UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 September 30, 1998
Commission file number: 1-3940
NATIONAL-STANDARD COMPANY
(Exact Name of Registrant as Specified in Its Charter)
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Indiana 38-1493458
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(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
1618 Terminal Road, Niles, Michigan 49120
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (616) 683-8100
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
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Common stock, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No___.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the common shares held by non-affiliates of the
registrant on November 30, 1998, based on the closing price of the shares on the
New York Stock Exchange and assuming that 56 percent of the shares were held by
non-affiliates, was approximately $10,717,419.
As of November 30, 1998, 5,468,071 shares of common stock, par value of $ .01,
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the annual Proxy Statement relating to the Annual Meeting of
Shareholders scheduled for January 28, 1999 are incorporated by reference into
Part III of this report.
The sequential page in this report where the Exhibit Index appears is page 38.
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PART I
ITEM 1. BUSINESS
National-Standard Company, an Indiana corporation, and its subsidiaries (the
"Company") currently operate in only the wire and related products segment.
In Fiscal Year 1998, the Company announced plans to restructure its wire
manufacturing capacity by closing the manufacturing facilities in Guelph,
Ontario in 1999 and relocating that facility's bead and weld wire capacity to
existing facilities in Stillwater, Oklahoma and Niles, Michigan. The Company
also announced its intent to sell the wire manufacturing facility in
Kidderminster, United Kingdom.
In Fiscal Year 1998, there were no material changes to the Company's business.
During the prior three years, the Company disposed of various business units and
product lines as described in the following report.
WIRE AND RELATED PRODUCTS SEGMENT
The Company produces tire bead wire, welding wire, wire cloth, hose reinforcing
wire, stainless steel spring and specialty wire, plated wire, and nonwoven metal
fiber materials. These products are generally sold directly to other
manufacturers by Company salesmen. In addition, certain classes of wire are sold
through various types of distributors.
The Company also produces filters and inflator housings for automotive air bag
inflators, which are sold by Company salesmen to automotive air bag
manufacturers.
Wire and related products are supplied to major markets consisting of air bag
filtration, tire, spring, automo tive component, electric component, hydraulic
hose, telecommunications, and fabricated metal products.
The Company's wire products are generally highly competitive with those of a
number of other producers located both in the U.S. and in foreign countries. In
some cases, the Company's customers also manufacture products for their own use
similar to those produced by the Company. The Company remains the leading U.S.
producer of tire bead wire for the tire industry. Bekaert Corporation, Delta
Wire Corporation, Amercord, Inc., and Insteel Industries, Inc. are the Company's
major bead wire competitors. The Company is the major supplier of air bag
filtration materials in the U.S. While the number of manufacturers in the
Company's line of filtration materials is limited, the Company still regards the
field as highly competitive. Competitive factors for all of the Company's
products are generally considered to be price, service and product quality.
Although wire and related products are generally basic materials or fabricated
products which do not require assembly, production time is relatively short and
backlog is not significant. There was a backlog of approxi mately $33,450,000
and $35,190,000 at September 30, 1998 and 1997, respectively.
During 1998, the Company began the manufacture of air bag inflator housings in a
leased facility in Peterlee, United Kingdom. The Company invested approximately
$400,000 for equipment in the new facility.
During 1998, the Company recorded a charge of $6,220,000 to consolidate its
North America wire manufacturing by closing the Guelph, Ontario facility and
relocating certain equipment to the Stillwater, Oklahoma and Niles, Michigan
facilities. The Guelph facility employed 93 people during 1998. The charge
includes 1999 cash outlays of approximately $3,400,000 primarily for employee
related, environmental and lease termination costs. The Company will also incur
approximately $1,000,000 of costs to relocate certain equipment from Guelph to
Stillwater and Niles during 1999. These costs are not included in the 1998
charge in accordance with current generally accepted accounting principles. The
Company further provided
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$1,480,000 to reduce support staff in North America by 40 employees and exit
certain non-air bag related wire cloth products.
During 1997, the Company recorded a charge of $9,850,000 for restructuring the
Company's operations in Kidderminster. The restructuring charge included
severance costs and estimated pension related costs for 124 employees, reducing
the Kidderminster workforce from 345 to 221. The reductions saved approxi mately
$3,000,000 in annual salaries. The restructuring also provided for the
discontinuing of Kidderminster's manufacture and sales of COPPERPLY wire and
certain non value-added weld wire product lines in the United Kingdom. Annual
Kidderminster sales were reduced from approximately $35,500,000 to approximately
$27,500,000 as a result of these actions. In addition to employee-related costs,
the restructuring provision includes write-offs of inventory and fixed assets
related to the discontinued products and provision for ongoing lease commitments
for associated equipment and facilities. Cash outlays during 1997 included in
the $9,850,000 restructuring charge were $1,335,000. Cash outlays during 1998
were approximately $1,825,000. Cash outlays expected during 1999 are
approximately $925,000.
While the 1997 restructuring achieved the anticipated reduction in manufacturing
costs, declining selling prices more than offset the savings, and net operating
results in Kidderminster have not improved. The Company has announced its intent
to sell the Kidderminster wire manufacturing operation. Proceeds from the sale
will be used to reduce debt.
During 1997, the Company also closed the wire cloth weaving facility in
Knoxville, Tennessee, and relocated the capacity in the Company's existing
facilities in Corbin, Kentucky and Clearfield, Utah. The Knoxville facility had
been opened in 1993.
During 1996, the Company acquired the passenger side air bag filter
manufacturing capacity of Olin Air Bag Products, Moses Lake, Washington. The
Company began production in October 1996 in a leased facility in Moses Lake,
Washington. The Company invested approximately $450,000 for the additional
capacity, funded through available lines of credit.
During 1995, the Company expanded its joint venture with Toyota Tsusho America,
Inc. to a second manufacturing site for the production of wire cloth for air bag
inflator filters. The expansion was funded from the venture's operating cash
flow and from external financing available to the venture. During 1997, the
venture consolidated its two facilities into one facility. Future capacity
requirements will be dependent on market conditions.
During 1988, the Company closed its strip steel and flat wire facility located
in Clifton, New Jersey. Due to environmental regulations in the State of New
Jersey, title to industrial real estate cannot be passed without the Department
of Environmental Protection's written approval. This project has involved
demolition of the buildings and continuing remediation of environmental problems
from production wastes through use of an on-site landfill and off-site disposal.
The cash outlays related to the property have been primarily environmental and
have been reported as other assets up to the estimated realizable value of the
property, with the balance charged to operations. Cash outlays in the past five
years are shown in the following table:
1998 1997 1996 1995 1994
Cash Outlays $399,000 $222,000 $254,000 $304,000 $285,000
The Company expects to spend $340,000 in 1999 on the project. Future cash
outlays of approximately $3,000,000 will be needed prior to sale of the
property. The Company intends to spend this amount in conjunction with or just
prior to the sale.
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ENVIRONMENTAL
In addition to amounts spent in connection with the Clifton, New Jersey
facility, the Company had cash outlays of approximately $3,246,000, $2,211,000
and $2,493,000 during the 1998, 1997, and 1996 fiscal years on pollution control
equipment and related operational environmental projects and procedures at the
Company's ten plants. The largest annual cash outlays during 1998, 1997, and
1996 were $2,216,000, $2,083,000, and $2,059,000, respectively, primarily for
environmental operational procedures, cleanup of existing operations, and
improvements of environmental systems in all three years. Compliance with
federal, state, and local environmental regulations which have been enacted or
adopted is estimated to require operational cash outlays of approximately
$3,000,000 during 1999. During 1998, 1997 and 1996, the Company provided
$1,465,000, $2,300,000 and $2,595,000, respectively, for the estimated cost of
compliance with environmental regulations and continuing modifications in
operating requirements. The majority of the 1996 environmental cost was related
to potentially responsible party provisions and normal environmental operating
expenses. The 1997 provision related to equipment and plant stabilization
activities associated with the Kidderminster restructuring and normal
environmental operating expenses in both the United Kingdom and in North
America. The 1998 environmental cost was primarily related to normal
environmental operating expenses in both the United Kingdom and in North
America. In addition to the amounts charged to earnings, $636,000, $905,000 and
$440,000 of costs were capitalized in the respective years. The Company's actual
environmental related cash outlays for 1998, 1997 and 1996 were $3,645,000,
$2,433,000 and $2,747,000, respectively, of which $399,000, $222,000 and
$254,000 were spent on the Clifton, New Jersey property. The Company does not
expect that existing regulations will have any material effect on its net
earnings or competitive position.
The Company was previously designated a potentially responsible party ("PRP") by
federal and state environmental protection agencies for eight actual or
potential Superfund or Resource Conservation and Recovery Act ("RCRA") Sites
(the "Sites"), including Clifton, New Jersey. In connection with its designation
as a PRP, the Company has completed or is undertaking all investigative work
required by the appropriate governmental agencies or by relevant statutes,
regulations, or local ordinances. The Company has resolved its liability for two
of the Superfund Sites by reaching settlements with the Environmental Protection
Agency ("EPA"). The Company is in the final stages of negotiating a de minimis
settlement for a third Superfund Site and Company records indicate only de
minimis or de micromis involvement for a fourth Superfund Site. The Company has
reviewed its involvement and potential exposure for all the remaining Sites,
and, based upon all information currently available, has previously accrued
$1,650,000 in prior years (excluding Clifton, New Jersey) for its share of the
estimated investigation and remediation costs for the Sites. Additional reserves
were not needed in 1998. Additionally, the Company has undertaken environmental
investigation and cleanup projects at three of its plants under RCRA. These
projects are subject to monitoring by appropriate state environmental protection
agencies. Significant portions of two of the RCRA projects have been completed
and state agencies are in the process of reviewing reports submitted by the
Company. The Company has previously accrued $2,220,000 in prior years and
$310,000 in 1998 for these activities. The Company does not believe that future
costs for either the Sites or the RCRA cleanups will have a materially adverse
effect on the consolidated financial condition of the Company or its
consolidated results of operations.
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GENERAL
The Company's major raw material -- steel -- is purchased in several forms from
domestic and foreign steel companies. Raw materials were readily available
during the year and no shortages are anticipated for the 1999 fiscal year. The
Company also purchases a variety of component parts for use in some of the
products it manufactures. The Company believes that its sources of supply of
these materials are adequate for its needs. The Company's major sources of
energy needed in its operations are natural gas, fuel oil and electrical power.
In certain locations where the Company believes its regular source of energy may
be interrupted, it has made plans for alternative fuels.
The Company owns or is licensed under a number of patents covering various
products and processes. Although these have been of value in the growth of the
business and will continue to be of considerable value in its future growth, the
Company's success or growth has not generally been dependent upon any one patent
or group of related patents. The Company believes that the successful
manufacture and sale of its products generally depend more upon its
technological know-how and manufacturing skills. Seasonal activity has no
material effect on the Company's level of business or working capital
requirements. The Company's largest customers include the major producers of
automotive air bag restraint systems, i.e., TRW and Autoliv, Inc., and some of
the major tire and rubber companies, i.e., Bridgestone/Firestone, Inc., the
Cooper Tire and Rubber Company, the Dunlop Tire and Rubber Corporation (owned by
Sumitomo), Gates Rubber Company, General Tire (owned by Continental), the
Goodyear Tire and Rubber Company, and the Uniroyal-Goodrich Company (owned by
Michelin). TRW accounted for approximately 14%, Goodyear accounted for
approximately 10%, Autoliv accounted for approximately 8%, and the ten largest
customers, in the aggregate, accounted for approximately 56% of consolidated
sales in the last fiscal year. Generally, business with these customers is on
the basis of purchase orders without firm commitments to purchase specific
quantities. No other material part of the Company's business is dependent upon
any single customer or very few customers, the loss of which would have a
material adverse effect upon the Company.
During the 1998 fiscal year, the Company spent approximately $1,567,000 on
research and development of new products and process alternatives compared to
$1,463,000 and $968,000 for the years ended Septem ber 30, 1997 and 1996,
respectively. The 51% increase in research and development cost in 1997 over
1996 was due to additional staff to enhance the Company's capability for product
and process development, process control, and application engineering. These
cash outlays were for Company sponsored activities.
Only three products, high carbon steel wire, low carbon steel wire, and air bag
inflator filters, each account for 10% or more of total sales. High carbon and
low carbon steel wire were, respectively, 33% and 26% of total sales in 1998;
33% and 25% of total sales in 1997; and 35% and 22% of total sales in 1996. Air
bag inflator filters accounted for 16% of total sales in 1998; 16% of total
sales in 1997; and 13% of total sales in 1996.
At September 30, 1998, the Company employed 1,284 persons in its operations
throughout the world.
INTERNATIONAL OPERATIONS
The Company has foreign subsidiaries in Canada and the United Kingdom which are
similar to certain of the Company's domestic operations and with generally the
same markets. The financial information about foreign and domestic operations
for the three years ended September 30, 1998 is included in Note 14 of Notes to
Consolidated Financial Statements in Item 8, "Financial Statements and
Supplementary Data" section of this Report (incorporated herein by this
reference). Foreign operations are subject to the usual risks of doing business
abroad, such as possible devaluation of currency, restrictions on the transfer
of funds and, in certain parts of the world, political instability.
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The Company has announced its intent to close the Canadian subsidiary and to
sell the wire manufacturing operations in Kidderminster.
Accounting principles dictate that results of operations for the Company's
international operations are translated into U.S. dollars in accordance with the
Statement of Financial Accounting Standards No. 52. A translation adjustment is
recorded as a separate component of shareholders' equity, "Cumulative
Translation Adjustment." The Cumulative Translation Adjustment account, at the
end of 1998, reflects a decrease of approximately $914,000. As a result of the
1999 closure of the Canadian facility, the cumulative translation adjustment
account relating to the Canadian net assets will become a realized exchange
loss. The $1,200,000 amount has been reflected as an income statement item in
1998 as part of the restructuring provision, with an offsetting increase to the
shareholder equity account. The rest of the change is due primarily to the U.S.
dollar's value against the British pound and Canadian dollar. The appreciation
of the British pound versus most major currencies had a significant adverse
effect upon Kidderminster's competitive position in its various markets, both
within the United Kingdom and in Europe.
ITEM 2. PROPERTIES
The Company conducts its domestic operations from facilities having an aggregate
floor space of approxi mately 1,176,000 square feet. The domestic total includes
principal facilities in Niles, Michigan (456,000 square feet); Stillwater,
Oklahoma (314,000 square feet); Corbin, Kentucky (225,000 square feet);
Mishawaka, Indiana (78,000 square feet); Clearfield, Utah (53,000 square feet);
Mesa, Arizona (36,000 square feet), and Moses Lake, Washington (14,000 square
feet). The Clearfield facility was leased in 1993 and a renewal option was
exercised in 1995 extending the terms until 1999 with additional renewal
options. The Mesa facility was leased in 1994 for a five-year term with renewal
options. The Moses Lake facility was leased in 1996.
The Company also operates from two principal facilities in the United Kingdom:
Kidderminster (260,000 square feet), Peterlee (6,500 square feet), and one
facility in Canada (107,000 square feet). The Company intends to sell the real
estate in Kidderminster with the sale of the operation.
The majority of the Company's plants are of modern construction and the
remaining older plants are well maintained and considered adequate for their
current use. Manufacturing of wire and wire related products is conducted at all
Company facilities. The Company's plants generally are operated on a multishift
basis and, while particular plants may be operating at capacity levels, overall
the Company's facilities are adequate to provide for a significant increase in
unit volume due to the Company's ability to redistribute production of similar
products between Company facilities with minimal cost or inconvenience.
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders since the last annual
meeting held January 22, 1998.
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ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT (Furnished in accordance
with Item 401(b) of Regulation S-K, pursuant to General
Instruction G(3) of Form 10-K)
The following table sets forth certain data concerning the Executive Officers of
the Registrant, all of whom are elected annually by the Board of Directors. Some
of the Officers of the Registrant also serve as Directors or Officers of the
subsidiaries.
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Date Assumed
Name Age Present Position Present Position
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Michael B. Savitske 57 President and Chief Executive Officer 1989
William D. Grafer 53 Vice President, Finance 1987
David L. Lawrence 51 Treasurer, Assistant Secretary 1987
Timothy C. Wright 57 General Counsel and Secretary 1996
All of the above-named officers of the Registrant have been employees of the
Company for more than five years except Mr. Wright.
Mr. Wright joined the Company in 1996. Mr. Wright operated his own practice,
Wright Associates, from 1993 to 1996 and also served as General Counsel for
CAPCO Automotive Products Corporation beginning in 1995. Prior to 1993, Mr.
Wright held senior in-house counsel positions with Uniroyal Technology
Corporation from 1989 to 1992 and Clark Equipment Company from 1979 to 1989.
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
Common stock market prices, information on stock exchanges and number of
shareholders is included in Note 15 of Notes to Consolidated Financial
Statements in Item 8, "Financial Statements and Supplementary Data" section of
this Report (incorporated herein by this reference). No dividends were paid
during fiscal 1998 or 1997, nor during the portion of fiscal 1999 prior to
filing of this Report. Under current loan agreements, the Company is restricted
from paying any dividends. Future dividends will be based on the Company's
financial performance.
ITEM 6. SELECTED FINANCIAL DATA (In thousands, except per share and employee
data)
The following selected financial data are derived from the consolidated
financial statements of the Company. The data should be read in conjunction with
the consolidated financial statements, related notes and other financial
information included herein. Specifically, discussions regarding accounting
changes, divestitures, and other related information that affects the
comparability of this data can be found in Items 7, 8, and 14 herein.
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<TABLE>
<CAPTION>
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1998 1997 1996 1995 1994
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<S> <C> <C> <C> <C> <C>
FOR THE YEAR:
Net sales $ 225,495 $ 247,763 $ 248,554 $ 247,420 $ 217,916
Operating profit (loss) $ (3,579) $ (4,697) $ 8,871 $ 12,924 $ (1,110)
Net earnings (loss) $ (6,699) $ (8,990) $ 8,852 $ 7,350 $ (4,625)
AT YEAR-END:
Shareholders' equity $ (32,451) $ (23,163) $ (13,762) $ (21,475) $ (28,266)
Net current assets $ (27,798) $ (13,814) $ (7,492) $ 10,471 $ 6,263
Total assets $ 115,078 $ 113,185 $ 114,688 $ 116,099 $ 108,685
Long-term debt $ 14,029 $ 12,219 $ 11,203 $ 34,152 $ 34,328
Ratio of current assets to
current liabilities .6 : 1.0 .8 : 1.0 .9 : 1.0 1.2 : 1.0 1.1 : 1.0
Common shares outstanding 5,468 5,224 5,323 5,385 5,366
Average common shares outstand-
ing used in per share calculations 5,263 5,266 5,358 5,373 5,365
Number of employees 1,284 1,406 1,495 1,403 1,282
PER COMMON SHARE:
Net earnings (loss) $ (1.27) $ (1.71) $ 1.65 $ 1.37 $ ( .86)
Dividends declared $ .00 $ .00 $ .00 $ .00 $ .00
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Dollars in thousands except share data)
RESULTS OF OPERATIONS
Net sales for 1998 of $225,495 were 9% below 1997. Weld wire sales increased 5%
over 1997, while bead wire sales declined 9%. Sales in Kidderminster declined
22% from 1997 to 1998, primarily due to the 1997 Kidderminster restructuring.
Air bag inflator materials declined 16% due to the combined effects of reduced
sales of certain low margin wire cloth products and lower selling prices. Net
sales for 1997 of $247,763 were .3% below 1996. Weld wire sales increased 13%
over 1996, while air bag inflator filtration products decreased 5% due primarily
to lower selling prices. Sales from the Kidderminster facility declined 12% in
1997 due primarily to the product line and manufacturing restructuring
implemented during the second half of that year. Price declines in bead wire,
air bag filtration material, and for most Kidderminster products averaged 3% in
1998 and 4% in 1997, totaling $7,000 in 1998 and $10,900 in 1997. Net sales for
1996 of $248,554 were 5% above 1995, as sales of air bag inflator filtration
products increased 3% over 1995. Weld wire sales in 1996 decreased 3% due
primarily to a slowdown in the automotive industry.
Over the past several years, the Company's strategy has been to focus on a core
wire business and to develop the air bag filtration materials business. This
strategy has led to the divestiture of the non-core specialty wire business and
all of its non-wire related businesses. During 1998, the Company recorded a
charge of $6,220 to consolidate its North America wire manufacturing by closing
the Guelph, Ontario facility and relocating certain equipment to the Stillwater,
Oklahoma and Niles, Michigan facilities. The Guelph facility employed 93 people
during 1998. The charge includes 1999 cash outlays of $3,400 primarily for
employee termination costs. The Company will also incur $1,000 of costs to
relocate certain equipment from Guelph to Stillwater and Niles during 1999.
These costs are not included in the 1998 charge in accordance with current
generally accepted accounting principles. The Company further provided $1,480 to
reduce support staff in North America by 40 employees and exit certain non-air
bag related wire cloth product lines. During 1997, the Company recorded a charge
of $9,850 for restructuring the Company's operations in Kidderminster. The
restructuring charge included severance costs and estimated pension related
costs for 124 employees, reducing the Kidderminster workforce from 345 to 221.
The reductions saved approximately $3,000 in
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annual salaries. The restructuring also provided for the discontinuing of
Kidderminster's manufacture and sales of COPPERPLY wire and certain non value-
added weld wire product lines in the United Kingdom. Annual Kidderminster sales
were reduced from approximately $35,500 to approximately $27,500 as a result of
these actions. In addition to employee-related costs, the restructuring
provision included write-offs of inventory and fixed assets related to the
discontinued products and provision for ongoing lease commitments for associated
equipment and facilities. Cash outlays during 1997 included in the $9,850
restructuring charge were $1,335. Cash outlays during 1998 were approximately
$1,825, while outlays expected during 1999 are approximately $925. While the
restructuring achieved the anticipated reduction in manufacturing costs,
declining selling prices more than offset the savings, and net operating results
in Kidderminster have not improved. The Company has announced its intent to sell
the Kidderminster wire manufacturing operation. Proceeds from the sale will be
used to reduce debt.
Proceeds from the divestitures have been utilized to fund investment in the
remaining business and to reduce debt. Since September 30, 1990, debt has been
reduced $20,987 while sales from remaining operations have increased 22%. During
this period, air bag sales have increased 340% and weld wire sales have grown
92%. The effect of the divestiture activities on the Company's sales and gross
margins is shown in the following table:
<TABLE>
<CAPTION>
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1998 1997 1996 1995 1994
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<S> <C> <C> <C> <C> <C>
NET SALES
Remaining operations $ 225,495 $ 241,059 $ 241,204 $ 239,712 $ 210,455
Divested operations - 6,704 7,350 7,708 7,461
------------ ----------- ----------- ----------- -----------
Total $ 225,495 $ 247,763 $ 248,554 $ 247,420 $ 217,916
=========== =========== =========== =========== ===========
GROSS PROFIT
Remaining operations $ 28,518 $ 27,767 $ 32,516 $ 37,248 $ 25,103
Divested operations - 117 (395) 80 (1,247)
------------ ----------- ----------- ----------- -----------
Total $ 28,518 $ 27,884 $ 32,121 $ 37,328 $ 23,856
=========== =========== =========== =========== ===========
GROSS PROFIT %
Remaining operations 12.6% 11.5% 13.5% 15.5% 11.9%
============ =========== ============ =========== ===========
Divested operations - 1.7% (5.4%) 1.0% (16.7%)
------------ =========== ============ =========== ============
Total 12.6% 11.3% 12.9% 15.1% 10.9%
============ =========== ============ =========== ============
</TABLE>
Gross profit margins change due to several factors. For the Company, the most
significant factor is the level of sales and production. As production
increases, a relatively lower level of fixed costs is associated with each unit,
and the gross profit percentage increases. Similarly, as volume falls, fewer
units are available to cover the fixed costs of manufacturing and the profit
percentage decreases. In addition to volume, changes in product mix, selling
prices, and costs also affect the gross margins. During 1998, gross profit
margins improved to 12.6% compared to 11.3% in 1997. The improvement is due
primarily to reduced sales of low margin wire cloth air bag filtration
materials.
During 1998, sales from international operations decreased 14% due primarily to
the restructuring of the Kidderminster operation in 1997. Reduced wire sales
were partially offset by sales of air bag inflator housings from the Peterlee,
United Kingdom facility opened in 1998. The Peterlee facility will be retained
as a Company facility following the sale of the Kidderminster wire operation.
During 1997, sales from international operations decreased 12% due primarily to
the restructuring of the Kidderminster operation. During 1996, sales increased
1% due to increased sales of weld wire in Kidderminster.
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In recent years, the Company has not been able to raise prices in line with
inflation due to the effects of worldwide overcapacity in the Company's major
product lines and competitive pressure in the Company's automotive markets.
Since 1993, inflation as measured by the Consumer Price Index has risen 13%,
while average selling prices have declined 4%. Had selling prices increased 13%,
sales in 1998 would have been approximately $264,000.
During 1998, 1997 and 1996, the Company provided $1,465, $2,300 and $2,595,
respectively, for the estimated cost of compliance with environmental
regulations and continuing modifications in operating requirements. The majority
of the 1998 environmental cost relates primarily to normal environmental
operating expenses in both the United Kingdom and North America. The 1997
provision related to equipment and plant stabilization activities associated
with the Kidderminster restructuring and normal environmental operating expenses
in both the United Kingdom and in North America. The majority of the 1996
environmental cost related to potentially responsible party provisions and
normal environmental operating expenses. In addition to the amounts charged to
earnings, $636, $905 and $440 of costs were capitalized in the respective years.
The Company's actual environmental related cash outlays for 1998, 1997 and 1996
were $3,645, $2,433 and $2,747, respectively, of which $399, $222 and $254 were
spent on the Clifton, New Jersey property.
The Company was previously designated a potentially responsible party ("PRP") by
federal and state environmental protection agencies for eight actual or
potential Superfund or Resource Conservation and Recovery Act ("RCRA") Sites
(the "Sites"), including Clifton, New Jersey. In connection with its designation
as a PRP, the Company has completed or is undertaking all investigative work
required by the appropriate governmental agencies or by relevant statutes,
regulations, or local ordinances. The Company has resolved its liability for two
of the Superfund Sites by reaching settlements with the Environmental Protection
Agency ("EPA"). The Company is in the final stages of negotiating a de minimis
settlement for a third Superfund Site and Company records indicate only de
minimis or de micromis involvement for a fourth Superfund Site. The Company has
reviewed its involvement and potential exposure for all the remaining Sites,
and, based upon all information currently available, has previously accrued
$1,650 in prior years (excluding Clifton, New Jersey) for its share of the
estimated investigation and remediation costs for the Sites. Additional reserves
were not needed in 1998. Additionally, the Company has undertaken environmental
investigation and cleanup projects at three of its plants under RCRA. These
projects are subject to monitoring by appropriate state environmental protection
agencies. Significant portions of two of the RCRA projects have been completed
and state agencies are in the process of reviewing reports submitted by the
Company. The Company has previously accrued $2,220 in prior years and $310 in
1998 for these activities. The Company does not believe that future costs for
either the Sites or the RCRA cleanups will have a materially adverse effect on
the consolidated financial condition of the Company or its consolidated results
of operations.
The Company has reviewed its current environmental projects which are expected
to be completed in 1999 and all environmental regulations and acts to ensure
continuing compliance. In 1999, the Company expects to spend $340 on the
Clifton, New Jersey project. Future cash outlays of approximately $3,000 will be
needed prior to sale of the property. These amounts have already been accrued
for financial statement purposes. Additionally, the Company expects to spend
$3,000 on environmentally related capital and operational projects, of which
$1,000 will be charged against 1999 earnings.
In 1989, in response to expected market changes, the Company adopted a strategy
that included, among other things, the decision to exit non-strategic and/or
non-profitable businesses and to continually adapt general and administrative
cost levels to the changing business.
10
<PAGE>
In 1998, 1997, 1996, 1995, and 1994, $8,067, $10,072, $254, $2,842, and $6,955,
respectively, the net cost of restructuring the Company in those years includes
the write-off of nonproductive facilities and obsolete inventory of $2,856,
$2,092, $0, $120, and $4,219, respectively; severance costs of the salaried and
hourly workforce; and a cumulative translation adjustment of $1,200 in 1998. All
of these are included in operating costs. The 1995 and 1994 net cost of
restructuring also included $1,400 and $1,700, respectively, for the Columbiana
plant environmental stabilization. The 1996 net cost of restructuring of $254
was associated with costs related to the Clifton, New Jersey property. The 1997
net cost of restructuring of $10,072 includes $9,850 related to the
Kidderminster restructuring, and $222 was associated with costs related to the
Clifton, New Jersey property.
The 1998 restructuring cost of $8,067 includes $367 associated with the Clifton,
New Jersey property. The Company expects to incur approximately $340 of cash
outflows related to the Clifton property in 1999.
The following summary shows the changing level of operating expense and
identifies operating expense directly attributable to divested operations and
amounts attributable to restructuring activities.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING EXPENSE:
Remaining operations $ 24,030 $ 22,270 $ 22,601 $ 21,245 $ 17,676
Divested operations - 239 395 317 335
Restructuring costs 8,067 10,072 254 2,842 6,955
----------- ----------- ----------- ----------- -----------
Total $ 32,097 $ 32,581 $ 23,250 $ 24,404 $ 24,966
=========== =========== =========== =========== ===========
AS A PERCENT OF SALES
- ---------------------
Remaining operations 10.7% 9.2% 9.3% 8.7% 8.3%
======== ======== ======== ======== =======
Divested operations -% 3.6% 5.4% 4.1% 4.5%
======== ======== ======== ======== =======
Total 14.2% 13.2% 9.4% 9.9% 11.5%
======== ======== ======== ======== =======
</TABLE>
The net effect of all the above elements is seen in the Company's operating
profit (loss).
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING PROFIT (LOSS)
Remaining operations $ 4,488 $ 5,497 $ 9,915 $ 16,003 $ 7,427
Divested operations - (122) (790) (237) (1,582)
Restructuring costs (8,067) (10,072) (254) (2,842) (6,955)
------------ ----------- ----------- ----------- -----------
Total $ (3,579) $ (4,697) $ 8,871 $ 12,924 $ (1,110)
============ ============ =========== =========== ============
</TABLE>
Operating profit by Geographic Area is presented in Note 14 of Notes to
Consolidated Financial Statements in Item 8.
11
<PAGE>
Interest expense decreased in 1998 due primarily to lower interest rates. In
1997 and 1996 interest expense decreased due to lower interest rates and lower
average borrowings.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest expense $ 3,751 $ 4,194 $ 4,838 $ 5,631 $ 3,885
Capitalized interest $ - $ - $ - $ - $ 168
Average borrowings $ 38,308 $ 36,080 $ 37,333 $ 41,567 $ 36,572
Average interest rate 9.8% 11.6% 12.5% 13.2% 11.1%
</TABLE>
Other income in 1998 was primarily realized foreign currency exchange gains and
gain on sale of redundant equipment in the United Kingdom.
Other income in 1996 is primarily from the sale of shares of Allmerica Financial
Corporation, which the Company received as a result of the demutualization of
the State Mutual Life Assurance Company of America in which the Company had
participated since 1946. In 1995 and 1994, other income is primarily the
Company's share of profits in the joint venture.
In 1998 and 1997, income taxes as a percentage of pre-tax income vary from the
domestic statutory rate primarily due to state taxes and the Company's
utilization of net operating loss carryforwards and a net decrease in the
valuation allowance of $174 and $247, respectively. In 1996, income taxes as a
percentage of pre-tax income vary from the domestic statutory rate primarily due
to the Company's utilization of net operating loss carryforwards.
FINANCIAL CONDITION
In 1998, working capital decreased $13,984 due primarily to the restructuring,
an increase in debt, and a decrease in inventories. In 1997, working capital
decreased $6,322 due primarily to the U.K. restructuring. Working capital
decreased $17,963 in 1996 due to the Emerging Issues Task Force (EITF) of the
Financial Accounting Standards Board reaching a consensus opinion that
borrowings outstanding under a revolving credit agreement with requirements
similar to those in the Company's agreement that expires October 1, 2001 should
be classified as short-term obligations. Accordingly, the Company has classified
all amounts due under its revolving credit agreement as a current liability at
September 30, 1998 and 1997. During 1998, the Company renewed its credit
facility to October 1, 2001.
During 1998, 1997, and 1996, the Company invested $32,846 in property, plant and
equipment. Approximately three quarters of this amount relates to the upgrade of
existing equipment and the purchase of new equipment in the wire business. The
remaining amount relates to the Company's commitment to automotive air bag
inflator filters, filter media, and inflator housings. The Company's total
capital expenditures for 1999 are expected to be $6,900, primarily for projects
to add weld wire capacity and improve quality and operating efficiencies. The
Company expects that improved results of operations from restructuring
activities will fund future expansion of working capital and productive
capacity. The Company is confident that adequate long- and short-term financing
will be available in the future.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Current ratio .6 : 1.0 .8 : 1.0 .9 : 1.0 1.2 : 1.0 1.1 : 1.0
Total debt to total capital, excluding
SFAS No. 106 adjustment 65.9% 56.7% 49.1% 57.9% 65.2%
Long-term debt to total capital, exclud-
ing SFAS No. 106 adjustment 24.1% 18.4% 14.9% 48.1% 52.5%
</TABLE>
12
<PAGE>
The Company will continue to pursue cost reduction activities in both its
domestic and international operations, including personnel reductions and costs
associated with administering its employee benefit programs.
YEAR 2000 DATE CONVERSION
Many existing computer programs use only two digits to identify years. These
programs were designed without consideration for the effect of the upcoming
change in century, and if not corrected, could fail or create erroneous results
by or at the year 2000. Essentially all of the Company's information technology
based systems, as well as many non-information technology based systems, are
affected by the "Year 2000" issue. Technology based systems reside on
mainframes, servers, and personal computers in the U.S., and in the foreign
countries where the Company has operations. Specific systems include accounting,
payroll, financial reporting, product development, inventory tracking and
control, business planning, tax, accounts receivable, accounts payable,
purchasing, distribution, and numerous word processing and spreadsheet
applications. The Company utilizes life insurance, accounting and actuarial
systems that are also affected. Non-information technology based systems include
equipment and services containing imbedded microprocessors, such as building
management systems, manufacturing process control systems, clocks, and security
systems. All of the Company's businesses have relationships with numerous third
parties, including material suppliers, utility companies, transportation
companies, insurance companies, banks, governmental units, and brokerage firms,
that may be affected by the Year 2000 issue.
THE COMPANY'S STATE OF READINESS
Remediation plans have been established for all major systems potentially
affected by the Year 2000 issue. The primary phases and current status of the
plans for internal technology based systems are summarized as follows:
1. IDENTIFICATION OF ALL APPLICATIONS AND HARDWARE WITH POTENTIAL YEAR 2000
ISSUES. To the best of the Company's knowledge, this phase has been
completed.
2. FOR EACH ITEM IDENTIFIED, PERFORM AN ASSESSMENT TO DETERMINE AN APPROPRIATE
ACTION PLAN AND TIMETABLE FOR REMEDIATION OF EACH ITEM. A PLAN MAY CONSIST
OF REPLACEMENT, CODE REMEDIATION, UPGRADE OR ELIMINA TION OF THE
APPLICATION AND INCLUDES RESOURCE REQUIREMENTS. This phase has
been completed with the exception of certain manufacturing process control
systems which should be complete in the second calender quarter of 1999.
3. IMPLEMENTATION OF THE SPECIFIC ACTION PLAN. Specific action plans have been
started for nearly all known mission-critical systems. Action plans for
remaining systems should begin by the end of the fourth calendar quarter of
1998.
4. TEST EACH APPLICATION UPON COMPLETION. Testing is in process or has been
completed for all systems for which the remediation plan has been
completed. Testing of the remaining systems should be completed by the end
of the second calendar quarter of 1999.
5. PLACE THE NEW PROCESS INTO PRODUCTION. Many applications and systems have
been put into production. These include servers, personal computers, and
various software programs. Applications and systems are being put into
production once they have been tested. All affected applications and
systems should be in production by the third calendar quarter of 1999.
13
<PAGE>
The Company is in the process of identifying all non-information technology
based systems. Appropriate remediation plans are being developed, implemented
and tested when each affected system is identified. Identification should be
completed by the first calendar quarter of 1999, and plans should be developed
and implemented by the end of the second calendar quarter of 1999.
Identification of areas of potential third party risk is currently in process
and, for those areas identified to date, no problems have been identified.
Identification should be completed in the first calendar quarter, and plans
should be developed and implemented by the end of the third calendar quarter of
1999.
THE COSTS INVOLVED
The total cost to the Company of achieving Year 2000 compliance is not expected
to exceed $1,200 and will consist of the utilization of internal and external
resources. Spending to date totals approximately $300. Costs relating to Year
2000 compliance are included in the Information Systems budget. All costs
related to achieving Year 2000 compliance are based on management's best
estimates. There can be no guarantee that actual results will not differ from
estimates.
RISKS AND CONTINGENCY PLAN
The Company is in the process of determining the risks it would face in the
event certain aspects of its Year 2000 Remediation plan fail. It is also
developing contingency plans for all mission-critical processes. Under a "worse
case" scenario, the Company's manufacturing operations would be unable to build
and deliver product due to internal system failures and/or the inability of
vendors to deliver raw materials and components. Alternative suppliers are being
identified and inventory levels of certain key components may be temporarily
increased. While virtually all internal systems can be replaced with manual
systems on a temporary basis, the failure of any mission-critical system will
have at least a short-term negative effect on operations. The failure of
national and worldwide banking information systems or the loss of essential
utilities services due to the Year 2000 issue could result in the inability of
many businesses, including the Company, to conduct business. Risk assessment and
contingency plans should be completed in the first calendar quarter of 1999.
FUTURE ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) has issued, or is considering, a
number of measures related to financial statement disclosure. These
pronouncements are not expected to impact the financial position, results of
operations or cash flows of the Company, when adopted.
SAFE HARBOR
This Form 10-K contains certain forward-looking statements, including statements
regarding net earnings, trends in sales, expense and productive capacity levels.
Actual results could vary materially based upon a number of factors, including,
but not limited to, those set forth below. Additionally, there are trends and
factors beyond the Company's control which affect its operations. In accordance
with the provisions of the Private Securities Litigation Reform Act of 1995, the
following cautionary statements identify important trends and factors that could
cause actual results to differ materially from those in any forward-looking
statements contained in this Form 10-K. Such trends and factors include, but are
not limited to, adverse changes in general economic conditions, demand for
Company products and industry capacity, competitive products and pricing,
obtaining manufacturing efficiencies, availability of raw materials and sources
of energy needed for operations, and foreign currency fluctuations. Based upon
changing conditions, should any one or more of these risks or uncertainties
materialize, or should any underlying assumption prove incorrect, actual
performance results may vary materially from those described herein.
14
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk exposure is interest rate risk, primarily
related to the Company's interest bearing obligations. The Company does not
speculate on interest rates, but rather manages its portfolio of assets and
liabilities to mitigate the impact of interest rate fluctuations.
The table below presents principal amounts and related weighted average interest
rates by year of maturity for the Company's interest-bearing obligations (in
thousands).
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
2003
1999 2000 2001 2002 and After
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revolving credit $17,138 - - - -
Average interest rate 8.4%
Promissory notes payable $ 3,522 $3,522 $3,522 $6,976 -
Average interest rate 8.6% 8.6% 8.6% 8.6%
Foreign subsidiary operating lines of credit $ 3,425 - - - -
Average interest rate 9.0%
Capital lease $ 103 $ 9 - - -
Average interest rate 10.5% 10.5%
Other credit arrangement $ 124 - - - -
Average interest rate 10.5%
</TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Report of Independent Auditors, Consolidated Financial Statements and
Supplementary Schedule are set forth on pages 18 to 37 of this Report and are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
IDENTIFICATION OF DIRECTORS
Information in respect of Directors as set forth under the caption "Election of
Directors" in the annual Proxy Statement relating to the Annual Meeting of
Shareholders scheduled for January 28, 1999 is incorporated herein by reference.
In respect of information as to the Company's Executive Officers, see the
caption "Executive Officers of the Registrant" at the end of Part I of this
report.
15
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the caption "Organization and Remuneration of
the Board" and the information relating to Executive Officers' compensation in
the annual Proxy Statement relating to the Annual Meeting of Shareholders
scheduled for January 28, 1999 is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The
information set forth under the captions "Stock Ownership of Certain Beneficial
Owners and Management" and "Election of Directors" in the annual Proxy Statement
relating to the Annual Meeting of Shareholders scheduled for January 28, 1999 is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Information Regarding Other
Transactions" in the annual Proxy Statement relating to the Annual Meeting of
Shareholders scheduled for January 28, 1999 is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements and Schedules
The financial statements and schedule listed in the
accompanying Index to Consolidated Financial Statements and
Schedule are filed as part of this report.
2. Exhibits
The exhibits listed in the accompanying Exhibit Index and
required by Item 601 of Regulation S-K (numbered in
accordance with Item 601 of Regulation S-K) are filed or
incorporated by reference as part of this Report.
(b) There were no reports on Form 8-K filed during the three months
ended September 30, 1998.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, National-Standard Company has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
NATIONAL-STANDARD COMPANY
/s/ Michael B. Savitske
Michael B. Savitske
President and Chief Executive Officer, Director
/s/ William D. Grafer
William D. Grafer
Vice President, Finance
(Principal Financial and Accounting Officer)
Dated: December 18, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
HAROLD G. BERNTHAL Director )
DAVID F. CRAIGMILE Director ) - By: /s/ Timothy C. Wright
) ---------------------
RANKO CUCUZ Director ) Timothy C. Wright
JOHN E. GUTH, JR. Chairman of the Board ) Attorney-in-Fact
RONALD B. KALICH Director )
ERNEST J. NAGY Director )
CHARLES E. SCHROEDE Director )
DONALD F. WALTER Director ) December 18, 1998
17
<PAGE>
NATIONAL-STANDARD COMPANY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
- --------------------------------------------------------------------------------
Page Reference
in Report on
Form 10-K
- --------------------------------------------------------------------------------
Consolidated Statements of Operations for the years ended 19
September 30, 1998, 1997, and 1996
Consolidated Statements of Shareholders' Equity for the years 20
ended September 30, 1998, 1997, and 1996
Consolidated Balance Sheets at September 30, 1998 and 1997 21
Consolidated Statements of Cash Flows for the years ended 22
September 30, 1998, 1997 and 1996
Notes to Consolidated Financial Statements 23-35
Report of Independent Auditors 36
Schedule:
II. Valuation and Qualifying Accounts 37
(copy not included in Annual Report)
Schedules other than those listed above have been omitted from this Annual
Report because they are not required, are not applicable, or the required
information is included in the consolidated financial statements or the notes
thereto.
18
<PAGE>
<TABLE>
NATIONAL-STANDARD COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands Except Share Data)
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Year Ended September 30
-----------------------
1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales............................................................... $ 225,495 $ 247,763 $ 248,554
Cost of sales .......................................................... 196,977 219,879 216,433
----------- ----------- -----------
Gross profit............................................................ 28,518 27,884 32,121
Selling and administrative expenses..................................... 24,030 22,509 22,996
Restructuring expenses.................................................. 8,067 10,072 254
----------- ----------- -----------
Operating profit (loss)........................................... (3,579) (4,697) 8,871
Interest expense........................................................ (3,751) (4,194) (4,838)
Other income, net....................................................... 790 34 4,009
----------- ----------- -----------
Income (loss) before income taxes................................. (6,540) (8,857) 8,042
Income taxes............................................................ 159 133 (810)
----------- ----------- -----------
Net income (loss)....................................................... $ (6,699) $ (8,990) $ 8,852
============ =========== ===========
Basic and diluted earnings (loss) per share............................. $ (1.27) $ (1.71) $ 1.65
============ ----------- ===========
See accompanying notes to consolidated financial statements.
</TABLE>
19
<PAGE>
<TABLE>
NATIONAL-STANDARD COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in Thousands except Share Data)
<CAPTION>
Excess of
Unamortized Additional
Retained Cumulative Value of Pension
Common Earnings Translation Treasury Restricted Liability Over
Stock (Deficit) Adjustment Stock Stock Unrecognized
Prior
Service Cost
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1995 $ 27,594 $(45,849) $(2,205) $ (104) $ (85) $ (826)
Restricted stock award activity 37 (20) (37)
Restricted stock amortization 49
Stock options exercised 58
Stock issuance 1
Stock purchase (590)
Adjustment for foreign
currency translation 30
Adjustment of pension liability (667)
Net income for 1996 8,852
- ------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1996 $ 27,689 $(36,997) $(2,175) $ (713) $ (73) $ (1,493)
Restricted stock award activity 31 (17) (22)
Restricted stock amortization 42
Stock purchase (712)
Adjustment for foreign
currency translation 329
Adjustment of pension liability (62)
Net loss for 1997 (8,990)
Balance at September 30, 1997 $ 27,720 $(45,987) $(1,846) $(1,442) $ (53) $ (1,555)
Restricted stock award activity 122 (129)
Restricted stock amortization 54
Issuance of warrants 193
Stock contribution to pension plan (472) 1,319
Stock issuance 33
Stock purchase (52)
Adjustment for foreign
currency translation 914
Adjustment of pension liability (4,571)
Net loss for 1998 (6,699)
Balance at September 30, 1998 $ 27,441 $(52,686) $(932) $(20) $ (128) $ (6,126)
- ------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
20
<PAGE>
<TABLE>
NATIONAL-STANDARD COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands except Share Data)
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
September 30
------------
1998 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash............................................................................... $ 251 $ 729
Receivables, less allowance for doubtful accounts
($560 and $382, respectively).................................................. 24,272 24,653
Inventories........................................................................ 17,966 21,913
Deferred tax asset................................................................. 1,721 1,547
Other current assets............................................................... 2,347 2,943
------------ ------------
Total current assets............................................................... 46,557 51,785
Property, plant and equipment, net....................................................... 50,760 46,995
Other assets............................................................................. 17,761 14,405
------------ ------------
$ 115,078 $ 113,185
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................... $ 28,097 $ 22,859
Employee compensation and benefits................................................. 2,993 2,580
Accrued pension.................................................................... 1,062 1,623
Other accrued expenses............................................................. 15,491 10,739
Current accrued postretirement benefit cost........................................ 2,400 2,400
Notes payable to banks and current portion of long-term debt....................... 24,312 25,398
----------- -----------
Total current liabilities.......................................................... 74,355 65,599
----------- -----------
Other long-term liabilities.............................................................. 9,286 9,001
----------- -----------
Long-term debt........................................................................... 14,029 12,219
----------- -----------
Accrued postretirement benefit cost...................................................... 49,859 49,529
----------- -----------
Shareholders' equity:
Common stock - $.01 par value.
Authorized 25,000,000 shares; issued 5,470,740 and
5,413,644 shares, respectively............................................. 27,441 27,720
Preferred stock - $1.00 par value.
Authorized 600,000 shares; issued none........................................ - -
Retained earnings (deficit)........................................................ (52,686) (45,987)
Cumulative translation adjustment.................................................. (932) (1,846)
Treasury stock, at cost; 2,669 and 189,676 shares, respectively.................... (20) (1,442)
Unamortized value of restricted stock.............................................. (128) (53)
Excess of additional pension liability over unrecognized prior service cost........ (6,126) (1,555)
----------- -----------
(32,451) (23,163)
----------- -----------
$ 115,078 $ 113,185
=========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
21
<PAGE>
<TABLE>
NATIONAL-STANDARD COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands except Share Data)
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Year Ended September 30
-----------------------
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings (loss)..................................................... $ (6,699) $ (8,990) $ 8,852
Non-cash charges to earnings:
Depreciation and amortization...................................... 8,695 8,225 6,933
Restructuring provision............................................ 7,700 5,388 -
Changes in short-term assets and liabilities, net of dispositions and
restructuring:
Receivables........................................................ 401 2 1,539
Inventories........................................................ 3,317 56 3,971
Deferred income taxes.............................................. (174) (247) (1,300)
Other current assets............................................... 608 549 867
Accounts payable................................................... 5,636 (321) (3,538)
Employee compensation and benefits, accrued pension,
and other accrued expenses...................................... 2,417 1,286 (1,904)
Currency translation effect on short-term assets and liabilities... (765) 515 (273)
Changes in other long-term assets and liabilities....................... (7,374) 1,118 (646)
----------- ----------- -----------
Net cash provided by operating activities.......................... 13,762 7,581 14,501
----------- ----------- -----------
INVESTING ACTIVITIES:
Capital expenditures.................................................. (15,069) (9,147) (8,630)
Disposal of property, plant and equipment............................. 306 - -
----------- ----------- -----------
Net cash used for investing activities............................. (14,763) (9,147) (8,630)
----------- ----------- -----------
FINANCING ACTIVITIES:
Term loan advance..................................................... 5,610 4,377 -
Net payments under revolving credit agreements........................ (1,651) (4) (1,826)
Principal payments under term loans................................... (3,411) (3,782) (3,135)
Purchases of treasury stock........................................... (25) (719) (609)
Stock option proceeds................................................. - - 58
----------- ----------- -----------
Net cash provided by (used for) financing activities............... 523 (128) (5,512)
----------- ----------- -----------
Net (decrease) increase in cash.................................... (478) (1,694) 359
Cash at beginning of year............................................. 729 2,423 2,064
----------- ----------- -----------
Cash at end of year................................................... $ 251 $ 729 $ 2,423
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES:
Interest paid......................................................... $ 3,756 $ 4,212 $ 4,331
=========== =========== ===========
Income taxes paid..................................................... $ 115 $ 98 $ 409
=========== =========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
22
<PAGE>
NATIONAL-STANDARD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands except Share Data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
NATURE OF OPERATIONS - The Company produces tire bead wire, welding wire,
wire cloth, hose reinforcing wire, stainless spring and specialty wire,
plated wire, and nonwoven metal fiber materials. The Company also produces
filters and inflator housings for automotive air bag inflators. These
products are generally sold directly to other manufacturers, principally
tire manufacturers and automotive air bag manufacturers. Its major market
includes the United States, with other markets in Canada and Europe.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the Company and all of its subsidiaries ("Company"). Intercompany
accounts and transactions have been eliminated in the consolidated
financial statements. The Company's 50 percent investment in a domestic
joint venture is carried at equity in underlying net assets. The Company's
share of operations of this affiliated company is not material.
REVENUE RECOGNITION - The Company's policy is to record sales when the
product is shipped.
TRANSLATION OF CURRENCIES - Exchange adjustments resulting from foreign
currency transactions are recognized currently in income. Adjustments
resulting from the translation of financial statements are reflected as a
separate component of shareholders' equity.
INVENTORIES - Inventories are stated at lower of cost or replacement
market. Cost for the material content of domestic steel inventories is
determined on the last-in, first-out (LIFO) method; the cost for other
inventories is determined on the first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are stated
at cost less accumulated depreciation. Depreciation is computed on a
straight-line basis over the estimated useful lives of the related assets.
For tax purposes, depreciation has generally been computed on a
straight-line basis over prescribed lives. The following table depicts the
depreciable lives of major classes of the Company's depreciable assets:
Type of Asset Depreciable Life
Land Improvements........................... 10 - 15
Buildings................................... 10 - 33-1/3
Machinery and Equipment..................... 3 - 10
RESEARCH AND DEVELOPMENT - Research and development costs are expensed
currently. The Company expended $1,567, $1,463 and $968 in 1998, 1997 and
1996, respectively, on research and development activities.
EARNINGS PER SHARE - On October 1, 1997, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share."
SFAS No. 128 replaces the primary and fully diluted earnings per share
("EPS") computations with basic and diluted EPS. Basic EPS are computed by
dividing net earnings by the weighted average number of common shares
outstanding during the period. Diluted EPS are computed by dividing net
earnings by the weighted average number of common shares and dilutive
securities outstanding during the period. The number of potentially
dilutive shares, excluded from the diluted EPS calculation, for the years
ended September 30, 1998, 1997, and 1996 include stock options totaling
449,250, 403,250, and 350,500, and warrants totaling 100,000 in all three
years. Common shares used in calculating earnings per share for 1998,
1997, and 1996 were 5,263,000, 5,266,000 and 5,358,000, respectively.
23
<PAGE>
STOCK-BASED COMPENSATION - On October 1, 1996, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting
for Stock-Based Compensation," which permits entities to recognize the
compensation expense associated with the fair value of all stock-based
awards on the date of grant. Alternatively, SFAS No. 123 allows entities
to continue to apply the provisions of Accounting Principles Board (APB)
Opinion 25, "Accounting for Stock Issued to Employees," and provide pro
forma net income and earnings per share disclosures as if the fair value
method defined in SFAS No. 123 had been applied. The Company has elected
to apply the provisions of APB Opinion 25 and provide the pro forma
disclosures of SFAS No. 123.
STATEMENT OF CASH FLOWS - For purposes of the statement of cash flows, the
Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
INCOME TAXES - Deferred income taxes are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. Deferred tax assets are recorded when
it is more likely than not that such tax benefits will be realized.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The fair value of the Company's
financial instruments, which consist of cash, receivables, accounts
payable, accrued expenses, notes payable and long-term debt, approximate
their carrying values.
RECLASSIFICATION - Certain 1997 and 1996 amounts in the Consolidated
Financial Statements have been reclassified to conform with 1998
presentation.
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 reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period.
Actual results could differ from those estimates.
2. INVENTORIES
--------------------------------------------------------------------------
1998 1997
--------------------------------------------------------------------------
Finished goods............................. $ 1,140 $ 810
Work in process............................ 6,772 11,174
Raw material (including certain partially
processed materials)..................... 10,054 9,929
----------- -----------
$ 17,966 $ 21,913
=========== ===========
The material content of domestic steel inventories amounting to $11,727
and $12,879 at September 30, 1998 and 1997, respectively, is valued on a
LIFO basis. Had the FIFO method been used, inventory would have been
$3,594 and $3,965 higher than that reported at September 30, 1998 and
1997, respectively.
3. PROPERTY, PLANT AND EQUIPMENT
--------------------------------------------------------------------------
1998 1997
--------------------------------------------------------------------------
Cost:
Land..................................... $ 317 $ 320
Land improvements........................ 2,170 2,169
Buildings................................ 25,059 24,669
Machinery and equipment.................. 132,804 129,411
Construction in progress................. 12,637 5,372
----------- -----------
172,987 161,941
Less accumulated depreciation............ 122,227 114,946
----------- -----------
$ 50,760 $ 46,995
=========== ===========
24
<PAGE>
4. RETIREMENT BENEFITS
The Company and its subsidiaries have several pension plans covering
substantially all employees, including certain employees in foreign
countries. The Company's policy for qualified plans is to fund the net
periodic pension cost accrued for each plan year, but not more than the
maximum deductible contribution nor less than the minimum required
contribution.
The following table sets forth the pension plans' funded status and
amounts recognized in the Company's consolidated balance sheet at
September 30, 1998 and 1997:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
Assets Exceed Accumulated
Accumulated Benefits Exceed
Benefits Assets
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1998
Actuarial present value of benefit obligations:
Vested benefit obligation.................................................... $ 77,280 $ 21,926
=========== ===========
Accumulated benefit obligation................................................ $ 77,910 $ 24,162
=========== ===========
Projected benefit obligation for service rendered to-date.......................... $ 79,750 $ 25,114
Plan assets at fair value.......................................................... 86,838 17,228
----------- -----------
Plan assets in excess of (less than) projected benefit obligation.................. 7,088 (7,886)
Unrecognized net loss from past experience, different from that assumed............ 5,860 7,094
Prior service cost not yet recognized in net periodic pension cost................. 965 1,242
Unrecognized net asset at October 1, 1985 being recognized over 15 years........... (193) (24)
Unrecognized net asset for the United Kingdom plan at October 1, 1989
being recognized over 12.6 years.............................................. (2,235) -
Additional minimum liability....................................................... - (7,362)
----------- -----------
(Accrued) prepaid pension cost..................................................... $ 11,485 $ (6,936)
=========== ===========
Intangible asset................................................................... $ - $ 1,235
=========== ===========
Charge to equity (excess of additional pension liability over unrecognized
prior service cost)........................................................... $ - $ 6,126
=========== ===========
1997
Actuarial present value of benefit obligations:
Vested benefit obligation.................................................... $ 74,231 $ 12,974
=========== ===========
Accumulated benefit obligation................................................ $ 74,708 $ 16,275
=========== ===========
Projected benefit obligation for service rendered to-date.......................... $ 76,198 $ 17,177
Plan assets at fair value.......................................................... 96,158 12,885
----------- -----------
Plan assets in excess of (less than) projected benefit obligation.................. 19,960 (4,292)
Unrecognized net (gain) loss from past experience, different from
that assumed.................................................................. (7,320) 1,489
Prior service cost not yet recognized in net periodic pension cost................. 327 1,254
Unrecognized net asset at October 1, 1985 being recognized over 15 years........... (285) (28)
Unrecognized net asset for the United Kingdom plan at October 1, 1989
being recognized over 12.6 years.............................................. (2,718) -
Additional minimum liability....................................................... - (2,826)
----------- -----------
(Accrued) prepaid pension cost..................................................... $ 9,964 $ (4,403)
=========== ===========
Intangible asset................................................................... $ - $ 1,271
=========== ===========
Charge to equity (excess of additional pension liability over unrecognized
prior service cost)........................................................... $ - $ 1,555
=========== ===========
</TABLE>
25
<PAGE>
Net pension cost related to Company-sponsored plans included the following
components:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
1998 1997 1996
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service costs -- benefits earned during the year.................. $ 1,925 $ 2,015 $ 1,842
Interest cost on projected benefit obligation..................... 7,060 6,887 6,509
Actual return on plan assets...................................... (10,781) (10,424) (11,748)
Net amortization and deferral..................................... 782 333 1,422
Termination benefits recognition.................................. - 1,435 815
----------- ----------- -----------
Net periodic pension expense (income)............................. $ (1,014) $ 246 $ (1,160)
=========== =========== ===========
</TABLE>
The weighted average discount rate and rate of increase in future
compensation levels used in determining the 1998 actuarial present value
of the projected benefit obligation were 7.10% and 3.85%, respectively,
for U.S. plans and 6.50% and 4.0%, respectively, for foreign plans. The
1997 rates were 7.50% and 4.25%, respectively, for U.S. plans and 8.0% and
5.0%, respectively, for foreign plans. The expected long-term rate of
return on assets was 10.50% in 1998 and 1997 for U.S. plans and 8.0% and
9.0% in 1998 and 1997, respectively, for foreign plans. The Company made
contributions to the plans in 1998 and 1997 of $1,432 and $337,
respectively. As of September 30, 1998, the plans own 1,708,175 shares of
the Company's common stock.
The Company has an Employee Stock Ownership Plan (ESOP) for its eligible
domestic employees. The amount of Company contributions made to the ESOP
and charged to expense was $431 for 1998, $427 for 1997, and $337 for
1996.
5. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides certain health care and life insurance benefits for
all eligible retirees. Eligible retirees include salaried retirees and
certain groups of collectively bargained retirees. The health care plan is
contributory, with all future retirees' and current salaried retirees'
contributions subject to an annual indexing. The Company funds the cost of
these benefits on a claims-paid basis which totalled $2,139 for 1998,
$2,308 for 1997, and $2,402 for 1996.
The following table sets forth the plan's funded status, reconciled with
amounts recognized in the Company's consolidated balance sheet at
September 30, 1998 and 1997:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
1998 1997
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees................................................................... $ (32,675) $ (31,964)
Fully eligible active plan participants.................................... (2,489) (2,255)
Other active plan participants............................................. (5,078) (4,586)
----------- -----------
(40,242) (38,805)
Plan assets at fair value.................................................. - -
----------- -----------
Accumulated postretirement benefit obligation in excess
of plan assets......................................................... (40,242) (38,805)
Unrecognized prior service cost............................................ (1,756) (1,918)
Unrecognized net (gain) loss from past experience different
from that assumed and from changes in assumptions...................... (10,261) (11,206)
----------- -----------
Accrued postretirement benefit cost........................................ $ (52,259) $ (51,929)
=========== ===========
</TABLE>
The accrued postretirement benefit cost includes approximately $2,400 of
expected 1998 and 1997 payments that are included in the balance sheet as
a current liability.
26
<PAGE>
Net periodic postretirement benefit cost included the following
components:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
1998 1997 1996
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost -- benefits attributed to service during the period.......... $ 365 $ 304 $ 420
Interest on accumulated postretirement benefit obligation................. 2,822 2,861 3,039
Net amortization and deferral............................................. (718) (868) (473)
--------- --------- ---------
Net periodic postretirement benefit cost.................................. $ 2,469 $ 2,297 $ 2,986
========= ========= =========
</TABLE>
For measurement purposes, the annual rate of increase in the per capita
cost of covered health care benefits was assumed to be approximately 7.87%
for 1998; the rate was assumed to decrease gradually to 5% for 2001 and
remain at that level thereafter. The health care cost trend rate
assumption has a significant effect on the amounts reported. To
illustrate, increasing the assumed health care cost trend rates by one
percentage point in each year would increase the accumulated
postretirement benefit obligation as of September 30, 1998 by $3,563 and
the aggregate of the service and interest cost components of net periodic
postretirement benefit cost for the year then ended by $357.
The 1998 and 1997 weighted-average discount rates used in determining the
accumulated postretirement benefit obligation were 7.10% and 7.50%,
respectively. The weighted-average discount rates used in determining the
1998 and 1997 net periodic postretirement benefit cost and the transition
obligation were 7.5% and 8.00%, respectively.
The Company has announced it will take action to limit future Company
expense increases in retiree health care through the use of limits on the
maximum amount of annual funding the Company will provide toward the
average costs of retiree health coverage. These limits will be set at a
maximum of 3% annual increase in average cost for years through 2005. The
level of Company annual funding per retiree will be frozen at the final
2005 levels.
6. OTHER ASSETS
--------------------------------------------------------------------------
1998 1997
--------------------------------------------------------------------------
Equity in affiliates.................... $ 500 $ 500
Property held for sale.................. 3,551 3,856
Intangible pension asset................ 1,235 1,271
Prepaid pension cost.................... 9,366 7,360
Other................................... 3,109 1,418
----------- -----------
$ 17,761 $ 14,405
=========== ===========
In 1994, the Company closed its Columbiana, Alabama facility and is
continuing its preparation for sale.
During 1988, the Company closed its strip steel and flat wire facility
located in Clifton, New Jersey. Due to the environmental regulations in
the State of New Jersey, title to industrial real estate cannot be passed
without the Department of Environmental Protection's written approval.
This project has involved demolition of the buildings and continuing
environmental remediation from production wastes through use of an on-site
landfill and off-site disposal. Cash outlays, primarily related to the
remediation, have been capitalized to the extent that, when added to the
estimated costs to complete the project, they do not exceed the estimated
realizable sale value of the property. In 1998, 1997 and 1996, the Company
expensed $367, $222 and $254, respectively, associated with the project.
27
<PAGE>
7. DEBT
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
1998 1997
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Credit arrangement expiring in January 1999, interest
at 10.50% in 1998 and 10.50% in 1997.......................................... $ 124 $ 350
Revolving credit arrangement expiring on October 1, 2001, interest
at prime plus .50% and LIBOR plus 2.50% in 1998 and 1997...................... 17,138 18,475
Promissory notes payable in monthly installments with the balance due
October 1, 2001, interest at prime plus .75% and LIBOR plus 2.75%
in 1998 and 1997............................................................. 17,542 15,000
Capital lease...................................................................... 112 202
Various other debt................................................................. - 15
Foreign subsidiary operating lines of credit with interest
at prime plus .50% in 1998.................................................... 3,425 3,575
----------- -----------
38,341 37,617
Less short-term debt and current portion of long-term debt included
in current liabilities 24,312 25,398
----------- -----------
$ 14,029 $ 12,219
=========== ===========
</TABLE>
The prime rates used for calculating interest on September 30, 1998 and
1997, respectively, were 8.25% and 8.50%, while the LIBOR rate used on
September 30, 1998 and 1997, respectively, were 5.59% and 5.66%.
The weighted average interest rate for current debt approximates the 9.8%
and 11.60% average rates calculated for total debt in 1998 and 1997.
The existing debt agreements are collateralized by substantially all
assets and contain, among other things, provisions as to the maintenance
of working capital and net worth, restrictions on cash dividends,
redemptions of Company stock and incurrence of indebtedness. The revolving
credit arrangement provides for maximum borrowing levels based on a
percentage of qualified accounts receivable and inventory. Substantially
all cash is restricted under existing debt agreements. During 1998, the
Company renewed its credit facility to October 1, 2001.
Aggregate maturities on long-term debt, based upon the credit agreements
for the three fiscal years subsequent to September 30, 1999, amount to
$3,531 in 2000, $3,522 in 2001, and $6,976 in 2002.
There are no maturities extending beyond 2002.
8. LEASES
Minimum rental commitments under noncancellable operating leases and
future minimum capital lease payments, primarily machinery and equipment,
in effect at September 30, 1998 were:
Operating Capital
Leases Leases
1999.......................... $ 2,706 $ 103
2000.......................... 1,590 9
2001.......................... 228 0
2002.......................... 220 0
2003.......................... 145 0
Later years................... 0 0
28
<PAGE>
Operating lease rental expense was $2,503 in 1998, $3,212 in 1997, and
$3,860 in 1996. Capital lease payments were $90 in 1998, $571 in 1997, and
$395 in 1996.
9. INCOME TAXES
The domestic and foreign components of earnings (loss) before income taxes
are as follows:
--------------------------------------------------------------------------
1998 1997 1996
--------------------------------------------------------------------------
Domestic.................. $ 1,748 $ 163 $ 9,591
Foreign................... (8,288) (9,020) (1,549)
----------- ----------- -----------
$ (6,540) $ (8,857) $ 8,042
=========== =========== ===========
The provisions for income taxes are as follows:
--------------------------------------------------------------------------
1998 1997 1996
-------------------------------------------------------------------------
Currently payable (recoverable):
Domestic....................... $ 333 $ 380 $ 464
Foreign........................ - - 26
------- ---------- ---------
333 380 490
Deferred:
Domestic....................... (174) (247) (1,300)
------- ---------- ---------
$ 159 $ 133 $ (810)
====== ========= ========
At September 30, 1998, the Company had tax loss carryforwards of $19,300
in the United States and $16,000 in the United Kingdom. The United Kingdom
carryforward period is unlimited; however, if not utilized to offset
future taxable income, $4,600 of the United States loss will expire in
2005, $12,400 in 2006, $900 in 2008, $1,100 in 2009, and $300 in 2012.
At September 30, 1998, and after giving full effect to the 35% post-1986
investment tax credit reduction required by the Tax Reform Act of 1986,
the Company has total United States tax credit carryforwards of
approximately $1,400, which expire as follows: 2000, $700; 2001, $500;
2002, $100; and 2003, $100.
A reconciliation of differences between taxes computed at the federal
statutory rate and the actual tax provisions is as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
Actual % Actual % Actual %
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Taxes at federal statutory rate (2,289) (35.0) $ (3,100) (35.0) $ 2,815 35.0
Valuation reserve adjustment (174) (2.7) (247) (2.8) (1,300) (16.2)
Losses with current benefit (1,023) (15.6) - - (3,108) (38.7)
Foreign - - - - 26 .3
Losses with no current benefit 3,346 51.1 3,191 36.0 523 6.6
State taxes 299 4.6 289 3.3 234 2.9
--------- ------- --------- ------ --------- ------
$ 159 2.4 $ 133 1.5 $ (810) (10.1)
========= ======= ========= ====== ========= ======
</TABLE>
29
<PAGE>
The net deferred tax asset included the following components:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
1998 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets
Accrued postretirement benefits........................................ 20,903 $ 20,772
Net operating loss carryforwards....................................... 13,422 12,370
Tax credit carryforwards............................................... 1,392 1,395
Environmental reserves................................................. 3,146 3,463
Fixed assets........................................................... 1,204 896
Inventory reserves..................................................... 1,455 1,219
Reserve against property held for sale................................. 4,539 4,354
Other.................................................................. 7,864 4,120
----------- -----------
53,925 48,589
Valuation allowance......................................................... (47,583) (43,086)
----------- -----------
6,342 5,503
Deferred tax liabilities - pension.......................................... (4,621) (3,956)
----------- -----------
Net deferred tax asset...................................................... $ 1,721 $ 1,547
=========== ===========
</TABLE>
During the year, the Company recognized an increase in net deferred tax
assets over liabilities of $4,671. However, the Company increased the
offsetting valuation allowance by only $4,497. This resulted in a deferred
income tax benefit and a net increase to the deferred tax assets during
the year of $174.
In assessing the realizability of deferred tax assets, the Company
considers whether it is more likely than not that some portion or all of
the deferred tax assets will be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become
deductible. This assessment was performed considering the scheduled
reversal of deferred tax liabilities, projected future taxable income, and
tax planning strategies. The Company has determined that it is more likely
than not that $1,721 of deferred tax assets will be realized. The
remaining valuation of $47,583 is maintained on deferred tax assets which
the Company has not determined to be more likely than not realizable at
this time. This valuation adjustment will be reviewed on a regular basis
and adjustments made as appropriate.
There are no undistributed earnings of foreign subsidiaries.
10. RESTRUCTURING
The 1998 restructuring cost of $8,067 includes $367 associated with the
Clifton, New Jersey property. The 1997 restructuring cost of $10,072
includes $9,850 relating to the Kidderminster restructuring and $222
associated with the Clifton, New Jersey property. The 1996 net cost of
restructuring of $254 was associated with costs related to the Clifton,
New Jersey property.
During 1998, the Company recorded a charge of $6,220 to consolidate its
North America wire manufacturing by closing the Guelph, Ontario facility
and relocating certain equipment to the Stillwater, Oklahoma and Niles,
Michigan facilities. The Guelph facility employed 93 people during 1998.
The charge includes 1999 cash outlays of approximately $3,400 primarily
for employee termination costs. The Company will also incur $1,000 of
costs to relocate certain equipment from Guelph to Stillwater and Niles
during 1999. These costs are not included in the 1998 charge in accordance
with current
30
<PAGE>
generally accepted accounting principles. The Company further provided
$1,480 to reduce support staff in North America by 40 employees and exit
certain non-air bag related wire cloth product lines.
During 1997, the Company recorded a charge of $9,850 for restructuring the
Company's operations in Kidderminster. The restructuring charge included
severance costs and estimated pension related costs for 124 employees,
reducing the Kidderminster workforce from 345 to 221. The reductions saved
approximately $3,000 in annual salaries. The restructuring also provided
for the discontinuing of Kidderminster's manufacture and sales of
COPPERPLY wire and certain non-value added weld wire product lines in the
United Kingdom. Annual Kidderminster sales were reduced from approximately
$35,500 to approximately $27,500 as a result of these actions. In addition
to employee-related costs, the restructuring provision includes write-offs
of inventory and fixed assets related to the discontinued products and
provision for ongoing lease commitments for associated equipment and
facilities. Cash outlays during 1997 included in the $9,850 restructuring
charge were $1,335. Cash outlays during 1998 were approximately $1,825.
Cash outlays expected during 1999 are approximately $925.
11. OTHER INCOME (EXPENSE), NET
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Joint venture....................................... $ - $ 50 $ 200
Rent................................................ 257 258 164
Other............................................... 533 (274) 3,645
----------- ----------- -----------
$ 790 $ 34 $ 4,009
=========== =========== ===========
</TABLE>
In 1998, the $533 other is primarily the gain on disposition of idle
assets and foreign exchange gains. Included in the $3,645 other in 1996 is
approximately $3,500 from the sale of shares of Allmerica Financial
Corporation, which the Company received as a result of the demutualization
of the State Mutual Life Assurance Company of America in which the Company
had participated since 1946.
12. LITIGATION
The Company is involved in certain legal actions and claims arising in the
ordinary course of business. After taking into consideration legal
counsel's evaluation of such actions, management is of the opinion that
their outcome will not have a material effect on the Company's
consolidated financial statements.
13. COMMON STOCK
During 1997, the Stock Option Plan for Nonemployee Directors (the
"Directors' Plan") was approved. The Directors' Plan grants options to
purchase 2,000 shares of Common Stock on the first business day after the
date of each Annual Meeting of Shareholders to each nonemployee director
then a member of the Board of Directors. In 1997, 12,000 options were
granted at an exercise price of $8.50. In 1998, 14,000 options were
granted at an exercise price of $5.8125.
During 1993, the National-Standard Stock Option Plan (the "1993 Plan") was
approved. The 1993 Plan allows the Governance Committee of the Board of
Directors, which consists of four members who are not executive employees
of the Company, to select employees who will be granted options to
purchase shares of common stock at the fair market value on the date of
grant. Under the 1993 Plan, 450,000 shares are the maximum amount
available to be issued upon the exercise of options, and the term of
31
<PAGE>
each option is ten years from the date of the grant. During 1998, an
additional 450,000 shares were made available for future grants under the
1993 Plan. During 1998 and 1997, 42,000 and 43,000 options, respectively,
were granted to key management employees. The exercise price is $5.75 for
all options granted in 1998 and $7.00 for those granted in 1997.
All stock options outstanding at September 30, 1998 are currently
exercisable.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock option plans. Had compensation cost for the plans
been determined consistent with SFAS No. 123, the Company's net income
(loss) available to common shareholders and net income (loss) per common
share would have been the pro forma amounts indicated below:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
September 30,
-------------
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss)
As reported..................................................... $ (6,699) $ (8,990) $ 8,852
Pro forma....................................................... $ (6,789) $ (9,137) $ 8,833
Income (loss) per share
As reported..................................................... $ (1.27) $ (1.71) $ 1.65
Pro forma....................................................... $ (1.28) $ (1.74) $ 1.65
</TABLE>
For purposes of calculating the compensation cost consistent with SFAS No.
123, the fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in fiscal 1998, 1997, and
1996: dividend yield of 0%; expected volatility of 30%; risk free interest
rates ranging from 5.63% to 6.62%; and expected lives ranging from 4.6
years to 4.7 years.
The status of the stock option plans which provide for the purchase of the
Company's common stock is summarized as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Options Weighted Average
Outstanding and Weighted Average Fair Value of
Exercisable Exercise Price Options Granted
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, September 30, 1995.................... 378,437 $ 9.02
Transactions during 1996:
Options granted............................. 5,000 10.38
Options expired............................. (10,937) 9.50
Options cancelled........................... (15,000) 8.63
Options exercised........................... (7,000) 8.63
----------- -----------
350,500 $ 9.05 $ 3.70
Transactions during 1997:
Options granted 55,000 7.33
Options cancelled (2,250) 10.63
----------- -----------
403,250 $ 8.80 $ 2.67
Transactions during 1998:
Options granted 56,000 5.77
Options cancelled (10,000) 7.76
----------- -----------
Balance, September 30, 1998 449,250 $ 8.44 $ 2.06
=========== ===========
</TABLE>
32
<PAGE>
The following table summarizes information about stock options outstanding
at September 30, 1998:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Options Outstanding and Exercisable
-----------------------------------
Weighted- Weighted-
Average Average
Number Remaining Exercise
Range of Exercise Prices of Shares Contractual Life Price
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$10.375 - 10.625.................... 72,500 6.56 years $ 10.61
$ 7.00 - 8.625................. 323,750 5.30 years $ 8.41
$ 5.75 - 5.8125................ 53,000 9.21 years $ 5.77
</TABLE>
A Restricted Stock Award Program ("Plan") was established in 1989. The
Plan provides for grants of shares of common stock to selected employees,
subject to forfeiture if employment terminates prior to the end of the
prescribed restricted period. Such stock shall be made available from
authorized and unissued shares of common stock or treasury stock of the
Company. However, the maximum number of shares that may be issued at any
time under the Plan is 250,000. At September 30, 1998, certain employees
held 22,550 shares of restricted common stock of the Company. Awards for
17,000 and 4,500 of these shares were granted in 1998 and 1997,
respectively. During 1998, 4,375 shares were vested or forfeited. The
amount of compensation represented by the grant of restricted stock is
amortized over a four-year vesting period.
14. SEGMENT INFORMATION
The Company currently operates in one industry segment: Wire and Related
Products.
The Wire and Related Products Segment manufactures and sells various types
of wire used mainly by other manufacturers in their products. The major
use of the wire is for reinforcing tires and other rubber products. The
Segment also produces wire cloth and filters for automotive air bag
inflators for the air bag manufacturing industry.
The Company operates its business segments primarily in two geographic
areas -- United States and Europe. Due to its nature and relative
immateriality, the operation in Canada has been combined with the
operations in Europe and the combined total reported as foreign
operations.
Intersegment sales are billed at approximate market prices and are
eliminated in consolidation. Sales to unaffiliated customers which
individually totaled 10% or more of consolidated sales include sales to
three customers in 1998 of $32,661, $22,423, and $18,092; sales to three
customers in 1997 of $38,188, $29,111, and $26,769; and sales to three
customers in 1996 of $45,367, $29,774, and $26,555. Sales to an affiliated
joint venture were $3,130, $1,020, and $1,536 in 1998, 1997, and 1996,
respectively.
Accounts receivables from unaffiliated customers which totaled 10% or more
of the consolidated receivables include receivables from three customers
at September 30, 1998 of $3,363, $1,036, and $898; and receivables from
three customers at September 30, 1997 of $2,714, $2,150, and $872.
Operating profit is total sales less operating expenses and does not
include general corporate expenses, interest, equity in income of
affiliate, loss on sale of subsidiary, and income taxes. General corporate
expense includes certain nonrecurring costs. Included in 1998, 1997, and
1996, respectively, are approximately $8,067, $10,072, and $254 of costs
associated with divestitures and restructuring.
33
<PAGE>
Included in the divestiture and restructuring costs in 1998, 1997 and 1996
are $367, $222 and $254, respectively, for costs associated with the
Athenia Steel property project in Clifton, New Jersey. The information
reported for geographic areas necessarily includes allocations of shared
expenses and the cost of assets. Assets not identified to geographic areas
are principally cash and investments.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Year Ended September 30
-----------------------
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GEOGRAPHIC AREAS
NET SALES
United States....................................... $ 178,765 $ 195,643 $ 194,175
Foreign............................................. 47,145 53,473 55,111
Eliminations (1).................................... (415) (1,353) (732)
----------- ----------- -----------
$ 225,495 $ 247,763 $ 248,554
=========== =========== ===========
OPERATING PROFIT (LOSS)
United States....................................... $ 12,805 $ 13,496 $ 15,787
Foreign............................................. (8,464) (9,451) (1,046)
----------- ----------- -----------
Segment Operating Profit......................... 4,341 4,045 14,741
General Corporate Expense........................... (7,920) (8,742) (5,870)
----------- ----------- -----------
$ (3,579) $ (4,697) $ 8,871
=========== =========== ===========
TOTAL ASSETS
United States....................................... $ 70,826 $ 73,256 $ 70,527
Foreign............................................. 18,786 18,614 22,999
Corporate........................................... 25,466 21,315 21,162
----------- ----------- -----------
$ 115,078 $ 113,185 $ 114,688
=========== =========== ===========
(1) Represents primarily sales of foreign wire to the United States.
</TABLE>
The net assets of foreign subsidiaries included in the consolidated
figures at appropriate rates of exchange are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net current assets........................................................ $ (7,332) $ 483
Plant, equipment and other assets, net of long-term debt, deferred
taxes, and other long-term liabilities............................... 3,064 1,175
----------- -----------
$ (4,268) $ 1,658
------------ ===========
</TABLE>
34
<PAGE>
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SEPTEMBER 30, 1998
Net sales............................. $ 56,941 $ 57,959 $ 55,695 $ 54,900
Gross profit.......................... 6,453 6,968 7,636 7,461
Earnings:
Net............................... 206 127 199 (7,231)
Per share......................... .04 .02 .04 (1.35)
Common stock:
Market price:
High.......................... 8-1/16 6-7/8 6-1/8 5
Low........................... 5-1/8 5-5/16 4-13/16 3-1/16
SEPTEMBER 30, 1997
Net sales............................. $ 59,874 $ 63,127 $ 64,701 $ 60,061
Gross profit.......................... 7,023 6,424 7,008 7,429
Earnings:
Net............................... 737 (10,687) 264 696
Per share......................... .14 (2.03) .05 .13
Common stock:
Market price:
High.......................... 9-1/4 9-5/8 8-1/8 8-1/4
Low........................... 6-1/2 7-3/8 6-1/4 5-7/16
</TABLE>
Common stock market prices are as reported in The Wall Street Journal. Common
stock is traded on the New York Stock Exchange.
At September 30, 1998, there were 1,692 shareholders.
35
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
National-Standard Company:
We have audited the consolidated financial statements of National-Standard
Company and subsidiaries as listed in the accompanying index. In connection with
our audits of the consolidated financial statements, we also have audited the
financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of National-Standard
Company and subsidiaries as of September 30, 1998 and 1997, and the results of
their operations and their cash flows for each of the years in the three-year
period ended September 30, 1998, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
KPMG Peat Marwick LLP
Chicago, Illinois
November 9, 1998
36
<PAGE>
NATIONAL-STANDARD COMPANY AND SUBSIDIARIES
<TABLE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Years Ended September 30, 1998, 1997 and 1996
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Allowance for Doubtful Accounts:
Balance at Beginning of Period..................................... $ 382 $ 380 $ 398
Additions Charged to Costs and Expenses......................... 180 11 41
Recoveries of Accounts Previously Written Off................... - 1 -
Deductions (Uncollectible Accounts Written Off)................. (2) (10) (59)
--------- --------- ---------
BALANCE AT END OF PERIOD............................................. $ 560 $ 382 $ 380
======== ========= =========
</TABLE>
37
<PAGE>
NATIONAL-STANDARD COMPANY
INDEX TO EXHIBITS
EXHIBIT
(3)(i) Articles of Incorporation (incorporated by reference to Exhibit (3)(i)
to Registrant's Annual Report on Form 10-K for 1994, filed December 14,
1994).
(3)(ii) By-Laws (incorporated by reference to Exhibit (3)(ii) to Registrant's
Annual Report on Form 10-K for 1994, filed December 14, 1994).
(10) Material Contracts.
(a) Management Contracts and Remunerative Plans.
(i) National-Standard Company Restricted Stock Award Plan
(incorporated by reference to Exhibit (10)(a) to Registrant's
Quarterly Report on Form 10-Q for the first quarter of 1989
filed January 30, 1989).
(ii) National-Standard Company Supplemental Retirement Plan
(incorporated by reference to Exhibit (10)(a)(ii) to
Registrant's Annual Report on Form 10-K for 1991, filed January
31, 1992).
(iii) National-Standard Spouse's Benefit Plan for Salaried Employees
(incorporated by reference to Exhibit (10)(a)(iii) to
Registrant's Annual Report on Form 10-K for 1991, filed January
31, 1992).
(iv) Form of Amended and Restated Supplemental Compensation
Agreements (incorporated by reference to Exhibit (10)(a)(iv) to
Registrant's Annual Report on Form 10-K for 1997, filed December
12, 1997).
(v) Deferred Compensation Plan (incorporated by reference to Exhibit
(10)(ii) to Registrant's Quarterly Report on Form 10-Q for the
first quarter of 1996 filed February 8, 1996).
(vi) National-Standard Stock Option Plan (incorporated by reference
to Exhibit A to Registrant's annual Proxy Statement relating to
the Annual Meeting of Shareholders held May 19, 1993, filed
April 15, 1993).
(vii) National-Standard Company Targeted Retirement Benefit Plan
(incorporated by reference to Exhibit (10)(i) to Registrant's
Quarterly Report on Form 10-Q for the first quarter of 1996
filed February 8, 1996).
(viii) National-Standard Company Directors' Deferred Fee Plan
(incorporated by reference to Exhibit (10)(a)(viii) to
Registrant's Annual Report on Form 10-K for 1996 filed December
12, 1996).
(ix) National-Standard Company Stock Option Plan for Non-Employee
Directors (incorporated by reference to Exhibit (10)(i) to
registrant's Quarterly Report on Form 10-Q for the first quarter
of 1997 filed February 10, 1997).
(x) National-Standard Company Bonus Plan (incorporated by reference
to Exhibit (10)(i) to Registrant's Quarterly Report on Form 10-Q
for the first quarter of 1998 filed February 12, 1998).
(b) Foothill Debt Agreements
(i) Amended and Restated Loan and Security Agreement by and between
National-Standard Company and Foothill Capital Corporation dated
as of September 17, 1997 (incorporated by reference to Exhibit
(10)(b) to Registrant's Annual Report on Form 10-K for 1997,
filed December 12, 1997).
(ii) Amendment Number Two to Amended and Restated Loan and Security
Agreement.
(21) Subsidiaries of National-Standard Company.
(23) Consent of KPMG Peat Marwick LLP.
(24) Powers of Attorney.
(27) Financial Data Schedule.
38
AMENDMENT NUMBER TWO TO
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
This AMENDMENT NUMBER TWO TO AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT (this "Amendment") is entered into as of
September 30, 1998, by and between Foothill Capital Corporation, a California
corporation ("Foothill"), on the one hand, and National-Standard Company, an
Indiana corporation ("Borrower"), with reference to the following facts:
A. Foothill and Borrower heretofore have entered into that
certain Amended and Restated Loan and Security Agreement,
dated as of September 17, 1997, as amended by that certain
Amendment Number One to Amended and Restated Loan and Security
Agreement, dated as of June 30, 1998 (as heretofore modified
or supplemented from time to time, the "Agreement");
B. Borrower is or will be in violation of Section 7.10 of the
Agreement as of the fiscal year ending September 30, 1998
(such violation as of such date, the "Designated Event of
Default") and Borrower has requested Foothill to waive the
Designated Event of Default;
C. Borrower has requested Foothill to amend the Agreement to,
among other things, extend the Maturity Date to October 1,
2001, make an additional term loan, and consolidate, amend,
restate, and renew the Equipment/Real Property Term Loan and
such additional term loan, all as set forth in this Amendment;
D. Foothill is willing to so amend the Agreement and waive the
Designated Event of Default in accordance with the terms and
conditions hereof; and
E. All capitalized terms used herein and not defined herein shall
have the meanings ascribed to them in the Agreement, as
amended hereby.
NOW, THEREFORE, in consideration of the above recitals and the
mutual promises contained herein, Foothill and Borrower hereby agree as follows:
1. Amendments to the Agreement.
a. Section 1.1 of the Agreement hereby is amended by
adding the following new defined terms in alphabetical order:
39
<PAGE>
"Second Amendment" means that certain Amendment
Number Two to Amended and Restated Loan and Security Agreement, dated
as of September 30, 1998, between Foothill and Borrower.
"Second Amendment Effective Date" means the later to
occur of (a) October __, 1998, and (b) the date, if ever, that all of
the conditions set forth in Section 4 of the Second Amendment shall be
satisfied (or waived by Foothill in its sole discretion).
b. The following definitions contained in Section 1.1
of the Agreement are amended and restated in their entirety to read,
respectively, as follows:
"Maturity Date" means October 1, 2001.
"Measurement Period" means any of the following
periods: (a) the two-quarter period ending December 31, 1997; (b) the
two-quarter period ending June 30, 1998; (c) the two-quarter period
ending December 31, 1998; (d) the two- quarter period ending June 30,
1999; (e) the two-quarter period ending December 31, 1999; (f) the
two-quarter period ending June 30, 2000; (g) the two-quarter period
ending December 31, 2000; (h) the two-quarter period ending June 30,
2001; and (i) the "stub" (i.e., less than two-quarter) period
commencing July 1, 2001 and ending on the Maturity Date.
"New Equipment Term Loan Commitment" means, as of any
date of determination, the lesser of: (a) the sum of (i) Five Million
Dollars ($5,000,000) PLUS (ii) the aggregate amount of principal paid
in respect of the Equipment/Real Property Term Loan since the Second
Amendment Effective Date pursuant to Section 2.3(b); and (b) Ten
Million Dollars ($10,000,000).
"Warrant Amendment" means, collectively, (a) that
certain Amendment Number One to Warrant Purchase Agreement, dated as of
the Closing Date, between Borrower and Foothill and in the form of
Exhibit W-2, whereby Borrower agrees to extend the end of the term of
the Warrant from October 31, 1997 to October 31, 2001; and (b) that
certain Amendment Number Two to Warrant Purchase Agreement, dated as of
September 30, 1998, between Borrower and Foothill and in the form of
Exhibit W-3, whereby Borrower agrees to further extend the end of the
term of the Warrant from October 31, 2001 to October 31, 2002.
c. Section 2.3(a) of the Agreement hereby is amended
and restated in its entirety as follows:
(a) Subject to the terms and conditions of
this Agreement, Foothill: (i) agreed to make the "Equipment Term Loan"
(as defined in the Existing Loan Agreement) to Borrower on the Old
First Amendment Closing Date and the
40
<PAGE>
"Real Property Term Loan" (as defined in the Existing Loan Agreement)
to Borrower on the Original Closing Date; (ii) agreed to make a term
loan to Borrower on the Closing Date; and (iii) has agreed to make an
additional term loan to Borrower on the Second Amendment Effective
Date; in the original aggregate principal amount of Fifteen Million
Dollars ($15,000,000) (collectively, the "Equipment/Real Property Term
Loan"), to be evidenced by and repayable in accordance with the terms
and conditions of a consolidated, amended, and restated renewal
promissory note in the form of Exhibit E-1 (the "Equipment/Real
Property Term Note"), dated as of September 30, 1998, executed by
Borrower in favor of Foothill. All amounts evidenced by the
Equipment/Real Property Term Note shall constitute Obligations and
shall be secured by the security interests and liens granted by
Borrower to Foothill in and to the Collateral and Real Property. The
Equipment/Real Property Term Loan shall be repaid in accordance with
Section 2.3(b).
d. Section 2.3(b) of the Agreement hereby is amended
and restated in its entirety as follows:
(b) The Equipment/Real Property Term Loan
shall be repaid in monthly installments of principal, each in the
amount of Two Hundred Fifty Thousand Dollars ($250,000). Each such
installment shall be due and payable on the first day of each month
commencing on November 1, 1998 and continuing until and including the
date on which the unpaid balance of the Equipment/Real Property Term
Loan is paid in full. The outstanding principal balance and all accrued
and unpaid interest under the Equipment/Real Property Term Loan shall
be due and payable upon the termination of this Agreement, whether by
its terms, by prepayment, by acceleration, or otherwise.
e. Section 3.6 of the Agreement hereby is amended and
restated in its entirety as follows:
3.6 EARLY TERMINATION BY BORROWER. Borrower has the
option, at any time upon ninety (90) days prior written notice to
Foothill, to terminate this Agreement by paying to Foothill, in cash,
the Obligations (including an amount equal to the full amount of the
L/Cs or L/C Guarantees), together with a premium (the "Early
Termination Premium") equal to: (a) if such payment is made on or prior
to October 1, 1998, two percent (2.0%) of the Maximum Amount; (b) if
such payment is made during the period commencing on October 2, 1998
and ending on October 1, 1999, one percent (1.0%) of the Maximum
Amount; (c) if such payment is made during the period commencing on
October 2, 1999 and ending on April 1, 2001, one-half of one percent
(0.5%); and (d) if such payment is made thereafter, zero; provided,
however, that if Borrower is acquired by or merged with and into
another Person and the Obligations are concurrently repaid in full in
cash by
41
<PAGE>
Borrower as a result of funds proximately provided by Foothill in
connection with such merger or acquisition, Borrower need not pay the
Early Termination Premium.
2. Waiver of Designated Event of Default. Initially effective
upon the Second Amendment Effective Date, Foothill hereby waives the Designated
Event of Default. Such waiver is specific in time and in intent and does not
constitute, nor should it be construed as constituting, except to the extent
expressly set forth herein, a waiver or modification of any term of, or right,
power, or privilege under, the Agreement, the other Loan Documents, or any
agreement, contract, indenture, document, or instrument mentioned therein.
Nothing herein constitutes a waiver of any Event of Default, or any potential
Event of Default related or preliminary thereto, based on facts or occurrences
other than those on which the Designated Event of Default specifically were
premised. Such waiver does not preclude any exercise or further exercise of any
other right, power, or privilege under any Loan Document, including without
limitation, the taking of any action or remedy based upon an Event of Default
other than the Designated Event of Default.
3. Representations and Warranties. Borrower hereby represents
and warrants to Foothill that (a) the execution, delivery, and performance of
this Amendment and of the Agreement, as amended by this Amendment, are within
its corporate powers, have been duly authorized by all necessary corporate
action, and are not in contravention of any law, rule, or regulation, or any
order, judgment, decree, writ, injunction, or award of any arbitrator, court, or
governmental authority, or of the terms of its charter or bylaws, or of any
contract or undertaking to which it is a party or by which any of its properties
may be bound or affected, and (b) this Amendment and the Agreement, as amended
by this Amendment, constitute Borrower's legal, valid, and binding obligation,
enforceable against Borrower in accordance with its terms.
4. Conditions Precedent to Amendment. The satisfaction of each
of the following, unless waived or deferred by Foothill in its sole discretion,
shall constitute conditions precedent to the effectiveness of this Amendment:
a. Foothill shall have received payment of an
amendment fee in the amount of $30,000, which shall be fully earned,
non-refundable, and due and payable concurrently with the execution and delivery
of this Amendment (regardless of whether all conditions herein are satisfied or
paid);
b. Foothill shall have received the reaffirmation and
consent of Guarantor attached hereto as Exhibit A, duly executed and delivered
by an authorized official of each entity thereof;
c. Foothill shall have received a certificate from
the Secretary of Borrower attesting to the incumbency and signatures of
authorized officers of Borrower and to the resolutions of Borrower's Board of
Directors authorizing its execution and delivery
42
<PAGE>
of this Amendment and the other Loan Documents to which it is a party and
contemplated in this Amendment and the performance of this Amendment, the
Agreement as amended by this Amendment, and such other Loan Documents, and
authorizing specific officers of Borrower to execute and deliver the same;
d. Foothill shall have received each of the following
documents, duly executed, and each such document shall be in full force and
effect:
i) the Equipment/Real Property Term Note;
ii) the Warrant Amendment; and
iii) all required consents of Foothill's
participants in the Obligations to
Foothill's execution, delivery, and
performance of this Amendment, in each case
in form and substance satisfactory to
Foothill.
e. The representations and warranties in this
Amendment, the Agreement as amended by this Amendment, and the other Loan
Documents shall be true and correct in all respects on and as of the date
hereof, as though made on such date (except to the extent that such
representations and warranties relate solely to an earlier date);
f. No Event of Default or event which with the giving
of notice or passage of time would constitute an Event of Default shall have
occurred and be continuing on the date hereof, nor shall result from the
consummation of the transactions contemplated herein;
g. No injunction, writ, restraining order, or other
order of any nature prohibiting, directly or indirectly, the consummation of the
transactions contemplated herein shall have been issued and remain in force by
any governmental authority against Borrower, Foothill, or any of their
Affiliates; and
h. All other documents and legal matters in
connection with the transactions contemplated by this Amendment shall have been
delivered or executed or recorded and shall be in form and substance
satisfactory to Foothill and its counsel.
5. Condition Subsequent. Borrower hereby agrees to deliver to
Foothill, within 60 days following the Second Amendment Effective Date, each of
the following documents, duly executed:
a. such amendments of or supplements to the
Mortgages as Foothill may require, in each
case in form and substance satisfactory to
Foothill; and
43
<PAGE>
b. such amendments of or endorsements to title
insurance policies held by Foothill with
respect to the Mortgages as Foothill may
require, in each case in form and substance
satisfactory to Foothill.
6. Effect on Agreement. The Agreement, as amended hereby,
shall be and remain in full force and effect in accordance with its respective
terms and hereby is ratified and confirmed in all respects. The execution,
delivery, and performance of this Amendment shall not operate as a waiver of or,
except as expressly set forth herein, as an amendment, of any right, power, or
remedy of Foothill under the Agreement, as in effect prior to the date hereof.
7. Miscellaneous.
a. Upon the effectiveness of this Amendment, each
reference in the Agreement to "this Agreement", "hereunder", "herein", "hereof"
or words of like import referring to the Agreement shall mean and refer to the
Agreement as amended by this Amendment.
b. Upon the effectiveness of this Amendment, each
reference in the Loan Documents to the "Loan Agreement", "thereunder",
"therein", "thereof" or words of like import referring to the Agreement shall
mean and refer to the Agreement as amended by this Amendment.
c. Upon the effectiveness of this Amendment, each
reference in the Loan Documents to "Exhibit E-1" to the Agreement or words of
like import shall mean and refer to Exhibit E-1 attached hereto.
d. Upon the effectiveness of this Amendment, each
reference in the Loan Documents to "Exhibit W-3" to the Agreement or words of
like import shall mean and refer to Exhibit W-3 attached hereto.
e. This Amendment shall be governed by and construed
in accordance with the laws of the State of California.
[remainder of page intentionally left blank]
44
<PAGE>
f. This Amendment may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Amendment by signing
any such counterpart. Delivery of an executed counterpart of this Amendment by
telefacsimile shall be equally as effective as delivery of an original executed
counterpart of this Amendment. Any party delivering an executed counterpart of
this Amendment by telefacsimile also shall deliver an original executed
counterpart of this Amendment but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed as of the date first written above.
FOOTHILL CAPITAL CORPORATION,
a California corporation
By____________________________
Title:________________________
NATIONAL-STANDARD COMPANY, an Indiana
corporation
By____________________________
Title:________________________
44
<PAGE>
EXHIBIT A
Reaffirmation and Consent
All capitalized terms used herein but not otherwise defined
herein shall have the meanings ascribed to them in that certain Amendment Number
Two to Amended and Restated Loan and Security Agreement, dated as of September
30, 1998 (the "Amendment"). The undersigned hereby jointly and severally (a)
represent and warrant to Foothill that the execution, delivery, and performance
of this Reaffirmation and Consent are within each of their corporate or
organizational powers, have been duly authorized by all necessary corporate or
other organizational action, and are not in contravention of any law, rule, or
regulation, or any order, judgment, decree, writ, injunction, or award of any
arbitrator, court, or governmental authority, or of the terms of its charter or
bylaws, or of any contract or undertaking to which either of them is a party or
by which any of their properties may be bound or affected; (b) consents to the
amendment of the Agreement by the Amendment; (c) acknowledges and reaffirms its
obligations owing to Foothill under its respective guaranty and each of the
other Loan Documents to which it is party; and (d) agrees that each of the
guaranties and the other Loan Documents to which they are parties is and shall
remain in full force and effect. Although the undersigned have been informed of
the matters set forth herein and have acknowledged and agreed to same, they
understand that Foothill has no obligation to inform it of such matters in the
future or to seek its acknowledgement or agreement to future amendments, and
nothing herein shall create such a duty.
NATIONAL-STANDARD COMPANY OF CANADA,
LIMITED, a Canadian corporation
By ___________________________
Title:________________________
NATIONAL-STANDARD COMPANY, LTD., a
company organized under the laws of England
By ___________________________
Title:________________________
45
NATIONAL-STANDARD COMPANY
EXHIBIT 21
PARENTS AND SUBSIDIARIES
The Registrant has no parent.
All subsidiaries of the Registrant, National-Standard Company, an Indiana
corporation, listed below are included in the consolidated financial statements.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
State or Country in which % of Voting
Owned Incorporated or Organized Securities
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
National-Standard Export Company Delaware 100%
National-Standard Company of Canada, Limited Canada 100
National-Standard Company, Limited United Kingdom 100
</TABLE>
A domestic affiliate, 50% owned, is not considered significant and is not named
above. Financial results of this affiliate are included in the consolidated
financial statements on an equity basis.
39
EXHIBIT 23
The Board of Directors
National-Standard Company:
We consent to incorporation by reference in the registration statements (Nos.
2-71276 and 33-68926) on Form S-8 of National-Standard Company of our report
dated November 9, 1998, relating to the consolidated balance sheets of
National-Standard Company and subsidiaries as of September 30, 1998 and 1997,
and the related consolidated statements of operations, shareholders' equity and
cash flows for each of the years in the three-year period ended September 30,
1998, and the related schedule, which report appears in the September 30, 1998
annual report on Form 10-K of National-Standard Company.
KPMG Peat Marwick LLP
Chicago, Illinois
December 18, 1998
40
EXHIBIT 24
POWER OF ATTORNEY
The undersigned, a director of NATIONAL-STANDARD COMPANY (the "Company"),
does hereby constitute and appoint TIMOTHY C. WRIGHT his true and lawful
attorney-in-fact and agent, with full power of substitution and re-substitution,
for him and in his name, place and stead, to sign the Company's Form 10-K Annual
Report pursuant to Section 13 of the Securities Exchange Act of 1934 for the
fiscal year ended September 30, 1998, and any amendments thereto and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto the attorney-in-fact
full power and authority to sign the 10-K on behalf of the undersigned and to
make such filing, as fully to all intents and purposes as the undersigned might
or could do in person, hereby ratifying and confirming all that the
attorney-in-fact, or his substitutes, may lawfully do or cause to be done by
virtue hereof.
Date: November 18, 1998
/s/ Harold G. Bernthal L.S.
Harold G. Bernthal
41
<PAGE>
POWER OF ATTORNEY
The undersigned, a director of NATIONAL-STANDARD COMPANY (the "Company"),
does hereby constitute and appoint TIMOTHY C. WRIGHT his true and lawful
attorney-in-fact and agent, with full power of substitution and re-substitution,
for him and in his name, place and stead, to sign the Company's Form 10-K Annual
Report pursuant to Section 13 of the Securities Exchange Act of 1934 for the
fiscal year ended September 30, 1998, and any amendments thereto and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto the attorney-in-fact
full power and authority to sign the 10-K on behalf of the undersigned and to
make such filing, as fully to all intents and purposes as the undersigned might
or could do in person, hereby ratifying and confirming all that the
attorney-in-fact, or his substitutes, may lawfully do or cause to be done by
virtue hereof.
Date: November 18, 1998
/s/ David F. Craigmile L.S.
David F. Craigmile
42
<PAGE>
POWER OF ATTORNEY
The undersigned, a director of NATIONAL-STANDARD COMPANY (the "Company"),
does hereby constitute and appoint TIMOTHY C. WRIGHT his true and lawful
attorney-in-fact and agent, with full power of substitution and re-substitution,
for him and in his name, place and stead, to sign the Company's Form 10-K Annual
Report pursuant to Section 13 of the Securities Exchange Act of 1934 for the
fiscal year ended September 30, 1998, and any amendments thereto and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto the attorney-in-fact
full power and authority to sign the 10-K on behalf of the undersigned and to
make such filing, as fully to all intents and purposes as the undersigned might
or could do in person, hereby ratifying and confirming all that the
attorney-in-fact, or his substitutes, may lawfully do or cause to be done by
virtue hereof.
Date: November 18, 1998
/s/ Ranko Cucuz L.S.
Ranko Cucuz
43
<PAGE>
POWER OF ATTORNEY
The undersigned, a director of NATIONAL-STANDARD COMPANY (the "Company"),
does hereby constitute and appoint TIMOTHY C. WRIGHT his true and lawful
attorney-in-fact and agent, with full power of substitution and re-substitution,
for him and in his name, place and stead, to sign the Company's Form 10-K Annual
Report pursuant to Section 13 of the Securities Exchange Act of 1934 for the
fiscal year ended September 30, 1998, and any amendments thereto and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto the attorney-in-fact
full power and authority to sign the 10-K on behalf of the undersigned and to
make such filing, as fully to all intents and purposes as the undersigned might
or could do in person, hereby ratifying and confirming all that the
attorney-in-fact, or his substitutes, may lawfully do or cause to be done by
virtue hereof.
Date: November 18, 1998
/s/ John E. Guth, Jr. L.S.
John E. Guth, Jr.
44
<PAGE>
POWER OF ATTORNEY
The undersigned, a director of NATIONAL-STANDARD COMPANY (the "Company"),
does hereby constitute and appoint TIMOTHY C. WRIGHT his true and lawful
attorney-in-fact and agent, with full power of substitution and re-substitution,
for him and in his name, place and stead, to sign the Company's Form 10-K Annual
Report pursuant to Section 13 of the Securities Exchange Act of 1934 for the
fiscal year ended September 30, 1998, and any amendments thereto and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto the attorney-in-fact
full power and authority to sign the 10-K on behalf of the undersigned and to
make such filing, as fully to all intents and purposes as the undersigned might
or could do in person, hereby ratifying and confirming all that the
attorney-in-fact, or his substitutes, may lawfully do or cause to be done by
virtue hereof.
Date: November 18, 1998
/s/ Ronald B. Kalich L.S.
Ronald B. Kalich
45
<PAGE>
POWER OF ATTORNEY
The undersigned, a director of NATIONAL-STANDARD COMPANY (the "Company"),
does hereby constitute and appoint TIMOTHY C. WRIGHT his true and lawful
attorney-in-fact and agent, with full power of substitution and re-substitution,
for him and in his name, place and stead, to sign the Company's Form 10-K Annual
Report pursuant to Section 13 of the Securities Exchange Act of 1934 for the
fiscal year ended September 30, 1998, and any amendments thereto and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto the attorney-in-fact
full power and authority to sign the 10-K on behalf of the undersigned and to
make such filing, as fully to all intents and purposes as the undersigned might
or could do in person, hereby ratifying and confirming all that the
attorney-in-fact, or his substitutes, may lawfully do or cause to be done by
virtue hereof.
Date: November 18, 1998
/s/ Ernest J. Nagy L.S.
Ernest J. Nagy
46
<PAGE>
POWER OF ATTORNEY
The undersigned, a director of NATIONAL-STANDARD COMPANY (the "Company"),
does hereby constitute and appoint TIMOTHY C. WRIGHT his true and lawful
attorney-in-fact and agent, with full power of substitution and re-substitution,
for him and in his name, place and stead, to sign the Company's Form 10-K Annual
Report pursuant to Section 13 of the Securities Exchange Act of 1934 for the
fiscal year ended September 30, 1998, and any amendments thereto and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto the attorney-in-fact
full power and authority to sign the 10-K on behalf of the undersigned and to
make such filing, as fully to all intents and purposes as the undersigned might
or could do in person, hereby ratifying and confirming all that the
attorney-in-fact, or his substitutes, may lawfully do or cause to be done by
virtue hereof.
Date: November 18, 1998
/s/ Charles E. Schroeder L.S.
Charles E. Schroeder
47
<PAGE>
POWER OF ATTORNEY
The undersigned, a director of NATIONAL-STANDARD COMPANY (the "Company"),
does hereby constitute and appoint TIMOTHY C. WRIGHT his true and lawful
attorney-in-fact and agent, with full power of substitution and re-substitution,
for him and in his name, place and stead, to sign the Company's Form 10-K Annual
Report pursuant to Section 13 of the Securities Exchange Act of 1934 for the
fiscal year ended September 30, 1998, and any amendments thereto and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto the attorney-in-fact
full power and authority to sign the 10-K on behalf of the undersigned and to
make such filing, as fully to all intents and purposes as the undersigned might
or could do in person, hereby ratifying and confirming all that the
attorney-in-fact, or his substitutes, may lawfully do or cause to be done by
virtue hereof.
Date: November 18, 1998
/s/ Donald F. Walter L.S.
Donald F. Walter
48
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains annual summary financial information extracted from
National-Standard Company 1998 Form 10-K and is qualified in its entirety by
reference to such Form 10-K filing.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 251
<SECURITIES> 0
<RECEIVABLES> 24,832
<ALLOWANCES> 560
<INVENTORY> 17,966
<CURRENT-ASSETS> 43,557
<PP&E> 172,987
<DEPRECIATION> 122,227
<TOTAL-ASSETS> 115,078
<CURRENT-LIABILITIES> 74,355
<BONDS> 0
0
0
<COMMON> 27,441
<OTHER-SE> (59,892)
<TOTAL-LIABILITY-AND-EQUITY> 115,078
<SALES> 225,495
<TOTAL-REVENUES> 225,495
<CGS> 196,977
<TOTAL-COSTS> 196,977
<OTHER-EXPENSES> (790)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,751
<INCOME-PRETAX> (6,540)
<INCOME-TAX> 159
<INCOME-CONTINUING> (6,699)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,699)
<EPS-PRIMARY> (1.27)
<EPS-DILUTED> (1.27)
</TABLE>
