of compensation expense related to
Mr. Heiners Stock Units. 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 $71,633 was credited during 2003 and
is listed in the column entitled, Other Annual Compensation in the
Summary Compensation Table for Mr. Heiner. Distribution of benefits 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. 62




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##### Table of Contents



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 is a member of the Board of
Directors of Werner. 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. 63




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##### 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 possesses 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 52% of the outstanding voting stock of Holding (PA). GEI
and the GEI Investors beneficially own approximately 24% 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, 2003 (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
    %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
    
    
    387
    
    
    
    34.1
    %
 Number of
    
    PercentShares (1)
    
    of ClassClass B Voting StockHoward L. Solot(6)
    
    
    638
    
    
    
    4.8
    %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
    
    
    1,814
    
    
    
    13.7
    %
 64




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##### 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 498.37 shares of Class B Stock held in the name of
Alligator Partners, L.P., a limited partnership, the general
partners of which are Mr. Solot and Janet F. Solot, and 128.02
shares of Class B Stock held in the name of Mr. Solots spouse,
Janet F. Solot.(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. 65




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##### 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. 66




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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. 67




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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 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. 
 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,
2003 and 2002 were: For Years Ended December 312003
    
    2002(Dollars in thousands)Audit Services
    
    $
    383
    
    
    $
    377Audit-Related Services
    
    
    158
    
    
    
    30Tax Fees
    
    
    216
    
    
    
    247All Other Fees (1)
    
    
    285
    
    
    
    210Total(2)
    
    $
    1,042
    
    
    $
    864
  (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 services provided beginning January 1, 2004.(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. 68




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The
Audit fees for years ended December 31, 2003 and 2002 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, 2003 and
2002 include $45,000 and $30,000, 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, 2003 and 2002 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, Financial Statement Schedules and Reports on Form 8-K. (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. (b) Reports on Form 8-K: The Company filed a Current Report on Form 8-K dated October 17,
2003 reporting the current status of the Companys business
relationship with its largest customer, The Home Depot. The Company filed a Current Report on Form 8-K dated December 19,
2003 announcing that Werner has entered into a long term strategic
alliance with Lowes Companies, Inc. The Company also announced that
it will discontinue supplying Werner® brand climbing equipment to
The Home Depot as soon as commercially possible within the first
quarter of 2004 to achieve an orderly transition of the Companys
business relationship with The Home Depot. The Company filed a Current Report on Form 8-K dated January 8,
2004 to provide to the public a copy of the presentation that was
discussed on a conference call for holders of its outstanding 10%
Senior Subordinated Notes due 2007 that was conducted on January 8,
2004. (c) Exhibits: 69




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ExhibitNumber
    
    Description of Exhibits2
    
    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.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).3.14
    
    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).
 70




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ExhibitNumber
    
    Description of Exhibits3.15
    
    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).
 71




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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.10.16
    
    Second Amendment to the Retirement Plan for Employees of
Werner Holding Co. (DE), Inc.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.10.21
    
    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).
 72




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ExhibitNumber
    
    Description of Exhibits10.23
    
    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.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).10.34
    
    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).
 73




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibits10.37
    
    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.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).10.47
    
    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.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).
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##### Table of Contents



ExhibitNumber
    
    Description of Exhibits10.51
    
    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.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.
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##### 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/ DENNIS G. HEINER
    
    By:
    
    /s/ DENNIS G. HEINERDennis G. Heiner
    
    Dennis G. HeinerPresident
    
    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 March
30, 2004. /s/ DONALD M. WERNER
Donald M. Werner
    
    Chairman of the Board of Directors of
Co-registrants/s/ DENNIS G. HEINER
Dennis G. Heiner
    
    President and Chief Executive Officer of
Holding (PA) and Holding (DE) (Principal
Executive Officer of Co-registrants), Director/s/ LARRY V. FRIEND
Larry V. Friend
    
    Vice President, Chief Financial Officer and
Treasurer (Principal Financial Officer and
Principal Accounting Officer of Co-registrants)/s/ JAMES F. HARDYMON
James F. Hardymon
    
    Director/s/ PETER J. NOLAN
Peter J. Nolan
    
    Director/s/ DANA R. SNYDER
Dana R. Snyder
    
    Director/s/ HOWARD L. SOLOT
Howard L. Solot
    
    Director/s/ CHRISTOPHER J. STADLER
Christopher J. Stadler
    
    Director/s/ THOMAS J. SULLIVAN
Thomas J. Sullivan
    
    Director/s/ MICHAEL S. WONG
Michael S. Wong
    
    Director
 76