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 April 4, 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 May 10, 1999
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Common Stock, $ .01 par value 5,728,801
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Part I. FINANCIAL INFORMATION
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<TABLE>
NATIONAL-STANDARD COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
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($000, Except Per Share Amounts)
<CAPTION>
Three Months Ended Six Months Ended
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April 4, March 29, April 4, March 29,
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Net Sales $ 50,049 $ 57,959 $ 102,623 $ 114,900
Cost of sales 43,092 50,991 89,252 101,479
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Gross profit 6,957 6,968 13,371 13,421
Selling and administrative expenses 3,907 6,014 8,817 11,542
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Operating profit 3,050 954 4,554 1,879
Interest expense (933) (974) (1,942) (1,978)
Other income (expense), net (136) 122 (119) 481
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Income before income taxes 1,981 102 2,493 382
Income taxes (71) (25) (71) 49
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Net income $ 2,052 $ 127 $ 2,564 $ 333
============== ============== ============== ==============
Basic earnings per share $ 0.36 $ 0.02 $ 0.46 $ 0.06
Diluted earnings per share $ 0.35 $ 0.02 $ 0.45 $ 0.06
Dividends per share $ 0.00 $ 0.00 $ 0.00 $ 0.00
Basic average shares outstanding 5,727,537 5,233,542 5,604,986 5,231,066
Diluted average shares outstanding 5,791,447 5,233,542 5,646,267 5,231,066
See accompanying notes to consolidated financial statements.
</TABLE>
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<TABLE>
NATIONAL-STANDARD COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
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($000)
<CAPTION>
THREE MONTHS ENDED Six Months Ended
APRIL 4, March 29, April 4, March 29,
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Net Income $ 2,052 $ 127 $ 2,564 $ 333
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Other comprehensive income (loss):
Foreign currency translation adjustments 915 (42) 1,008 (255)
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Other comprehensive income (loss) 915 (42) 1,008 (255)
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Comprehensive income $ 2,967 $ 85 $ 3,572 $ 78
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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 April 4, 1999 September 30, 1998
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(Unaudited)
<S> <C> <C> <C> <C>
Current assets:
Cash $ 2,495 $ 251
Receivables, net 19,691 24,272
Inventories:
Raw material $ 7,176 $ 10,054
Work-in process 4,829 6,772
Finished goods 265 12,270 1,140 17,966
Prepaid expenses 2,142 2,347
Deferred tax asset 2,077 1,721
Total current assets $ 38,675 $ 46,557
Property, plant and equipment $ 138,779 $ 172,987
Less accumulated depreciation 93,491 45,288 122,227 50,760
Other assets 18,324 17,761
$ 102,287 $ 115,078
Liabilities and Stockholders' Equity Current liabilities:
Accounts payable $ 21,220 $ 28,097
Employee compensation and benefits 1,115 2,993
Accrued pension 1,062 1,062
Other accrued expenses 8,623 15,491
Current accrued postretirement benefit cost 2,400 2,400
Notes payable to banks and current portion of
long-term debt 21,140 24,312
Total current liabilities $ 55,560 $ 74,355
Long-term debt 12,224 14,029
Other long-term liabilities 12,772 9,286
Accrued postretirement benefit cost 49,859 49,859
Stockholders' equity
Common stock - $ .01 par value. Authorized
25,000,000 shares; issued 5,735,740 and
5,470,740 shares, respectively $ 28,172 $ 27,441
Retained deficit (50,122) (52,686)
$ (21,950) $ (25,245)
Less: Unamortized value of restricted stock 81 128
Treasury stock, at cost, 6,981 and 2,669
shares, respectively 47 20
Other comprehensive income:
Foreign currency translation adjustments (76) 932
Excess of additional pension liability over
unrecognized prior service cost 6,126 (28,128) 6,126 (32,451)
--------------- --------------- -------------- -------------
$ 102,287 $ 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>
Six Months Ended
April 4, March 29,
1999 1998
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<S> <C> <C>
Net cash provided by operating activities $ 4,155 $ 7,877
Investing Activities:
Capital expenditures (2,539) (5,774)
Proceeds from sale of equipment 2,335 0
Proceeds from sale of United Kingdom subsidiary 3,244 0
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Net cash used for investing activities 3,040 (5,774)
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Financing Activities:
Net borrowings (payments) under revolving credit agreements (2,946) 2,095
Principal payments under term loans (2,031) (1,662)
Other 26 (26)
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Net cash used for financing activities (4,951) 407
Net increase in cash 2,244 2,510
Beginning cash 251 729
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Ending cash $ 2,495 $ 3,239
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Supplemental Disclosures:
Interest paid $ 1,684 $ 1,983
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Income taxes paid $ 7 $ 6
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SEE ACCOMPANYING NOTES TO 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 six-month period ended April 4, 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 second quarter of 1999 decreased 13.6% over the same period
last year, while net sales for the six months ended March 1999 decreased 10.7%
over the same period last year. Gross margin percentages were 13.9% and 13.0%,
respectively, for the current three- and six-month periods compared to 12.0% and
11.7%, respectively, for the same periods last year.
Sales for the second quarter of fiscal year 1999 were $50.0 million, compared to
$58.0 million for the same period last year, while sales for the six-month
period ended April 4, 1999 were $102.6 million compared to $114.9 million in the
first half of fiscal 1998. Sales in the current three- and six-month periods
include lower sales from the Kidderminster, United Kingdom facility of 39.6% and
28.1%, respectively, from the prior year due to the sale of the Kidderminster
wire operation.
As reported in March, 100% of the wire operation at Kidderminster in the United
Kingdom was sold on March 12, 1999. The second quarter results include both the
quarter's operating loss up to the sale date of $.4 million from the United
Kingdom and a $.6 million gain on the transaction, a net positive impact in the
quarter of $.2 million compared to Kidderminster's last year's second quarter
net loss of $.2 million.
Domestically, sales of air bag inflator filtration products for the three- and
six-month periods decreased approximately 10.8% and 6.8%, respectively, over the
same periods last year due to lower sales of certain low margin wire cloth for
automotive air bag filtration applications. Weld wire sales were down 4.6% and
7.7% for the current three- and six-month periods from last year, as sales from
these operations were adversely affected by the slowdown in the Asian economy
and the depressed agricultural equipment market. Rubber reinforcement products
experienced a 4.3% and 3.9% decrease for the same time period due primarily to
lower selling prices.
Net income for the second quarter of fiscal year 1999 was $2.1 million or 35
cents per diluted share versus a net income of $.1 million or 2 cents per
diluted share for the same period last year. The $2.0 million increase in income
over last year is due to the net positive impact of the 1998 restructuring in
U.S. operations, the closure of the Guelph, Ontario operation, and the sale of
the Kidderminster, United Kingdom plant. The Company's remaining operations
include seven facilities in the U.S. and one facility in the United Kingdom.
During the second quarter, four restructuring activities were completed. The
Kidderminster wire operation was sold; the Guelph, Ontario plant was closed and
useful production capacity relocated to the Stillwater, Oklahoma and Niles,
Michigan plants; the weaving operation at the Corbin, Kentucky plant was sold
and relocated; and the administrative expense reductions were fully implemented.
The Company incurred $.7 million of expense in the quarter in relocating
equipment from Guelph. Excluding England's $.2 million net gain and the
non-recurring $.7 million of equipment relocation costs, the net earnings for
the quarter from the remaining businesses were $2.6 million compared to a $.3
million result without Kidderminster in the year earlier period.
For the first six months of 1999, net income was $2.6 million or 45 cents per
diluted share versus $.3 million, or 6 cents per diluted share in the same
period last year. The net income reported in the first half of the fiscal year
includes a net loss of $.6 million from the Kidderminster operation which
consists of a $1.2 million loss from operations offset by the $.6 million gain
from the sale of the unit. During the comparable period last year, the
Kidderminster operation was breakeven. In addition, the Company incurred $1.0
million of expense in the first six months of the fiscal year for the relocation
of the Guelph plant's wire manufacturing capacity. Without the Kidderminster net
loss of $.6 million and the $1.0 of the nonrecurring cost for moving equipment,
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the Company would have recorded $4.2 million of net income in the current
six-month period, compared to $.3 million in the comparable period last year.
Interest expense of $ .9 million and $1.9 million, respectively, in the current
three- and six-month periods decreased 4.2% and 1.8%, respectively, over the
same periods last year, due to lower levels of borrowing.
Other income of $122 and $481 for the three- and six-month periods last year is
primarily the gain on disposition of idle assets and foreign exchange gains.
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 decreased $5.0 million during the six-month period, due
primarily to the proceeds received for the sale of the Kidderminster, United
Kingdom operation and the weaving operation in Corbin, Kentucky.
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 total shares outstanding on April 4, 1999 were 5,728,759. 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 $ .5 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.
However, there can be no guarantee that actual results will not differ from
these 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
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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.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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There have been no material changes in the Company's market risk during the
three-month period ended April 4, 1999. For additional information, refer to
Item 7A in the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1998.
"SAFE HARBOR" STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
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, ability to meet
market demand, 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 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders of the Registrant was
on January 28, 1999.
(b) Not applicable.
(c) Set forth below is the tabulation of the votes on each nominee
for election as a director to serve until the annual meeting
in 2002.
WITHHOLD
NAME FOR AUTHORITY
Ronald B. Kalich 4,626,095 586,626
Ernest J. Nagy 4,527,305 685,416
Donald R. Sheley, Jr. 4,632,905 579,816
(d) Not applicable.
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 April 4, 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 May 14, 1999 /s/ M. B. Savitske
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M. B. Savitske
President and Chief Executive Officer
Date May 14, 1999 /s/ W. D. Grafer
-------------------------- ------------------------------------
W. D. Grafer
Vice President, Finance
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains second quarter summary financial information extracted
from National-Standard Company 1999 second 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> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> APR-4-1999
<CASH> 2,495
<SECURITIES> 0
<RECEIVABLES> 19,946
<ALLOWANCES> 255
<INVENTORY> 12,270
<CURRENT-ASSETS> 38,675
<PP&E> 138,779
<DEPRECIATION> 93,491
<TOTAL-ASSETS> 102,287
<CURRENT-LIABILITIES> 55,560
<BONDS> 0
0
0
<COMMON> 28,172
<OTHER-SE> (56,300)
<TOTAL-LIABILITY-AND-EQUITY> 102,287
<SALES> 102,623
<TOTAL-REVENUES> 102,623
<CGS> 89,252
<TOTAL-COSTS> 89,252
<OTHER-EXPENSES> 119
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,942
<INCOME-PRETAX> 2,493
<INCOME-TAX> (71)
<INCOME-CONTINUING> 2,564
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,564
<EPS-PRIMARY> .46
<EPS-DILUTED> .45
</TABLE>
