<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from _____________________ to ____________________
Commission File No. 1-2917
THE STANDARD PRODUCTS COMPANY
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Ohio 34-0549970
- - ------------------------------- ------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2130 West 110th Street, Cleveland, OH 44102
-----------------------------------------------------
(Address of Principal Executive Offices and Zip Code)
Registrant's telephone number, including area code (216) 281-8300
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 and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Number of common shares outstanding as of April 29, 1994: 16,662,018
----------
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
- - ------- --------------------
The following consolidated financial statements are
submitted in accordance with the Securities and Exchange
Commission's rules and regulations for Form 10-Q.
These consolidated financial statements reflect all
adjustments, consisting only of normal recurring adjustments,
which are, in the opinion of management, necessary to present
fairly the financial position and results of operations for
the interim periods presented.
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<PAGE> 3
<TABLE>
THE STANDARD PRODUCTS COMPANY AND SUBSIDIARY COMPANIES
Consolidated Balance Sheets
(Unaudited)
(Thousands of Dollars)
<CAPTION>
March 31, June 30,
1994 1993
--------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................................................ $ 14,322 $ 5,548
Receivables, less allowances of $2,590 at March 31 and
$2,293 at June 30............................................................... 164,215 162,758
Inventories...................................................................... 61,793 48,472
Prepaid insurance, taxes, etc.................................................... 13,588 17,559
--------- ---------
Total current assets............................................................ 253,918 234,337
-------- ---------
Property, Plant and Equipment, at cost............................................. 400,380 377,564
Less - Accumulated depreciation.................................................. (173,742) (153,137)
-------- ---------
226,638 224,427
Goodwill, net...................................................................... 58,545 61,286
Other Assets....................................................................... 54,632 44,800
--------- ---------
$ 593,733 $ 564,850
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term notes payable....................................................... $ 8,766 $ 7,834
Current maturities of long-term debt........................................... 3,126 5,856
Accounts payable............................................................... 77,767 75,693
Accrued payrolls............................................................... 18,850 21,400
Accrued expenses............................................................... 36,542 41,412
Dividend payable............................................................... 2,665 2,746
--------- ---------
Total current liabilities..................................................... 147,716 154,941
--------- ---------
Long-term Debt, net of current maturities........................................ 150,723 115,607
--------- ---------
Other Postretirement Benefits.................................................... 25,793 25,627
--------- ---------
Deferred Income Taxes and Other Credits.......................................... 42,924 44,239
--------- ---------
Commitments and Contingent Liabilities
Shareholders' Equity:
Serial preferred shares, without par value, authorized 6,000,000 voting
and 6,000,000 non-voting shares, none issued.................................. - -
Common shares, par value $1 per share; authorized 50,000,000 shares,
issued and outstanding, 16,654,818 shares at March 31 and
16,551,974 at June 30......................................................... 16,655 16,552
Paid-in capital................................................................ 95,104 94,083
Retained earnings.............................................................. 131,891 120,660
Foreign currency translation adjustments....................................... (16,875) (6,650)
Minimum pension liability...................................................... (198) (209)
--------- ---------
Total shareholders' equity.................................................... 226,577 224,436
--------- ---------
$ 593,733 $ 564,850
========= =========
The accompanying notes are an intergral part of these statements.
</TABLE>
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<PAGE> 4
THE STANDARD PRODUCTS COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Periods Ended March 31, 1994 and April 4, 1993
(Unaudited)
(Thousands of Dollars Except Share Data)
Three Months Nine Months
---------------------------- --------------------------
March 31 April 4 March 31 April 4
1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Sales..................................................... $222,676 $200,934 $622,702 $ 540,146
-------- -------- -------- ---------
Cost of Goods Sold:
Materials, wages and other manufacturing costs............. 187,203 165,305 522,846 453,376
Research, engineering and development expenses............. 7,323 4,912 20,918 13,765
--------- --------- --------- ---------
194,526 170,217 543,764 467,141
-------- -------- -------- --------
Gross Income.................................................... 28,150 30,717 78,938 73,005
Selling, General and Administrative Expenses.................... 15,297 12,433 42,896 34,207
-------- -------- --------- --------
12,853 18,284 36,042 38,798
Other Income (Deductions):
Royalty and dividend income................................... 376 159 595 666
Interest expense, net......................................... (2,463) (2,551) (7,594) (5,351)
Other, net.................................................... 978 (535) (7) (394)
--------- --------- ---------- --------
(1,109) (2,927) (7,006) (5,079)
--------- --------- ---------- --------
Income before Taxes on Income and Cumulative Effect on
Prior Years of Change in Accounting Principle................... 11,744 15,357 29,036 33,719
Provision for Taxes on Income..................................... 3,566 5,210 9,819 11,323
-------- -------- ---------- --------
Income Before Cumulative Effect on Prior Years of
Change in Accounting Principle.................................. 8,178 10,147 19,217 22,396
Cumulative Effect on Prior Years of Change in Accounting
Principle, Less Applicable Income Tax of $5,088............... - - - (8,301)
Early Repayment of Debt, Net of Tax of $1,569................... - (2,559) - (2,559)
--------- --------- -------- --------
Net Income...................................................... $ 8,178 $ 7,588 $ 19,217 $ 11,536
========= ========= ======== ========
Earnings (Loss) Per Common Share:
Income Before Extraordinary Items............................ $.49 $.67 $1.16 $1.48
Cumulative Effect on Prior Years of Change in
Accounting Principle, Net of Tax........................... - - - (.55)
Early Repayment of Debt...................................... - (.17) - (.17)
----- ---- -------- ------
Earnings Per Common Share....................................... $.49 $.50 $1.16 $ .76
==== ==== ======== =====
Average Shares Outstanding...................................... 16,650 15,120 16,615 15,093
====== ====== ====== ======
The accompanying notes are an integral part of these statements.
</TABLE>
-4-
<PAGE> 5
<TABLE>
THE STANDARD PRODUCTS COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIODS ENDED MARCH 31, 1994 AND APRIL 4, 1993
(Unaudited)
(Thousands of Dollars)
<CAPTION>
Foreign Total
Currency Minimum Share-
Common Paid-In Retained Translation Pension holders'
Shares Capital Earnings Adjustments Liability Equity
-------- -------- -------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1993...................... $16,552 $94,083 $120,660 $ (6,650) $ (209) $224,436
Net income.................................. - - 19,217 - - 19,217
Cash dividends ($.48 per share)............. - - (7,986) - - (7,986)
Foreign currency translation adjustments - - - (10,225) - (10,225)
Restricted stock awards..................... - 306 - - - 306
Sale of 102,844 shares to option holders 103 715 - - - 818
Minimum pension liability................... - - - - 11 11
---------- ---------------------- ------------- -------- -----------
Balance, March 31, 1994..................... $16,655 $95,104 $131,891 $ (16,875) $ (198) $226,577
======= ======= ======== ========= ======= ========
Balance, June 28, 1992...................... $12,035 $53,222 $106,547 $ 6,264 $ (315) $177,753
Net income.................................. - - 11,536 - - 11,536
Cash dividends ($.48 per share)............. - - (5,801) - - (5,801)
Foreign currency translation adjustments - - - (12,321) - (12,321)
Restricted stock awards..................... - 530 - - - 530
Sale of 71,170 shares to option holders.. 71 915 - - - 986
Minimum pension liability................... - - - - 31 31
---------- ---------- ----------- ------------- -------- ----------
Balance, April 4, 1993...................... $12,106 $54,667 $112,282 $ (6,057) $ (284) $ 172,714
======= ======= ======== =========== ======== ===========
The accompanying notes are an integral part of these statements.
</TABLE>
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<PAGE> 6
<TABLE>
THE STANDARD PRODUCTS COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE NINE MONTH PERIOD ENDED MARCH 31, 1994
AND APRIL 4, 1993
(Unaudited)
(Thousands of Dollars)
<CAPTION>
March 31, April 4,
1994 1993
--------- ---------
<S> <C> <C>
Net cash provided by (used for) operating activities:
Net income......................................................... $ 19,217 $ 11,536
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.................................. 30,902 20,233
Cumulative effect of change in accounting principle............ - 8,301
Deferred taxes and other credits............................... (2,743) (4,701)
Equity in loss of non-consolidated affiliate................... (230) 380
Effect of changes in foreign currency.......................... (981) (3,703)
Other operating items.......................................... (5,854) (1,631)
----------- ----------
Net cash provided by continuing operations.................. 40,311 30,415
----------- ----------
Net cash provided by (used for) changes in operating assets and
liabilities:
Receivables.................................................... (1,660) 12,070
Inventories.................................................... (13,284) 997
Accounts payable and accrued expenses.......................... (5,629) (14,428)
Other.......................................................... 4,330 (1,733)
----------- ---------
Net cash used for changes in operating assets and liabilities (16,243) (3,094)
----------- ----------
Net cash provided by operating activities................... 24,068 27,321
----------- ----------
Net cash used for investments:
Purchase of property, plant and equipment, net..................... (40,067) (23,532)
Investments in affiliates.......................................... (1,500) (8,700)
Assets acquired by purchase of businesses.......................... - (116,066)
----------- ---------
Net cash used for investments............................... (41,567) (148,298)
---------- ---------
Net cash provided by (used for) financing:
Proceeds of long-term borrowings................................... 135,343 140,075
Net increase in short-term borrowings.............................. 640 (5,601)
Repayment of long-term borrowings.................................. (102,107) (48,259)
Cash dividends..................................................... (7,986) (5,801)
---------- ---------
Net cash provided by financing.............................. 25,890 80,414
---------- ---------
Effect of exchange rate changes on cash.............................. 383 (3)
---------- ---------
Increase (decrease) in cash and cash equivalents..................... 8,774 (40,566)
Cash and cash equivalents at the beginning of the period............. 5,548 44,342
---------- ---------
Cash and cash equivalents at the end of the period................... $ 14,322 $ 3,776
========= =========
The accompanying notes are an integral part of these statements.
</TABLE>
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<PAGE> 7
THE STANDARD PRODUCTS COMPANY AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1994
1. ACCOUNTING POLICIES
-------------------
A. Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. Major intercompany
items have been eliminated.
B. Inventories
Inventories are stated at the lower of cost or market. The majority
of domestic inventories are valued using the last-in, first-out (LIFO) method
and the remaining inventories are valued using the first-in, first-out (FIFO)
method. The major components of inventory at March 31, 1994 and June 30, 1993
are as follows:
<TABLE>
<CAPTION>
March 31 June 30
-------- -------
(Thousands of Dollars)
<S> <C> <C>
Raw materials.............................. $27,153 $20,055
Work-in-process and finished goods......... 34,640 28,417
-------- -------
Totals................................. $61,793 $48,472
======== =======
</TABLE>
2. Acquisitions
------------
In January 1993, the Company acquired all of the issued and
outstanding shares of capital stock of Standard Products Industriel (SPI), a
French Company. SPI designs, develops and manufactures window and glass
weatherstrips, vehicle body and door seals and glass encapsulation products for
French, other European and North American auto manufacturers.
The cost of the acquisition was approximately $125,500,000. The
acquisition has been accounted for under the purchase method of accounting, and
the financial statements of the Company include the acquired assets, assumed
liabilities and results of operations of SPI since the date of acquisition.
The first nine months of fiscal 1994 reflect the results of operation of SPI
for the nine month period July 1, 1993 through March 31, 1994. A preliminary
estimate of the valuation of the assets acquired and liabilities assumed in
accordance with Accounting Principles Board Opinion No. 16 resulted in goodwill
and other assets of approximately $52,000,000. Further adjustments of the
purchase price allocation could result from additional analysis of the
transactions.
For the nine month period of fiscal 1993, pro forma sales would have
been $633,275,000. Pro forma income before extraordinary items and changes in
accounting principles would have been $9,641,000, or $.64 a share, for the
third quarter, and $19,290,000, or $1.29 a share, for the first nine months of
fiscal 1993. All pro forma amounts are unaudited
3. DEBT
----
Long-term debt at March 31, 1994 and June 30, 1993 consisted of the
following:
<TABLE>
<CAPTION>
March 31 June 30
-------- --------
(Thousands of Dollars)
<S> <C> <C>
Metropolitan Life.............................................. $ 75,000 $ -
Senior Notes................................................... 25,000 -
Revolving credit agreement..................................... 45,000 75,000
First mortgage industrial revenue bonds........................ 645 13,144
Other debt..................................................... 8,204 8,319
-------- --------
Total.......................................................... 153,849 121,463
Less - current maturities...................................... 3,126 5,856
-------- --------
$150,723 $115,607
======== ========
</TABLE>
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<PAGE> 8
In connection with the acquisition of SPI, the Company entered into a
$175,000,000 Revolving Credit Agreement (Credit Agreement) with a group of
banks until January 19, 1996. The funds initially borrowed were used to
finance the acquisition of SPI.
In May 1993, the Company filed a shelf registration with the
Securities and Exchange Commission for the issuance of up to $100,000,000 in
debt securities and up to $50,000,000 of Company common shares. On June 30,
1993, the Company issued in a public offering 1,400,000 common shares for an
aggregate public offering price of $45,150,000. Proceeds of the offering were
used to repay a portion of the borrowings outstanding under the Credit
Agreement, and the available commitments under the Credit Agreement were
reduced from $175,000,000 to $125,000,000.
In December 1993, the Company negotiated a 6.55%, $75,000,000 Senior
Note term loan with an insurance company. Interest payments are payable
semi-annually, and principal payments of $12,500,000 begin December 1998
through December 2002, with the balance due on maturity in December 2003. The
Senior Note Agreement requires the Company to maintain certain financial
covenants for net worth, working capital, capitalization and interest coverage.
Proceeds of the Senior Note were used to reduce borrowings under the
Credit Agreement. After repayment, borrowings outstanding under the Credit
Agreement were $45,000,000 at March 31, 1994 at an interest rate of 4.40%.
During the third quarter, the Company repaid the majority of its
industrial revenue bond borrowings.
The $25,000,000 Senior Notes outstanding at March 31, 1994 represent
unsecured debt security placed directly with the holder. The interest rate is
9.81%, and the notes are payable July 1, 1999. The $25,000,000 Senior Note
Agreement also requires the Company to maintain certain financial ratios and
provide for financial restrictions as to indebtedness and net worth.
Under the most restrictive covenants of the Company's various loan
agreements, principally the Credit Agreement, $68,072,000 of retained earnings
were not restricted at March 31, 1994 for the payment of dividends, and the
ratio of current assets to current liabilities was 1.72 to 1, in excess of the
minimum requirement of 1.25 to 1.
4. Postretirement Benefits Other Than Pensions
-------------------------------------------
In the fourth quarter of fiscal 1993, the Company adopted SFAS No.
106, Employers' Accounting For Postretirement Benefits Other Than Pensions,
retroactive to the beginning of fiscal 1993. As a result, the previously
reported quarterly results of operations have been restated to reflect adoption
of the standard as of the beginning of fiscal 1993 and the recognition of the
expense of these plans on the accrual basis. The accumulated postretirement
benefit obligation, $13,389,000, $8,301,000 after tax, was recorded as a charge
to earnings in the restated first quarter of fiscal 1993. The accrual basis of
accounting for other postretirement benefits approximated the former cash basis
method and subsequent quarters of fiscal 1993 did not require restatement.
5. Discontinued Operations
-----------------------
In 1991, the Company decided to discontinue its participation in the
military business. As a result, the Company significantly curtailed operations
at its Port Clinton Division and recorded a provision of $30,000,000 for
estimated ongoing losses and estimated costs associated with closure and/or
sale of the division. In 1993, the Company announced the complete closure of
the Port Clinton Division which had been involved in rubber mixing for other
Company facilities since it discontinued the military business.
The Company has completed or subcontracted its contractual
commitments, and losses incurred were charged to the reserve. Assets of the
division are being held pending sale, transfer to other Company facilities or
disposal. Their remaining net book value has been reserved. The accumulated
postretirement benefits of the Port Clinton employees had been recognized in
the provision for discontinued operations of $30,000,000 recorded in 1991 and
has been reclassified to accrued postretirement benefits. The remaining
balance of the reserve of $5,450,000, which is included in Accrued Expenses in
the accompanying consolidated balance sheet, is for building and site work and
closure costs and other expenses related to the division.
-8-
<PAGE> 9
Item 2. Management's Discussion and Analysis of
---------------------------------------
Results of Operations and Financial Condition
---------------------------------------------
Results of Operations
---------------------
Sales for the third quarter of fiscal 1994 were $222,676,000
compared to $200,934,000 in the third quarter of fiscal 1993. Net income for
the fiscal 1994 third quarter was $8,178,000, or $.49 a share. In the prior
year, income before nonrecurring items was $10,147,000, or $.67 a share, and
net income was $7,558,000, or $.50 a share. During last year's third quarter,
the Company prepaid $35,000,000 of senior note obligations incurring a
prepayment charge of $4,128,000 before tax, $2,559,000 after tax.
For the nine month period of fiscal 1994, sales were $622,702,000
versus $540,146,000 a year ago. Net income for the nine month period of fiscal
1994 was $19,217,000, or $1.16 a share. A year ago, income before nonrecurring
items was $22,396,000, or $1.48 a share. In addition to the extraordinary item
noted above, last year's first quarter and nine month period results were
restated to reflect the adoption of Statement of Financial Accounting Standard
(SFAS) No. 106, Employers' Accounting for Postretirement Benefits Other Than
Pensions. The cumulative effect of adopting SFAS No. 106 was to reduce pretax
earnings by $13,389,000, $8,301,000 after tax, resulting in restated nine month
period net income for fiscal 1993 of $11,536,000, or $.76 a share.
Average shares outstanding have increased by approximately
1,500,000 shares in the fiscal 1994 periods compared to the periods of fiscal
1993. In June 1993, the Company issued 1,400,000 common shares in a public
offering resulting in the increase in average shares outstanding.
Sales of the Transportation Equipment Segment were $194,585,000 for
the third quarter of fiscal 1994, a 12% increase over the third quarter of the
prior year. A year ago, the Company had concluded its acquisition of Standard
Products Industriel (SPI) and its U.S. subsidiary, 5 Rubber Corporation. In
1993, the results of operations of SPI were included in the Company's
consolidation for one month, while those of 5 Rubber Corporation were included
for two months. In the 1994 third quarter, results of operations of each
subsidiary are included for the entire period. Sales were favorably affected
by approximately $31,000,000. In North America, sales of $119,552,000 were
5.2% below the prior year amount of $126,096,000. North American automotive
sales reflect an increase of approximately $7,000,000 in the sales of 5 Rubber
Corporation as it increased its production of parts on the launch of the
Chrysler Neon. North American sales were adversely affected, however, by the
previously announced shutdown in Canada of production of the Chevrolet Lumina
for customer changeover. The absence of the sale of parts for this model
during the changeover period resulted in a decrease of sales of approximately
$13,500,000. Sales of the Company's subsidiary, Standard Products Limited
(SPL), were up approximately $4,000,000 over the prior year on steady
production of parts supplied to North America for the Crown Victoria/Grand
Marquis and on the supply of parts on new models launched in the first quarter
of fiscal 1994 for Ford, Nissan and Toyota. Fiscal 1993 third quarter sales of
the Company included only one month of sales of SPI. Incremental sales of SPI,
included in the Company sales, were approximately $22,000,000, which reflects
three full months of sales in the fiscal 1994 quarter versus one month of the
fiscal 1993 quarter. SPI's sales have increased due to its participation on
new models for Fiat and Volvo. Sales of Holm Industries, Inc., the Company's
subsidiary which supplies the appliance and building products industries,
increased approximately $1,100,000 with strong appliance production
contributing to the increase.
Sales of the Tread Rubber Segment for the third quarter of fiscal
1994 were $28,091,000, a 3% increase over the sales of last year's third
quarter period. Sales increases in the European market accounted for the gain
as North American sales were even with last year.
For the nine month period of fiscal 1994, sales of the
Transportation Equipment Segment were $536,569,000, 18% ahead of the prior year
nine month period. In North America, sales were $328,830,000, 1% off the sales
level of last year's nine month period. Sales of 5 Rubber Corporation
contributed approximately $15,000,000, and its products involved with the
launch of the Chrysler Neon contributed $8,000,000 of the increase. The
balance of the increase represents incremental sales since the date of
acquisition of 5 Rubber Corporation by the Company. North American production
was also affected by lower production volumes of certain models and by
discontinuance of production of certain parts, the most notable being the parts
associated with the scheduled conversion of the General Motors Canadian
production to the new Lumina models. Sales decreased by approximately
$15,000,000 as a result of these factors.
-9-
<PAGE> 10
In Europe, SPI and SPL recorded sales increases over the previous
year's nine month period. Similar to 5 Rubber Corporation, SPI's sales have
been included for the entire nine month period of fiscal 1994. Only one month
of SPI sales were included in the nine months of 1993. SPI's incremental sales
were approximately $81,000,000. SPL's year-to-date nine month sales increased
due to the new business mentioned earlier. However, fluctuations in the rates
of exchange between the nine month periods of 1994 and 1993 have reduced sales,
resulting in a net sales decline of approximately $2,000,000. Sales of Holm
Industries have increased $5,100,000 with strong appliance sales causing the
majority of the increase.
Nine month year-to-date sales of the Tread Rubber Segment were
$86,133,000, $1,062,000 ahead of last year. Sales of mold cure and mixed
rubber were ahead of last year's sales, while precure rubber sales were down
from a year ago.
Consolidated gross margin was 12.6% in the third quarter of fiscal
1994 compared to 15.3% a year ago. For the nine month period of 1994,
consolidated gross margin was 12.7% versus 13.5% in the nine month period of
fiscal 1993.
In the Transportation Equipment Segment, margin declined in the
quarter and nine month periods in part due to the absence of sales for the
General Motors Lumina. As discussed previously, this model is in the process
of plant conversion for a new model changeover. Sales of the former Lumina
model parts, therefore, did not occur during the conversion period. Further, a
portion of the Company's manufacturing plant costs continued in spite of the
lower level of sales as the Company's plants prepare for the new model
introduction. These costs were in line with expectations. The continuation of
this trend is dependent on the rate of acceleration of the new model production
in the fourth quarter. The customer has forecast higher Lumina production in
the fourth quarter and beyond.
Expenses related to research and development continued ahead of the
prior year levels for the third quarter and nine month periods. This trend is
expected to continue as the Company's customers have transferred additional
design responsibilities to the supplier community.
In the Tread Rubber Segment for the third quarter and nine month
periods, consolidated margins were reduced by the effect of higher sales of
lower margin Tread Rubber products and by operating variances at two plants in
the Tread Rubber Segment. The consolidated gross margin was also reduced by a
decrease in the profitability of Holm Industries, Inc. for the third quarter.
A combination of minor factors combined to cause this decline. These adverse
factors were offset by the incremental effect of the SPI acquisition since
January 1993.
Selling, general and administrative expenses were $15,297,000, or
6.9% of sales for the third quarter of fiscal 1994 and $42,896,000 for the nine
month period of fiscal 1994, also 6.9% of sales. In the prior year periods,
selling, general and administrative expenses were 6.3% of sales. For the third
quarter and nine month periods of fiscal 1994, incurred expenses increased
$2,864,000 and $8,689,000, respectively, with the majority of these increases
related to the SPI/5 Rubber acquisition.
Net interest expense for the third quarter of fiscal 1994 was
$2,463,000 compared to $2,551,000 a year ago. In fiscal 1994, the third
quarter interest expense was $2,635,000 and interest income was $172,000. A
year ago, interest expense was $2,959,000 and interest income was $408,000.
For the nine month period of fiscal 1994, net interest expense was $7,594,000
compared to $5,351,000 for the comparable period of the prior year. Interest
expense for the nine month period of fiscal 1994 was $8,027,000 and interest
income was $433,000. A year ago, interest expense was $6,654,000 while
interest income was $1,303,000.
For the quarter, the interest expense decline reflects a decrease
in the level of borrowed funds. A year ago, borrowings under the Company's
revolving credit agreement were at a high level in connection with the SPI
acquisition. Interest expense decreased $1,324,000 as a result of the decline
in borrowed funds. The decrease of interest expense was offset by an increase
of approximately $1,042,000 which resulted from revising the mix of interest
rates within the borrowed funds. In the second quarter of fiscal 1994, the
Company negotiated a 6.55%, $75,000,000 Senior Note term loan, and proceeds
were used to reduce short-term borrowings, as well as industrial revenue bonds
at higher interest rates. Interest income declined in the third quarter of
fiscal 1994 compared to last year due to the absence of high interest bearing
deposits experienced a year ago.
-10-
<PAGE> 11
For the nine month period, interest expense increased on a higher
level of borrowed funds in the current year nine month period compared to
borrowed funds outstanding during last year's nine month period. A year ago,
borrowed funds reached the $180,000,000 level in connection with the SPI
acquisition and other matters, and they have exceeded $120,000,000 at each
quarter end since last year's third quarter. Interest expense therefore
increased $1,373,000. Interest income declined on a lower level of invested
funds at lower interest rates. Interest income decreased $870,000 for the nine
month period of 1994 compared to 1993.
Other income (deductions), net was income of $1,354,000 for the
third quarter of fiscal 1994 compared to expense of $376,000 in the year
earlier third quarter. The increase in income was due to higher levels of
royalty income, foreign currency transaction gains and the Company's share of
the positive operating results of its joint ventures. For the nine month
period, other income of $588,000 in 1994 compared to other income of $272,000
in 1993 and improved due to joint venture operating results offset by foreign
currency transaction losses and increased goodwill amortization related to the
SPI acquisition.
The effective income tax rate was 30.4% for the third quarter and
33.8% for the nine month period of fiscal 1994. For the prior year, the third
quarter effective rate was 33.8% and the nine month effective rate was 33.6%.
Throughout fiscal 1994, the effective tax rate has declined on the improving
earnings of the Company's subsidiary, SPL. SPL's tax provision is offset by a
reduction of the valuation reserve provided for deferred taxes when FAS No. 109
was adopted last year.
Financial Condition
-------------------
Cash flow from operations through the third quarter of fiscal 1994
was $24,708,000. Investments in property and equipment were $40,067,000, and
the Company invested $1,500,000 in its joint venture NISCO. During the second
quarter of fiscal 1994, the Company negotiated a 6.55%, $75,000,000 Senior Note
term loan with an insurance company. Proceeds of the term loan and recurring
renewals of revolving debt resulted in proceeds of $135,343,000. The proceeds
were used to repay the Company's revolving credit borrowings and industrial
revenue bonds which bonds had interest rates exceeding the current borrowing
rates. These payments plus normal debt repayments, required funds of
$102,107,000. Dividend payments amounted to $7,986,000.
At March 31, 1994, the ratio of current assets to current
liabilities was 1.72 to 1. The Company's capitalization totaled $377,300,000,
and long-term debt was 39.9% of capitalization. The Company's various
borrowing arrangements enable the Company to borrow an additional $80,000,000
under its Revolving Credit Agreement and an additional $52,300,000 under its
short-term borrowing arrangements, all of which are subject to borrowing
limitations imposed by the Company's lending agreements. The Company's
projections indicate that cash flow from operations plus funds available under
its borrowing arrangements will be sufficient to meet operating needs for the
remainder of fiscal 1994.
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<PAGE> 12
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- - ------- --------------------------------
(a) Exhibits: None.
---------
(b) Reports on Form 8-K: No reports on Form 8-K have been filed
--------------------
during the quarter for which this report on Form 10-Q is
filed.
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<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
THE STANDARD PRODUCTS COMPANY
-----------------------------
(REGISTRANT)
Dated: May 9, 1994 /s/ Aubrey E. Arndt
-----------------------------
Aubrey E. Arndt
Vice President-Finance
Principal Financial Officer
/s/ Thomas J. Stecz
-----------------------------
Thomas J. Stecz
Corporate Controller
Chief Accounting Officer
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