FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the Quarterly Period Ended June 30, 1999
-------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
Commission file number 1-4743
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Standard Motor Products, Inc.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 11-1362020
- -------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
37-18 Northern Blvd., Long Island City, N.Y. 11101
- -------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(718) 392-0200
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(Registrant's telephone number, including area code)
None
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(Former name, former address and former fiscal year, if changed
since last report.)
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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Date Class Shares Outstanding
---- Common stock par ------------------
July 31, 1999 value $2.00 per share 13,169,922
------------- --------------------- ----------
<PAGE>
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL AND OTHER INFORMATION
JUNE 30, 1999
PART 1 - FINANCIAL INFORMATION
Item 1 Page No.
- ------ --------
CONSOLIDATED BALANCE SHEETS
June 30, 1999 and December 31, 1998 3 & 4
CONSOLIDATED STATEMENTS OF EARNINGS AND
RETAINED EARNINGS for the Three-Month and
Six-Month periods ended June 30, 1999 and 1998 5
CONSOLIDATED STATEMENTS OF CASH FLOWS for the
Six-Month periods ended June 30, 1999 and 1998 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7 - 11
Item 2
- ------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 12 - 17
PART II - OTHER INFORMATION
---------------------------
Item 4
- ------
Submission of matters to a vote of Security Holders 18
Item 6
- ------
Exhibits and Reports on Form 8-K 18 - 20
Signature 20
-2-
<PAGE>
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS
------
June 30, December 31,
1999 1998
- ---------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 960 $ 23,457
Accounts receivable, less allowances
for discounts and doubtful accounts
of $8,028 (1998 - $4,525)(Note 10) 247,522 122,008
Inventories (Note 2) 186,991 174,092
Deferred income taxes 11,723 11,723
Prepaid expenses and other current assets 11,500 11,231
-------- --------
Total current assets 458,696 342,511
Property, plant and equipment, net(Note 3) 111,955 109,404
Goodwill, net 41,662 39,232
Other assets (Note 8) 29,093 30,409
-------- --------
Total assets $641,406 $521,556
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except for shares and per share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
- ------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Notes payable - banks $ 73,077 $ 3,555
Current portion of long-term debt (Note 6) 27,770 22,404
Accounts payable 65,681 48,414
Sundry payables and accrued expenses 72,623 60,905
Accrued customer returns 27,329 16,296
Payroll and commissions 11,879 12,613
--------- ---------
Total current liabilities 278,359 164,187
Long-term debt (Note 6) 122,831 133,749
Postretirement benefits other than pensions
and other accrued liabilities 19,095 18,595
--------- ---------
Total liabilities 420,285 316,531
Commitments and contingencies (Note 6)
Stockholders' equity (Notes 5 and 6):
Common stock-par value $2.00 per share:
Authorized - 30,000,000 shares
Issued - 13,324,476 shares in 1999 and 1998
(including 179,396 and 268,126 shares
held as treasury shares in 1999 and
1998, respectively) 26,649 26,649
Capital in excess of par value 2,702 2,951
Retained earnings 195,258 181,679
Accumulated other comprehensive income (loss) 447 (516)
--------- ---------
225,056 210,763
Less: treasury stock-at cost 3,935 5,738
--------- ---------
Total stockholders' equity 221,121 205,025
--------- ---------
Total liabilities and stockholders' equity $ 641,406 $ 521,556
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS
(Dollars in thousands, except for shares and per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the Three-Months Ended For the Six-Months Ended
June 30, June 30,
----------------------------- -----------------------------
1999 1998 1999 1998
------------ ------------- ------------ --------------
<S> <C> <C> <C> <C>
Net sales $ 205,714 $ 208,766 $ 382,503 $ 334,811
Cost of sales 140,625 145,694 264,194 227,949
------------ ------------ ------------ ------------
Gross profit 65,089 63,072 118,309 106,862
Selling, general and
administrative expenses 42,929 48,175 87,361 85,680
------------ ------------ ------------ ------------
Operating income 22,160 14,897 30,948 21,182
Other income (expense) - net (516) 115 (829) 347
------------ ------------ ------------ ------------
Earnings before interest, taxes
and minority interest 21,644 15,012 30,119 21,529
Interest expense 4,802 5,105 8,243 8,480
------------ ------------ ------------ ------------
Earnings before taxes and
minority interest 16,842 9,907 21,876 13,049
Minority interest (41) (17) (179) (135)
Income taxes (Note 4) 4,768 1,251 6,016 1,622
------------ ------------ ------------ ------------
NET EARNINGS 12,033 8,639 15,681 11,292
------------ ------------ ------------ ------------
Retained earnings at beginning of period 184,276 164,167 181,679 161,514
------------ ------------ ------------ ------------
196,309 172,806 197,360 172,806
Less: cash dividends for period 1,051 0 2,102 0
------------ ------------ ------------ ------------
Retained earnings at end of period $ 195,258 $ 172,806 $ 195,258 $ 172,806
============ ============ ============ ============
PER COMMON SHARE DATA:
- ----------------------
Net earnings per common share:
Basic $ 0.92 $ 0.66 $ 1.20 $ 0.86
Diluted 0.91 0.65 1.19 0.86
Dividends per common share $ 0.08 $ 0.00 $ 0.16 $ 0.00
Average number of common shares 13,136,458 13,102,469 13,112,189 13,089,653
------------ ------------ ------------ ------------
Average number of common and
dilutive common shares 13,238,017 13,211,406 13,210,327 13,168,063
------------ ------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For Six-Months Ended
June 30,
----------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 15,681 $ 11,292
Adjustments to reconcile net earnings to net
cash used in operating activities:
Depreciation and amortization 8,729 9,722
Loss on disposal of property, plant and equipment -- 55
Change in assets and liabilities, net of effects
from acquisitions:
(Increase) decrease in accounts receivable, net (117,236) (65,181)
(Increase) decrease in inventories (4,758) 36,584
(Increase) decrease in other assets 1,960 2,824
Increase (decrease) in accounts payable 13,564 11,870
Increase (decrease) in other current assets and liabilities 76 98
Increase (decrease)in sundry payables and accrued expense 21,762 16,463
--------- ---------
Net cash provided by (used in) operating activities (60,222) 23,727
Cash flows from investing activities
Capital expenditures, net of effects from acquisitions (7,288) (8,422)
Payments for acquisitions, net of cash acquired (17,381) --
--------- ---------
Net cash(used in) investing activities (24,669) (8,422)
Cash flows from financing activities:
Net borrowings (repayments) under line-of-credit agreements 69,702 (29,068)
Proceeds from issuance of long-term debt -- 700
Principal payments of long-term debt (5,652) (3,610)
Reduction of loan to ESOP -- 1,665
Proceeds from exercise of employee stock options 1,311 1,040
Purchase of treasury stock (1,495) (451)
Dividends paid (2,102) --
--------- ---------
Net cash provided by (used in) financing activities 61,764 (29,724)
Effect of exchange rate changes on cash 630 421
--------- ---------
Net (decrease) in cash (22,497) (13,988)
Cash and cash equivalents at beginning of the period 23,457 16,809
--------- ---------
Cash and cash equivalents at end of the period $ 960 $ 2,811
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 7,995 $ 7,292
Income taxes $ 76 $ (246)
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
The accompanying unaudited financial information should be read in conjunction
with the consolidated financial statements, including the notes thereto, for the
year ended December 31, 1998.
The consolidated financial statements include the accounts of the Company and
all domestic and international companies in which the Company has more than a
50% equity ownership. The Company's investments in unconsolidated affiliates are
accounted for on the equity method. All significant inter-company items have
been eliminated.
Management acknowledges its responsibility for the preparation of the
accompanying interim consolidated financial statements which reflect all
adjustments considered necessary, in the opinion of management, for a fair
statement of the results of interim periods presented. The results of operations
for the interim periods are not necessarily indicative of the results of
operations for the entire year.
NOTE 2
INVENTORIES
-----------
(Dollars in thousands)
June 30, December 31,
1999 1998
--------- ------------
(Unaudited)
Finished goods $ 119,988 $ 120,108
Work in process 6,523 4,867
Raw materials 60,480 49,117
--------- ---------
Total inventories $ 186,991 $ 174,092
========= =========
NOTE 3
PROPERTY, PLANT AND EQUIPMENT
-----------------------------
(Dollars in thousands)
June 30, December 31,
1999 1998
--------- ------------
(Unaudited)
Land, buildings and improvements $ 65,630 $ 64,080
Machinery and equipment 92,171 88,282
Tools, dies and auxiliary equipment 9,581 8,412
Furniture and fixtures 23,088 21,542
Leasehold improvements 5,769 5,130
Construction in progress 20,423 18,068
----------- ----------
216,662 205,514
Less accumulated depreciation 104,707 96,110
----------- ----------
Total property, plant and equipment - net $ 111,955 $ 109,404
=========== ==========
7
<PAGE>
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4
The provision for taxes is less than the normal statutory rate primarily because
earnings of a subsidiary operating in Puerto Rico, amounting to approximately
$4,243,000 and $4,109,000 for the six-months ended June 30, 1999 and 1998,
respectively, are exempt from United States income taxes and are partially
exempt from Puerto Rican income taxes.
NOTE 5
During the six-month period ended June 30, 1999, the Company granted options to
purchase 136,000 shares of common stock. The exercise price of each option
granted is equal to, or greater than, the fair value of the Company's common
stock on the date of grant.
At June 30, 1999, 894,000 shares of authorized but unissued common stock were
reserved for issuance under the Company's stock option plans, of which 848,000
shares were subject to outstanding options. 376,000 of these outstanding options
were vested at June 30, 1999.
NOTE 6
Long-Term Debt
(Dollars in thousands)
June 30, December 31,
1999 1998
-------- ------------
(Unaudited)
Long-term debt consists of:
7.56% senior note payable $ 73,000 $ 73,000
8.60% senior note payable 37,143 37,143
10.22% senior note payable 21,500 21,500
Credit Facility ($10 Million Canadian) 6,822 10,960
5.0% Notes Payable - AlliedSignal 3,000 3,000
6.75% - 7.50% Facilities 5,445 6,411
5.00% - 10.5% Purchase Obligations 2,500 2,833
Other 1,191 1,306
------- -------
150,601 156,153
Less current portion 27,770 22,404
------- -------
Total noncurrent portion of
long-term debt $ 122,831 $ 133,749
======= =======
Under the terms of the $73,000,000 senior note agreement, the Company is
required to repay the loan in seven equal annual installments beginning in 2000.
Under the terms of the $37,143,000 senior note agreement, the Company is
required to repay the loan in four equal annual installments from 1999 through
2002. On July 26, 1999 the Company prepaid the entire outstanding balance of
$37,143,000 plus a $1,291,000 prepayment penalty. These prepayments were funded
through the use of a portion of the proceeds of the $90,000,000 Convertible
Subordinated Debentures as discussed in Note 13.
8
<PAGE>
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 (CONTINUED)
Under the terms of the $21,500,000 senior note agreement, the Company is
required to repay the loan in five varying annual installments beginning in
1999. Subject to certain restrictions, the Company may make prepayments without
premium.
Under the terms of the $10,000,000 CDN credit agreement, the Company is required
to repay the loan as follows: $2,000,000 CDN in 2000 and 2001 and a final
payment of $6,000,000 CDN in 2002. Subject to certain restrictions, the Company
can make prepayments without premium. The credit agreement has various interest
rate options.
Under the terms of the unsecured $3,000,000 note agreement with AlliedSignal,
the Company is required to repay $2,000,000 in September 1999 with a final
payment of $1,000,000 due in 2000.
The Company holds a 73.4% equity interest in Standard Motor Products Holdings
Limited, formerly Intermotor Holdings Limited, which has various existing credit
facilities which mature by 2003.
The purchase obligations, due under agreements with municipalities, mature in
annual installments through 2003, and are secured by certain property, plant,
and equipment.
The senior note agreements contain restrictive covenants which require the
maintenance of defined levels of working capital, tangible net worth and
earnings and limit, among other items, investments, indebtedness and
distributions for the payment of dividends and the acquisition of capital stock.
NOTE 7
In January 1999, the Company acquired through its European subsidiary Standard
Motor Products Holdings Limited, 85% of the stock of Webcon UK Limited, and
through its UK joint venture Blue Streak Europe Limited, Webcon's affiliate
Injection Correction UK Limited. The total acquisition price amounted to
approximately $3,500,000 and was funded from the Company's operating cash flow.
In February 1999, the Company acquired 100% of the stock of Eaglemotive
Corporation for approximately $13,400,000. Located in Fort Worth Texas,
Eaglemotive assembles and distributes fan clutches and other cooling products to
the automotive aftermarket. The acquisition was funded from short term
borrowings.
In April 1999, the Company acquired Lemark Auto Accessories Limited, a United
Kingdom based manufacturer and distributor primarily of ignition wire and other
engine management products. The acquisition price amounted to approximately
$1,900,000 and was funded from short term borrowings.
These acquisitions have been accounted for as purchases, and resulted in
goodwill of $4,582,000 which is being amortized over its estimated useful life
of 15 years.
NOTE 8
Other assets primarily consist of certain held-to-maturity securities,
unamortized customer supply agreements, equity in joint ventures and pension
assets.
9
<PAGE>
NOTE 9
Total comprehensive income was $12,455,000 and $8,738,000 for the three-month
periods ended June 30, 1999 and 1998, respectively and $16,644,000 and
$11,157,000 for the six-month periods ended June 30, 1999 and 1998 respectively.
NOTE 10
The Company sells certain accounts receivable to its wholly-owned subsidiary,
SMP Credit Corp., a qualifying special-purpose corporation. In June 1999, SMP
Credit Corp., entered into a new three year agreement whereby it can sell up to
a $25,000,000 undivided ownership interest in a designated pool of certain of
these eligible receivables. The agreement as renewed contains similar terms and
conditions as our previous agreement and expires in March 2002.
NOTE 11
Following is a reconciliation of the shares used in calculating basic and
dilutive net income per common share:
<TABLE>
<CAPTION>
For Three-Months Ended For Six-Months Ended
June 30, June 30,
----------------------- ---------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average common
shares outstanding 13,136,458 13,102,469 13,112,189 13,089,653
Effect of dilutive
securities - options 101,559 108,937 98,138 78,410
---------- ---------- ---------- ----------
Weighted average common
equivalent shares outstanding
assuming dilution 13,238,017 13,211,406 13,210,327 13,168,063
========== ========== ========== ==========
</TABLE>
NOTE 12
The Company's two reportable operating segments, Engine Management and
Temperature Control, are the areas within the automotive aftermarket in which
the Company operates. The following tables contain financial information for
each reportable segment.
Industry Segments
(Dollars in thousands)
For three-months ended June 30,
------------------------------------------------------
1999 1998
------------------------------------------------------
Operating Operating
Net Sales Income Net Sales Income
Engine Management $ 84,911 $ 8,972 $ 94,741 $ 12,064
Temperature Control 117,371 16,329 110,201 12,908
Other Adjustments 3,432 (3,141) 3,824 (10,075)
--------- ------- --------- --------
Consolidated $ 205,714 $22,160 $ 208,766 $ 14,897
========= ======= ========= ========
10
<PAGE>
NOTE 12 (CONTINUED)
For six-months ended June 30,
------------------------------------------------------
1999 1998
------------------------------------------------------
Operating Operating
Net Sales Income Net Sales Income
--------- ------ --------- ------
Engine Management $ 172,334 $16,544 $ 185,020 $ 22,862
Temperature Control 208,675 23,714 147,209 15,343
Other Adjustments 1,494 (9,310) 2,582 (17,023)
--------- ------- --------- --------
Consolidated $ 382,503 $30,948 $ 334,811 $ 21,182
========= ======= ========= ========
Other adjustments consist of items pertaining to the corporate headquarters
function and a Canadian business unit that does not meet the criteria of a
reportable segment.
The following table reconciles the measure of profit used in the previous
disclosure to the Company's consolidated Earnings Before Taxes:
For Three-Months Ended For Six-Months Ended
June 30, June 30,
-----------------------------------------------
1999 1998 1999 1998
---- ---- ---- ----
Operating Income $ 22,160 $ 14,897 $ 30,948 $ 21,182
Other income (expense) (516) 115 (829) 347
Interest expense 4,802 5,105 8,243 8,480
-------- -------- -------- --------
Earnings before taxes
and minority interest $ 16,842 $ 9,907 $ 21,876 $ 13,049
======== ======== ======== ========
NOTE 13
On July 26, 1999 the Company issued 6.75% Convertible Subordinated Debentures in
the aggregate principal amount of $90,000,000. In addition, the underwriters of
these debentures have an option for 30 days to purchase up to an additional
$10,000,000 principal amount of these debentures. Each $1,000 of Convertible
Debentures can be converted into 31.068 shares of the Company's common stock,
which is equivalent to a conversion price of approximately $32.19 per share. The
Convertible Debentures pay interest semi-annually and mature on July 15, 2009.
The Company incurred underwriters' fees of 3.125% of the principal amount, or
$2,812,500. The net proceeds to the Company of $87,187,500, before expenses,
will be used to pay down a portion of the Company's existing indebtedness,
purchase minority interests in certain subsidiaries, and for general corporate
purposes, including future acquisitions.
11
<PAGE>
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Management's Discussions and Analysis contains forward-looking statements
which involve risks and uncertainties. The Company's actual results may differ
significantly from the results discussed in the forward-looking statements. The
following discussion should be read in conjunction with the Consolidated
Financial Statements, including the notes thereto, included elsewhere in this
Form 10-Q.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
During the first six months of 1999, cash used in operations amounted to
$60,222,000, compared to $23,727,000 of cash provided in the first six months of
1998. This decrease is due primarily to higher accounts receivable resulting
from a pre-season selling program for temperature control products, that was not
in effect in 1998, and higher inventories as we were unable to duplicate the
significant reductions achieved in the prior year. Cash used in investing
activities amounted to $24,669,000 in the first six months of 1999 and
$8,422,000 for the comparable period in 1998. The increase is mainly due to the
acquisitions of Eaglemotive Corporation, Webcon UK Limited and Lemark Auto
Accessories Limited, as discussed below. Capital expenditures amounted to
$7,288,000 during the first six months of 1999 and $8,422,000 for the comparable
period in 1998. Cash provided by financing activities totaled $61,764,000 in the
first six months of 1999, while in the prior year cash used in financing
activities amounted to $29,724,000. This change is due to increased short term
borrowings to finance the seasonal working capital needs of the Company's
Temperature Control Division, which have become more significant due to the
inclusion of the Cooper Industries temperature control business, which was
acquired in March 1998. During the first six months of 1999, the Company paid
dividends amounting to $2,102,000. No dividends were paid in the comparable
period for 1998. On July 22, 1999 the Board of Directors approved an increase to
the quarterly dividend from $.08 to $.09 per share, to be paid on September 1,
1999 to stockholders of record on August 13, 1999.
On July 26, 1999 the Company issued 6.75% Convertible Subordinated Debentures in
the aggregate principal amount of $90,000,000. In addition, the underwriters of
these debentures have an option for 30 days to purchase up to an additional
$10,000,000 principal amount of these debentures. Each $1,000 of Convertible
Debentures can be converted into 31.068 shares of the Company's common stock,
which is equivalent to a conversion price of approximately $32.19 per share. The
Convertible Debentures pay interest semi-annually and mature on July 15, 2009.
The proceeds from the Convertible Debentures will be used to pay down a portion
of the Company's existing indebtedness, purchase minority interests in certain
subsidiaries and for general corporate purposes, including future acquisitions.
On July 26, 1999 the Company prepaid the 8.60% senior note payable in the amount
of $37,143,000 plus a $1,291,000 prepayment penalty.
On November 30, 1998, the Company entered into a new three year revolving credit
facility. The facility, with eight lending institutions, provides a $110,000,000
unsecured line of credit, subject to a borrowing base. The facility allows the
Company to select from two interest rate options, one a function of LIBOR, and
the other a function of the U.S. prime rate. The spread above each interest rate
option is determined by the Company's ratio of consolidated debt to earnings
before interest, taxes, depreciation and amortization. The interest rates
available to the Company under this facility should compare favorably with the
short term interest rates obtained by the Company during most of 1998 and should
result in lower a lower effective interest rate in 1999 compared to 1998.
12
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (Continued)
- -------------------------------------------
In June of 1999 the Company renewed its agreement to sell certain of its
accounts receivable. The Company presently has $25,000,000 of accounts
receivable sold under this agreement, which expires March 31, 2002.
As of June 30, 1999 the Company had stockholders' equity of $221,121,000 and
working capital of $180,337,000. Capital expenditures, primarily for new
machinery and equipment, are expected to be approximately $10 million for the
remainder of 1999.
In January 1999, the Company acquired, through its European subsidiary Standard
Motor Products Holdings Limited, 85% of the stock of Webcon UK Limited. The
Company also acquired through its United Kingdom joint venture Blue Streak
Europe Limited, Webcon's affiliate Injection Correction UK Limited. The total
acquisition price amounted to approximately $3,500,000 and was funded from the
Company's operating cash flow.
In February 1999, the Company acquired 100% of the stock of Eaglemotive
Corporation for approximately $13,400,000. Located in Fort Worth Texas,
Eaglemotive assembles and distributes fan clutches and other cooling products to
the automotive aftermarket. The acquisition was funded from short term
borrowings.
In April 1999, the Company acquired Lemark Auto Accessories Limited, a United
Kingdom based manufacturer and distributor primarily of ignition wire and other
engine management products. The acquisition price amounted to approximately
$1,900,000 and was funded from short term borrowings.
INTERIM RESULTS OF OPERATIONS
- -----------------------------
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 1999 TO THE THREE MONTHS ENDED
- ----------------------------------------------------------------------------
JUNE 30, 1998
- -------------
Net sales for the current quarter decreased by $3,052,000 or 1.5% from the
comparable period in 1998. Excluding revenues from acquisitions not present in
the second quarter of last year, revenues decreased by approximately $14 million
or 6.8%. This sales decrease, excluding acquisitions, is primarily due to lower
sales of engine management products resulting from the sale of the fuel pump
business in the third quarter of 1998 and reduced orders from a major customer,
as they absorbed inventory acquired from APS Holding Corporation.
Although sales decreased in the second quarter of 1999, gross profit increased
by $2,017,000 or 3.2% from the comparable period in 1998, reflecting synergies
obtained from the acquisition of the Cooper Industries temperature control
business. Gross margin as a percent of net sales increased to 31.6% in the
second quarter of 1999 from 30.2% in the second quarter of 1998. This increase
is attributable to improvements primarily in the temperature control business,
resulting from efficiencies achieved from consolidating the Cooper Industries
temperature control business with the Company's existing Temperature Control
Division.
Selling, general and administrative (S.G. & A.) expenses decreased by $5,246,000
or 10.9% over the comparable quarter in 1998, reflecting reduced administrative
expenses and lower customer acquisition costs. As a percent of net sales S.G. &
A. expenses decreased by 2.2 percentage points (20.9% in 1999 versus 23.1% in
1998). This percentage improvement is primarily due to the Company's cost
reduction program initiated in early 1998 and from synergies which were realized
from the consolidation of the Cooper Industries temperature control business.
Additional cost reductions from the consolidation of the Cooper Industries
temperature control business will continue, with the full implementation
scheduled to be completed early in the year 2000.
13
<PAGE>
INTERIM RESULTS OF OPERATIONS (Continued)
- -----------------------------------------
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 1999 TO THE THREE MONTHS ENDED
- ----------------------------------------------------------------------------
JUNE 30, 1998
- -------------
Operating income increased by $7,263,000 or 48.8% over the comparable quarter in
1998, as the second quarter of 1998 was negatively impacted by the write down of
various assets of the Company's OE, China and fuel pump businesses. In addition,
the Company benefited in 1999 from the operating synergies and cost reduction
programs previously discussed. As a percentage of net sales, operating income
increased to 10.8% in 1999 from 7.1% in 1998.
The Engine Management Division, as compared to a year ago, reflected a reduction
in operating income of $3,092,000 as a result of lower sales, shifts in sales
mix and changes in overhead absorption. The sales decline was primarily the
result of the divestiture of the fuel pump business which occurred in the third
quarter of 1998 and lower orders from a major customer as they absorbed
inventory acquired from APS Holding Corporation. The underabsorption of overhead
experienced at certain facilities was a result of the divestiture of the Service
Line business, which shared these facilities. Plans are currently being
developed which should reduce these costs.
The Temperature Control Division improved operating income by $3,421,000,
compared to a year ago, primarily due to efficiencies achieved from
consolidating the Cooper Industries Temperature Control business with the
Company's existing Temperature Control Division. The synergies achieved impacted
both gross margin and S.G. & A. expenses.
Other income - net for the second quarter of 1999 decreased by $631,000,
primarily due to losses recognized in connection with the Company's continuing
original equipment ventures. These losses were attributed to costs incurred in
developing and launching these projects.
Interest expense for the second quarter attributable to continuing operations
decreased by $303,000 as compared to 1998. Including amounts related to
discontinued operations in 1998, interest expense decreased by $594,000 in 1999,
as lower average interest rates were partially offset by higher short term
borrowings.
Taxes based on earnings increased by $3,517,000 primarily due to improved
pre-tax earnings. At December 31, 1998, the Company had a $14,171,000 deferred
tax asset valuation allowance. Due to the seasonal nature of the Company's
business, no adjustments to this valuation allowance were deemed necessary
during the three month period ended June 30, 1999. However, management is
continuing to evaluate the likelihood of achieving sufficient future
profitability that would enable the Company to utilize all or a portion of these
deferred tax assets. If management determines, based upon these evaluations,
that it is more likely than not that the deferred tax assets will be realized,
then the valuation allowance will be adjusted.
INTERIM RESULTS OF OPERATIONS
- -----------------------------
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1999 TO THE SIX MONTHS ENDED
- ------------------------------------------------------------------------
JUNE 30, 1998
- -------------
Net sales for the six month period increased by $47,692,000 or 14.2% from the
comparable period in 1998. Excluding revenues from acquisitions not present in
the first half of last year, revenues remained flat, as increased temperature
control sales, excluding acquisitions, were offset by a decrease in Engine
Management sales.
14
<PAGE>
INTERIM RESULTS OF OPERATIONS (Continued)
- -----------------------------------------
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1999 TO THE SIX MONTHS ENDED
- ------------------------------------------------------------------------
JUNE 30, 1998
- -------------
Gross profit for the first six months of 1999 increased by $11,447,000 or 10.7%
from the comparable period in 1998, reflecting increased sales from the
acquisition of the Cooper Industries temperature control product business. The
gross margin as a percent of net sales, however, declined from 31.9% in the
first six months of 1998 to 30.9% in the first six months of 1999. The decline
in the gross margin percent was primarily due to the higher mix of temperature
control product sales in relation to the Company's total sales. Temperature
control products have lower average gross margins than products sold by the
Engine Management Division and therefore result in a lower margin percentage for
the Company. The gross margin percentage also was negatively impacted by
discounts related to the pre-season selling program at the Temperature Control
Division, which were not present in 1998.
Selling, general and administrative (S.G. & A.) expenses increased by $1,681,000
or 2.0% over the comparable period in 1998, reflecting higher expenses to
support the growth within the Temperature Control Division. However, as a
percent of net sales S.G. & A. expenses decreased by 2.8 percentage points
(22.8% in 1999 versus 25.6% in 1998). This percentage improvement is primarily
due to the leverage achieved from higher sales and synergies which were realized
from the consolidation of the Cooper Industries temperature control business,
and to lower customer acquisition and overhead expenses resulting from the
Company's restructuring and cost reduction programs implemented in 1998.
Additional cost reductions from the consolidation of the Cooper Industries
temperature control business are expected to continue, with the full
implementation scheduled to be completed early in the year 2000.
Operating income increased by $9,766,000 or 46.1% over the comparable period in
1998. While the Company began to realize the benefits of the aforementioned
operating synergies and cost reduction programs during the first half of 1999,
operating income during the comparable period in 1998 was negatively impacted by
the write down of various assets of the Company's OE, China and fuel pump
businesses. As a percentage of net sales, operating income improved during the
first six months of the year to 8.1% in 1999 from 6.3% in 1998.
The Engine Management Division, as compared to a year ago, reflected a reduction
in operating income of $6,318,000 as a result of lower sales, shifts in sales
mix and changes in overhead absorption. The sales decline was primarily the
result of the divestiture of the fuel pump business which occurred in the third
quarter of 1998 and lower orders from a major customer as they absorbed
inventory acquired from APS Holding Corporation. The underabsorption of overhead
experienced at certain facilities was a result of the divestiture of the Service
Line business, which shared these facilities. Plans are currently being
developed which should reduce these costs.
The Temperature Control Division improved operating income by $8,371,000,
compared to a year ago, primarily due to incremental sales volume of
$61,466,000. The increased sales resulted from the Cooper Temperature control
business, the increases in unit volume as a result of the pre-season selling
program, and, to a lesser extent, the acquisition of Eaglemotive Corporation.
Efficiencies achieved from consolidating the Cooper Temperature Control business
also improved income. The first quarter of 1998 did not reflect the results of
the Cooper Temperature Control business, which was acquired on March 28, 1998.
15
<PAGE>
INTERIM RESULTS OF OPERATIONS (continued)
- -----------------------------------------
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1999 TO THE SIX MONTHS ENDED
- ------------------------------------------------------------------------
JUNE 30, 1998
- -------------
Other income - net for the first six months of 1999 decreased by $1,176,000,
primarily due to losses recognized in connection with the Company's continuing
original equipment ventures, and, to a lesser extent, reduced interest income.
The losses pertaining to the original equipment ventures were attributed to
costs incurred in developing and launching these projects.
Interest expense attributable to continuing operations decreased by $237,000
compared to 1998. Including amounts related to discontinued operations in 1998,
interest expense decreased by $1,823,000 in 1999.
Taxes based on earnings increased by $4,394,000 primarily due to improved
pre-tax earnings. At December 31, 1998, the Company had a $14,171,000 deferred
tax asset valuation allowance. Due to the seasonal nature of the Company's
business, no adjustments to this valuation allowance were deemed necessary
during the six month period ended June 30, 1999. However, management is
continuing to evaluate the likelihood of achieving sufficient future
profitability that would enable the Company to utilize all or a portion of these
deferred tax assets. If management determines, based upon these evaluations,
that it is more likely than not that the deferred tax assets will be realized,
then the valuation allowance will be adjusted.
YEAR 2000
- ---------
The Company is currently working to resolve the potential impact of the Year
2000 on the processing of date-sensitive information by the Company's
computerized information systems. The Year 2000 problem is the result of
computer programs being written using two digits (rather than four) to define
the applicable year. Any of the Company's programs that have time-sensitive
software may recognize a date using "00" as the Year 1900 rather than the Year
2000, which could result in miscalculations or system failures.
The Company has established a comprehensive response to its Year 2000 exposure.
Generally, the Company has Year 2000 exposure in two areas: (i) its information
technology("IT") systems and (ii) its non-IT systems. At June 1998, the Company
had completed an inventory of its internal IT systems and made a preliminary
determination of which programs were or were not Year 2000 compliant. During the
period ending December 1998, the Company tested each significant IT system which
is believed to be Year 2000 compliant. In some cases, Year 2000 issues will be
corrected in the development of new programs, which enhance or provide new
functionality to these financial and management operating systems. The Company
estimates the cost of this effort to be approximately $1.4 million, which
includes capital costs for new computers and related equipment. The Company
substantially completed Year 2000 testing and remediation on its critical
information technology systems in June 1999 and expects to substantially
complete Year 2000 testing and remediation on its non-critical information
technology systems and non-information technology systems in October 1999.
As of June 30, 1999, the Company has conducted interviews with suppliers,
customers, financial institutions and others with which it conducts business to
determine the extent to which the Company would be vulnerable to these third
parties' failure to remediate their own potential Year 2000 problems. The
inability of these other significant business partners to adequately address the
Year 2000 issues could cause disruption of the Company's operations. The Company
does not believe there will be a material risk of disruption from third party
failures.
16
<PAGE>
YEAR 2000 (continued)
- ---------------------
The Company does not presently anticipate that the cost to address the Year 2000
issue will have a material adverse effect on the Company's financial condition,
results of operations or liquidity.
Although the Company expects its internal IT and non-IT systems to be Year 2000
compliant as described above, the Company intends to prepare a contingency plan
that will specify what it plans to do if it or important external companies are
not Year 2000 compliant in a timely manner. These contingency plans will address
the most likely worst case Year 2000 scenarios. These plans are expected to be
finalized by October of 1999.
17
<PAGE>
PART II - OTHER INFORMATION
- ---------------------------
Item 4. Submission of matters to a vote of Security Holders
- ------- ---------------------------------------------------
(a) May 20, 1999, Annual Meeting
(b) Directors Elected -- Nathaniel L. Sills
Lawrence I. Sills
Arthur D. Davis
Susan F. Davis
William H. Turner
John L. Kelsey
Robert J. Swartz
Marilyn F. Cragin
Arthur S. Sills
Robert M. Gerrity
Andrew M. Massimilla
(c) Proposals voted upon:
(I) Election of Directors:
Votes For Votes Withheld
--------- --------------
Nathaniel L. Sills 10,554,296 57,880
Lawrence I. Sills 10,557,700 54,476
Arthur D. Davis 10,557,712 54,464
Susan F. Davis 10,558,139 54,037
William H. Turner 10,558,509 53,667
John L. Kelsey 10,558,473 53,703
Robert J. Swartz 10,558,187 53,989
Marilyn F. Cragin 10,558,102 54,074
Arthur S. Sills 10,557,497 54,679
Robert M. Gerrity 10,558,559 53,617
Andrew M. Massimilla 10,558,558 53,618
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibit(s)
----------
Number Description Method of Filing
------ ----------- ----------------
4.1 Form of Subordinated Debenture Indenture (including
form of convertible debenture) (incorporated by
reference to Exhibit 4.1 to Amendment No. 2 to the
Registration Statement on Form S-3 (333-79177) filed
on July 20, 1999.) *
18
<PAGE>
Number Description Method of Filing
------ ----------- ----------------
10.14 Form of First Amendment, dated as of December 8, 1998
to the Credit Agreement, dated as of November 30, 1998,
among Standard Motor Products, Inc., Lenders party thereto,
The Chase Manhattan Bank and Canadian Imperial Bank of
Commerce (incorporated by reference to Exhibit 10.14 to
Amendment No. 2 to the Registration Statement on Form S-3
(333-79177) filed on July 20, 1999.) *
10.15 Form of Second Amendment, dated as of July 16, 1999 to the
Credit Agreement, dated as of November 30, 1998, among
Standard Motor Products, Inc., Lenders party thereto, The
Chase Manhattan Bank and Canadian Imperial Bank of Commerce
(incorporated by reference to Exhibit 10.15 to Amendment No. 2
to the Registration Statement on Form S-3
(333-79177) filed on July 20, 1999.) *
10.16 Credit Agreement of March 31, 1998, as amended &
restated as at November 30, 1998, between the Registrant
and Canadian Imperial Bank of Commerce ("CIBC") is included
as Exhibit 10.16 10.16
23.1 Consent of KPMG LLP, Independent Auditors (incorporated by
reference to Exhibit 23.1 to Amendment No. 2 to the
Registration Statement on Form S-3 (333-79177) filed on
July 20, 1999.) *
23.2 Consent of KPMG LLP, Independent Auditors (incorporated by
reference to Exhibit 23.1 to the Registration Statement on
Form S-3 (333-83339) filed on July 21, 1999.) *
23.3 Consent of Kelley Drye & Warren LLP (incorporated by reference
to Exhibit 23.2 to Amendment No. 2 to the Registration
Statement on Form S-3 (333-79177) filed on
July 20, 1999.) *
23.4 Consent of Kelley Drye & Warren LLP (incorporated by
reference to Exhibit 23.2 to the Registration Statement
on Form S-3 (333-79177) filed on July 20, 1999.) *
24 Powers of Attorney of Directors and Certain Officers of
Standard Motor Products, Inc. (incorporated by reference
to Exhibit 24 to the Registration Statement on Form S-3
(333-79177) filed on May 24, 1999.) *
27 Financial Data Schedule Filed with
this Document
* Incorporated by reference
19
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for this period.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
/s/ STANDARD MOTOR PRODUCTS, INC.
---------------------------------
(Registrant)
August 12, 1999 /s/James J. Burke
- --------------- -----------------
(Date) Director of Finance,
Chief Accounting Officer
20
COMMERCIAL BANKING CENTRE
1 CITY CENTRE DRIVE
SUITE 200
MISSISSAUGA, ONTARIO
L5B 1M2
March 31, 1998, as amended & restated as at November 30, 1998.
SMP Motor Products Ltd.
c/o Standard Motor Products, Inc.
37 - 18 Northern Blvd.
Long Island City
New York, N.Y.
11101 USA
Attention: Mr. Michael J. Bailey, Senior Vice President, Administration and
Finance & C.F.O.
Dear Sirs:
We, Canadian Imperial Bank of Commerce ("CIBC"), are pleased to establish the
following Credits for SMP Motor Products Ltd., the Borrower and Standard Motor
Products, Inc., the Guarantor, our Customer.
FACILITY A: COMMITTED INSTALLMENT LOAN
CREDIT LIMIT: CDN$20,000,000.
PURPOSE: Originally to finance capital expenditure for the EIS
Brake division in Canada.
AVAILABILITY AND RATE: A committed credit facility under which the Borrower may
at its option obtain on a non-revolving basis the
following:
(1) Canadian dollar loans. The Interest Rate is Prime
Rate plus 1.75% per year.
(2) U.S. dollar loans and overdrafts. The Interest
Rate is U.S. Base Rate plus 1.75% per year.
(3) Canadian dollar Bankers Acceptances (with terms to
maturity of 30 to 180 days). The stamping fee is
2.50% per year.
(4) U.S. dollar LIBOR loans. Interest is payable at
the LIBO Rate for the loan term (1 to 6 months),
plus 2.50% per year.
<PAGE>
The above rates are based on loans to SMP Motor Products
Inc. and in the event that loans are made available to
any non-Canadian entity CIBC will be indemnified for any
reduction or loss of income resulting from the
application of applicable withholding tax.
RATE ADJUSTMENT: In the event that the unsecured term debt of
the Guarantor is rated investment grade as determined by
an external rating agency satisfactory to CIBC, then the
interest rate on all the borrowing options under the
Committed Facility A herein shall be reduced by 25 basis
points per year.
SCHEDULED PAYMENTS: Unless an Event of Default has occurred, the
Borrower will pay CIBC interest monthly in arrears, and
principal is repayable in accordance with the following
schedule:
On or before March 31, 1999 - CDN$10,000,000
On August 30, 2000 - CDN$ 2,000,000
On August 30, 2001 - CDN$ 2,000,000
On August 30, 2002 - CDN$ 6,000,000
EARLY PAYMENT UPON DEFAULT. If any Event of Default
occurs and is continuing, CIBC may cancel this Facility
A and declare all amounts then outstanding or accrued in
connection with this Facility A (including all amounts
which may be payable as a consequence of such
cancellation and declaration) to be immediately due and
payable, where upon those amounts shall be immediately
due and payable by the Customer to CIBC, without any
further requirement and proceed immediately to exercise
all or any of CIBC's rights under this Agreement or
other rights (whether by operation of law, contract or
otherwise).
FACILITY B: FOREIGN EXCHANGE
CREDIT LIMIT: US$500,000.
DESCRIPTION: The Borrower may, at our discretion, enter
into one or more spot, forward or other foreign exchange
rate transactions with us and/or CIBC Wood Gundy Inc.
Your ability to make use of this Foreign Exchange
Facility will depend upon your outstanding obligations
under such transactions, as determined by us. This is an
uncommitted demand Facility. CIBC may cancel this
Facility B and/or demand repayment of all amounts owing
under this Facility B at any time, for any reason or for
no reason, even if the Borrower is not in default
hereunder.
SECURITY
SECURITY: The following security is required:
2
<PAGE>
GUARANTEE: Guarantee and specific Postponement of Claim from
Standard Motor Products, Inc. in an amount that is
unlimited and supported by a negative pledge agreement,
a notification provision in the event of default under
its U.S. Bank Group Credit Agreement dated as at
November 30, 1998, a Directors' Resolution and Letter of
Opinion from the Guarantor's external legal counsel in
form satisfactory to CIBC counsel. The Guarantee is also
to include the provisions of the attached Schedule -
Standard Credit Terms.
COVENANTS
COVENANTS: The Borrower, SMP Motor Products Ltd. will ensure that:
CURRENT RATIO: Current Ratio of the Borrower is not at
any time less than 1.5:1.
MINIMUM SHAREHOLDERS' EQUITY: Minimum Shareholders'
Equity of the Borrower is not at any time less than
$10,000,000. (Note: Inter-company advances are to be
included as equity).
NEGATIVE PLEDGE: There is no Lien on any of the present
or future assets of the Borrower and the Guarantor and
that the Borrower and the Guarantor shall not assign any
right to any income, without our prior consent (which
consent will not be unreasonably withheld), except as
permitted in the U.S. Bank Group Credit Agreement.
INCREASED COSTS, LOSSES, FOREGONE RETURN, ETC.: If CIBC
determines that any new legal requirement or official
regulatory directive or request (including, without
limitation, that calling for new or increased reserves,
special deposits, tax, capital or other allocation, but
excluding that solely imposing increased tax on CIBC's
general income) has or will have the direct or indirect
effect of:
(a) increasing the cost to CIBC of maintaining any
commitment or performing any obligation under this
Agreement;
(b) reducing any amount received or receivable by CIBC
or its effective return in connection with this
Agreement or on its capital; or
(c) causing CIBC to make any payment or to forgo any
return based on any amount received or receivable
by CIBC in connection with this Agreement;
3
<PAGE>
then the Borrower will pay to CIBC on demand such
additional amount or amounts as shall compensate CIBC
for any such cost, reduction, payment or foregone
return. Any certificate of CIBC as to any such
compensation shall, except for demonstrable error, be
conclusive and binding on the Borrower. In determining
such compensation, CIBC may use any commercially
reasonable method of averaging and attribution that it
considers applicable.
CROSS DEFAULT: All Facilities in this Agreement will
have the benefit of cross-default to all indebtedness of
the Guarantor in an amount exceeding US$2 million,
including but not limited to any outstanding
indebtedness under the U.S. Bank Group Credit Agreement;
the Insurance Companies' Note Agreements; the Clipper
Financing; and the Cooper Financing in respect of
non-payment of any indebtedness when due, or any default
under any of the financial covenants entered into with
other lenders during the period from the Closing date of
this Agreement until the Maturity Date or any extension
thereof of the U.S. Bank Group Credit Agreement provided
that (x) a failure by the Guarantor to comply with the
provisions of Article Vii of the U.S. Bank Group Credit
Agreement shall not constitute a default under the
Guarantee so long as the Bank Group has not (i)
accelerated the maturity of the indebtedness due under
the U.S. Bank Group Credit Agreement, or (ii) taken any
enforcement action against the Guarantor, or (iii)
terminated or reduced any of the Commitments (as defined
in the U.S. Bank Group Credit Agreement pursuant to
Article Vii of the U.S. Bank Group Credit Agreement), or
(iv) failed to make an advance requested under the U.S.
Bank Group Credit Agreement and (y) a default with
respect to the Insurance Companies' Note Agreements, the
Cooper Financing or the Clipper Financing shall not
constitute a default under the Guarantee unless the
Required Banks under the U.S. Bank Group Credit
Agreement have taken any of the actions set forth in (i)
through (iv) of the preceding clause.
ASSIGNMENT: CIBC reserves the right to syndicate,
participate, sell or assign its rights, benefits and
obligations under these facilities in whole or in part
to one or more persons with the consent of the Borrower
and Guarantor, such consent not to be unreasonably
withheld or delayed. No consent is required if an Event
of Default has occured and is continuing. The Borrower
and Guarantor agree to enter into such amended and/or
further documentation at the expense of CIBC (including
but not limited to a formal Credit Agreement) as
requested by CIBC in connection with such assignment.
4
<PAGE>
REPORTING REQUIREMENTS
REPORTING (1) Within 45 days of the end of each fiscal quarter,
REQUIREMENTS: financial statements for that fiscal quarter for the
Guarantor, Standard Motor Products Inc.
(2) Within 120 days of each fiscal year-end, audited
financial statements for that fiscal year for SMP Motor
Products Ltd.
(3) Within 90 days of each fiscal year-end, annual
financial statements for that fiscal year on an audited
basis for the Guarantor.
(4) Within 30 days after each fiscal year-end, a
business plan/forecast for the next fiscal year,
including month-by-month projected balance sheets,
income statements and cash flow projections for the
Guarantor.
OTHER PROVISIONS
OTHER: All fees including legal, out of pocket expenses
and disbursements incurred by CIBC in connection with
the preparation, negotiation or enforcement of this
Agreement are for the account of the Borrower.
CONDITIONS PRECEDENT: (i) The facilities herein are contingent upon CIBC's
claims under its Guarantee from the Guarantor ranking
pari passu in all respects with the Guarantor's
indebtedness under the U.S. Bank Group Credit Agreement
and to the Insurance Company Noteholders.
(ii) Closure of the U.S. Banking Group Credit Agreement.
(iii) The existence of no event of default (with
evidence satisfactory to CIBC of the receipt by the
Borrower of appropriate waivers, amendments and
consents) under any credit agreement, promissory note,
or other agreement (including without limitation, the
Insurance Companies' Note Agreements) related to
indebtedness for borrowed money or any material contract
or purchase agreement to which the Borrower is a party.
(iv) Such other terms and conditions as may be
reasonably required by CIBC or its counsel.
5
<PAGE>
FEES
LOAN ADMINISTRATION: $100. per month.
CALCULATIONS: The calculations made under the "Covenants" and
"Reporting Requirements" sections of this Agreement are
to be done on a consolidated basis.
DEFAULT INTEREST RATE: 2% per year above the applicable non-default rate stated
on page 1 of this Agreement. In connection with any
amounts in foreign currency, see "Foreign Currency
Conversion" in the Attached Schedule.
NEXT SCHEDULED
REVIEW DATE: November 30, 1999
STANDARD CREDIT TERMS: The attached Schedule - Standard Credit Terms forms part
of this Agreement.
Upon acceptance, this Agreement amends and restates the
existing credit agreement dated March 31, 1998, between you and CIBC.
Outstanding amounts (and security) under that Agreement will be covered by this
Agreement.
The parties agree that this Agreement may be executed by
fascimile Agreement and further agree that they will subsequently exchange
original copies.
Yours truly,
Canadian Imperial Bank of Commerce
by: by:
Jake Crough Robert Slaymaker
Director, Commercial Commercial
Banking
Lending Specialist
Phone no.: (905) 566 3706 Phone no.: (905) 566 3684
Fax no.: (905) 279 9284 Fax no.: (905) 279 9284
6
<PAGE>
SMP MOTOR PRODUCTS LTD.
Acknowledgement: The undersigned certifies that all information provided to CIBC
is true, and acknowledges receipt of a copy of this Agreement (including any
Schedules referred to above).
Accepted this day of , .
---------- ---------------------------- ------------
SMP MOTOR PRODUCTS LTD.
By:
-------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
Accepted this day of , .
---------- ---------------------------- ------------
The Guarantor confirms that its guarantee in favour of CIBC remains in full
force and effect.
SMP MOTOR PRODUCTS LTD.(as Guarantor)
By:
-------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
7
<PAGE>
CIBC LOGO
Form 6326-95/06
(WP51CRED)
SCHEDULE - STANDARD CREDIT TERMS
ARTICLE 1 - GENERAL
1.1 INTEREST RATE. You will pay interest on each Credit at nominal rates per
year equal to:
(a) for amounts above the Credit Limit of a Credit or a part of a Credit or
for amounts that are not paid when due, the Default Interest Rate, and
(b) for any other amounts, the rate specified in this Agreement.
1.2 VARIABLE INTEREST. Each variable interest rate provided for under this
Agreement will change automatically, without notice, whenever the Prime Rate or
the U.S. Base Rate, as the case may be, changes.
1.3 PAYMENT OF INTEREST. Interest is calculated on the daily balance of the
Credit at the end of each day. Interest is due once a month, unless the
Agreement states otherwise. Unless you have made other arrangements with us, we
will automatically debit your Operating Account for interest amounts owing. If
your Operating Account is in overdraft and you do not deposit to the account an
amount equal to the monthly interest payment, the effect is that we will be
charging interest on overdue interest (which is known as compounding). Unpaid
interest continues to compound whether or not we have demanded payment from you
or started a legal action, or get judgment, against you.
1.4 DEFAULT INTEREST. To determine whether Default Interest is to be charged,
the following rules apply:
(a) Default Interest will be charged on the amount that exceeds the Credit
Limit of any particular Credit.
(b) If there are several parts of a Credit, Default Interest will be
charged if the Credit Limit of a particular part is exceeded. For example, if
Credit A's limit is $250,000, and the limit of one part is $100,000 and the
limit of that part is exceeded by $25,000, Default Interest will be charged on
that $25,000 excess, even if the total amount outstanding under Credit A is less
than $250,000.
1.5 FEES. You will pay CIBC's fees for each Credit as out lined in the Letter.
You will also reimburse us for all reasonable fees (including legal fees) and
out-of-pocket expenses incurred in registering any security, and in enforcing
our rights under this Agreement or any security. We will automatically debit
your Operating Account for fee amounts owing.
1.6 OUR RIGHTS RE DEMAND CREDITS. At CIBC, we believe that the banker-customer
relationship is based on mutual trust and respect. It is important for us to
know all the relevant information (whether good or bad) about your business.
CIBC is itself a business. Managing risks and monitoring our customers' ability
to repay is critical to us. We can only continue to lend when we feel that we
are likely to be repaid. As a result, if you do something that jeopardizes that
relationship, or if we no longer feel that you are likely to repay all amounts
borrowed, we may have to act. We may decide to act, for example, because of
something you have done, information we receive about your business, or changes
to the economy that affect your business. Some of the actions that we may decide
1
<PAGE>
to take include requiring you to give us more financial information, negotiating
a change in the interest rate or fees, or asking you to get further accounting
assistance, put more cash into the business, provide more security, or produce a
satisfactory business plan. It is important to us that your business succeeds.
We may, however, at our discretion, demand immediate repayment of any
outstanding amounts under any demand Credit. We may also, at any time and for
any cause, cancel the unused portion of any demand Credit. Under normal
circumstances, however, we will give you 30 days' notice of any of these
actions.
1.7 PAYMENTS. If any payment is due on a day other than a Business Day, then the
payment is due on the next Business Day.
1.8 APPLYING MONEY RECEIVED. If you have not made payments as required by this
Agreement, or if you have failed to satisfy any term of this Agreement (or any
other agreement you have that relates to this Agreement), or at any time before
default but after we have given you appropriate notice, we may decide how to
apply any money that we receive. This means that we may choose which Credit to
apply the money against, or what mix of principal, interest, fees and overdue
amounts within any Credit will be paid.
1.9 INFORMATION REQUIREMENTS. We may from time to time reasonably require you to
provide further information about your business. We may require information from
you to be in a form acceptable to us.
1.10 INSURANCE. You will keep all your business assets and property insured (to
the full insurable value) against loss or damage by fire and all other risks
usual for property such as yours (plus for any other risks we may reasonably
require). If we ask, you will give us either the policies themselves or adequate
evidence of their existence. If your insurance coverage for any reason stops, we
may (but do not have to) insure the property. We will automatically debit your
Operating Account for these amounts. Finally, you will notify us immediately of
any material loss or damage to the property.
1.11 ENVIRONMENTAL. You will carry on your business, and maintain your assets
and property, in accordance with all applicable environmental laws and
regulations. If (a) there is any release, deposit, discharge or disposal of
pollutants of any sort (collectively, a "Discharge") in connection with either
your business or your property, and we pay any fines or for any clean-up, or (b)
we suffer any loss or damage as a result of any Discharge, you will reimburse
CIBC, its directors, officers, employees and agents for any and all losses,
damages, fines, costs and other amounts (including amounts spent preparing any
necessary environmental assessment or other reports, or defending any lawsuits)
that result. If we ask, you will defend any lawsuits, investigations or
prosecutions brought against CIBC or any of its directors, officers, employees
and agents in connection with any Discharge. Your obligation to us under this
section continues even after all Credits have been repaid and this Agreement has
terminated.
1.12 CONSENT TO RELEASE INFORMATION. We may from time to time give any credit or
other information about you to, or receive such information from, (a) any
financial institution, credit reporting agency, rating agency or credit bureau,
(b) any person, firm or corporation with whom you may have or propose to have
financial dealings, and (c) any person, firm or corporation in connection with
any dealings you have or propose to have with us. You agree that we may use that
information to establish and maintain your relationship with us and to offer any
services as permitted by law, including services and products offered by our
subsidiaries when it is considered that this may be suitable to you.
1.13 OUR PRICING POLICY: Fees, interest rates and other charges for your banking
arrangements are dependent upon each other. If you decide to cancel any of these
arrangements, you will have to pay us any increased or added fees, interest
rates and charges we determine and notify you of. These increased or added
amounts are effective from the date of the changes that you make.
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1.14 PROOF OF DEBT. This Agreement provides the proof, between CIBC and you, of
the credit made available to you. There may be times when the type of Credit you
have requires you to sign additional documents. Throughout the time that we
provide you credit under this Agreement, our loan accounting records will
provide complete proof of all terms and conditions of your credit (such as
principal loan balances, interest calculations, and payment dates).
1.15 RENEWALS OF THIS AGREEMENT. This Agreement will remain in effect for your
Credits for as long as they remain unchanged. We have shown a Next Scheduled
Review Date in the Letter. If there are no changes to the Credits this Agreement
will continue to apply, and you will not need to sign anything further. If there
are any changes, we will provide you with either an amending agreement, or a new
replacement Letter, for you to sign.
1.16 CONFIDENTIALITY: The terms of this Agreement are confidential between you
and CIBC. You therefore agree not to disclose the contents of this Agreement to
anyone except your professional advisors.
1.17 PRE-CONDITIONS. You may use the Credits granted to you under this Agreement
only if:
(a) we have received properly signed copies of all documentation that we
may require in connection with the operation of your accounts and your ability
to borrow and give security;
(b) all the required security has been received and registered to our
satisfaction;
(c) any special provisions or conditions set forth in the Letter have been
complied with; and (d) if applicable, you have given us the required number of
days notice for a drawing under a Credit.
1.18 NOTICES. We may give you any notice in person or by telephone, or by letter
that is sent either by fax or by mail.
1.19 USE OF THE OPERATING LINE. You will use your Operating Line only for your
business operating cash needs. You are responsible for all debits from the
Operating Account that you have either initiated (such as cheques, loan
payments, pre-authorized debits, etc.) or authorized us to make. Payments are
made by making deposits to the Operating Account. You may not at any time exceed
the Credit Limit. We may, without notice to you, return any debit from the
Operating Account that, if paid, would result in the Credit Limit being
exceeded, unless you have made prior arrangements with us. If we pay any of
these debits, you must repay us immediately the amount by which the Credit Limit
is exceeded.
1.20 FOREIGN CURRENCY CONVERSION. If this Agreement includes foreign currency
Credits, then currency changes may affect whether either the Credit Limit of any
Credit or the Overall Credit Limit has been exceeded.
(a) See section 1.4 for the general rules on how Default Interest is
calculated.
(b) To determine the Overall Credit Limit, all foreign currency amounts are
converted to Canadian dollars, even if the Credit Limits of any particular
Credits are quoted directly in a foreign currency (such as U.S. dollars). No
matter how the Credit Limit of a particular Credit is quoted, therefore,
currency fluctuations can affect whether the Overall Credit Limit has been
exceeded. For example, if Credits X and Y have Credit Limits of C$100,000 and
US$50,000, respectively, with an Overall Credit Limit of C$175,000, if Credit X
is at C$90,000 and Credit Y is at US$45,000, Default Interest will be charged
only if, after converting the US dollar amount, the Overall Credit Limit is
exceeded.
(c) Whether the Credit Limit of a particular Credit has been exceeded will
depend on how the Credit Limit is quoted, as described below.
(d) If the Credit Limit is quoted as, for example, the U.S. dollar
equivalent of a Canadian dollar amount, daily exchange rate fluctuations may
affect whether that Credit Limit has been exceeded. If, on the other hand, the
Credit Limit is quoted in a foreign currency (for example, directly in US
dollars), whether that Credit Limit has been exceeded is determined by reference
only to the closing balance of that Credit in that currency.
3
<PAGE>
(e) For example, assume an outstanding balance of a Credit on a particular
day of US$200,000. If the Credit Limit is stated as "the US dollar equivalent of
C$275,000", then whether the Credit Limit of that Credit has been exceeded will
depend on the value of the Canadian dollar on that day. If the conversion
calculations determine that the outstanding balance is under the Credit Limit, a
drop in the value of the Canadian dollar the next day (without any change in the
balance) may have the effect of putting that Credit over its Credit Limit. If,
on the other hand, the Credit Limit is stated as "US$200,000", the Credit Limit
is not exceeded, and a drop in the value of the dollar the next day will not
change that (although the Overall Credit Limit may be affected).
(f) Conversion calculations are done on the closing daily balance of the
Credit. The conversion factor used is the mid-point between the buying and
selling rate offered by CIBC for that currency on the conversion date.
1.21 Instalment Loans. The following terms apply to each Instalment Loan.
(a) Non-revolving loans. Unless otherwise stated in the Letter, any
Instalment Loan is non-revolving. This means that any principal payment made
permanently reduces the available Loan Amount. Any payment we receive is applied
first to overdue interest, then to current interest owing, then to overdue
principal, then to any fees and charges owing, and finally to current principal.
(b) Floating Rate Instalment Loans. Floating Rate Instalment Loans may have
either (i) blended payments or (ii) payments of fixed principal amounts, plus
interest, as described below.
(i) BLENDED PAYMENTS. If you have a Floating Rate Loan that has blended
payments, the amount of your monthly payment is fixed for the term of the
loan, but the interest rate varies with changes in the Prime or U.S. Base
Rate (as the case may be). If the Prime or U.S. Base Rate during any month
is lower than what the rate was at the outset, you may end up paying off
the loan before the scheduled end date. If, however, the Prime or U.S. Base
Rate is higher than what it was at the outset, the amount of principal that
is paid off is reduced. As a result, you may end up still owing principal
at the end of the term because of these changes in the Prime or U.S. Base
Rate.
(ii) PAYMENTS OF PRINCIPAL PLUS INTEREST. If you have a Floating Rate Loan
that has regular principal payments, plus interest, the principal payment
amount of your Loan is due on each payment date specified in the Letter.
The interest payment is also due on the same date, but it is debited from
your Operating Account one or two banking days later. Although the
principal payment amount is fixed, your interest payment will usually be
different each month, for at least one and possibly more reasons, namely:
the reducing principal balance of your loan, the number of days in the
month, and changes to the Prime Rate or U.S. Base Rate (as the case may
be).
(c) Prepayment. Unless otherwise agreed, the following terms apply to
prepayment of any Instalment Loan:
(i) FLOATING RATE INSTALMENT LOANS. You may prepay all or part of a
Floating Rate Instalment Loan (whether it is a Demand or a Committed Loan)
at any time without notice or penalty.
(ii) FIXED RATE INSTALMENT LOANS. You may prepay all or part of a Fixed
Rate Instalment Loan, on the following condition. You must pay us, on the
prepayment date, a prepayment fee equal to the interest rate differential
for the remainder of the term of the Loan, in accordance with the standard
formula used by CIBC in these situations.
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1.22 NOTICE OF DEFAULT. You will promptly notify us of the occurrence of any
event that is an Event of Default (or any that would be an Event of Default if
the only thing required is either notice being given or time elapsing, or both).
ARTICLE 2 - DEFINITIONS
2.1 Definitions. In this Agreement, the following terms have the following
meanings:
"BASE RATE LOAN" means a U.S. dollar loan on which interest is calculated by
reference to the U.S. Base Rate.
"BUSINESS DAY" means any day (other than a Saturday or a Sunday) that the CIBC
Branch/Centre is open for business.
"CIBC BRANCH/CENTRE" means the CIBC branch or banking centre noted on the first
page of this Agreement, as changed from time to time by agreement between the
parties.
"COMMITTED INSTALMENT LOAN" means an Instalment Loan that is payable in regular
instalments but is repayable in full only upon the occurrence of an Event of
Default. Such a Loan may be either at a fixed or a floating rate of interest.
"CREDIT" means any credit referred to in the Letter, and if there are two or
more parts to a Credit, "Credit" includes reference to each part.
"CREDIT LIMIT" of any Credit means the amount specified in the Letter as its
Credit Limit, and if there are two or more parts to a Credit, "Credit Limit"
includes reference to each such part.
"CURRENT ASSETS" are cash, accounts receivable, inventory and other assets that
are likely to be converted into cash, sold, exchanged or expended in the normal
course of business within one year or less, excluding amounts due from related
parties.
"CURRENT LIABILITIES" means debts that are or will become payable within one
year or one operating cycle, whichever is longer, excluding amounts due to
related parties, and which will require Current Assets to pay. They usually
include accounts payable, accrued expenses, deferred revenue and the current
portion of long-term debt.
"CURRENT RATIO" means the ratio of Current Assets to Current Liabilities.
"DEFAULT INTEREST RATE", unless otherwise defined in the Letter, means the
Standard Overdraft Rate.
"EVENT OF DEFAULT" means, in connection with any Committed Instalment Loan (even
if that Loan has not yet been drawn), the occurrence of any of the following
events (or the occurrence of any other event of default described in this
Agreement, in any of the security documents or in any other agreement or
document you have signed with us):
(1) You do not pay, when due, any amount that you are required to pay us under
this Agreement or otherwise, or you do not perform any of your other obligations
to us under this Agreement or otherwise.
(2) Any part of the security terminates or is no longer in effect, without our
prior written consent.
(3) You cease to carry on your business or any material part thereof in the
normal course, or it reasonably appears to us that that may happen.
(4) A representation that you have made (or deemed to have made) in this
Agreement or in any security agreement is incorrect or misleading in any
material respect.
5
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(5) (i) An actual or potential default or event of default occurs in connection
with any debt owed by you, with the result that the payment of the debt has
become, or is capable of becoming, accelerated, or (ii) you do not make a
payment when due in connection with any such debt. (This subsection (5),
however, applies only to amounts that we reasonably consider to be material.)
(6) If you are a corporation, there is, in our reasonable opinion, a change in
effective control of the corporation, or if you are a partnership, there is a
change in the partnership membership.
(7) We believe, in good faith and upon commercially reasonable grounds, that all
or part of the property subject to any of the security is or is about to be
placed in jeopardy or that a material adverse change in your business operations
or financial affairs has occurred.
(8) The holder of a Lien takes possession of all or part of your property; or a
distress, execution or other similar process is levied against any such
property.
(9) You (i) become insolvent; (ii) are unable generally to pay your debts as
they become due; (iii) make a proposal in bankruptcy, or file a notice of
intention to make such a proposal; (iv) make an assignment in bankruptcy; (v)
bring a court action to have yourself declared insolvent or bankrupt; or someone
else brings an action for such a declaration; or (vi) you default in payment or
breach any other obligation to any of your other creditors.
(10) If you are a corporation, (i) you are dissolved; (ii) your shareholders or
members pass a resolution for your winding-up or liquidation; (iii) someone goes
to court seeking your winding-up or liquidation, or the appointment of an
administrator, conservator, receiver, trustee, custodian or other similar
official for you or for all or substantially all your assets; or (iv) you seek
protection under any statute offering relief against the company's creditors.
"FIXED RATE INSTALMENT LOAN" means an Instalment Loan that is also a Fixed Rate
Loan.
"FIXED RATE LOAN" means any loan drawn down, converted or extended under a
Credit at an interest rate which was fixed for a term, instead of referenced to
a variable rate such as the Prime Rate or U.S. Base Rate, at the time of such
drawdown, conversion or extension. For purposes of certainty, a Fixed Rate Loan
includes a LIBOR Loan.
"FLOATING RATE INSTALMENT LOAN" means either an Instalment Loan that is either a
Prime Rate Loan or a Base Rate Loan.
"INSTALMENT LOAN" means a loan that is repayable either in fixed instalments of
principal, plus interest, or in blended instalments of both principal and
interest. A Demand Instalment Loan is repayable on demand. A Committed
Instalment Loan is repayable only upon the occurrence of an Event of Default.
"LETTER" means the letter agreement between you and CIBC to which this Schedule
and any other Schedules are attached.
"LIEN" includes a mortgage, charge, lien, security interest or encumbrance of
any sort on an asset, and includes conditional sales contracts, title retention
agreements, capital trusts and capital leases.
"MINIMUM SHAREHOLDERS' EQUITY" means the total Shareholders' Equity, minus (a)
amounts due from/investments in related parties, and the value of all
Intangibles, plus (b) all Postponed Debt.
"NORMAL COURSE LIEN" means a Lien that (a) arises by operation of law or in the
ordinary course of business as a result of owning any such asset (but does not
include a Lien given to another creditor to secure debts owed to that creditor)
and (b), taken together with all other Normal Course Liens, does not materially
affect the value of the asset or its use in the business.
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"OPERATING ACCOUNT" means the account that you normally use for the day-to-day
cash needs of your business, and may be either or both of a Canadian dollar and
a U.S. dollar account.
"POSTPONED DEBT" means any debt owed by you that has been formally postponed to
CIBC.
"PRIME RATE" means the variable reference rate of interest per year declared by
CIBC from time to time to be its prime rate for Canadian dollar loans made by
CIBC in Canada.
"PRIME RATE LOAN" means a Canadian dollar loan on which interest is calculated
by reference to Prime Rate.
"PURCHASE MONEY LIEN" means a Lien incurred in the ordinary course of business
only to secure the purchase price of an asset, or to secure debt used only the
finance the purchase of the asset.
"SHAREHOLDERS' EQUITY" means paid-in capital, retained earnings and attributed
or contributed surplus.
"STANDARD OVERDRAFT RATE" means the variable reference interest rate per year
declared by CIBC from time to time to be its standard overdraft rate on
overdrafts in Canadian or U.S. dollar accounts maintained with CIBC in Canada.
"U.S. BASE RATE" means the variable reference interest rate per year as declared
by CIBC from time to time to be its base rate for U.S. dollar loans made by CIBC
in Canada.
7
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