UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q -- QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FORM 10-Q
For the period ended January 3, 1999
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Commission file number 1-3940
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National-Standard Company
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(Exact name of registrant as specified in its charter)
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)
(616) 683-8100
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(Registrant's telephone number, including area code)
Indicate by check mark whether 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.
[X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Title of Each Class Shares Outstanding at February 15, 1999
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Common Stock, $ .01 par value 5,728,759
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Part I. FINANCIAL INFORMATION
NATIONAL-STANDARD COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
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($000, Except Per Share Amounts)
Three Months Ended
January 3, December 28,
1999 1997
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Net Sales $ 52,574 $ 56,941
Cost of sales 46,160 50,488
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Gross profit 6,414 6,453
Selling and administrative expenses 4,910 5,528
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Operating profit 1,504 925
Interest expense (1,009) (1,004)
Other income 17 359
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Income before income taxes 512 280
Income taxes 0 74
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Net income $ 512 $ 206
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Basic earnings per share $ .09 $ .04
Diluted earnings per share $ .09 $ .04
Dividends per share $ 0.00 $ 0.00
Average shares outstanding 5,485,099 5,228,644
See accompanying notes to consolidated financial statements.
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National-Standard Company and Subsidiaries
Consolidated Statements of Comprehensive Income (Unaudited)
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($000)
Three Months Ended
January 3, December 28,
1999 1997
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Net income $ 512 $ 206
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Other comprehensive income (loss):
Foreign currency translation adjustments 93 (213)
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Other comprehensive income (loss) 93 (213)
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Comprehensive income (loss) $ 605 $ (7)
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See accompanying notes to consolidated financial statements.
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<TABLE>
NATIONAL-STANDARD COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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($000)
<CAPTION>
Assets January 3, 1999 September 30, 1998
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(Unaudited)
<S> <C> <C> <C> <C>
Current assets:
Cash $ 342 $ 251
Receivables, net 22,504 24,272
Inventories:
Raw material $ 9,867 $ 10,054
Work-in-process 7,364 6,772
Finished goods 1,063 18,294 1,140 17,966
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Prepaid expenses 2,649 2,347
Deferred tax asset 1,833 1,721
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Total current assets $ 45,622 $ 46,557
Property, plant and equipment $ 174,707 $ 172,987
Less accumulated depreciation 125,005 49,702 122,227 50,760
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Other assets 17,093 17,761
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$ 112,417 $ 115,078
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Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 24,716 $ 28,097
Employee compensation and benefits 1,980 2,993
Accrued pension 1,062 1,062
Other accrued expenses 14,506 15,491
Current accrued postretirement benefit cost 2,400 2,400
Notes payable to banks and current portion of
long-term debt 26,778 24,312
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Total current liabilities $ 71,442 $ 74,355
Long-term debt 13,113 14,029
Other long-term liabilities 9,138 9,286
Accrued postretirement benefit cost 49,859 49,859
Stockholders' equity:
Common stock -- $ .01 par value. Authorized
25,000,000 shares; issued 5,725,740 and 5,470,740
shares, respectively $ 28,137 $ 27,441
Retained deficit (52,174) (52,686)
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$ (24,037) $ (25,245)
Less: Unamortized value of restricted stock 91 128
Treasury stock, at cost, 6,981 and 2,669
shares, respectively 42 20
Other comprehensive income:
Foreign currency translation adjustments 839 932
Excess of additional pension liability over
unrecognized prior service cost 6,126 (31,135) 6,126 (32,451)
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$ 112,417 $ 115,078
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See accompanying notes to consolidated financial statements.
</TABLE>
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<TABLE>
NATIONAL-STANDARD COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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($000)
<CAPTION>
Three Months Ended
January 3, December 28,
1999 1997
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<S> <C> <C>
Net cash provided by operating activities $ (297) $ 981
Investing Activities:
Capital expenditures (1,245) (3,039)
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Net cash used for investing activities (1,245) (3,039)
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Financing Activities:
Net borrowings under revolving credit agreements 2,640 2,970
Principal payments under term loans (1,003) (827)
Other (4) (40)
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Net cash provided by financing activities 1,633 2,103
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Net increase in cash 91 45
Beginning cash 251 729
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Ending cash $ 342 $ 774
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Supplemental Disclosures:
Interest paid $ 793 $ 1,032
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Income taxes paid $ 2 $ -0-
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See accompanying notes to consolidated financial statements.
</TABLE>
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NATIONAL-STANDARD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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1. In the opinion of management, all adjustments (consisting only of normal
recurring adjustments) necessary for a fair statement of the financial
statements for the interim periods included herein have been made.
The accounting policies followed by the Company are set forth in Note 1
to the Company's consolidated financial statements in the 1998
National-Standard Company Form 10-K, Annual Report, and this report
should be read in conjunction therewith.
2. The results of operations for the three-month period ended January 3,
1999 are not necessarily indicative of the results to be expected for
the full year.
3. On October 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income."
SFAS 130 establishes standards for reporting and display of
comprehensive income and its components.
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NATIONAL-STANDARD COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
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FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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RESULTS OF OPERATIONS
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Net sales for the first quarter of Fiscal 1999 decreased 8% over the same period
last year. Gross margin percentages were 12.2% for the current three-month
period compared to 11.3% for the same period last year.
The sales decline was primarily in the weld wire and rubber reinforcement
products. Weld wire sales were down 11% from the first quarter last year due to
the slowdown in the Asian economy and the depressed agricultural equipment
market. The rubber reinforcement products sales declined 4% over last year
primarily due to lower selling prices. In addition to the sales decline in North
America, the Company's Kidderminster operation also reported a 17% reduction in
sales over the same period last year due to both the Asian economy and depressed
agricultural equipment market.
Net income for the quarter was $ .5 million or 9 cents per share versus $ .2
million or 4 cents per share last year. The $ .3 million increase in income over
last year reflects the net positive impact of the 1998 restructuring in U.S.
operations, partially offset by worse results for the wire operations in Guelph,
Canada, and Kidderminster, United Kingdom. Operations at Guelph terminated in
the first quarter.
The Company recorded a charge in the fourth quarter of Fiscal 1998 of $7.7
million to consolidate its North American wire manufacturing by closing its
Guelph, Ontario facility and relocating certain equipment to its Stillwater,
Oklahoma and Niles, Michigan facilities, consolidation of wire cloth
manufacturing and reduction in salaried employment levels. The Company announced
that it would incur approximately $1.0 million of cost to relocate equipment in
1999. For the first three months of 1999, the Company incurred expenses of
approximately $ .3 million related to equipment moves and expects to incur the
remaining $ .7 million in the second quarter.
The restructuring announced in 1998 is progressing on plan. The Canadian
facility ceased production in December, and equipment to be relocated is being
moved. The reductions in administrative support personnel were essentially
completed in the first quarter. A definitive agreement has been signed for the
sale of the Kidderminster wire operations with a closing scheduled for February
1999. The sale of non-air bag related wire cloth product lines previously
manufactured in Corbin, Kentucky was finalized in December 1998 and January
1999, with the proceeds used to reduce debt.
For the quarter, the Guelph operation incurred losses from operations of
approximately $ .5 million, compared to losses of $ .3 million in 1998, while
the wire manufacturing facility in Kidderminster, United Kingdom incurred losses
of approximately $ .8 million, compared to income of $ .2 million in 1998.
Excluding the losses from international operations and the $ .3 million expense
for equipment moves, the net income for the Company's remaining operations would
be $2.1 million for the quarter, compared to $ .4 million for the same period
last year.
Interest expense of $1.0 million in the current three-month period was the same
as the three-month period last year.
Other income in the first quarter last year of $359 is primarily the gain on
disposition of idle assets and foreign exchange gains.
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The Company remains in an operating loss carryforward position in the United
States, Canada, and the United Kingdom. Income tax expense on current income was
substantially offset by a portion of these carryforwards, as well as a decrease
in the net deferred tax asset valuation reserve.
LIQUIDITY AND CAPITAL RESOURCES
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Total borrowings increased $1.6 million during the quarter, due primarily to
fund working capital requirements.
The Company's credit facility provides for up to $55.0 million in revolving
credit facilities, term loans and a line of credit for future capital
expenditures. During 1998, the Company renewed its credit facility originally
entered into in 1994 to October 1, 2001. The loans are fully secured by the
Company's assets.
The Company believes adequate funding is in place to fund future growth and meet
the market demand for our products.
In late December of 1998, the Company contributed 255,000 shares of
National-Standard common stock to the National-Standard Pension Master Trust.
The action brings the total shares outstanding to 5,718,759. The Pension Master
Trust holds 1,963,175 shares of National-Standard common stock, 34% of the total
shares outstanding.
YEAR 2000
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The Company has undertaken a Year 2000 program to assess and then to resolve any
issues relating to this matter. The Company is currently in the process of
upgrading its business systems to Year 2000 compliant software. The total cost
to the Company of achieving Year 2000 compliance is not expected to exceed $1.2
million and will consist of the utilization of internal and external resources.
Spending to date totals approximately $ .3 million. 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.
The Company is in the process of determining the risk 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. To date, the Company has
identified all applications and hardware with potential issues, performed an
assessment to determine the appropriate action plans to remediate any problems,
and started the process of implementing these plans and testing the
modifications as they are completed. The Company is also assessing potential
third-party risk. 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, while all remediation projects are expected
to be completed by the end of the third calendar quarter of 1999.
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"SAFE HARBOR" STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
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1995
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Statements under Management's Discussion and Analysis of Financial Condition and
Results of Operations relating to funding of future growth and Year 2000 impact,
and the other statements in this Form 10-Q which are not historical facts, are
forward looking statements. These forward looking statements involve risks and
uncertainties that could render them materially different, including, but not
limited to, changes in economic conditions, the impact of competitive pricing
and products, industry overcapacity, and availability and cost of raw materials.
The Company does not intend to update these forward looking statements.
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Part II. OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) There were no reports on Form 8-K filed during the three months
ended January 3, 1999.
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL-STANDARD COMPANY
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Registrant
Date February 17, 1999 /s/ M. B. Savitske
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M. B. Savitske
President and Chief Executive Officer
Date February 17, 1999 /s/ W. D. Grafer
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W. D. Grafer
Vice President, Finance
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains first quarter summary financial information extracted
from National-Standard Company 1999 first quarter Form 10-Q and is qualified in
its entirety by reference to such Form 10-Q filing.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> JAN-03-1999
<CASH> 342
<SECURITIES> 0
<RECEIVABLES> 23,063
<ALLOWANCES> 559
<INVENTORY> 18,294
<CURRENT-ASSETS> 45,622
<PP&E> 174,707
<DEPRECIATION> 125,005
<TOTAL-ASSETS> 112,417
<CURRENT-LIABILITIES> 71,442
<BONDS> 0
0
0
<COMMON> 28,137
<OTHER-SE> (59,272)
<TOTAL-LIABILITY-AND-EQUITY> 112,417
<SALES> 52,574
<TOTAL-REVENUES> 52,574
<CGS> 46,160
<TOTAL-COSTS> 46,160
<OTHER-EXPENSES> (17)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,009
<INCOME-PRETAX> 512
<INCOME-TAX> 0
<INCOME-CONTINUING> 512
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 512
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
