-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, I8tB9do1/Yc5GYa+zXXACaPkpTnqbNJl6COhsCcUtND1gwjBqF/rw+Sk0g548ad2 UU6GQdRZaohcDV5i+NHdEg== 0000914760-94-000074.txt : 19941215 0000914760-94-000074.hdr.sgml : 19941215 ACCESSION NUMBER: 0000914760-94-000074 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941214 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONAL STANDARD CO CENTRAL INDEX KEY: 0000070564 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES & ROLLING & FINISHING MILLS [3310] IRS NUMBER: 381493458 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-03940 FILM NUMBER: 94564802 BUSINESS ADDRESS: STREET 1: 1618 TERMINAL RD CITY: NILES STATE: MI ZIP: 49120 BUSINESS PHONE: 6166838100 MAIL ADDRESS: STREET 1: 1618 TERMINAL RD CITY: NILES STATE: MI ZIP: 49120 10-K 1 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, 1994 OR [ ] TRANSITION REPORT PURSUANT to SECTION 13 or 15(d) of the SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________________ to _______________ Commission file number: 1-3940 NATIONAL-STANDARD COMPANY (Exact Name of Registrant as Specified in Its Charter) Indiana 38-1493458 (State or Other Jurisdiction of (IRS Employer Identification No.) Incorporation or Organization) 1618 Terminal Road, Niles, Michigan 49120 (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 Common stock, $.01 par value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: NONE (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 23, 1994, based on the closing price of the shares on the New York Stock Exchange and assuming that 60 percent of the shares were held by non-affiliates, was approximately $31,786,000. As of November 23, 1994, 5,364,713 shares of common stock, par value of $ .01, were outstanding. - 1 - DOCUMENTS INCORPORATED BY REFERENCE: Portions of the annual Proxy Statement relating to the Annual Meeting of Shareholders scheduled for January 26, 1995 are incorporated by reference into Part III of this report. - 2 - PART I ITEM 1. Business National-Standard Company, an Indiana corporation, and its subsidiaries (the "Company") have generally operated prior to 1992 in two business segments: (i) wire and related products and (ii) machinery and other products. As a result of divestitures prior to 1992, the Company currently operates in only the wire and related products segment. In Fiscal Year 1994, there were no material changes to the Company's business. During the past 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 for automotive air bag inflators, which are sold by Company salesmen to automotive air bag manufacturers. During 1994, the Company discontinued the manufacture of hose wire in North America and closed its Columbiana, Alabama facility. The North American hose wire market will be served from existing capacity available in the Company's Kidderminster, England facility. Sufficient bead wire manufacturing capacity to serve the Company's North American market has been relocated to the Company's other North American wire facilities. The Company provided $4,870,000 during the first quarter of 1994 for relocation of equipment, plant environmental stabilization, and employee severance. Approximately $2,700,000 of cash outlays related to the plant closure were made during 1994. Cash outlays during 1995 related to the closure are expected to be $700,000, primarily for plant environmental stabilization. In 1993, the Company sold the Telford Wire Division, Telford, England and the Taydor Engineers business unit in Stourport, England. Proceeds of $1,344,000 were used to reduce its United Kingdom borrowings. Wire and related products are supplied to major markets consisting of tire, air bag filtration, spring, automotive component, electric component, hydraulic hose, telecommunications, and fabricated metal products. During 1990, the Company entered into a joint venture with Toyota Tsusho America, Inc., and a group of Japanese wire weavers. The venture was established to ensure that the Company would have sufficient quantities of competitively priced woven wire cloth to maintain its position as a major - 3 - supplier of filtration materials and filters for the automotive air bag market. During 1991, the venture was self-funding, requiring no cash contributions from the Company. During 1992, the Company contributed cash of $120,000 and equipment valued at $180,000 to the venture. No additional investments were made in the venture during 1993. During 1994, the Company announced that the joint venture would be expanded in 1995 to a second manufacturing site for the production of wire cloth for air bag inflator filters. This expansion is expected to be funded from the venture's operating cash flow and from external financing available to the venture. Future requirements will be dependent on market conditions. The Company's wire products are generally highly competitive, with a number of other producers located both in the U.S. and in foreign countries. In some cases, the Company's customers are also manufacturing 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, and Amercord, 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 there are a limited number of manufacturers in the Company's line of filtration materials, the Company 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. During 1994, the Company announced that additional air bag filter manufacturing capacity would be installed at a new leased facility in Mesa, Arizona early in 1995. The Company expects to spend approximately $800,000 for the additional capacity. This will be funded through available capital expenditure lines of credit. During 1993, the Company added air bag filter wire cloth weaving capacity at new leased facilities in Knoxville, Tennessee and Clearfield, Utah. In addition, certain air bag filtration products and manufacturing processes were relocated from the Corbin, Kentucky facility to the new facilities. 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 approximately $27,750,000 and $14,900,000 at September 30, 1994 and 1993, respectively. During 1988, the Company closed its strip steel and flat wire facility located in Clifton, New Jersey. Prior to 1992, the facility was included in the "machinery and other products" segment. During the past six years, the Company has undertaken to obtain New Jersey approval to transfer title for the property. Due to the environmental regulations in the State of New Jersey, title to real estate cannot be passed without the Department of Environmental Protection s written approval. This project has involved - 4 - 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, which have been primarily environmental, were $285,000, $282,000, $380,000, $3,027,000, $712,000, and $3,028,000 in 1994, 1993, 1992, 1991, 1990, and 1989, respectively. These cash outlays, up to the estimated realizable value of the property, have been reported as other assets, with the balance charged to operations. In 1994, 1993, 1992, 1991 and 1990, the Company expensed $2,030,000, $0, $333,000, $3,898,000 and $2,933,000, respectively, associated with the project, primarily to adjust the property value to current market and to recognize the current estimated cost of soil remediation. The Company expects to spend $290,000 in 1995 on the project. Future cash outlays of approximately $2,469,000 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. Environmental In addition to amounts spent in connection with the Clifton, New Jersey facility, the Company had cash outlays of approximately $2,531,000 during the 1994 fiscal year, and $1,471,000 during the 1993 fiscal year on pollution control equipment and related operational environmental projects and procedures at the Company's seven U.S. plants. The largest annual cash outlays during 1994 and 1993 were $1,740,000 and $607,000, respectively, at the closed Columbiana facility, primarily for plant environmental stabilization in 1994, and environmental operational procedures in 1993. Compliance with federal, state, and local environmental regulations which have been enacted or adopted is estimated to require operational cash outlays of approximately $1,925,000 during 1995. In 1993, environmental expense provisions totaling $3,600,000 were recorded to (1) decommission hose wire plating equipment and dispose of hazardous materials normally used in the plating process, (2) provide for soil remediation at an unused fill site, and (3) provide for the closure of waste water surface impoundments which are no longer in use. The Company does not expect existing regulations will have any material effect on its net earnings or competitive position. The Company has previously been designated a potentially responsible party (PRP) by the Environmental Protection Agency (EPA) for four actual or potential superfund sites, all of which have in excess of twenty other PRP's. The Company has completed or is undertaking all investigative work requested or required by the appropriate governmental agencies or by relevant statutes, regulations, or local ordinances at minimal out-of- pocket costs. In one instance, the Company has no record of participation at the site. In two instances, the Company's records indicate that it had only de minimus involvement. The Company has reviewed its involvement at the fourth site and has previously accrued $300,000 for its share of estimated site remediation based upon all information currently available. - 5 - The Company does not believe future costs for these sites will have a materially adverse effect on the consolidated financial condition of the Company or its consolidated results of operations. 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 1995 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., Morton International and TRW, and some of the major tire and rubber companies, i.e., the Cooper Tire and Rubber Company, the Dunlop Tire and Rubber Corporation (owned by Sumitomo), the Firestone Tire and Rubber Company (owned by Bridgestone), Gates Rubber Company, General Tire (owned by Continental), the Goodyear Tire and Rubber Company, and the Uniroyal-Goodrich Company (owned by Michelin). The Goodyear Tire and Rubber Company accounted for approximately 17%, and the ten largest customers, in the aggregate, accounted for approximately 62% 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 1994 fiscal year, the Company spent approximately $959,000 on research and development of new products and process alternatives compared to $982,000 and $994,000 for the years ended September 30, 1993 and 1992, respectively. These cash outlays are 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 - 6 - carbon and low carbon steel wire were, respectively, 38% and 21% of total sales in 1994; 51% and 20% of total sales in 1993; and 51% and 21% of total sales in 1992. Air bag inflator filters accounted for 12% of total sales in 1994, and less than 10% in prior years. During 1993, the Company experienced work stoppages by the United Steelworkers of America at the Niles, Michigan; Corbin, Kentucky; and Columbiana, Alabama plants. The Niles and Corbin strikes were settled during 1993 with modified health care benefits similar to the health benefits for salaried employees. The Columbiana plant was closed on June 1, 1994, and certain production equipment was relocated to other Company facilities. The Company continued to supply product during the work stoppages. Additional costs, including security services, additional wages, and air freight, were approximately $4,500,000 for the three work stoppages in 1993, and $4,266,000 for the work stoppage in Columbiana in 1994. Additionally, in 1993, as a result of the work stoppage in Columbiana, the Company discontinued hose wire plating in North America and wrote down the value of its hose wire plating equipment by $909,000. At September 30, 1994, the Company employed 1,282 persons in its operations throughout the world. During 1993, the Company elected early adoption of The Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 106, "Accounting for Postretirement Benefits Other than Pensions." The one-time transition obligation recognized at the time of adoption was $48,676,000. Primarily as a result of this accounting change, the Company has a negative net worth of $28,266,000. 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, 1994 is included in Note 13 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. 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 1994, reflects a slight decrease of approximately - 7 - $300,000. This minor change is due to the U.S. dollar's position against the British pound and the Canadian dollar remaining substantially unchanged since the end of 1993. The change in exchange rates does not have a materially adverse effect on the cash flow of the international operations. In October 1992, the Company sold its interest in its foreign affiliate in India, receiving $693,000 in net proceeds, which was used to reduce debt. A loss of $1,041,000 net of the 1992 equity in earnings of $165,000 was recorded at September 30, 1992 in anticipation of this transaction. The Company's accounts reflect its share of these results at the close of the fiscal year of this affiliate as other income. ITEM 2. Properties The Company conducts its domestic operations from facilities having an aggregate floor space of approximately 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); Knoxville, Tennessee (50,000 square feet); and Clearfield, Utah (53,000 square feet). The Knoxville and Clearfield facilities were leased in 1993 for five-year terms with renewal options. The Company also operates from principal facilities in England (260,000 square feet) and Canada (107,000 square feet). 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 27, 1994. 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) - 8 - 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.
___________________________________________________________________________ Date Assumed Name Age Present Position Present Position ___________________________________________________________________________ Michael B. Savitske 53 President and Chief Executive Officer 1989 William D. Grafer 49 Vice President, Finance 1987 David L. Lawrence 47 Treasurer, Assistant Secretary 1987 Rene J. VanSteelandt 56 General Counsel and Secretary 1991
All of the above-named officers of the Registrant have been employees of the Company for more than five years. - 9 - 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 14 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 1994 or 1993, nor during the portion of fiscal 1995 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.
___________________________________________________________________________ 1994 1993 1992 1991 1990 ___________________________________________________________________________ For the Year: Net sales $ 217,916 $208,254 $ 215,133 $ 232,695 $271,726 Operating profit (loss) $ (1,110) $ (1,055) $ 44 $ (15,783) $ (11,256) Net earnings (loss) before effect of accounting change $ (4,625) $ (4,701) $ (5,885) $ (22,885) $ (19,871) Net earnings (loss) $ (4,625) $(53,377) $ (5,885) $ (22,885) $ (19,871) At Year-End: Shareholders' equity $ (28,266) $(24,827) $ 25,320 $ 29,237 $ 51,660 Net current assets $ 6,263 $ (39) $ 1,483 $ 4,740 $ 24,406 Total assets $ 108,685 $103,976 $ 113,939 $ 119,009 $161,323 Long-term debt $ 34,328 $ 24,100 $ 29,346 $ 37,338 $ 47,909 Ratio of current assets to current liabilities 1.1 : 1.0 1.0 : 1.0 1.0 : 1.0 1.1 : 1.0 1.4 : 1.0 Common shares - 10 - outstanding 5,366 5,359 4,502 4,479 4,482 Average common shares outstand- ing used in per share calculations 5,365 5,085 4,379 4,276 4,190 Number of employees 1,282 1,248 1,460 1,473 2,079 Per Common Share: Earnings (loss) before effect of accounting change $ ( .86) $( .92) $ (1.34) $ (5.36) $ (4.74) Net earnings (loss) $ ( .86) $ (10.50) $ (1.34) $ (5.36) $ (4.74) Dividends declared $ .00 $ .00 $ .00 $ .00 $ .00
- 11 - 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 the year of $217,916 were 4.6% above 1993, as sales of air bag inflator filtration products increased 68% over 1993 due to the significant growth of that market segment and the Company's position as the leading supplier of those materials in North America. The Company's weld wire product lines experienced 15% growth over 1993 due primarily to improving North American automotive sales. These increases were offset by a decline in hose wire sales as the Company ceased the manufacture of hose wire in North America during 1993, and a decline in bead wire sales due to the impact of the work stoppage at Columbiana early in 1994 and work stoppages at customer facilities at the end of 1994. Net sales for 1993 of $208,254 were 3.2% below 1992 and 10.5% below 1991 due to business units sold during 1992 and 1991. During 1993, the Company experienced increased demand for its air bag materials and weld wire product lines. 1993 sales in those product lines increased 51% and 11%, respectively, over 1992. Sales of hose wire decreased 22% due to the work stoppage in Columbiana, Alabama and subsequent discontinuation of hose wire plating in North America. During 1992, sales for remaining operations increased 6% due to increased sales of air bag filtration materials and welding wire. Growth in both products is expected to continue for at least the next several years. 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. 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 $15,710 and the air bag filtration materials sales have increased 161%. The effect of the divestiture activities on the Company's sales and gross margins is shown in the following table:
___________________________________________________________________________ 1994 1993 1992 1991 1990 ___________________________________________________________________________ Net Sales Remaining operations $216,937 $ 197,418 $ 193,863 $176,517 $185,346 Divested operations 979 10,836 21,270 56,178 86,380 Total $217,916 $ 208,254 $ 215,133 $232,695 $271,726 Gross Profit Remaining operations $ 25,069 $ 24,283 $ 24,314 $ 16,215 $ 15,649 - 12 - Divested operations (1,213) (278) 1,138 6,579 12,781 Total $ 23,856 $ 24,005 $ 25,452 $ 22,794 $ 28,430 Gross Profit % Remaining operations 11.6% 12.3% 12.5% 9.2% 8.4% Divested operations (123.9)% (2.6)% 5.4% 11.7% 14.8% Total 10.9% 11.5% 11.8% 9.8% 10.5%
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. Although it would appear that prior to 1992 the divested businesses were more profitable than the remaining operations, these businesses increasingly required substantially higher selling and administrative expense and significant levels of working capital that, even considering the higher gross margins, resulted in lower net returns. The margin effect of divesting these businesses is shown in the table above. The effect of the increased selling and administrative costs of the divested businesses is reflected in the divested operations line in the table on page 11. During 1993, the Company experienced work stoppages by the United Steelworkers of America at the Niles, Michigan; Corbin, Kentucky; and Columbiana, Alabama plants. The Niles and Corbin strikes were settled during 1993 with modified health care benefits similar to the health benefits for salaried employees. The Columbiana plant was struck on June 1, 1993. The plant operated during the remainder of 1993 and through May 1994 with replacement workers and personnel from other Company facilities. The Company continued to supply product during the work stoppages. Additional costs including security services, additional wages, and air freight were approximately $4,500 for the three work stoppages in 1993. In addition, as a result of the work stoppage in Columbiana, the Company discontinued hose wire plating in North America in 1993 and wrote down the value of its hose wire plating equipment by $909. During 1994, the additional costs of operating the Columbiana facility including security services, additional wages, and freight were approximately $4,266. In addition, during 1994, the Company provided $4,870 for the closure of the Columbiana plant. The closure provision is included in selling and administrative expense as noted on page 11. During 1992, margins improved based upon the higher sales of the Company's core wire products and its air bag filtration materials business. The political changes that occurred in the Eastern Bloc countries had a negative effect on business activity, and a general slowdown in the - 13 - Company's Western European markets caused a 10% decline in volume of major product lines between 1990 and 1992. This decline caused capacity in international operations to be under-utilized in 1992. During 1993, sales to other worldwide markets from international operations increased 8%, resulting in better capacity utilization and improved operating results. During 1994, sales from international operations decreased 5% as new worldwide capacity was added in Copperply and bead wire and aggressive pricing affected bead and hose wire. In recent years, the Company has not been able to raise prices in line with inflation and rising raw material costs due to the effects of worldwide overcapacity in the Company's major product lines and competitive pressure in the Company's automotive markets. Since 1989, inflation as measured by the Consumer Price Index has risen 20%, while average selling prices have risen only 7%. Had selling prices increased 20%, sales in 1994 would have been approximately $246,000. In 1993, the Company sold the Telford Wire Division and Taydor Engineers business units in England. Proceeds of $1,344 were used to reduce its United Kingdom borrowings. In 1993, environmental expense provisions totaling $3,600 were recorded to: (1) decommission hose wire plating equipment and dispose of hazardous materials normally used in the plating process, (2) provide for soil remediation at an unused fill site, and (3) provide for the closure of waste water surface impoundments which are no longer in use. In 1994, additional environmental expense provisions of $700 relating to the disposal of hazardous materials normally used in the hose wire plating process were recorded. During 1994 and 1993, the Company provided $2,832 and $4,651, respectively, for the estimated cost of compliance with environmental regulations and continuing modifications in operating requirements. The majority of the 1994 provisions were made in the Company's first quarter and are related to the closing of the Columbiana facility. The majority of the 1993 provisions were made in the Company's fourth quarter as a result of an expansion of clean-up operations and changes in estimated costs to complete. In addition to the amounts charged to earnings, $165 and $142 of costs were capitalized in the respective years. The Company's actual environmental related cash outlays for 1994 and 1993 were $2,816 and $1,753, respectively, of which $285 and $282 were spent on the Clifton, New Jersey property. The Company has previously been designated a potentially responsible party (PRP) by the Environmental Protection Agency (EPA) for four actual or potential superfund sites, all of which have in excess of twenty other PRP's. The Company has completed or is undertaking all investigative work requested or required by the appropriate governmental agencies or by - 14 - relevant statutes, regulations, or local ordinances at minimal out-of- pocket costs. In one instance, the Company has no record of participation at the site. In two instances, the Company's records indicate that it had only de minimus involvement. The Company has reviewed its involvement at the fourth site and has previously accrued $300 for its share of estimated site remediation based upon all information currently available. The Company does not believe future costs for these sites 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 projects which are expected to be completed in 1995 and all environmental regulations and acts to ensure continuing compliance. In 1995, the Company expects to spend $290 on the Clifton, New Jersey project. Future cash outlays of approximately $2,469 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 $1,925 on environmentally related capital and operational projects, of which $625 will be charged against 1995 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. In 1994, 1993, and 1992, $6,955, $2,390, and $2,677, respectively, the net cost of restructuring the Company in those years, including net loss on sale of fixed assets and product lines of $0, $196, and $1,451, respectively; the write-off of nonproductive facilities and obsolete inventory of $4,219, $909, and $681, respectively; severance costs of the salaried and hourly workforce, and provision for transferring manufacturing of certain product lines between plants, is included in selling and administrative costs. The 1994 net cost of restructuring also included $1,700 for the Columbiana plant environmental stabilization. The Company will incur no further material cash outflows related to the restructuring. The following summary shows the changing level of selling and administrative expense and identifies selling and administrative expense directly attributable to divested operations and amounts attributable to restructuring activities.
___________________________________________________________________________ 1994 1993 1992 1991 1990 ___________________________________________________________________________ Selling and Administrative Expense: Remaining operations $ 18,011 $ 22,549 $ 21,970 $ 20,813 $ 26,395 Divested operations - 121 761 4,987 7,732 - 15 - Restructuring costs 6,955 2,390 2,677 12,777 5,559 Total $ 24,966 $ 25,060 $ 25,408 $ 38,577 $ 39,686 As a Percent of Sales Remaining operations 8.3% 11.4% 10.6% 10.7% 12.7% Divested operations - 22.1% 9.0% 13.6% 12.2% Total 11.5% 12.0% 11.8% 16.6% 14.6%
The net effect of all the above elements is seen in the Company's operating profit (loss).
___________________________________________________________________________ 1994 1993 1992 1991 1990 ___________________________________________________________________________ Operating Profit (Loss) Remaining operations $ 7,058 $ 1,547 $ 2,739 $ (2,968) $ (7,204) Divested operations (1,213) (212) (18) (38) 1,507 Restructuring costs (6,955) (2,390) (2,677) (12,777) (5,559 Total $ (1,110) $ (1,055) $ 44 $(15,783) $ (11,256)
Operating profit by Geographic Area is presented in Note 13 of Notes to Consolidated Financial Statements in Item 8. Interest expense, including capitalized interest, increased in 1994 due to higher interest rates. This reverses the trend which the Company had experienced since 1990.
___________________________________________________________________________ 1994 1993 1992 1991 1990 ___________________________________________________________________________ Interest expense $ 3,885 $ 3,742 $ 4,990 $ 6,653 $ 6,366 Capitalized interest $ 168 $ 100 $ 50 $ 166 $ 700 Average borrowings $ 36,572 $ 37,240 $ 45,743 $ 56,760 $ 58,293 Average interest rate 11.1% 10.3% 11.0% 12.0% 12.1%
Other income in 1994 is primarily the Company's share of profits in North America Wire Weaving Company. In 1994 and 1993, income taxes as a percentage of pre-tax loss vary from the domestic statutory rate primarily due to the Company's inability to record a tax benefit on losses. The operating loss tax benefits of $1,558 and $18,496 in 1994 and 1993, respectively, can be used to reduce future income tax expense. Financial Condition The Company experienced net losses of $4,625, $53,377, $5,885, and $22,885 in 1994, 1993, 1992, and 1991, primarily due to changes in accounting, - 16 - restructuring charges, and environmental provisions. Working capital increased $6,302 in 1994 as current assets increased to support the higher sales in air bag inflator filtration materials and decreased $1,522 in 1993 due to the net losses and increased reserves associated with restructuring activities and environmental projects, as well as the reclassification of certain debt to current. Net cash from 1994 operations of $1,088 was due primarily to the increased profitability after considering all non-cash charges to earnings. This was offset by the $1,786 increase in Inventories necessary to support the Company's growing weld wire and air bag inflator material business and a $5,571 decrease in Accounts Payable and Accrued Expenses. The $9,178 of net cash generated from new financing, along with the net cash from operations and $256 of proceeds from the sale of certain equipment, was used to invest $10,489 in property, plant, and equipment. Net cash from operations was $9,070 and $6,057 in 1993 and 1992, respectively, due primarily to the $6,015 increase in Accounts Payable and actual operating results. Of the 1993 and 1992 cash flow from operations of $15,127, $7,314 was invested in property, plant, and equipment, and $7,813 was used for debt reduction. During 1994, the Company completed its plan to exit non-profitable and non-strategic product lines and subsidiaries. In accordance with this plan, certain facilities and product lines were sold in 1993 and 1992, and the proceeds of $2,037 were used for additional debt reduction. During 1993, the Company sold the Telford Wire Division, using the proceeds to reduce debt. In October 1992, the Company sold its interest in the Indian affiliate and the Taydor Engineers business unit, using the proceeds to reduce debt. During 1993 and 1992, the Company reduced its debt by $12,182. During 1994, 1993, and 1992, the Company invested $17,803 in property, plant and equipment. Approximately one-third of this amount relates to the Company's commitment to automotive air bag inflator filters and filter media and fiber material for rechargeable battery electrodes. The Company expects to make investments for inflator filters and filter media in 1995 based upon increased demand for air bag inflators in 1996 model year automobiles. The Company's total capital expenditures for 1995 are expected to be $7,300, primarily for projects to add filtration material and weld wire capacity and improve quality and operating efficiencies. All debt financing sources available to the Company are fully utilized. While divestiture activities and debt reductions have affected the Company's cash flow in recent years, it expects that improved results of operations from restructuring activities will fund future expansion of working capital and productive capacity. With the completion of the restructuring activities, the Company was able to obtain new long- and short-term financing in 1994 and is confident that adequate long- and short-term financing will be available in the future. - 17 -
___________________________________________________________________________ 1994 1993 1992 1991 1990 ___________________________________________________________________________ Current ratio 1.1 : 1.0 1.0 : 1.0 1.0 : 1.0 1.1 : 1.0 1.4 : 1.0 Total debt to total capital,excluding SFAS No. 106 adjustment 65.2% 57.4% 62.9% 61.3% 54.8% Long-term debt to total capital, excluding SFAS No. 106 adjustment 52.5% 41.8% 43.0% 49.5% 41.9%
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. ITEM 8. Financial Statements and Supplementary Data The Report of Independent Auditors, Consolidated Financial Statements and Supplementary Schedules are set forth on pages 15 to 37 of this Report and are incorporated herein by reference. ITEM 9. Disagreements on Accounting and Financial Disclosure Not applicable. - 18 - 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 26, 1995 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. 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 26, 1995 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 26, 1995 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 26, 1995 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 schedules listed in the accompanying Index to Consolidated Financial Statements and Schedules are filed as part of this report. - 19 - 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, 1994. - 20 - 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 1, 1994 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/ Rene J. VanSteelandt JOHN E. GUTH, JR. Chairman of the Board ) Rene J. VanSteelandt ERNEST J. NAGY Director ) Attorney-in-Fact CHARLES E. SCHROEDER Director ) DONALD F. WALTER Director ) December 1, 1994 - 21 - NATIONAL-STANDARD COMPANY INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES ___________________________________________________________________________ Page Reference in Report on Form 10-K ___________________________________________________________________________ Consolidated Statements of Operations for the years ended September 30, 1994, 1993, and 1992 16 Consolidated Statements of Shareholders' Equity for the years ended September 30, 1994, 1993, and 1992 17 Consolidated Balance Sheets at September 30, 1994 and 1993 18 Consolidated Statements of Cash Flows for the years ended 19 September 30, 1994, 1993, and 1992 Notes to Consolidated Financial Statements 20-31 Report of Independent Auditors 32 Schedules: V. Property, Plant and Equipment 33 VI. Accumulated Depreciation of Property, Plant and Equipment 34 VIII. Valuation and Qualifying Accounts 35 IX. Short-Term Borrowings 36 X. Supplementary Income Statement Information 37 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. - 22 - NATIONAL-STANDARD COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in Thousands Except Share Data)
___________________________________________________________________________ Year Ended September 30 1994 1993 1992 ___________________________________________________________________________ Net sales . . . . . . . . . . . . . . . $217,916 $208,254 $ 215,133 Cost of sales . . . . . . . . . . . . 194,060 184,249 189,681 Gross profit . . . . . . . . . . . . . 23,856 24,005 25,452 Selling and administrative expenses . . 24,966 25,060 25,408 Operating profit (loss) . . . . . (1,110) (1,055) 44 Interest expense . . . . . . . . . . . (3,885) (3,742) (4,990) Other income (expense), net . . . . . . 426 96 (929) Loss before income taxes and effect of accounting change . . . . . . (4,569) (4,701) (5,875) Income taxes . . . . . . . . . . . . . 56 - 10 Loss before effect of accounting change . . . . . . . . . . . . . (4,625) (4,701) (5,885) Effect of accounting change . . . . . . - (48,676) - Net loss . . . . . . . . . . . . . . . $ (4,625) $(53,377) $ (5,885) Loss per share before effect of accounting change . . . . . . . . $ (.86) $ ( .92) $ (1.34) Loss per share . . . . . . . . . . . . $ (.86) $ (10.50) $ (1.34)
See accompanying notes to consolidated financial statements. - 23 - NATIONAL-STANDARD COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Dollars in Thousands except Share Data)
_____________________________________________________________________________________________________ Excess of Unamor- Additional Note Re- tized Pension ceivable, Pre- Value of Liability Retained Cumulative Trea- ESOP paid Restric- Over Common Earnings Translation sury Common ESOP ted Unrecognized Stock (Deficit) Adjustment Stock Stock Expense Stock Service Cost ____________________________________________________________________________________________________ Balance at September 30, 1991 $24,021 $10,688 $ (674) $ (88) $(2,168) $(875) $(37) $(1,630) Restricted stock award activity 75 (5) (69) ESOP payments 999 Prepaid ESOP expense amortization 700 Restricted stock amortization 44 Adjustment for foreign currency translation 267 Adjustment of pension liability (43) Net loss for 1992 (5,885) ____________________________________________________________________________________________________ Balance at September 30, 1992 $24,096 $ 4,803 $ (407) $ (93) $(1,169) $(175) $(62) $(1,673) - 24 - ____________________________________________________________________________________________________ Excess of Unamor- Additional Note Re- tized Pension ceivable, Pre- Value of Liability Retained Cumulative Trea- ESOP paid Restric- Over Common Earnings Translation sury Common ESOP ted Unrecognized Stock (Deficit) Adjustment Stock Stock Expense Stock Service Cost ____________________________________________________________________________________________________ Restricted stock award activity (3) ESOP payments 1,152 Prepaid ESOP expense amortization 175 Restricted stock amortization 20 Stock contributed to pension trust 2,745 Stock issuance 91 29 Adjustment for foreign currency translation (2,018) Adjustment of pension liability 1,039 Net loss for 1993 (53,377) ____________________________________________________________________________________________________ Balance at September 30, 1993 $26,932 $(48,574) $(2,425) $ (67) $ (17) $ - $(42) $ (634) - 25 - ____________________________________________________________________________________________________ Excess of Unamor- Additional Note Re- tized Pension ceivable, Pre- Value of Liability Retained Cumulative Trea- ESOP paid Restric- Over Common Earnings Translation sury Common ESOP ted Unrecognized Stock (Deficit) Adjustment Stock Stock Expense Stock Service Cost ____________________________________________________________________________________________________ Restricted stock award activity 68 (18) (62) ESOP payments 17 Restricted stock amortization 33 Deferred debt discount 384 Stock issuance 1 Adjustment for foreign currency translation 323 Adjustment of pension liability 440 Net loss for 1994 (4,625) ____________________________________________________________________________________________________ Balance at September 30, 1994 $27,384 $(53,199) $(2,102) $ (84) $ - $ - $(71) $ (194) ____________________________________________________________________________________________________ ____________________________________________________________________________________________________
See accompanying notes to consolidated financial statements. - 26 - NATIONAL-STANDARD COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in Thousands except Share Data)
September 30 1994 1993 Assets Current assets: Cash . . . . . . . . . . . . . . . . . . . . . $ 378 $ 339 Receivables, less allowance for doubtful accounts ($398 and $386, respectively) . . . . . . . 24,682 24,842 Inventories . . . . . . . . . . . . . . . . . . 25,146 24,619 Other current assets . . . . . . . . . . . . . . 4,837 4,104 Total current assets . . . . . . . . . . . . . . 55,043 53,904 Property, plant and equipment, net . . . . . . . . 42,862 41,559 Other assets . . . . . . . . . . . . . . . . . . . 10,780 8,513 $108,685 $103,976 Liabilities and Shareholders' Equity Current liabilities: Accounts payable . . . . . . . . . . . . . . . $ 29,041 $ 31,342 Employee compensation and benefits . . . . . . 1,780 2,073 Accrued pension . . . . . . . . . . . . . . . . 115 106 Other accrued expenses . . . . . . . . . . . . 6,599 7,278 Current accrued postretirement benefit cost . . 3,000 4,150 Notes payable to banks and current portion of long-term debt . . . . . . . . . . . . . . 8,245 8,994 Total current liabilities . . . . . . . . . . . 48,780 53,943 Other long-term liabilities . . . . . . . . . . . . 5,818 5,481 Long-term debt . . . . . . . . . . . . . . . . . . 34,328 24,100 Accrued postretirement benefit cost . . . . . . . . 48,025 45,279 Shareholders' equity: Common stock - $.01 par value. Authorized 25,000,000 shares; issued 5,376,526 and 5,368,026 shares, respectively . . . 27,384 26,932 Preferred stock - $1.00 par value. Authorized 600,000 shares; issued none . . - - Retained earnings (deficit) . . . . . . . . . . (53,199) (48,574) Cumulative translation adjustment . . . . . . . ( 2,102) (2,425) Treasury stock, at cost; 10,813 and 8,983 shares, respectively . . . . . . . . . . . . . . . . . ( 84) (67) Note receivable, ESOP common stock . . . . . . - (17) Unamortized value of restricted stock . . . . . ( 1) (42) Excess of additional pension liability over unrecognized prior service cost . . . . . . . ( 94) (634) (28,266) (24,827) $108,685 $103,976
See accompanying notes to consolidated financial statements. - 27 - NATIONAL-STANDARD COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands except Share Data)
Year Ended September 30 1994 1993 1992 Operating Activities: Net earnings (loss) . . . . . . . . . . . $ (4,625) $(53,377) $ (5,885) Non-cash charges (credits) to earnings: Depreciation and amortization . . . . . 6,552 6,524 7,223 Prepaid ESOP expense amortization . . . - 175 700 Postretirement benefit transition obligation - 48,676 - Loss on divested operations and asset writedowns . . . . . . . . . . . . . . 4,254 196 1,451 Changes in short-term assets and liabilities, net of dispositions: Receivables . . . . . . . . . . . . 160 1,967 (2,082) Inventories . . . . . . . . . . . . (1,786) (207) 1,722 Other current assets . . . . . . . . (733) 7 (987) Accounts payable . . . . . . . . . . (2,301) 3,918 2,097 Employee compensation and benefits, accrued pension, and other accrued expenses . . . . . . . . . . . . (3,270) (2,258) 2,126 Currency translation effect on short- term assets and liabilities . . . 812 (2,033) (244) Changes in other long-term assets and liabilities . . . . . . . . . . . . . 2,025 5,482 (64) Net cash provided by operating activities . . . . . . . . . . . 1,088 9,070 6,057 Investing Activities: Capital expenditures . . . . . . . . . (10,489) (4,546) (2,768) Divestiture proceeds, net . . . . . . . - 2,037 - Disposal of property, plant and equipment . . . . . . . . . . . . . 256 - 143 Net cash provided by (used for) investing activities . . . . . . (10,233) (2,509) (2,625) Financing Activities: Increases in debt . . . . . . . . . . . 40,434 - 368 Reductions in debt . . . . . . . . . . (31,256) (8,791) (3,759) Purchases of treasury stock . . . . . . (11) - (1) Decrease in notes receivable due from ESOP . . . . . . . . . . . . . . 17 1,152 999 Net cash used for financing activities 9,184 (7,639) (2,393) Net increase (decrease) in cash . . . . 39 (1,078) 1,039 Cash at beginning of year . . . . . . . 339 1,417 378 Cash at end of year . . . . . . . . . . $ 378 $ 339 $ 1,417 Supplemental Disclosures: - 28 - Interest paid . . . . . . . . . . . . . $ 4,480 $ 3,842 $ 4,333 Income taxes paid (received) . . . . . $ 56 $ - $ (238)
See accompanying notes to consolidated financial statements. - 29 - NATIONAL-STANDARD COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in Thousands except Share Data) 1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES Principles of Consolidation - The consolidated financial statements include the Company and all 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 - The Company complies with the provisions of Statement of Financial Accounting Standards (SFAS) No. 52, "Foreign Currency Translation." In the application of this accounting standard, 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. Research and Development - Research and development costs are expensed currently. The Company expended $959, $982 and $994 in 1994, 1993 and 1992, respectively, on research and development activities. Earnings Per Share - Earnings per share are based on the average number of shares of common stock outstanding during the year plus common stock equivalents for the dilutive effect of shares of common stock issuable upon the exercise of certain stock options. Nonleveraged unallocated shares in the Company Employee Stock Ownership Plan are not considered outstanding for purposes of calculating earnings per share. Common shares used in calculating earnings per share for 1994, 1993, and 1992 were 5,365,000, 5,085,000, and 4,379,000, respectively. - 30 - 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 - In February 1992, the Financial Accounting Standards Board (FASB) issued SFAS No. 109, "Accounting for Income Taxes." SFAS No. 109 requires a change from the deferred to the liability method of computing deferred income taxes. Under the liability method, deferred income taxes are generally 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. Effective October 1, 1992, the Company elected early adoption of SFAS No. 109. The adoption of SFAS No. 109 had no effect on the financial statements of the Company. Postretirement Benefits Other than Pensions - In December 1990, the FASB issued SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions." SFAS No. 106 requires that the cost of postretirement benefits be recognized during an employee's years of service versus on a pay-as-you-go basis upon retirement. SFAS No. 106 was not required to be adopted by the Company until fiscal 1994; however, early adoption was elected effective October 1, 1992. Reclassification - Certain 1993 and 1992 amounts in the Consolidated Financial Statements have been reclassified to conform with 1994 presentation. 2. INVENTORIES
1994 1993 Finished goods . . . . . . . . . . . . . . . . $ 2,601 $ 1,688 Work in process . . . . . . . . . . . . . . . . 14,400 13,896 Raw material (including certain partially processed materials) . . . . . . . . . . . . 8,145 9,035 $ 25,146 $ 24,619
The material content of domestic steel inventories amounting to $13,854 and $10,877 at September 30, 1994 and 1993, respectively, is valued on a LIFO basis. Had the FIFO method been used, inventory would have been $4,009 and $3,909 higher than that reported at September 30, 1994 and 1993, respectively. 3. PROPERTY, PLANT AND EQUIPMENT
Cost: 1994 1993 Land . . . . . . . . . . . . . . . . . . . . . $ 331 $ 344 Land improvements . . . . . . . . . . . . . . . 1,943 2,453 - 31 - Buildings . . . . . . . . . . . . . . . . . . . 22,410 24,777 Machinery and equipment . . . . . . . . . . . . 108,138 117,313 Construction in progress . . . . . . . . . . . 8,326 3,911 141,148 148,798 Less accumulated depreciation . . . . . . . . . 98,286 107,239 $ 42,862 $ 41,559
The Company capitalized interest cost of $168 in 1994 and $100 in 1993 with respect to qualifying construction projects. Total interest cost incurred before recognition of the capitalized amounts was $4,053 and $3,842 in 1994 and 1993, respectively. 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 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, 1994 and 1993:
Assets Exceed Accumulated Accumulated Benefits Exceed Benefits Assets 1994 Actuarial present value of benefit obligations: Vested benefit obligation . . . . . . . . . . $ 62,020 $ 2,915 Accumulated benefit obligation . . . . . . . $ 62,786 $ 3,061 Projected benefit obligation for service rendered to-date . . . . . . . . . . . . . . $ 67,587 $ 3,061 Plan assets at fair value . . . . . . . . . . . 88,758 2,828 Plan assets in excess of (less than) projected benefit obligation . . . . . . . . 21,171 (233) Unrecognized net (gain) loss from past experience, different from that assumed . . . (13,294) 194 Prior service cost not yet recognized in net periodic pension cost . . . . . . . . . . 238 147 Unrecognized net asset at October 1, 1985 being recognized over 15 years . . . . . . . (699) 41 Unrecognized net asset for the United Kingdom plan at October 1, 1989 being recognized over 12.6 years . . . . . . . . . . . . . . . (4,374) - Additional minimum liability . . . . . . . . . - (382) - 32 - (Accrued) prepaid pension cost . . . . . . . . $ 3,042 $ (233) Intangible asset . . . . . . . . . . . . . . . $ - $ 188 Charge to equity (excess of additional pension liability over unrecognized prior service cost) . . . . . . . . . . . . $ - $ 194 1993 Actuarial present value of benefit obligations: Vested benefit obligation . . . . . . . . . $ 62,993 $ 5,881 Accumulated benefit obligation . . . . . . . $ 63,842 $ 6,346 Projected benefit obligation for service rendered to-date . . . . . . . . . . . . . . $ 68,192 $ 6,346 Plan assets at fair value . . . . . . . . . . . 83,802 5,621 Plan assets in excess of (less than) projected benefit obligation . . . . . . . . 15,610 (725) Unrecognized net (gain) loss from past experience, different from that assumed . . (9,599) (797) Prior service cost not yet recognized in net periodic pension cost . . . . . . . . 208 510 Unrecognized net asset at October 1, 1985 being recognized over 15 years . . . . . . . (665) (116) Unrecognized net asset for the United Kingdom plan at October 1, 1989 being recognized over 12.6 years . . . . . . . . . . . . . . (4,698) - Additional minimum liability . . . . . . . . . - (1,191) (Accrued) prepaid pension cost . . . . . . . . $ 856 $ (725) Intangible asset . . . . . . . . . . . . . . . $ - $ 558 Charge to equity (excess of additional pension liability over unrecognized prior service cost) $ - $ 634
Net pension cost related to Company-sponsored plans included the following components:
1994 1993 1992 Service costs -- benefits earned during the year . . . . . . . . . . $ 1,467 $ 1,436 $ 1,927 Interest cost on projected benefit obligation . . . . . . . . . . . . . 5,814 5,985 6,434 Actual return on plan assets . . . . (5,995) (17,739) (10,519) Net amortization and deferral . . . . (3,084) 9,863 2,180 Benefit curtailment recognition . . . 284 - - Net periodic pension cost (income) . $ (1,514) $ (455) $ 22
The weighted average discount rate and rate of increase in future compensation levels used in determining the 1994 actuarial present - 33 - value of the projected benefit obligation were 8.75% and 5%, respectively, for U.S. plans. The 1993 rates were 7.75% and 5%, respectively. The 1994 and 1993 rates for foreign plans were 9% and 7%, respectively. The 1994 and 1993 expected long-term rate of return on assets was 10.5% for U.S. plans and 10% for foreign plans. In August of 1992, the Internal Revenue Service temporarily waived the minimum funding standard for certain of the Company's domestic defined benefit pension plans for plan years ending December 31, 1990 and 1991. These waivers were granted in accordance with Section 412(d) of the Internal Revenue Code and Section 303 of the Employee Retirement Income Security Act of 1974. The Company made contributions to the plans in 1992 of $1,460. During 1993, the Company contributed $765 to the plans. In January 1993, the Company contributed 844,513 shares of previously authorized and unissued common stock valued at $2,745. The Company's pension plans owned shares of the Company's common stock representing slightly less than 10% of the plans' asset value immediately after the January 1993 contribution. The Company made contributions to the plans in 1994 of $238. The plans currently own 1,476,779 shares of the Company's common stock. The Company has made the contributions necessary to fully fund several of the plans which previously received funding waivers. For those plans with remaining waiver amortization bases, the Company intends to comply with all conditions of the waivers, including elimination of the waiver amortization bases in installments through 1996. 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 $248 for 1994, $1,191 for 1993, and $1,117 for 1992. 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 $2,794 for 1994, $3,500 for 1993, and $2,465 for 1992. Excluding the one-time transition charge of $48,676 in 1993, the adoption of SFAS No. 106 effective October 1, 1992 had the effect of increasing the Company's net loss by $753 for 1993. The following table sets forth the plan's funded status, reconciled with amounts recognized in the Company's consolidated balance sheet at September 30, 1994 and 1993: - 34 -
1994 1993 Accumulated postretirement benefit obligation: Retirees . . . . . . . . . . . . . . . . . $(33,358) $ (44,219) Fully eligible active plan participants . . (1,723) (2,500) Other active plan participants . . . . . . (3,980) (6,128) (39,061) (52,847) Plan assets at fair value . . . . . . . . . - - Accumulated postretirement benefit obligation in excess of plan assets . . . (39,061) (52,847) Unrecognized net (gain) loss from past experience different from that assumed and from changes in assumptions . . . . . (11,964) 3,418 Accrued postretirement benefit cost . . . . $(51,025) $ (49,429)
The accrued postretirement benefit cost includes approximately $3,000 and $4,150 of expected 1995 and 1994 payments, respectively, that are included in the balance sheet as a current liability. Net periodic postretirement benefit cost included the following components:
1994 1993 Service cost -- benefits attributed to service during the period . . . . . . . . $ 410 $ 353 Interest on accumulated postretirement benefit obligation . . . . . . . . . . . 3,980 3,900 Net periodic postretirement benefit cost . $ 4,390 $ 4,253
For measurement purposes, a 10% annual rate of increase in the per capita cost of covered health care benefits was assumed for 1995; the rate was assumed to decrease gradually to 5% for 2000 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, 1994 by $3,047 and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year then ended by $434. The 1994 and 1993 weighted-average discount rates used in determining the accumulated postretirement benefit obligation were 8.75% and 7.75%, respectively. The weighted-average discount rates used in determining the 1994 and 1993 net periodic postretirement benefit cost and the transition obligation were 7.75% and 8.25%, respectively. - 35 - 6. OTHER ASSETS
1994 1993 Notes receivable, net . . . . . . . . . . . . . $ 365 $ 769 Equity in affiliates . . . . . . . . . . . . . . 600 300 Property held for sale . . . . . . . . . . . . . 4,680 5,270 Intangible pension asset . . . . . . . . . . . . 188 558 Prepaid pension cost . . . . . . . . . . . . . 2,924 - Other . . . . . . . . . . . . . . . . . . . . . 2,023 1,616 $ 10,780 $ 8,513
In 1994, the Company closed its Columbiana, Alabama facility and is continuing its preparation for sale. During the past six years, the Company has undertaken a project to obtain New Jersey approval to transfer title for property it owns in Clifton, New Jersey. 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 1994, 1993, and 1992, the Company expensed $2,030, $0, and $333, respectively, associated with the project. 7. DEBT
1994 1993 Promissory notes due October 1, 1994 with interest at 10.5% . . . . . . . . . . . . $ - $ 2,900 Promissory note due October 1, 1994, interest at prime plus 2.25% . . . . . . . . - 3,903 ESOP note, due monthly from 1988 to October 1993, interest at prime . . . . . . . - 17 Promissory note due October 1, 1994 with interest at prime plus 2.75% . . . . . . - 1,175 Revolving credit arrangements expiring on October 1, 1994, interest at the applicable bank's prime plus 2.25% . . . . . - 14,967 Promissory note due October 1, 1994 with interest at prime plus 4.25% . . . . . . . . - 4,207 Revolving credit arrangement expiring in December 1994, interest at 9.25% . . . . . 1,707 2,967 Revolving credit arrangement expiring on October 1, 1996, interest at prime plus 2.0% . . . . . . . . . . . . . . . 19,447 - - 36 - Promissory notes due October 1, 1996, interest at prime plus 2.25% . . . . . . . . 17,357 - Various debt due to 1997 . . . . . . . . . . . . 112 136 Foreign subsidiary short-term operating lines of credit with interest at approx- imately 7.75% in 1994 and 8.5% in 1993 . . . 3,950 2,822 42,573 33,094 Less short-term debt and current portion of long-term debt included in current liabilities . . . . . . . . . . . . . . . . . 8,245 8,994 $ 34,328 $ 24,100
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. Aggregate maturities on long-term debt, based upon the credit agreements for the three fiscal years subsequent to September 30, 1995, amount to $2,992 in 1996, $31,311 in 1997, and $25 in 1998. There are no maturities extending beyond 1998. 8. LEASES Minimum rental commitments under noncancellable operating leases, primarily machinery and equipment, in effect at September 30, 1994 were: 1995 . . . . . . . . . . . . $ 3,983 1996 . . . . . . . . . . . . 3,156 1997 . . . . . . . . . . . . 2,249 1998 . . . . . . . . . . . . 1,695 1999 . . . . . . . . . . . . 1,183 Later years . . . . . . . . 0 Operating lease rental expense was $2,626 in 1994, $2,485 in 1993, and $2,228 in 1992. 9. INCOME TAXES The domestic and foreign components of earnings (loss) before income taxes are as follows:
1994 1993 1992 - 37 - Domestic . . . . . . . . . . . . . . $ (3,861) $(54,609) $ (2,941) Foreign . . . . . . . . . . . . . . . (708) 1,232 (2,934) $ (4,569) $(53,377) $ (5,875)
The provisions (benefits) for income taxes are as follows:
1994 1993 1992 Currently payable (recoverable): State . . . . . . . . . . . . . . . $ - $ - $ - Foreign . . . . . . . . . . . . . . 56 - 10 Deferred: Foreign . . . . . . . . . . . . . . - - - $ 56 $ - $ 10
At September 30, 1994, the Company had tax loss carryforwards of $34,800 in the United States, $6,900 in the United Kingdom and $2,100 in Canada. The United Kingdom carryforward period is unlimited; however, if not utilized to offset future taxable income, $1,000 of the United States loss will expire in 2001, $8,900 in 2002, $3,500 in 2004, $8,100 in 2005, $12,400 in 2006, and $900 in 2008. The period for utilizing the majority of the Canadian loss will expire in 1996. At September 30, 1994, 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:
1994 1993 1992 Actual % Actual % Actual % Taxes at federal statutory rate $(1,553) (34.0) $(18,148)(34.0) $(1,998)(34.0) ESOP amortization - - 60 .1 238 4.1 Sale of subsidiary - - - - 354 6.0 Foreign 56 1.2 - - 10 .2 Losses with no current benefit 1,558 34.1 18,496 34.7 1,332 22.7 - 38 - Other (5) (.1) (408) (.8) 74 1.2 $ 56 1.2 $ - - $ 10 .2
The net deferred tax asset included the following components:
1994 1993 Deferred tax assets Accrued postretirement benefits . . . . . . $ 17,349 $ 16,806 Net operating loss carryforwards . . . . . 14,884 14,162 Tax credit carryforwards . . . . . . . . . 1,396 1,396 Environmental reserves . . . . . . . . . . 2,381 2,255 Depreciation . . . . . . . . . . . . . . . 1,371 1,005 Inventory reserves . . . . . . . . . . . . 1,250 928 Reserve against property held for sale . . 3,014 2,504 Other . . . . . . . . . . . . . . . . . . . 2,564 2,863 44,209 41,919 Deferred tax liabilities Depreciation . . . . . . . . . . . . . . . (871) (727) Pension . . . . . . . . . . . . . . . . . . (826) (508) (1,697) (1,235) Valuation allowance . . . . . . . . . . . . . (42,512) (40,684) Net deferred . . . . . . . . . . . . . . . . . $ 0 $ 0
The undistributed earnings of foreign subsidiaries amounting to $2,491 are intended to be reinvested; however, those earnings remitted to the parent company should have little or no additional tax under relevant current statutes. 10. OTHER INCOME (EXPENSE), NET
1994 1993 1992 Foreign affiliate . . . . . . . . . $ - $ - $ (1,041) Joint venture . . . . . . . . . . . 300 - - Rent . . . . . . . . . . . . . . . . 200 255 171 Other . . . . . . . . . . . . . . . (74) (159) (59) $ 426 $ 96 $ (929)
The 1992 foreign affiliate expense is the loss on the sale of the Company's interest in its Indian affiliate. This charge represents the cumulative decline in the value of the Company's investment due to the effects of foreign exchange rate fluctuations; $599 of the 1992 loss had previously been reported as adjustments to shareholders' equity within the cumulative translation adjustment account. 11. LITIGATION - 39 - 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. 12. COMMON STOCK The status of the stock option plans which provide for the purchase of the Company's common stock by officers and key employees is summarized as follows:
Options Outstanding Number Option of Shares Price Balance, September 30, 1991 . . . . . . . . . 75,509 $ 928 Transactions during 1992: Options expired . . . . . . . . . . . . . (17,395) (284) Options cancelled . . . . . . . . . . . . (8,138) (89) Transactions during 1993: Options granted . . . . . . . . . . . . . 320,500 2,764 Options expired . . . . . . . . . . . . . (2,200) (32) Options cancelled . . . . . . . . . . . . (5,983) (67) Transactions during 1994: Options expired . . . . . . . . . . . . . (23,908) (287) Options cancelled . . . . . . . . . . . . (8,000) (69) Balance, September 30, 1994 . . . . . . . . . 330,305 $2,864
The Long-Term Incentive Plan, under which all options were previously granted, expired September 17, 1990; however, during 1993, the National-Standard Stock Option Plan (the "1993 Plan") was approved. The 1993 Plan allows the Compensation 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 is the maximum amount available to be issued upon the exercise of options, and the term of each option is ten years from the date of the grant. During 1993, 320,500 options were granted to a group of 23 key management employees. The exercise price is $8-5/8 for all options granted in 1993. A Restricted Stock Award Program ("Plan") was established in 1989. The Plan provides for grants of shares of common stock to selected - 40 - 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, 1994, certain employees held 19,000 shares of restricted common stock of the Company. Awards for 8,500 of these shares were granted in 1994, with 1,000 subsequently vesting or being forfeited. The amount of compensation represented by the grant of restricted stock is amortized over a four-year vesting period. All stock options outstanding at September 30, 1994 are currently exercisable. 13. 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. Prior to 1992, the Company also operated in a Machinery and Other Products Segment. During 1991, the Company sold its tire drum and mold business located in Germany and its machinery business located in the United States, both of which made up the largest share of this segment in 1991. These divestitures and the reclassification of the air bag inflator filter business to the Wire and Related Products Segment have resulted in the Company no longer reporting a Machinery and Other Products Segment. 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 include the sales to one customer by both geographic areas in the total amount of $38,038 in 1994, $42,292 in 1993, and $40,946 in 1992. 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 - 41 - corporate expense includes certain nonrecurring costs. Included in 1994, 1993 and 1992, respectively, are approximately $6,955, $2,390, and $2,344 of costs associated with divestitures and restructuring. Included in the divestiture and restructuring costs in 1994 and 1992, respectively, are $2,030 and $333 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.
Year Ended September 30 1994 1993 1992 GEOGRAPHIC AREAS Net Sales United States . . . . . . . . . $ 170,667 $ 159,520 $ 152,177 Foreign . . . . . . . . . . . . 51,579 54,719 65,865 Eliminations . . . . . . . . (4,330) (5,985) (2,909) $ 217,916 $ 208,254 $ 215,133 Operating Profit (Loss) United States . . . . . . . . . $ 8,628 $ 3,620 $ 8,482 Foreign . . . . . . . . . . . . 197 2,324 (820) Segment Operating Profit (Loss) 8,825 5,944 7,662 General Corporate Expense . . . (9,935) (6,999) (7,618) $ (1,110) $ (1,055) $ 44 Total Assets United States . . . . . . . . . $ 62,933 $ 65,142 $ 64,024 Foreign . . . . . . . . . . . . 24,348 26,088 35,017 Corporate . . . . . . . . . . . 21,404 12,746 14,898 $ 108,685 $ 103,976 $ 113,939 (1) Represents primarily sales of foreign wire to the United States.
The net assets of foreign subsidiaries included in the consolidated figures at appropriate rates of exchange are as follows:
1994 1993 Net current assets . . . . . . . . . . . . . . $ 2,679 $ 2,448 Plant, equipment and other assets, net of long-term debt, deferred taxes, and other long-term liabilities . . . . . . . . . 5,210 6,447 $ 7,889 $ 8,895
- 42 - 14. QUARTERLY FINANCIAL DATA (UNAUDITED)
First Second Third Fourth Quarter Quarter Quarter Quarter September 30, 1994 Net sales . . . . . . . . $ 52,242 $ 58,051 $52,534 $ 55,089 Gross profit . . . . . . . 5,257 6,133 6,014 6,452 Earnings (loss): Net . . . . . . . . . . (4,518) 611 673 (1,391) Per share . . . . . . . (.84) .11 .13 (.26) Common stock: Market price: High . . . . . . . 9-7/8 9-3/8 14 13-7/8 Low . . . . . . . 7-1/2 7-7/8 7-5/8 11-1/4 September 30, 1993 Net Sales . . . . . . . . $ 50,941 $ 55,905 $52,160 $ 49,248 Gross Profit . . . . . . . 5,884 7,521 5,859 4,741 Earnings (loss) before effect of accounting change: Net . . . . . . . . . 108 563 229 (5,601) Per share . . . . . . .02 .11 .04 (1.05) Earnings (loss): Net . . . . . . . . . (48,568) 563 229 (5,601) Per share . . . . . . (11.01) .11 .04 (1.05) Common stock: Market price: High . . . . . . . 3-1/8 6 10 9-3/8 Low . . . . . . . 1-7/8 2-5/8 5-5/8 7-1/8
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, 1994, there were 2,564 shareholders. - 43 - 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 schedules as listed in the accompanying index. These consolidated financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules 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 examinining, 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, 1994 and 1993, and the results of their operations and their cash flows for each of the years in the three-year period ended September 30, 1994, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. As discussed in note 1 to the consolidated financial statements, the Company adopted the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," in 1993. KPMG Peat Marwick LLP Chicago, Illinois November 8, 1994 - 44 - NATIONAL-STANDARD COMPANY AND SUBSIDIARIES SCHEDULE V PROPERTY, PLANT AND EQUIPMENT Years Ended September 30, 1994, 1993 and 1992
Balance Addi- Translation/ Balance at Beginning tions Retire- Other at End Classification of Period at Cost ments Adjustments of Period (In thousands) Year ended September 30, 1994: Land $ 344 $ 0 $ 0 $ (13) $ 331 Land improvements 2,453 28 (12) (526) 1,943 Buildings 24,777 414 (4) (2,777) 22,410 Machinery and equipment 108,736 5,171 (9,506) (4,759) 99,642 Steel reels 2,314 303 (164) (90) 2,363 Automobiles and trucks 1,671 8 (167) (49) 1,463 Office furniture and fixtures 4,592 150 (82) 10 4,670 Construction in progress 3,911 4,415 - - 8,326 $ 148,798 $ 10,489 $ (9,935) $ (8,204) $ 141,148 Year ended September 30, 1993: Land $ 354 $ - $ - $ (10) $ 344 Land improvements 2,460 - - (7) 2,453 Buildings 25,000 181 - (404) 24,777 Machinery and equipment 114,189 2,321 2,985 (4,789) 108,736 Steel reels 2,450 115 199 (52) 2,314 Automobiles and trucks 1,665 81 56 (19) 1,671 Office furniture and fixtures 4,778 99 134 (151) 4,592 Construction in progress 2,049 1,749 - 113 3,911 $ 152,945 $ 4,546 $ 3,374 $ (5,319) $ 148,798 Year ended September 30, 1992: Land $ 358 $ - $ - $ (4) $ 354 Land improvements 2,470 - - (10) 2,460 Buildings 25,468 255 579 (144) 25,000 Machinery and equipment 114,491 2,938 1,723 (1,517) 114,189 Steel reels 2,174 293 14 (3) 2,450 Automobiles and trucks 1,789 4 119 (9) 1,665 Office furniture and fixtures 5,425 39 683 (3) 4,778 Construction in progress 2,587 (761) - 223 2,049 $ 154,762 $ 2,768 $ 3,118 $ (1,467) $ 152,945
- 45 - (1) Generally the rates of depreciation range from 7% to 12.5% for land improvements, 2% to 4% for buildings, 5% to 12.5% for machinery and equipment, 10% to 25% for automobiles and trucks and 10% to 16.7% for furniture and fixtures. (2) There are reclassifications within the various categories. - 46 - NATIONAL-STANDARD COMPANY AND SUBSIDIARIES SCHEDULE VI ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT Years Ended September 30, 1994, 1993 and 1992
Balance Addi- Translation/ Balance at Beginning tions Retire- Other at End Classification of Period at Cost ments Adjustments of Period (In thousands) Year ended September 30, 1994: Land improvements $ 2,219 $ 52 $ (12) $ (525) $ 1,734 Buildings 12,592 864 (2) (1,638) 11,816 Machinery and equipment 85,375 5,235 (8,100) (4,904) 77,606 Steel reels 1,482 135 (88) 70 1,599 Automobiles and trucks 1,572 31 (155) (49) 1,399 Office furniture and fixtures 3,999 202 (80) 11 4,132 $ 107,239 $ 6,519 $ (8,437) $ (7,035) $ 98,286 Year ended September 30, 1993: Land improvements $ 2,158 $ 68 $ - $ (7) $ 2,219 Buildings 11,861 974 - (243) 12,592 Machinery and equipment 85,159 4,998 2,204 (2,610) 85,375 Steel reels 1,519 181 195 (23) 1,482 Automobiles and trucks 1,567 50 35 (10) 1,572 Office furniture and fixtures 3,978 233 126 (86) 3,999 $ 106,242 $ 6,504 $ 2,560 $ (2,947) $ 107,239 Year ended September 30, 1992: Land improvements $ 2,087 $ 80 $ - $ (9) $ 2,158 Buildings 11,019 999 87 (70) 11,861 Machinery and equipment 81,440 5,572 1,400 (453) 85,159 Steel reels 1,391 146 14 (4) 1,519 Automobiles and trucks 1,603 85 112 (9) 1,567 Office furniture and fixtures 4,344 297 657 (6) 3,978 $ 101,884 $ 7,179 $ 2,270 $ (551) $ 106,242
(1) There are reclassifications within the various categories. - 47 - NATIONAL-STANDARD COMPANY AND SUBSIDIARIES SCHEDULE VIII VALUATION AND QUALIFYING ACCOUNTS Years Ended September 30, 1994, 1993 and 1992
1994 1993 1992 (In thousands) Allowance for Doubtful Accounts: Balance at Beginning of Period . . . . . . . . . . $ 386 $ 404 $ 634 Additions (Recoveries) Charged to Costs and Expenses . . . . . . . . . . . . 72 48 67 Recoveries of Accounts Previously Written Off . - 1 3 Deductions (Uncollectible Accounts Written Off) (60) (67) (300) BALANCE AT END OF PERIOD . . . . . . . . . . . . . $ 398 $ 386 $ 404
- 48 - NATIONAL-STANDARD COMPANY AND SUBSIDIARIES SCHEDULE IX SHORT-TERM BORROWINGS
Weighted Weighted Maximum Average Average Average Amount Amount Interest Interest Outstanding Outstanding Rate Balance at Rate at During During During Year September 30 September 30 the Year the Year the Year (In thousands) 1994 $ 5,668 8.2% $ 6,848 $ 5,912 9.4% 1993 5,800 9.0% 8,335 6,715 11.3% 1992 5,721 10.8% 7,607 5,891 13.0%
Notes: Short-term borrowings during the years covered by this schedule consisted of amounts payable to banks for borrowing. The weighted average interest rate during the year was computed by dividing the total interest on short-term borrowings by the monthly average of short-term borrowings outstanding. - 49 - NATIONAL-STANDARD COMPANY AND SUBSIDIARIES SCHEDULE X SUPPLEMENTARY INCOME STATEMENT INFORMATION For the Years Ended September 30, 1994, 1993 and 1992
Charged to Costs and Expenses 1994 1993 1992 (In Thousands) Maintenance and Repairs . . . . . . $ 13,404 $12,451 $ 12,865
- 50 - NATIONAL-STANDARD COMPANY INDEX TO EXHIBITS Exhibit (3)(i) Articles of Incorporation. (3)(ii) By-Laws. (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) Amended and Restated Supplemental Compensation Agreements (incorporated by reference to Exhibit (10)(a)(iv) to Registrant's Annual Report on Form 10-K for 1992, filed February 23, 1993). (v) Deferred Compensation Plan. (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). (b) Loan and Security Agreement by and between National-Standard Company and Foothill Capital Corporation dated as of May 24, 1994 (incorporated by reference to Exhibit (10) to Registrant's Quarterly Report on Form 10-Q for the third quarter of 1994, filed August 5, 1994). (11) Statement Regarding Earnings Per Share Calculation. - 51 - (21) Subsidiaries of National-Standard Company. (23) Consent of Independent Auditors. (24) Powers of Attorney. (27) Financial Data Schedule. - 52 - EX-3.(I) 2 ARTICLES OF INCORPORATION EXHIBIT 3(i) OF N-S SUB, INC. ARTICLE I. Name The name of the Corporation is N-S Sub, Inc., a Corporation formed under the Indiana Business Corporation Law. ARTICLE II. Purposes The nature of the business of the Corporation and the objects or purposes to be transacted, promoted or carried on are to engage in the business of buying, selling, manufacturing, fabricating, and dealing in all kinds, forms and combinations of iron, steel, wire, wire cable, wire goods, metal, metal parts and goods, wood parts and goods, leather parts and goods, rubber parts and goods, and any form or combination of any or all of the several named materials, and in the products of iron, steel, wire, wood, leather, rubber and other materials of any type or either or any of them; to plate, coat and treat metal products; and to conduct a general manufacturing, merchandising supply and specialty business including the manufacture and sale of machinery, machinery tools, ovens, and equipment made in whole or in part from any and/or all of said materials or any combination thereof, and to engage in the transactions of any lawful business for which corporations incorporated under Indiana law may now or hereafter engage in. ARTICLE III. Terms of Existence The existence of the Corporation is to be perpetual. ARTICLE IV. Registered Office and Registered Agent The post office address of the initial registered office of the Corporation is One North Capitol, Indianapolis, Indiana 46204; and the name of its initial Registered Agent at that office is CT Corporation System. ARTICLE V. Capital Stock The total number of shares into which the authorized capital stock of the Corporation is divided is Twenty-Five Million Six Hundred Thousand Shares (25,600,000) consisting of Twenty-Five Million (25,000,000) shares of Common Stock, par value $ .01 per share (hereinafter called Common Stock) and Six Hundred Thousand (600,000) shares of Preferred Stock, par value $1.00 per share (hereinafter called Preferred Stock). ARTICLE VI. Terms of Capital Stock The following is a description of each of the classes of stock of the Corporation and a statement of the powers, preferences and rights of the stock, and the qualifications, limitations and restrictions thereof: Section 1 (a) The Preferred Stock shall be issued from time to time in one or more series, and the series shall be known and designated by the appropriate designations as may be stated and expressed in the resolution or resolutions providing for the issue of the stock of whatever series adopted by the Board of Directors from time to time, a copy of which resolution or resolutions shall have been set forth in a certificate made, executed, acknowledged, filed and recorded in the manner required by the laws of the State of Indiana in order to make the same effective. Each series shall consist of the number of shares stated and expressed in the resolution or resolutions providing for the issue of the stock of the series together with the additional number of shares as the Board of Directors by resolution or resolutions may from time to time determine to issue as a part of the series. All shares of any one series of the Preferred Stock shall be alike in every particular except that shares issued at different times may accumulate dividends from different dates. The Board of Directors shall have power and authority to state and determine, in the resolution or resolutions providing for the issue of each series of Preferred Stock, the number of shares of each series authorized to be issued, the voting powers (if any) and the designations, preferences and relative, participating, optional or other rights appertaining to each series, and the qualifications, limitations or restrictions thereof [including, but not by way of limitation, full power and authority to determine as to the Preferred Stock of each series, the rate or rates of dividends payable thereon, the times of payment of the dividends, the prices and manner upon -2- which the same may be redeemed, the amount or amounts payable thereon in the event of liquidation, dissolution or winding up of the Corporation, and the rights (if any) to convert the same into, and/or to purchase stock of any other class or series]. The Board of Directors may from time to time decrease the number of shares of any series of Preferred Stock (but not below the number thereof then outstanding) by providing that any unissued shares previously assigned to the series shall no longer constitute part thereof and may assign the unissued shares to an existing or newly created series. (b) The foregoing provisions of this paragraph 1 with respect to the creation or issuance of series of Preferred Stock shall be subject to any additional conditions with respect thereto which may be contained in any resolutions then in effect which shall have theretofore been adopted in accordance with the foregoing provisions of this paragraph 1 with respect to any then outstanding series of Preferred Stock. Section 2 All shares of Preferred Stock shall have the same powers, preferences and rights, and shall be subject to the same qualifications, limitations or restrictions, without distinction as between series, except as provided herein or in resolutions of the directors pursuant to paragraph 1 above. Section 3 The holders of the Preferred Stock shall be entitled to receive, when and as declared by the Board of Directors of the Corporation, out of any legally available funds of the Corporation, dividends at the rates and at payment dates as may be fixed by resolution of the Board of Directors for the shares of each series of the Preferred Stock established in accordance with paragraph 1 above. The holders of Preferred Stock shall not be entitled to receive any dividends over and above the dividends so fixed. If any dividends are paid on any of the Preferred Stock at any time, in an aggregate amount less than the total dividends then accumulated and payable on all of the Preferred Stock then outstanding, the amount to be distributed shall be paid on each series of Preferred Stock in the proportions that the dividends then accumulated and payable on each series bears to the total dividends then accumulated and payable on all outstanding Preferred Stock. Section 4 At any time after all preferential dividends on the Preferred Stock for all previous dividend payment periods shall have been paid or declared and set apart for payment, the Board of Directors may (subject to any -3- conditions with respect thereto that may be contained in any then effective resolutions adopted in accordance with the provisions of paragraph 1 hereof) declare dividends on the Common Stock out of any legally available funds. Section 5 In the event of any liquidation, dissolution or winding up of the Corporation or any distribution of its assets, whether voluntary or involuntary, the holders of the outstanding Preferred Stock of each series shall be entitled to receive out of the assets of the Corporation, before any payment or distribution is made out of said assets to the holders of the Common Stock, the amount as is determined by resolution establishing said series in accordance with paragraph 1 above, together with an additional amount equal to all accrued and unpaid dividends thereon (whether or not earned or declared) to the date payment is made available to the holders of Preferred Stock, without preference or priority of any series over any other series. If less than the full amounts are paid or set apart for payment to holders of Preferred Stock, any amount so paid or payable shall be paid on each series of Preferred Stock in proportion to the respective amounts payable to each of the series in full payment. After payment or the setting apart for payment to the holders of each series of Preferred Stock of the preferential amounts so payable to them, all the remaining assets of the Corporation shall belong to and be distributable pro rata to the holders of Common Stock. Section 6 (a) The holders of the Common Stock of the Corporation shall be entitled to one vote for each share at any meeting of the shareholders of the Corporation. (b) The Preferred Stock shall have no voting rights and shall have no right to receive notice of any meetings except as required by law or expressly provided in the resolution establishing any series thereof. ARTICLE VII. Preemptive Rights No holder of any share or shares of any class of stock of the Corporation shall have any preemptive right to subscribe for any shares of stock of any class of the Corporation now or hereafter authorized or for any securities convertible into or carrying any rights to purchase any shares of stock of any class of the Corporation now or hereafter authorized, provided, however, that no provision of this Certificate of -4- Incorporation shall be deemed to deny to the Board of Directors the right, in its discretion, to grant to the holders of shares of any class of stock at the time outstanding the right to purchase or subscribe for shares of stock of any class or any other securities of the Corporation now or hereafter authorized, at the prices and upon the other terms and conditions as the Board of Directors, in its discretion, may fix. ARTICLE VIII. Data Respecting Directors Section 1 The maximum number of directors shall be fifteen (15). The exact number of directors, but not less than three (3) nor more than fifteen (15), may within the limits specified by this Article Eight increase or decrease from time to time by resolution duly adopted by a majority of the directors then in office. Section 2 The Board of Directors shall be divided into three classes as nearly equal as may be, with the term of office of one class expiring each year. The term of office of directors of the first class shall expire at the third annual meeting of shareholders next ensuing this classification; the term of office of directors of the second class shall expire at the second annual meeting of shareholders next ensuing this classification; and the term of office of directors of the third class shall expire at the annual meeting of shareholders next ensuing this classification. At each annual meeting of the shareholders, directors of the class whose term then expires shall be elected for a full term of three years to succeed the directors of the class, so that the term of office of the directors of one class shall expire in each year; provided that nothing herein shall be construed to prevent (i) the election of a director to succeed himself, or (ii) the election of a director for the remainder of an unexpired term in the class of directors to which he is elected. Section 3 Directors need not be shareholders of the Corporation. -5- ARTICLE IX. Name and Address of each Incorporator The names and addresses of the Incorporators are as follows: Name Number and Street City State Michael B. Savitske 710 Riverside Court South Bend Indiana R. J. VanSteelandt, Jr. 1605 Echo Valley Drive Niles Michigan ARTICLE X. Provision for Regulation of Business and Conduct of Affairs of Corporation Section 1 The Board of Directors of this Corporation shall have power, and is hereby authorized, to fix and determine the price at which, or the consideration for which, the shares of stock of this Corporation may from time to time be issued, and the shares of stock may be issued for the consideration therefor fixed from time to time by the Board of Directors. Section 2 If and whenever the provisions of IC 23-1-42 apply to this Corporation, it is authorized to redeem its securities pursuant to IC 23-1-42-10. Section 3 This Corporation reserves the right to take advantage of the provisions of any amendment to The Indiana Business Corporation Law, or of any new law applicable or relating to corporations formed, organized under, or which have accepted the provisions of the law now in force which may hereafter be enacted, and all rights granted and conferred on the shareholders of this Corporation are granted and conferred subject to this reservation. ARTICLE XI. Amendments The Corporation reserves the right to amend, alter, change or repeal any provision contained in these Articles of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon shareholders herein are granted subject to this reservation. -6- /s/ Michael B. Savitske Michael B. Savitske /s/ R. J. VanSteelandt, Jr. R. J. VanSteelandt, Jr. -7- EX-3.(II) 3 BYLAWS EXHIBIT 3(ii) OF NATIONAL-STANDARD COMPANY ARTICLE I. THE CORPORATION 1.1 Name. The name of this Corporation is NATIONAL-STANDARD COMPANY. 1.2 Offices. The registered office shall be in the City of Indianapolis, State of Indiana, and the name of the registered agent in charge thereof is CT Corporation System. This Corporation may also have offices at any other place that the Board of Directors may from time to time determine or the business of this Corporation may require. 1.3 Seal. The corporate seal of this Corporation shall have thereon the name of this Corporation and the words "CORPORATE SEAL." ARTICLE II. THE SHAREHOLDERS 2.1 Place of Meetings. All meetings of the shareholders, whether special or annual, shall be held within or without the State of Indiana, as may be fixed from time to time by the Board of Directors. 2.2 Annual Meeting. The Annual Meeting of the Shareholders of this Corporation shall be held once in each calendar year at the time determined by the Board of Directors, which time shall be stated in the Notice of Meeting. The purpose of the Annual Meeting shall be to elect directors and to transact any other business that may come before the meeting. 2.3 Special Meetings. Special meetings of the shareholders may be called at the request in writing by a majority of the members of the Board of Directors or by the Chairman of the Board or by the President at any time for any purpose or purposes, unless otherwise prescribed by statute. The request shall state the purpose or purposes of the proposed meeting. 2.4 Quorum. A majority of the outstanding stock entitled to vote, present in person or by proxy duly authorized by the shareholder and filed with the Secretary, shall constitute a quorum at all meetings of the shareholders except as otherwise provided by law, or by the Articles of Incorporation. If, however, a majority shall not be present or represented at any meeting of the shareholders, the shareholders entitled to vote thereat, present in person or by proxy duly authorized by the shareholder and filed with the Secretary, shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting of the place, date and hour of the adjourned meeting, until a quorum shall be present or represented. At the adjourned meeting at which quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty (30) days or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting. The shareholders present at a duly organized meeting may continue to transact business until adjournment notwithstanding the withdrawal of enough shareholders to leave less than a quorum. 2.5 Voting. When a quorum is present at any meeting, and subject to the provisions of the Business Corporation Law of the State of Indiana, the Articles of Incorporation or these Bylaws in respect of the vote that shall be required for a specific action, the vote of the holders of a majority of the stock having voting power, present in person or represented by proxy duly authorized by the shareholder and filed with the Secretary, shall decide any question brought before the meeting, unless the question is one upon which, by express provision of the statutes or of the Articles of Incorporation or of these Bylaws, a different vote is required, in which case the express provision shall govern and control the decision on the question. Directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of Directors. Election of Directors need not be by ballot. Each shareholder shall have one vote for each share of stock having voting power registered in his name on the books of this Corporation, except as otherwise provided in the Articles of Incorporation. 2.6 Proxies. At any meeting of the shareholders, every shareholder having the right to vote shall be entitled to vote in person, or by proxy duly authorized and bearing a date not more than eleven months prior to said meeting, unless the proxy provides for a shorter or longer period. The shareholder may validly grant this authority by: (a) signing an appointment form, either personally or by the Shareholder's attorney-in-fact (or causing his signature to be affixed to the writing by any reasonable means) including, but not limited to, by facsimile signature; or (b) transmitting or authorizing the transmission of a telegram, cablegram, or other means of electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive the transmission, provided that any telegram, cablegram or other means of the electronic transmission -2- must either set forth or be submitted with information from which it can be determined that the telegram, cablegram or other electronic transmission was authorized by the shareholder. If it is determined that any telegram, cablegram or other electronic transmission submitted pursuant to clause (b) above is valid, the inspectors shall specify the information upon which they relied. Any copy, facsimile, telecommunication or other reliable reproduction of the writing or transmission created pursuant to the preceding sentence may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that the copy, facsimile, telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission. 2.7 Fiduciary Voting. Every person holding stock in any representative or fiduciary capacity shall be entitled to vote the shares so held at all meetings of this Corporation. Persons who transfer, mortgage, or in any way pledge their stock to another for security purposes, and it so appears in the transfer, mortgage or pledge and on the books of this Corporation, shall have the right to vote the stock at all meetings of this Corporation unless in the transfer by the pledger on the books of this Corporation he has expressly empowered the pledgee to vote thereon, in which case only the pledgee or his proxy may represent the stock and vote thereon. 2.8 Shareholder Companies. Another corporation owning voting shares in this Corporation may vote the shares by the President of the shareholder company or by proxy appointed by the President, unless the Board of Directors of the shareholder company appoints some other person of the shareholder company and a certified copy of the resolution is delivered to the Secretary of this Corporation, and unless the shares are owned, directly or indirectly, by a second corporation domestic or foreign, and this Corporation owns, directly or indirectly, a majority of the shares entitled to vote for directors of the second corporation. 2.9 Notice of Meetings. Written notice of each meeting of shareholders, stating the date, time and place, and in the case of a special meeting the object thereof, shall be mailed, postage prepaid, addressed to each shareholder entitled to vote thereat, at the address of the shareholder which appears on the books of this Corporation, not less than ten (10) days nor more than seventy (70) days before the meeting. 2.10 List of Shareholders. After the Record Date for a meeting of shareholders is fixed, the Secretary shall prepare a complete alphabetical list of the shareholders entitled to vote at the -3- meeting. The list shall be arranged by voting group (and within each group by class or series of shares) and shall show the address of each shareholder as it appears on the records of this Corporation and the number of shares of stock held by the shareholder. Beginning five (5) business days before the meeting, the list of shareholders shall be open to inspection by any shareholder, shareholder's agent, or attorney authorized in writing for any purpose germane to the meeting, during ordinary business hours, and shall be kept at a place within the city where the meeting is to be held, which place shall be specified in the Notice of the Meeting. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any shareholder, shareholder's agent, or attorney authorized in writing. 2.11 Shareholder Nominations and Proposals. (a) At any meeting of the shareholders, only business which shall have been properly brought before the meeting shall be conducted. To be properly brought before a meeting, business must be (i) specified in the Notice of Meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (ii) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (iii) otherwise properly brought before the meeting by a shareholder. (b) For business to be properly brought before a meeting by a shareholder, the shareholder must have given timely notice thereof in writing to the Secretary of this Corporation. To be timely, a shareholder's notice must be delivered to or mailed and received at the principal executive offices of this Corporation, not less than sixty (60) days nor more than ninety (90) days prior to the meeting; provided, however, that in the event that less than seventy (70) days' notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder to be timely must be so received not later than the close of business on the tenth day following the day on which the notice of the date of the meeting was mailed or the public disclosure was made. (c) In the case of shareholder nominations for election to the Board of Directors, the notice shall set forth (i) the name, age, business address and, if known, residence address of each nominee proposed in the notice, (ii) the principal occupations or employment of each nominee for the past five (5) years, (iii) the number of shares of this Corporation which are beneficially owned by each nominee, (iv) other directorships held by each nominee, -4- (v) the names of business entities of which each nominee owns ten percent (10%) or more beneficial interest, and (vi) all other information with respect to each nominee required by the Federal proxy rules in effect at the time notice is submitted. In addition, the notice shall be accompanied by a statement, over the signature of each proposed nominee, that he consents to being a nominee, if elected he intends to serve as a director, and confirming the information with respect to him set forth in the notice. (d) In the case of shareholder proposals, the notice shall set forth (i) a brief description of the business desired to be brought before the meeting and the reasons for conducting the business at the meeting, (ii) the name, age, business and residence address of the shareholder submitting the proposal, (iii) the principal occupation or employment of the shareholder, (iv) the number of shares of this Corporation which are beneficially owned by the shareholder, and (v) any material interest of the shareholder in the business. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in accordance with the provisions of this Article II, and if he should so determine, he shall so declare to the meeting, and any business not properly brought before the meeting shall not be transacted. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at any meeting except in accordance with the procedures set forth in this Article II. 2.12 Voting Procedure and Inspectors of Elections. (a) This Corporation, by action of the Secretary, shall, in advance of any meeting of shareholders, appoint one or more inspectors to act at the meeting and make a written report thereof. This Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of shareholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his ability. (b) The inspectors shall (i) ascertain the number of shares outstanding and the voting power of each, (ii) determine the shares represented at a meeting and the validity of proxies and ballots, (iii) count all votes and ballots, (iv) determine and retain for a reasonable period a record of the disposition of any -5- challenges made to any determination by the inspectors, and (v) certify their determination of the number of shares represented at the meeting and their count of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of the duties of the inspectors. (c) The date and time of the opening and the closing of the polls for each matter upon which the shareholders will vote at a meeting shall be announced at the meeting. No ballot, proxies or votes, nor any revocations thereof or charges thereto, shall be accepted by the inspectors after the closing of the polls unless the Court of Chancery upon application by a shareholder shall determine otherwise. (d) In determining the validity and counting of proxies and ballots, the inspectors shall be limited to an examination of the proxies, any envelopes submitted with those proxies, any information provided in accordance with clause (b) of Section 2.6 of these Bylaws, ballots and the regular books and records of this Corporation, except that the inspectors may consider other reliable information for the limited purpose of reconciling proxies and ballots submitted by or on behalf of banks, brokers, their nominees or similar persons which represent more votes than the holder of a proxy is authorized by the record owner to cast or more votes than the shareholder holds of record. If the inspectors consider other reliable information for the limited purpose permitted herein, the inspectors at the time they make their certification pursuant to subsection (b)(v) of this Section shall specify the specific information considered by them, including the person or persons from whom they obtained the information, when the information was obtained, the means by which the information was obtained, and the basis for the inspectors' belief that the information is accurate and reliable. ARTICLE III. THE BOARD OF DIRECTORS 3.1 Number and Classification of Directors. The business and affairs of this Corporation shall be managed by a Board of Directors which may exercise all powers of this Corporation and do all acts and things which are not by the Business Corporation Law of the State of Indiana nor by the Articles of Incorporation nor by these Bylaws directed or required to be exercised or done by the shareholders. Each director shall hold office for the term for which he is elected until his -6- successor has been elected and qualified or until his earlier resignation or removal. The Board of Directors shall be composed of seven (7) members divided into three (3) classes. The term of office of directors of the first class, which shall consist of two (2) directors, shall expire at the third annual meeting of shareholders following the date of Incorporation of this Corporation in Indiana; the term of office of directors of the second class, which shall consist of two (2) directors, shall expire at the second annual meeting of shareholders next ensuing that date; and the term of office of directors of the third class, which shall consist of three (3) directors, shall expire at the first annual meeting of shareholders next ensuing that date. At each annual meeting of the shareholders, directors of the class whose term then expires shall be elected for a full term of three years to succeed the directors of that class, so that the term of office of the directors of one class shall expire in each year; provided that nothing herein shall be construed to prevent (i) the election of a director to succeed himself, or (ii) the election of a director for the remainder of an unexpired term in the class of directors to which he is elected. 3.2 First Meeting. The newly elected directors shall meet for the purpose of organization as soon as convenient after the close of the shareholders' annual meeting. At the meeting, the Board shall select the officers of this Corporation for the ensuing term of office and shall transact any other business that shall properly be brought before the meeting. No notice of the holding of the meeting shall be necessary if it is held immediately after the Annual Meeting of - Shareholders, at the same place at which the meeting was held. 3.3 Regular Meetings. Regular meetings of the Board of Directors shall be held immediately following and at the same place as the Annual Meeting of the Shareholders. The Secretary shall give notice five (5) days in advance of the meeting, unless waived, by mail, telegram, telecopier, telex, telephone or in person to each director, at his address as appears on the records of this Corporation. The notice need not state the matter or matters to be considered at the meeting. The Chairman of the Board or the President may postpone or advance the date for any of the regular meetings previously scheduled to another business day during the same month provided he gives notice of the advanced or postponed date to all directors by mail, telegram, telex, telecopier, telephone or in person at least five (5) days previous to the day upon which the regular meeting would otherwise be held in accordance with the foregoing resolution, and at least five (5) days before the advanced date of meeting. 3.4 Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board, the President, or by a majority -7- of the Board of Directors. Notice of each special meeting, unless waived, shall be given by mail, telegram, telecopier, telex, telephone, or in person to each director at his address as appears on the records of this Corporation not less than one day prior to the day on which the meeting is to be held. For purposes of dealing with an emergency situation, as conclusively determined by the directors or officer calling the meeting, notice may be given not less than two hours prior to the meeting. Notice of any special meeting need not state the purpose or purposes thereof. If the Secretary shall fail or refuse to give notice, then the notice may be given by the officer or any of the directors making the call. Attendance at any meeting of the Board of Directors shall constitute waiver of notice thereof unless the director attends the meeting for the express purpose of objecting, and the director objects at the beginning of the meeting, to the transaction of any business because the meeting was not lawfully called or convened. 3.5 Place of Meetings. The Board of Directors may hold all of its meetings at any place within or without the State of Indiana, as it may from time to time determine. 3.6 Attendance. Unless otherwise provided by law, a director or a member of a committee of the Board may participate in a meeting of the Board or the committee by means of conference telephone or similar communications equipment by which all persons participating can hear each other, and that participation shall constitute attendance at the meeting. 3.7 Quorum. A majority of the total number of the Board of Directors shall be necessary to constitute a quorum for the transaction of business at any meeting. 3.8 Informal Action. Any action required or permitted to be taken at any meeting of the Board of Directors or any Committee thereof may be taken without a meeting, if a written consent to the action describing the action taken is signed by all of the members of the Board of Directors or of the Committee, as the case may be, and the written consent is filed with the minutes of proceedings of the Board or Committee. 3.9 Vacancies. In the case of an increase in the number of directors, or if the office of any one or more directors becomes vacant by reason of death, resignation, retirement, disqualification, removal from office, failure to elect, or otherwise, a majority of the directors then in office, though less than a quorum, may fill the newly created directorships or vacancies at any regular or special meeting, directors so elected to serve until the next election of the class -8- for which the directors have been chosen and until their successors are elected and qualify. 3.10 Committees. The Board of Directors may, in its discretion, by resolution passed by a majority of the Board of Directors, designate one or more Committees, each Committee to consist of one or more of the directors of this Corporation, which shall have or may exercise the authority of the Board of Directors in the management of the business and affairs of this Corporation as shall be conferred or authorized by the resolution appointing them. No Committee shall have the power or authority to authorize amending the Articles of Incorporation, approve a plan of merger or consolidation not requiring shareholder approval, recommend to the shareholders the sale, lease or exchange of all or substantially all of this Corporation's property and assets, recommend to the shareholders a dissolution of this Corporation or a revocation of a dissolution, or amend the Bylaws of this Corporation; and unless the resolution, Bylaws, or Articles of Incorporation expressly so provide, no Committee shall have the power of authority to declare a dividend or to authorize the issuance of shares. A majority of any Committee, if composed of more than two members, may fix the time and place of its meetings, unless the Board of Directors shall otherwise provide. The Board shall have the power, at any time, to change the members of any Committee, to fill vacancies and to discharge any Committee. Each Committee shall keep minutes of its proceedings and shall report to the Board of Directors when required by the Board. 3.11 Compensation. Directors may receive compensation for their services as directors and/or any fixed sums and expenses of attendance for attendance at each regular or special meeting of the Board of Directors as may be established by resolution of the Board, provided that nothing herein contained shall be construed to preclude any director from serving this Corporation in any other capacity and receiving compensation therefor. ARTICLE IV. OFFICERS AND DEFINITION OF DUTIES 4.1 Officers. The officers of this Corporation shall consist of the Chairman of the Board, President, one or more Vice Presidents, a Treasurer, a Secretary and any Assistant Secretaries and Assistant Treasurers and other officers, including a Controller, that may be elected by the Board of Directors at the regular meeting of the Board of Directors. The Chairman of the Board of Directors and the President shall be elected from the members of the Board of -9- Directors. All other officers of this Corporation need not be members of the Board of Directors. The same person may hold any two offices except those of President and Secretary. 4.2 Chairman of the Board. The Chairman of the Board shall preside when present at all meetings of the Board of Directors and the shareholders. He may sign and execute in the name of the Corporation all bonds, deeds, mortgages, contracts, notes, checks and other obligations in the ordinary scope of the business of the Corporation or as may be specifically authorized by the Board of Directors. The Chairman of the Board shall from time to time report to the Board of Directors all matters within his knowledge which the interests of the Corporation may require to be brought to its notice. 4.3 President. The President shall be the Chief Executive Officer of this Corporation and shall have general supervision of the business and affairs of this Corporation and over all other officers, employees and agents of this Corporation and shall perform whatever other duties may be prescribed by the Board of Directors from time to time. As Chief Executive Officer, the President may delegate whatever duties he/she deems advisable to the other officers of this Corporation. The President shall carry into effect all resolutions and orders of the Board of Directors and shall also have the general administrative powers and duties usually vested in the office of a president of a corporation. In the absence or disability of the Chairman of the Board of Directors, the President shall generally have the powers and duties of the Chairman of the Board of Directors. The President may sign and execute in the name of this Corporation all bonds, deeds, mortgages, contracts, notes, checks and other obligations in the ordinary scope of the business of this Corporation or as may be specifically authorized by the Board of Directors. 4.4 Vice Presidents. The Vice Presidents may be given designations appropriate to their responsibilities, such as Executive Vice President, Financial Vice President, Vice President-Sales, Vice President-Operations, Vice President in charge of a particular division, and any other designations the Board of Directors shall from time to time establish by resolution, or in the absence of designation by the Board of Directors, as may be established by the President. In the absence or disability of the President, the Executive Vice President, or any Vice President designated by the Chairman of the Board or the Board of Directors, shall have the powers and duties of the President. The Vice Presidents from time to time elected or appointed shall have the powers and duties established by resolution of the Board of Directors, or in the absence of Board resolutions, as may be delegated to them by the Chairman of the Board or the President. -10- 4.5 Treasurer. The Treasurer shall: (a) have the custody of all the corporate funds and securities and shall keep or cause to be kept full and accurate accounts of the financial affairs of this Corporation; (b) deposit or cause to be deposited all moneys and other valuable effects in the name and to the credit of this Corporation in any depositories designated by the Board of Directors; (c) disburse or cause to be disbursed the funds of this Corporation as may be ordered by the Board of Directors; (d) render to the President and Board of Directors, at the regular meeting of the Board or whenever they may require it, an account of all his transactions as Treasurer and of the financial condition of this Corporation; (e) give this Corporation a bond, if required by the Board of Directors, in a sum and with one or more sureties satisfactory to the Board, for the faithful performance of the duties of his office; and (f) perform all the duties incident to the office of Treasurer and all other duties as from time to time may be assigned to him by the Chairman of the Board, President, or by the Board of Directors. 4.6 Secretary. The Secretary shall be responsible for maintaining records of meetings of the Board of Directors, meetings of the shareholders and meetings of the committees, which from time to time may be appointed under authority of these Bylaws, in books provided by this Corporation for these purposes. The Secretary shall give, or cause to be given, notice of all meetings of the Board of Directors and shareholders. He shall prepare, or cause to be prepared, all lists of shareholders and their addresses required to be prepared by the provisions of any present or future statute of the State of Indiana. The Secretary shall keep in safe custody the seal of this Corporation and, when authorized by the Board, affix it to any instrument requiring it. He shall perform all duties which are incident to the office of secretary of a corporation and shall perform all other duties as from time to time may be prescribed by the Chairman of the Board, the President, or the Board of Directors. 4.7 Assistant Secretaries and Assistant Treasurers. In the absence or disability of the Secretary or Treasurer, their duties shall be performed and their powers exercised, respectively, by any Assistant Secretary or any Assistant Treasurer which the Board of Directors may have elected or appointed. The Assistant Secretaries and Assistant Treasurers shall have all other duties and powers as may have been delegated to them respectively by the Secretary or the Treasurer or by the Board of Directors. 4.8 Controller. The Controller shall maintain proper audit control over the operations of this Corporation and be generally responsible for the accounting system employed by this Corporation and the accounting principles adopted by the various departments. He shall direct the -11- budgetary control, general accounting, cost accounting, and statistical activities of this Corporation and shall supervise activities in connection with credits and collections, taxes, and physical inventories. The Controller shall prepare and furnish reports and statements showing the financial condition of this Corporation as shall be required of him by the Chairman of the Board, President or the Board of Directors, and shall perform all other duties and exercise any other powers the Chairman of the Board, President or the Board of Directors may from time to time determine. 4.9 Removal of Officers. The Board of Directors may remove any officer or agent by a majority vote of the total number of directors whenever, in their judgment, the best interests of this Corporation will be served thereby. All agents and employees, other than officers elected or appointed by the Board of Directors, shall hold office at the discretion of the Chairman of the Board. 4.10 Delegation of Duties. In case of the absence of any officer of this Corporation, the Board of Directors may delegate, for the time being, the duties of that officer to any other officer or to any Director. 4.11 Compensation. The compensation of all officers shall be fixed by the Board of Directors. 4.12 Bonds. The Board of Directors may, by resolution, require any officer or employee of this Corporation to furnish to this Corporation a bond in any amount as may be approved by the directors, conditioned upon the faithful performance of his duties and for the account of all money, securities, or property coming into his hands. ARTICLE V. CERTIFICATES OF STOCK AND THEIR TRANSFER 5.1 Form of Certificates. This Corporation shall cause to be issued to each shareholder a certificate or certificates representing the number of shares of capital stock owned by that shareholder. The certificates shall be numbered consecutively and shall exhibit the shareholders's name, number and class of shares and the designation of the series, if any, the certificate represents. The certificates must state the name of the issuing corporation and that it is organized under the laws of Indiana. The certificates shall be signed by the Chairman of the Board or the President or Vice President and by the Secretary or Assistant Secretary, or the Treasurer or Assistant Treasurer. Any or all signatures on the certificate may be facsimiles either engraved or printed. Facsimile -12- signatures may be of the officers of this Corporation designated above who are officers at the time of the issuance of the certificates or who were officers at the time of the printing or engraving of the certificates, whether or not that person has continued to hold that office. The certificates when issued shall be signed by the transfer agent and by the registrar who have been duly appointed by the Board of Directors, provided that any signature of a transfer agent may be facsimile of any certificate signed by a registrar. 5.2 Transfer of Certificates. The shares of the capital stock of this Corporation shall be transferable only upon the books of this Corporation by the owner in person or by the legal representative of the person, and upon transfer, the old certificates shall be surrendered to the person in charge of the stock transfer books and ledgers, or to any other person designated by the Board of Directors, who shall cancel the certificate and thereupon issue a new certificate or certificates therefor. Whenever a transfer by its terms is made for collateral security and not absolutely, the fact shall be so expressed in the entry of the transfer if, when the certificates are presented to this Corporation for transfer, both the transferor and transferee request this Corporation to do so. 5.3 Transfer Books; Record Date. The Board of Directors shall have the power to close the stock transfer books of this Corporation for a period not exceeding seventy (70) days preceding the date of any meeting of the shareholders or the date for payment of any dividend, provided, however, that in lieu of closing the stock transfer books as aforesaid, the Board of Directors may fix a date not exceeding seventy (70) days nor less than ten (10) days preceding the date of any meeting of shareholders, or not more than seventy (70) days preceding the date for the payment of dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, as a record date for the determination of the shareholder entitled to notice of, and to vote at any meeting, or entitled to receive payment of any dividend, or to any allotment of rights, or to exercise the rights in respect of any change, conversion or exchange of capital stock. 5.4 Transfer Agents and Registrars. The Board of Directors may appoint transfer agents and registrars of transfers, and thereafter may require all stock certificates to bear the signature of a transfer agent and a registrar of transfers. 5.5 Registered Holder. This Corporation shall be entitled to treat the registered holder of any shares as the absolute owner thereof, and accordingly shall not be bound to recognize any equitable or other -13- claim to, or interest therein, on the part of any other person, whether or not it shall have express or other notice thereof, save as expressly provided by the laws of the State of Indiana. 5.6 Regulation. The Board of Directors shall have the power and authority to make all rules and regulations they deem expedient concerning the issue, transfer, and registration of the certificates for the shares of the capital stock of this Corporation. 5.7 Lost or Destroyed Certificates. In the event a certificate shall be lost, stolen, or destroyed, a replacement certificate thereof may be issued upon filing with this Corporation an indemnity bond approved by the President and the Secretary or by the Board of Directors (by general or specific resolution). However, the Board may, in its discretion, refuse to issue a new certificate, save upon the order of some court having jurisdiction in the matter. ARTICLE VI. DIVIDENDS Dividends upon the capital stock of this Corporation shall be payable as the directors may order, subject to the Articles of Incorporation and the Business Corporation Law of the State of Indiana. ARTICLE VII. CHECKS, NOTES, ETC. 7.1 Accounts. All funds of this Corporation shall be deposited from time to time to the credit of this Corporation in the general or special accounts in banks or other depositories as the Board may from time to time designate, or as may be designated by any officer or officers of this Corporation to whom the power so to do may be delegated by the Board. 7.2 Signatures Required. All checks, drafts, or other orders for the payment of money, obligations, notes or other evidences of indebtedness shall be signed or endorsed by the officer or officers or any other person or persons designated from time to time by the Board or by any officer or officers to whom this power may be delegated by the Board. ARTICLE VIII. BOOKS AND ACCOUNTS -14- The books, accounts and records of this Corporation shall be kept at the office of this Corporation in the City of Niles, Michigan, or at any other place which the Board of Directors of this Corporation shall from time to time determine. The books, accounts and records of this Corporation shall be open to inspection by any member of the Board of Directors during the usual hours of business for any purpose reasonably related to the director's position as director. ARTICLE IX. WAIVER OF NOTICE Whenever a notice is required to be given under the provisions of these Bylaws or under the provisions of the Articles of Incorporation or under the provisions of the Indiana Business Corporation Law, a waiver may be made by telegram, telex, telecopier, or other writing signed by the person or persons entitled to the notice either before or after the meeting. The waiver by the person entitled to the notice must be delivered to this Corporation for inclusion in the minutes or filing with the corporate records. The attendance and participation in a meeting by any shareholder or director shall constitute a Waiver of Notice by the shareholder or director for the meeting, unless at the beginning of the meeting the person objects to the meeting, or the person objects to the consideration of a particular matter at the meeting where the matter is presented for consideration. ARTICLE X. ALTERATION OF BYLAWS 10.1 Amendment by the Board. The Board of Directors by a vote of a majority of the directors may at any regular or special meeting amend the Bylaws provided that notice of the proposed change shall be given to each director in writing at least ten (10) days in advance of this meeting. ARTICLE XI. INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES 11.1 General. The Corporation shall, to the fullest extent to which it is empowered to do so by the Indiana Business Corporation Law, or any other applicable laws, as from time to time in effect, indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending or completed action, suit or proceeding, -15- whether civil, criminal, administrative or investigative and whether formal or informal, by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or who, while serving as such director, officer, employee or agent of the corporation, is or was serving at the request of the corporation as a director, officer, partner, trustee, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, whether for profit or not, against expenses (including counsel fees), judgments, settlements, penalties and fines (including excise taxes assessed with respect to employee benefit plans) actually or reasonably incurred by him in accordance with such action, suit or proceeding, if he acted in good faith and in a manner he reasonably believed, in the case of conduct in his official capacity, was in the best interest of the corporation, and in all other cases, was not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, he either had reasonable cause to believe his conduct was lawful or no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not meet the prescribed standard of conduct. 11.2 Authorization of Indemnification. To the extent that a director, officer, employee or agent of the corporation has been successful, on the merits or otherwise, in the defense of any action, suit or proceeding referred to in Section 1 of this Article, or in the defense of any claim, issue or matter therein, the corporation shall indemnify such person against expenses (including counsel fees) actually and reasonably incurred by such person in connection therewith. Any other indemnification under Section 1 of this Article (unless ordered by a court) shall be made by the corporation only as authorized in the specific case, upon a determination that indemnification of the director, officer, employee or agent is permissible in the circumstances because he has met the applicable standard of conduct. Such determination shall be made (1) by the Board of Directors by a majority vote of a quorum consisting of directors who were not at the time parties to such action, suit or proceeding; or (2) if a quorum cannot be obtained under subdivision (1), by majority vote of a committee duly designated by the Board of Directors (in which designation directors who are parties may participate), consisting solely of two or more directors not at the time parties to such action, suit or proceeding; or (3) by special legal counsel: (A) selected by the Board of Directors or its committee in the manner prescribed in subdivision (1) or (2), or (B) if a quorum of the Board of Directors cannot be obtained under subdivision (1) and a committee cannot be designated under -16- subdivision (2), selected by majority vote of the full Board of Directors (in which selection directors who are parties may participate); or (4) by the shareholders, but shares owned by or voted under the control of directors who are at the time parties to such action, suit or proceeding may not be voted on the determination. Authorization of indemnification and evaluation as to reasonableness of expenses shall be made in the same manner as the determination that indemnification is permissible, except that if the determination is made by special legal counsel, authorization of indemnification and evaluation as to reasonableness of expenses shall be made by those entitled under subsection (3) to select counsel. 11.3 Good Faith Denied. For purposes of any determination under Section 1 of this Article, a person shall be deemed to have acted in good faith and to have otherwise met the applicable standard of conduct set forth in Section 1 if his action is based on information, opinions, - reports, or statements, including financial statements and other financial data, if prepared or presented by (1) one or more officers or employees of the corporation or other enterprise whom he reasonably believes to be reliable and competent in the matters presented; (2) legal counsel, public accountants, appraisers or other persons as to matters he reasonably believes are within the person's professional or expert competence; or (3) a committee of the Board of Directors of the corporation or another enterprise of which the person is not a member if he reasonably believes the committee merits confidence. The term "another enterprise" as used in this Section 3 shall mean any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise of which such person is or was serving at the request of the corporation as a director, officer, partner, trustee, employee or agent. The provisions of this Section 3 shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standards of conduct set forth in Section 1 of this Article. 11.4 Payment of Expenses in Advance. Expenses incurred in connection with any civil or criminal action, suit or proceeding may be paid for or reimbursed by the corporation in advance of the final disposition of such action, suit or proceeding, as authorized in the specific case in the same manner described in Section 2 of this Article, upon receipt of a written affirmation of the director, officer, employee or agent's good faith belief that he has met the standard of conduct described in Section 1 of this Article and upon receipt of a written undertaking by or on behalf of the director, officer, employee or agent to repay such amount if it shall ultimately be determined that -17- he did not meet the standard of conduct set forth in this Article, and a determination is made that the facts then known to those making the determination would not preclude indemnification under this Article. 11.5 Provisions Not Exclusive. The indemnification provided by this Article shall not be deemed exclusive of any other rights to which a person seeking indemnification may be entitled under the Articles of Incorporation, any other bylaw, any resolution of the Board of Directors or shareholders, any other authorization, whenever adopted, after notice, by a majority vote of all voting shares then outstanding, or any contract, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent, and shall inure to the benefit of the heirs, executors and administrators of such a person. 11.6 Vested Right to Indemnification. The right of any individual to indemnification under this Article shall vest at the time of occurrence or performance of any event, act or omission giving rise to any action, suit or proceeding of the nature referred to in Section 1 of this Article and, once vested, shall not later be impaired as a result of any amendment, repeal, alteration or other modification of any or all of these bylaws. Notwithstanding the foregoing, the indemnification afforded under this Article shall be applicable to all alleged prior acts or omissions of any individual seeking indemnification hereunder, regardless of the fact that such alleged acts or omissions may have occurred prior to the adoption of this Article, and to the extent such prior acts or omissions cannot be deemed to be covered by this Article, the right of any individual to indemnification shall be governed by the indemnification provisions in effect at the time of such prior acts or omissions. 11.7 Insurance. The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or who is or was serving at the request of the corporation as a director, officer, partner, trustee, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against any liability asserted against or incurred by the individual in that capacity or arising from the individual's status as an inspector, officer, employee or agent, whether or not the corporation would have power to indemnify the individual against the same liability under this Article. 11.8 Additional Definitions. For purposes of this Article, references to "the corporation" shall include any domestic or foreign predecessor -18- entity of the corporation in a merger or other transaction in which the predecessor's existence ceased upon consummation of the - transaction. For purposes of this Article, serving an employee benefit plan at the request of the corporation shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries. A person who acted in good faith and in a manner he reasonably believed to be in the best interests of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interest of the corporation" referred to in this Article. For purposes of this Article, "party" includes any individual who is or was a plaintiff, defendant or respondent in any action, suit or proceeding or who is threatened to be made a named defendant or respondent in any action, suit or proceeding. For purposes of this Article, "official capacity," when used with respect to a director, shall mean the office of director of the corporation; and when used with respect to an individual other than a director, shall mean the office in the corporation held by the officer or the employment or agency relationship undertaken by the employee or agent on behalf of the corporation. "Official capacity" does not include service for any foreign or domestic corporation or any partnership, limited liability company, joint venture, trust, employee benefit plan, or other enterprise, whether for profit or not. 11.9 Payments a Business Expense. Any payments made to any indemnified party under these bylaws or under any other right to indemnification shall be deemed to be an ordinary and necessary business expense of the corporation, and payment thereof shall not subject any person responsible for the payment, or the Board of Directors, to any action for corporate waste or to any similar action. -19- EX-10.(V) 4 EXHIBIT 10(v) NATIONAL-STANDARD DEFERRED COMPENSATION PLAN Effective November 19, 1986 This is a conformed copy of the Plan which reflects all changes through the Third Amendment. NATIONAL-STANDARD DEFERRED COMPENSATION PLAN 1. Name of Plan. This plan shall be known as the National-Standard Deferred Compensation Plan, hereafter referred to as "the Plan." 2. Objective. The objective of the Plan is to provide an unfunded arrangement under which eligible personnel may elect to defer a portion or all of their base compensation and/or bonus to a future date. 3. Eligibility. All salaried personnel employed by the Company within the United States and earning $50,000 or more annually shall be eligible to participate in the Plan. 4. Administration. The Plan shall be administered by designated representatives of the Finance and Human Resource Departments under the direction of the Chief Executive Officer. 5. Rules and Regulations. The Compensation Committee of the Board of Directors, hereafter referred to as "the Committee," may establish such rules and regulations as it deems necessary for effective administration of the Plan. 6. Participation. Eligible employees may participate in the Plan by making an "irrevocable" election to defer a portion of their base salary and/or bonus earned. Such election shall be on the form provided and must be filed with the designated Company representative no later than December 1 of the year "prior" to the year in which the compensation to be deferred is earned and paid. 7. Effect of Election. Nothing contained herein shall be deemed to create a trust of any kind or create any fiduciary relationship. All compensation deferred hereunder shall be reflected on the Company's books of accounts as general unsecured and unfunded obligations. Participation in the Plan shall not confer on the participant any right to remain employed with the Company for any period of time, nor the right to receive a bonus in any year. 8. Interest on Account Balances. Interest shall accrue on the amount in each participant's account at the end of each calendar quarter year based upon the participant's average account balance for such quarter year at a rate of interest equal to: (a) with respect to quarter years ending on or before December 31, 1987, the three (3) month Certificate of Deposit rate, or (b) with respect to quarter years ending after January 1, 1988, the thirty (30) year fixed Federal National Mortgage Association (FNMA) rate. published in The Wall Street Journal as of the close of business on the first day of the first month of such calendar quarter year. 9. Effect on Other Benefit Plans. Compensation deferred under this Plan shall be considered in computing benefits under other Company benefit plans only in accordance with the provisions of such other plans and applicable federal, state, or local laws and regulations. 10. Designation of Beneficiaries. Each participant shall have a right to designate beneficiaries who are to receive payments due the participant under the Plan in the event of the participant's death. The designation of beneficiaries shall be in writing on the form provided, which must be signed by the participant. Should a beneficiary not be designated or a designated beneficiary die without a secondary or designated successor beneficiary, distribution shall be made to the participant's estate. 11. Disability. If a participant or a designated beneficiary is under legal disability or, in the opinion of the Company, is in any way incapacitated to the point of not being able to manage his or her financial affairs, the Company may direct that any payment hereunder be made to the participant's or beneficiary's legal representative, or in any manner it determines is in the best interest of the participant or beneficiary. -2- 12. Hardship. Although elections under the Plan are irrevocable, termination of current year deferral or withdrawal from account balances prior to elected periods may be made in case of severe financial hardship due only to health or educational needs. Termination or withdrawal for any other material needs will not be permitted. Requests for such termination of deferral or for withdrawal of funds must be submitted in writing with proof of hardship to the Committee for approval. Any funds withdrawn under such conditions shall be distributed via a regular payroll check processed with the next available payroll. 13. Other Termination of Employment. If a participant is terminated from the employment of the Company for any reason other than retirement, disability or death, the Company shall have the right, in its sole discretion, to pay the balance of the deferred amount in the participant's account in a lump sum, or in installments within a reasonable period of time following such termination of employment, i.e., the next available payroll following the date of termination, irrespective of the manner or time elected by the participant to receive such deferred payments. 14. Change of Control. In the event of a change of control of the Company, the amount in each participant's account on the day immediately preceding the change of control date (as hereinafter defined) shall be paid to the participant in a lump sum within a reasonable period of time, i.e., the next available payroll following the change of control date, irrespective of the manner or time elected by the participant to receive payment of the amount. In determining the amount of each participant's account, interest shall be accrued on the day immediately preceding the change of control date, in accordance with Item 8 of the Plan, as if that day were the last day of the calendar quarter year. For purposes of this item the change of control date shall mean the earliest date on which: (a) any "person" [as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")] becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company, representing at least 25% of the combined voting power of the Company's then outstanding securities, or (b) a majority of the individuals comprising the Company's Board of Directors have not served in such capacity for the entire two- year period immediately preceding such date, or -3- (c) a change occurs of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act; provided, however, that if the transactions or elections causing a date to be a change of control date shall have been approved by an affirmative vote of a majority of the "continuing directors," such date shall not be deemed to be a change of control date. A "continuing director" means a person who was a member of the Board of Directors of the Company immediately prior to the transactions or elections, resulting in there being a change of control date, or who was designated (before his initial election or appointment as a director) as a continuing director by a majority of the whole Board of Directors, but only if the majority of the whole Board of Directors then consisted of continuing directors, or if a majority of the whole Board of Directors did not then consist of continuing directors, by a majority of the then continuing directors. 15. Payment of Account Balances. The Company shall pay to each participant or beneficiary from the general assets of the Company the amount of his or her account balance in the manner elected by the participant on the next available payroll following the date elected, unless such payments are to be made under Items 12, 13, or 14 herein. 16. Withholding. The Company shall withhold the amount of local, state or federal taxes required by law from payments ultimately paid under the Plan. 17. No Alienation. To the extent permitted by law, the right of any participant or any beneficiary to any payment hereunder shall not be subject in any manner to attachment or other legal process for the debts of the participant or beneficiary, and any such benefit or payment shall not be subject to anticipation, sale, alienation, transfer, assignment or encumbrance. 18. Determination of Taxability. Should the Internal Revenue Service determine that any amount deferred by the participant under this plan is currently taxable, even though not received by the participant, the Company shall pay to such participant, immediately upon receipt of a copy of the final IRS determination of taxability, the amount of deferred compensation deemed to be subject to tax. -4- 19. Amendments or Termination. The Plan may be terminated or amended at any time in whole or in part as determined by the Board of Directors of the Company. 20. Effective Date. This Plan shall be effective as of November 19, 1986. 21. Plan Year. The Plan year will be the calendar year from January to December following the election made on the previous December 1. -5- SUPPLEMENT A TO NATIONAL-STANDARD DEFERRED COMPENSATION PLAN A-1 Purpose. The purpose of this Supplement A is to allow eligible employees under the Plan to make a special deferral election with respect to the amount (if any) of before-tax contributions which they may be prevented from making under the National-Standard Company Employees' Stock Savings Plan (the "ESSP"), due to the nondiscrimination requirements of Section 401(k) or the maximum limitations on elective deferrals under Section 402(g) of the Internal Revenue Code, and to provide for a Company contribution hereunder based upon the amount of such deferrals as described in Paragraph A-5 below. Elections made under this Supplement A shall be in addition to any other deferral election made under the Plan. A-2 Effective Date. The effective date of this Supplement A is December 1, 1987. A-3 Special Election for 1987. Eligible employees may file an irrevocable written election prior to December 1, 1987 to defer up to four percent (4%) of their base salary for December 1987, provided that the amount deferred shall not exceed the difference between (a) and (b) below: (a) The amount the employee would have contributed to the ESSP as a "matching contribution" during 1987 if his election to make matching contributions under the ESSP had not been cut back, due to the Section 401(k) nondiscrimination requirements or the Section 402(g) elective deferral limitations. (b) The amount actually contributed by the eligible employee as a "matching contribution" under the ESSP for 1987. A-4 Special Election for 1988 and Future Years. Each eligible employee may make an irrevocable written election prior to December 1 of the year "prior" to the year in which compensation is earned to defer an amount of such compensation equal to the amount such employee is prevented from contributing to the ESSP as a "matching contribution" under the ESSP, due to the Section 401(k) nondiscrimination rules or the Section 402(g) elective deferral limitations. -6- A-5 Company Contributions. For each calendar year, the Company will contribute on behalf of each participant hereunder an amount which bears the same proportion to the amount deferred by the participant under this Supplement A for that year as the Company's contributions under the ESSP for that year, which are based upon (or are allocated according to) the participant's "matching contributions," bear to the participant's "matching contributions" for that year under the ESSP; provided that the amount deferred by a participant for any year under this Supplement A which shall be recognized for purposes of this Paragraph A-5 shall not exceed the maximum amount which could be so deferred by that participant for that year under this Supplement A due to the Section 402(g) elective deferral limitation. A-6 Terms. The definitions of terms used under the National-Standard Company Employees' Stock Savings Plan, such as "matching contributions," are hereby incorporated by reference. All other terms and conditions of this Deferred Compensation Plan shall apply to this Supplement A, except that where such terms and conditions of the Plan and this Supplement A conflict, the terms and provisions of this Supplement A shall govern. -7- EX-11 5 NATIONAL-STANDARD COMPANY EXHIBIT 11 Earnings Per Share Calculation
(In Thousands) 1994 1993 1992 (In Thousands) Weighted average number of Common Shares outstanding . . . . . . . 5,365 5,108 4,492 Weighted average number of nonleveraged, unallocated Common Shares in the Employee Stock Ownership Plan . . . . . - (23) (113) Common Shares used in calculating earnings per share . . . . . . . . . . 5,365 5,085 4,379
EX-21 6 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 state- ments. State or Country in which Incorpor- % of Voting ated or Organized Securities Owned National-Standard Export Company Delaware 100% National-Standard Company of Canada, Limited Canada 100 National-Standard Company, Limited United Kingdom 100 National-Standard (Wire Cord), Limited United Kingdom 100(1) (1) 100% owned by National-Standard Company, Limited A domestic affiliate, 50% owned, is not considered significant and is not named above. Financial statements of this affiliate are included in the consolidated financial statements on an equity basis. EX-23 7 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 8, 1994; relating to the consolidated balance sheets of National-Standard Company and subsidiaries as of September 30, 1994 and 1993, 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, 1994, and all related schedules, which report appears in the September 30, 1994 annual report on Form 10-K of National-Standard Company. Our report refers to a change in accounting. KPMG Peat Marwick LLP Chicago, Illinois December 2, 1994 EX-24 8 EXHIBIT 24 POWER OF ATTORNEY The undersigned, a director of NATIONAL-STANDARD COMPANY (the "Company"), does hereby constitute and appoint R. J. VanSTEELANDT 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, 1994, 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 16, 1994 /s/ Harold G. Bernthal L.S. Harold G. Bernthal POWER OF ATTORNEY The undersigned, a director of NATIONAL-STANDARD COMPANY (the "Company"), does hereby constitute and appoint R. J. VanSTEELANDT 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, 1994, 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 16, 1994 /s/ David F. Craigmile L.S. David F. Craigmile POWER OF ATTORNEY The undersigned, a director of NATIONAL-STANDARD COMPANY (the "Company"), does hereby constitute and appoint R. J. VanSTEELANDT 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, 1994, 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 16, 1994 /s/ John E. Guth, Jr. L.S. John E. Guth, Jr. POWER OF ATTORNEY The undersigned, a director of NATIONAL-STANDARD COMPANY (the "Company"), does hereby constitute and appoint R. J. VanSTEELANDT 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, 1994, 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 16, 1994 /s/ Ernest J. Nagy L.S. Ernest J. Nagy POWER OF ATTORNEY The undersigned, a director of NATIONAL-STANDARD COMPANY (the "Company"), does hereby constitute and appoint R. J. VanSTEELANDT 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, 1994, 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 16, 1994 /s/ Charles E. Schroeder L.S. Charles E. Schroeder POWER OF ATTORNEY The undersigned, a director of NATIONAL-STANDARD COMPANY (the "Company"), does hereby constitute and appoint R. J. VanSTEELANDT 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, 1994, 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 16, 1994 /s/ Donald F. Walter L.S. Donald F. Walter EX-27 9
5 This schedule contains annual summary financial information extracted from National-Standard Company 1994 Annual Form 10-K and is qualified in its entirety by reference to such form 10-K filing. 1,000 12-MOS SEP-30-1994 SEP-30-1994 378 0 25,080 398 25,146 55,043 141,148 98,286 108,685 48,780 0 27,384 0 0 (55,650) 108,685 217,916 217,916 194,060 194,060 (426) 0 3,885 (4,569) 56 (4,625) 0 0 0 (4,625) (.86) (.86)
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