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 July 2, 2000
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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)
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Indiana 38-1493458
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
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1618 Terminal Road, Niles, Michigan 49120
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(Address of principal executive offices) (Zip Code)
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(616) 683-8100
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(Registrant's telephone number, including area code)
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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 August 11, 2000
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Common Stock, $ .01 par value 5,788,569
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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 Nine Months Ended
July 2, July 4, July 2, July 4,
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Net Sales $ 40,038 $ 41,632 $ 120,978 $ 144,255
Cost of sales 34,787 35,989 106,080 125,241
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Gross profit 5,251 5,643 14,898 19,014
Selling and administrative expenses 3,729 2,627 15,352 11,444
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Operating profit (loss) 1,522 3,016 (454) 7,570
Interest expense (889) (744) (2,490) (2,686)
Other income (expense), net (55) (18) 29 (137)
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Income (loss) before income taxes 578 2,254 (2,915) 4,747
Income tax expense (benefit) 9 (106) (165) (177)
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Net income (loss) $ 569 $ 2,360 $ (2,750) $ 4,924
Basic earnings (loss) per share $ 0.10 $ 0.41 $ (0.48) $ 0.87
Diluted earnings (loss) per share $ 0.10 $ 0.40 $ (0.48) $ 0.86
Dividends per share $ 0.00 $ 0.00 $ 0.00 $ 0.00
Basic average shares outstanding 5,788,569 5,728,801 5,762,646 5,646,258
Diluted average shares outstanding 5,788,569 5,883,415 5,762,646 5,734,045
See accompanying notes to consolidated financial statements.
</TABLE>
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<TABLE>
NATIONAL-STANDARD COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
($000)
<CAPTION>
THREE MONTHS ENDED Nine Months Ended
JULY 2, JULY 4, July 2, July 4,
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Net income (loss) $ 569 $ 2,360 $ (2,750) $ 4,924
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Other comprehensive income (loss):
Foreign currency translation adjustments (19) 42 21 1,050
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Other comprehensive income (LOSS) (19) 42 21 1,050
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Comprehensive income (loss) $ 550 $ 2,402 $ (2,729) $ 5,974
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
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<PAGE>
<TABLE>
NATIONAL-STANDARD COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($000)
<CAPTION>
Assets July 2, 2000 September 30, 1999
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Current assets: (Unaudited)
<S> <C> <C> <C> <C>
Cash $ 567 $ 401
Receivables, net 22,569 16,590
Inventories:
Raw material $ 7,106 $ 6,601
Work-in process 7,703 6,273
Finished goods 413 15,222 128 13,002
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Prepaid expenses 1,779 1,853
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Total current assets $ 40,137 $ 31,846
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Property, plant and equipment $ 138,604 $ 135,997
Less accumulated depreciation 97,304 41,300 92,102 43,895
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Other assets 19,729 22,100
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$ 101,166 $ 97,841
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 25,917 $ 21,514
Employee compensation and benefits 2,062 2,055
Accrued pension 478 478
Other accrued expenses 5,887 6,332
Current accrued postretirement benefit cost 2,400 2,400
Notes payable to banks and current portion of
long-term debt 25,045 21,224
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Total current liabilities $ 61,789 $ 54,003
Long-term debt 10,822 10,463
Other long-term liabilities 5,786 5,822
Accrued postretirement benefit cost 44,699 46,916
Stockholders' equity
Common stock - $ .01 par value. Authorized
25,000,000 shares; issued 5,797,740 and
5,735,740 shares, respectively $ 28,346 $ 28,171
Retained deficit (48,873) (46,123)
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$ (20,527) $ (17,952)
Less: Unamortized value of restricted stock 60 52
Treasury stock, at cost, 9,171 and 8,044
shares, respectively 60 55
Other comprehensive income:
Foreign currency translation adjustments 988 1,009
Minimum pension liability adjustment 295 (21,930) 295 (19,363)
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$ 101,166 $ 97,841
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
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<TABLE>
NATIONAL-STANDARD COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
($000)
<CAPTION>
NINE MONTHS ENDED
July 2, July 4,
2000 1999
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<S> <C> <C>
NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES $ (1,363) $ 4,651
INVESTING ACTIVITIES:
CAPITAL EXPENDITURES (2,646) (4,631)
PROCEEDS FROM SALE OF EQUIPMENT 0 2,585
PROCEEDS FROM SALE OF UNITED KINGDOM SUBSIDIARY 0 3,244
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NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES (2,646) 1,198
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FINANCING ACTIVITIES:
TERM LOAN ADVANCE 3,000 0
NET BORROWINGS (PAYMENTS) UNDER REVOLVING CREDIT AGREEMENTS 3,821 (192)
PRINCIPAL PAYMENTS UNDER TERM LOANS (2,641) (3,205)
OTHER (5) 26
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NET CASH PROVIDED BY (USED FOR) financing activities 4,175 (3,371)
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NET INCREASE IN CASH 166 2,478
BEGINNING CASH 401 251
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ENDING CASH $ 567 $ 2,729
SUPPLEMENTAL DISCLOSURES:
INTEREST PAID $ 2,463 $ 2,395
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INCOME TAXES PAID, NET OF REFUNDS RECEIVED $ (87) $ 7
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
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<PAGE>
NATIONAL-STANDARD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 1999
National-Standard Company Form 10-K, Annual Report, and this report
should be read in conjunction therewith.
2. The results of operations for the nine-month period ended July 2, 2000
are not necessarily indicative of the results to be expected for the
full year.
3. As a result of an Amendment to the 1999 National-Standard Company Form
10-K filed March 20, 2000, the retained deficit and foreign currency
translation adjustment has changed as compared to that which was
previously filed in the Consolidated Balance Sheet.
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<PAGE>
NATIONAL-STANDARD COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales for the third quarter of fiscal year 2000 were $40.0 million, compared
to $41.6 million for the same period last year, a decline of 3.8%, while net
sales for the nine-month period ended July 2, 2000 were $121.0 million, compared
to $144.3 million for the nine-month period of fiscal year 1999, a decline of
16.1%. Included in last year's sales for the nine-month period are $10.5 million
from the Company's former Kidderminster, United Kingdom facility and $1.7
million from the divested non-air bag wire cloth product line sold in 1999.
Gross profit percentages were 13.1% and 12.3%, respectively, for the current
three- and nine-month periods, compared to 13.6% and 13.2%, respectively, for
the same periods last year.
Sales of engineered products for the three- and nine-month periods decreased
approximately 4.5% and 15.1% from last year, excluding the divested product
lines. The decline is due primarily to lower unit prices for new air bag
inflator filter constructions. Sales of wire products declined 3.8% and 5.7%
over the same time periods last year. The wire declines were largely
attributable to lower selling prices and weld wire sales lost due to the closure
of the Canadian facility last year. Several major initiatives were put in place
by the Company to both recover lost sales in weld wire and generate new
business. During the first half of fiscal year 2000, the Company began adding
new marketing staff to better serve its customers. Additionally, in the past two
quarters, the Company has built weld wire inventory to further improve delivery
performance and transition to shipments from newly created warehouse stock in
existing National-Standard facilities.
Net income for the third quarter of fiscal year 2000 was $0.6 million or 10
cents per diluted share versus a net income of $2.4 million or 40 cents per
diluted share for the same period last year. Included in last year's third
quarter net income is a $.7 million post-retirement benefit gain related to
changes in the Company's retiree health benefits that were made in 1998. The
remaining decrease in income from last year's third quarter is largely
attributable to lower than planned sales volume in some of the Company's higher
margin products.
For the first nine months of fiscal year 2000, the Company had a net loss of
$2.8 million or 48 cents per diluted share versus a net income of $4.9 million
or 86 cents per diluted share in the same period last year. This year's results
include a $1.3 million charge to realign organizational responsibilities and a
$1.5 million charge to reserve for the uncollectibility of a note receivable
from the Company's former facility in Kidderminster, United Kingdom. Both
charges were taken in the first quarter.
Interest expense of $0.9 million and $2.5 million increased 19% in the current
three-month period and decreased 7% in the current nine-month period from the
same periods last year. The increase in the current three-month period is
attributable to a higher level of borrowings for the third quarter this year
compared to the third quarter last year. The decrease in the nine-month period
is due primarily to a lower level of average borrowings over the entire nine
months this year, compared to the same period last year, as the Company had
approximately $3.5 million of debt from the facility in Kidderminster, United
Kingdom, prior to its sale in March 1999.
The Company remains in a tax operating loss carryforward position in the United
States and Canada.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Total borrowings increased $4.2 million during the nine-month period, primarily
to meet 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 the first quarter of fiscal 2000, the Company renewed its
credit facility, originally entered into in 1994, to December 28, 2002. The
loans are secured by substantially all of the Company's assets.
During the third quarter, the Company experienced liquidity difficulties. Such
difficulties were due to the previously mentioned price pressures and the
failure of the Company to meet sales forecasts. This limited the Company's
ability to make additional borrowings under its revolving credit facility.
Access is based on a percentage of qualified accounts receivable and inventory.
On June 26, 2000, the Company entered into a definitive merger agreement with
Heico Holding, Inc. and NS Acquisition Corp., providing for Heico to acquire all
of the outstanding shares of common stock of the Company for $1.00 per share in
cash, or approximately $5.8 million. Under the terms of the agreement, NS
Acquisition Corp. commenced a cash tender offer to purchase all outstanding
common shares of National- Standard at $1.00 per share. The tender offer expired
on August 4, 2000 at 12:00 midnight, New York City time. Based on information
provided by EquiServe Trust Company, as of such time, 4,721,759 shares of the
Company's common stock had been tendered, including approximately 36,960 shares
tendered by notice of guaranteed delivery. After giving effect to the results of
the tender offer, Heico will own approximately 81.5% of the total shares of the
Company outstanding. Following the completion of the tender offer and subject to
the conditions set forth in the merger agreement, NS Acquisition Corp. will be
merged into the Company and each remaining common share of the Company will be
converted into the right to receive $1.00 in cash.
Following the announcement that the Company had entered into the merger
agreement, the Company obtained in July an additional $2.5 million short-term
credit facility from its senior lender that is intended to meet the Company's
short-term operating needs. Borrowings available under the facility will be
reduced throughout the month of September 2000, and the facility terminates
September 30, 2000. As the amount available under such facility is reduced,
there can be no assurance that the Company will have or be able to obtain other
sources of funding sufficient to meet its short-term operating needs pending the
completion of the merger.
RESTRUCTURING AND IMPAIRMENTS
The Company's consolidation of its North American wire manufacturing operations
that had begun during 1998 continued in 1999. In fiscal year 1998, the Company
closed its Guelph, Ontario facility and relocated certain equipment to the
Stillwater, Oklahoma and Niles, Michigan facilities incurring a restructuring
charge of $4.8 million. The $4.8 million charge included $2.9 million for
benefits relating to the termination of 93 employees, $1.4 million for a
write-down of idled equipment, and $0.5 million of lease and environmental
project costs which have no future benefit as a result of the Guelph closure. In
fiscal 1999, the Company incurred $2.1 million of cash outlays relating to the
Guelph closure, $1.9 million of which related to the employee terminations. The
remaining liability at the end of fiscal 1999 was approximately $0.7 million.
Cash outlays and non-cash adjustments of $0.4 million during the first nine
months of fiscal year 2000 reduced the liability at the end of June 2000 to
approximately $0.3 million.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the Company's market risk during the
three-month period ended July 2, 2000. For additional information, refer to Item
7A in the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1999.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
Statements under Management's Discussion and Analysis of Financial Condition and
Results of Operations relating to initiatives to recover lost sales and generate
new business, building and use of warehouse stock, adequate funding for
short-term operating needs, 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,
changes in the availability of or the interest rates on the Company's term loans
and credit lines, 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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<PAGE>
Part II. OTHER INFORMATION
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Item 5. Other Information
Shareholders wishing to bring a proposal before the 2001 Annual
Meeting of Shareholders (but not include it in the Company's Proxy
Statement) must cause written notice of the proposal to be received
by the Secretary of the Company at the principal executive offices
in Niles, Michigan by no later than November 26, 2000.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(2) Agreement and Plan of Merger, dated as of June 26,
2000, by and among the Company, Heico Holding, Inc.,
and NS Acquisition Corp. (incorporated by reference to
Exhibit (a)(5)(iv) to the Schedule TO of Heico Holding,
Inc. and NS Acquisition Corp., filed on July 10, 2000)
(10)
(b)
(vii) Seventh Amendment to Amended and Restated Loan and
Security Agreement
(27) Financial Data Schedule
(b) A Form 8-K (Item 5) was filed on June 27, 2000 announcing that
National-Standard Company and Heico Holding, Inc. had entered
into an Agreement and Plan of Merger.
SIGNATURES
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
Registrant
Date August 15, 2000 /s/ R. B. Kalich
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R. B. Kalich
President and Chief Executive Officer
Date August 15, 2000 /s/ M. K. Conn
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M. K. Conn
Vice President, Finance and Administration
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