<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 December 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 February 7, 1995: 16,721,244
----------
<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.
-2-
<PAGE> 3
<TABLE>
THE STANDARD PRODUCTS COMPANY AND SUBSIDIARY COMPANIES
Consolidated Balance Sheets
(Unaudited)
(Thousands of Dollars)
<CAPTION>
Dec. 31, June 30,
1994 1994
--------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents....................................................... $ 6,288 $ -
Receivables, less allowances of $5,042 at December 31 and
$3,627 at June 30.............................................................. 199,000 202,363
Inventories..................................................................... 59,825 53,018
Prepaid insurance, taxes, etc................................................... 12,220 15,305
-------- --------
Total current assets........................................................... 277,333 270,686
-------- --------
Property, Plant and Equipment, at cost............................................ 452,642 422,576
Less - Accumulated depreciation................................................. (196,596) (180,567)
-------- --------
256,046 242,009
Goodwill, net..................................................................... 62,149 62,564
Other Assets...................................................................... 50,798 49,055
-------- --------
$646,326 $624,314
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term notes payable........................................................ $ 19,191 $ 10,373
Current maturities of long-term debt............................................ 1,502 1,690
Accounts payable................................................................ 90,387 94,514
Accrued payrolls................................................................ 20,421 24,433
Accrued expenses................................................................ 45,487 48,919
Dividend payable................................................................ 2,841 2,835
-------- --------
Total current liabilities...................................................... 179,829 182,764
-------- --------
Long-term Debt, net of current maturities......................................... 159,150 135,381
-------- --------
Other Postretirement Benefits..................................................... 25,740 25,649
-------- --------
Deferred Income Taxes and Other Credits........................................... 35,068 37,843
-------- --------
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, 16,712,544 shares at December 31 and
16,674,016 at June 30.......................................................... 16,713 16,674
Paid-in capital................................................................. 95,899 95,614
Retained earnings............................................................... 145,419 142,871
Foreign currency translation adjustments........................................ (9,369) (10,359)
Minimum pension liability....................................................... (2,123) (2,123)
-------- --------
Total shareholders' equity..................................................... 246,539 242,677
-------- --------
$646,326 $624,314
======== ========
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
-3-
<PAGE> 4
<TABLE>
THE STANDARD PRODUCTS COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
For the Periods Ended December 31, 1994 and 1993
(Unaudited)
(Thousands of Dollars Except Share Data)
<CAPTION>
Three Months Six Months
---------------------------- --------------------------
1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Sales......................................................... $243,808 $198,335 $464,735 $400,026
-------- -------- -------- --------
Cost of Goods Sold:
Materials, wages and other manufacturing costs................. 209,022 167,466 400,906 335,643
Research, engineering and development expenses................. 8,401 6,246 15,846 13,595
-------- -------- -------- --------
217,423 173,712 416,752 349,238
-------- -------- -------- --------
Gross Income...................................................... 26,385 24,623 47,983 50,788
Selling, General and Administrative Expenses...................... 14,711 13,123 29,459 27,599
-------- -------- -------- --------
11,674 11,500 18,524 23,189
Other Income (Deductions):
Royalty and dividend income.................................... 26 97 318 219
Interest expense, net.......................................... (3,118) (2,379) (6,066) (5,131)
Other, net..................................................... (313) (26) (2,554) (985)
-------- -------- -------- --------
(3,405) (2,308) (8,302) (5,897)
-------- -------- -------- --------
Income before Taxes on Income..................................... 8,269 9,192 10,222 17,292
Provision for Taxes on Income..................................... 2,938 3,005 1,993 6,253
-------- -------- -------- --------
Net Income........................................................ $ 5,331 $ 6,187 $ 8,229 $ 11,039
======== ======== ======== ========
Earnings Per Common Share......................................... $.32 $.37 $.49 $.66
==== ==== ==== ====
Average Shares Outstanding........................................ 16,710 16,616 16,698 16,598
====== ====== ====== ======
<FN>
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 SIX MONTH PERIODS ENDED DECEMBER 31, 1994 AND 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, 1994..................... $16,674 $95,614 $142,871 $ (10,359) $ (2,123) $242,677
Net income................................. - - 8,229 - - 8,229
Cash dividends ($.34 per share)............ - - (5,681) - - (5,681)
Foreign currency translation adjustments... - - - 990 - 990
Sale of 38,528 shares to option holders.... 39 187 - - - 226
Restricted stock awards.................... - 98 - - - 98
------- ------- -------- --------- -------- --------
Balance, December 31, 1994................. $16,713 $95,899 $145,419 $ (9,369) $ (2,123) $246,539
======= ======= ======== ========= ======== ========
Balance, June 30, 1993..................... $16,552 $94,083 $120,660 $ (6,650) $ (209) $224,436
Net income................................. - - 11,039 - - 11,039
Cash dividends ($.32 per share)............ - - (5,319) - - (5,319)
Foreign currency translation adjustments... - - - (7,372) - (7,372)
Restricted stock awards.................... - 178 - - - 178
Sale of 76,399 shares to option holders.... 76 347 - - - 423
Minimum pension liability.................. - - - - 10 10
------- ------- -------- --------- -------- --------
Balance, December 31, 1993................. $16,628 $94,608 $126,380 $ (14,022) $ (199) $223,395
======= ======= ======== ========= ======== ========
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
-5-
<PAGE> 6
<TABLE>
THE STANDARD PRODUCTS COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE SIX MONTH PERIODS ENDED DECEMBER 31, 1994 AND 1993
(Unaudited)
(Thousands of Dollars)
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Net cash provided by (used for) operating activities:
Net income.......................................................... $ 8,229 $ 11,039
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.................................. 21,846 21,026
Deferred taxes and other credits............................... (2,833) (2,840)
Effect of changes in foreign currency.......................... (934) 1,807
Other operating items.......................................... (2,986) (4,707)
---------- ----------
Net cash provided by continuing operations.................. 23,322 26,325
---------- ----------
Net cash provided by (used for) changes in operating assets and
liabilities:
Receivables.................................................... 3,331 23,102
Inventories.................................................... (6,807) (7,334)
Accounts payable and accrued expenses.......................... (10,114) (24,257)
Other.......................................................... 3,085 1,534
---------- ----------
Net cash used for changes in operating assets and liabilities (10,505) (6,955)
----------- ----------
Net cash provided by operating activities................... 12,817 19,370
----------- ----------
Net cash used for investments:
Purchase of property, plant and equipment, net..................... (32,895) (26,182)
Investments in affiliates.......................................... - (1,500)
----------- ----------
Net cash used for investments............................... (32,895) (27,682)
----------- ----------
Net cash provided by (used for) financing:
Proceeds of long-term borrowings................................... 25,000 110,343
Net increase in short-term borrowings.............................. 8,818 507
Repayment of long-term borrowings.................................. (1,549) (89,865)
Cash dividends..................................................... (5,681) (5,319)
----------- ----------
Net cash provided by financing.............................. 26,588 15,666
----------- ----------
Effect of exchange rate changes on cash.............................. (222) 489
----------- ----------
Increase in cash and cash equivalents................................ 6,288 7,843
Cash and cash equivalents at the beginning of the period............. - 5,548
----------- ----------
Cash and cash equivalents at the end of the period................... $ 6,288 $ 13,391
=========== ==========
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
-6-
<PAGE> 7
THE STANDARD PRODUCTS COMPANY AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 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 December 31, 1994 and June 30,
1994 are as follows:
Dec. 31 June 30
-------- --------
(Thousands of Dollars)
Raw materials......................... $22,068 $20,477
Work-in-process and finished goods.... 37,757 32,541
-------- --------
Totals........................... $59,825 $53,018
======== ========
2. DEBT
----
Long-term debt at December 31, 1994 and June 30, 1994 consisted of the
following:
Dec. 31 June 30
-------- --------
(Thousands of Dollars)
Senior Notes...............................$100,000 $100,000
Revolving credit agreement................. 55,000 30,000
First mortgage industrial revenue bonds.... 430 537
Other debt................................. 5,222 6,534
-------- --------
Total...................................... 160,652 137,071
Less - current maturities.................. 1,502 1,690
-------- --------
$159,150 $135,381
======== ========
At December 31, 1994, Senior Notes outstanding of $100,000,000 include
two issues, $75,000,000 and $25,000,000. The $75,000,000 Senior Notes, placed
directly with three affiliated insurance companies, are unsecured and accrue
interest at 6.55%. Interest payments are payable semi-annually, and annual
principal payments of $12,500,000 begin in December 1998 through December 2002,
with the balance due on maturity in December 2003.
Coinciding with the issuance of the $75,000,000 fixed rate Senior
Notes, the Company entered into a currency and interest rate swap transaction
to establish fixed interest rates on intercompany borrowings of its French
subsidiary. The nominal amount is 150,000,000 FF and the term extends to
November 2000.
The $25,000,000 Senior Notes are also unsecured notes placed directly
with the holders. The interest rate is 9.81%, interest is paid semiannually
and the notes are payable July 1, 1999.
Each of the Senior Note agreements require the Company to maintain
certain financial covenants as to net worth, leverage and working capital.
-7-
<PAGE> 8
The Revolving Credit Agreement (Credit Agreement) represents
borrowings from a group of banks that have committed to make available for
borrowing up to $125,000,000 until January 1997 with provisions for extending
the agreement beyond that date upon satisfaction of certain requirements. The
Company has the right to convert up to $50,000,000 of revolving loans in a
five-year term loan with quarterly repayments thereafter. The loans may be
denominated in either U.S. dollars or certain other currencies based upon
Eurodollar interest rates or the agent bank's base rate. At December 31, 1994,
borrowings under the Credit Agreement bear interest at 6.7%. A commitment fee
of .25% is due on the unused portion of the agreement. The terms of the Credit
Agreement also require the Company to maintain certain financial covenants as
to net worth, leverage and working capital.
Under the most restrictive covenants of the Company's various loan
agreements, principally the Credit Agreement, $64,921,000 of retained earnings
were not restricted at December 31, 1994 for the payment of dividends, and the
ratio of current assets to current liabilities was 1.54 to 1, in excess of the
minimum requirement of 1.25 to 1.
Item 2. Management's Discussion and Analysis of
- ------ ---------------------------------------
Results of Operations and Financial Condition
---------------------------------------------
Results of Operations
---------------------
Net sales for the second quarter of fiscal year 1995 increased 23%
to $243,808,000 from $198,335,000 a year ago. Net income for the second
quarter was $5,331,000, or $.32 a share, compared to $6,187,000, or $.37 a
share in last year's second quarter. For the first half of fiscal 1995, net
sales amounted to $464,735,000 versus $400,026,000 in last year's first half
period. Net income for fiscal 1995's first half was $8,229,000, or $.49 a
share, compared to $11,039,000, or $.66 a share, for last year's first half
period.
Second quarter sales of the Transportation Equipment Segment were
$211,861,000, an increase of 24.7% over the sales of the fiscal 1994 second
quarter period. In North America, second quarter sales were $133,237,000,
increasing 25.9% or $27,438,000 since last year. Steady production and sales
of the Company's parts for General Motors' Chevrolet Lumina/Monte Carlo models
and Chrysler's Neon paced the increase in sales. A year ago, General Motors
ceased production of its former Lumina model during the Company's fiscal 1994
second quarter, causing the Company's prior year North American sales to be
depressed. Also, a year ago Chrysler had not yet commenced production on the
Neon model. Increasing production volumes on the new Chrysler Cirrus model
during this year's second quarter also contributed to this year's increased
sales performance in North America. During the second quarter of fiscal 1995,
car and light truck production increased 7.5% over the year earlier second
quarter period.
In Europe, sales of $57,201,000 in the second quarter of fiscal
1995 were 27.6% ahead of last year's second quarter. The European sales gains
were the result of increasing sales of new models launched previously by the
European car manufacturers and the recovering European economy.
At Holm Industries, Inc., the Company's subsidiary that supplies
the appliance and building products industries, sales increased 10% to
$21,224,000. Appliance production was at record levels for this second quarter
period, and Holm has benefited in line with the appliance industry's results.
For the first half of fiscal 1995, sales of the Transportation
Equipment Segment were $399,504,000 or 16.8% ahead of the prior year first half
period. In North America, this year's first half period began slowly with the
launches of several new vehicle programs delayed by the manufacturers and by
the conclusion of production of several models which utilized parts produced by
the Company. The latter part of the fist half experienced the rise of
production of this year's new models. The European economic recovery and the
Company's participation on previously launched models contributed to a 14%
increase in European sales. The strong production of the appliance industry
led Holm Industries' 10% first half increase in sales over last year's
comparable period.
-8-
<PAGE> 9
In the Company's Tread Rubber Segment, net sales increased 12.5% to
$31,947,000 for the fiscal 1995 second quarter period. In North America for
the second quarter, sales advanced 14.8% to $30,902,000, while sales in Europe
declined to $1,505,000. The European decline was in line with the Company's
previously announced departure from the European market. For the first half
period of fiscal 1995, Tread Rubber Segment sales were ahead of the prior year
by 12.4% with the North American market ahead of the previous year by 14%.
European sales were off 12%.
Consolidated gross margin in the second quarter period of fiscal
1995 was 10.8% compared to 12.4% a year ago. For the first half period of
fiscal 1995, consolidated gross margins were 10.3% versus 12.7% last year.
During the second quarter, Transportation Segment margins strengthened based
upon sales volume gains recorded during the period in North America and Europe.
The gross margins of new business, however, were lower than those of the
business being replaced. In addition, during the second quarter, the Company
overcame many of the launch related problems encountered in the first quarter
of fiscal 1995. Margins were also impacted by increasing raw material costs
without full recovery of the cost increases in billing prices. Overall,
increased gross margin represented 1.7% of second quarter sales. The expected
increase in research and development expenditures represented .9% of second
quarter sales, and these expenses will remain at this higher level in
anticipation of upcoming new model introductions by the car manufacturers. At
Holm Industries, gross margin declined in conjunction with the introduction of
a new appliance gasket and increasing material costs.
For the first half period, margins in the Transportation Equipment
Segment were negatively affected by the costs related to new model launches
initiated during the first quarter of fiscal 1995.
The margins of the Tread Rubber Segment were steady for the second
quarter and first half periods of fiscal 1995. Increasing raw material costs
were partially offset by selling price increases and by sales volume increases.
Selling, general and administrative expenses represented 6% of net
sales for the second quarter of fiscal 1995, down from 6.6% a year ago. For
the first half of fiscal 1995, selling, general and administrative expenses
were 6.3% versus 6.9% in the year earlier first half.
Net interest expense for the second quarter of fiscal 1995 was
$3,118,000 versus $2,379,000 a year ago. In the second quarter, interest
expense was $3,503,000 and interest income was $385,000. Last year, interest
expense was $2,524,000 and interest income was $145,000.
For the first half of fiscal 1995, net interest expense was
$6,066,000 compared to $5,131,000 in the year earlier period. Interest expense
in fiscal 1995 was $6,623,000 and interest income was $557,000. In the year
earlier period, interest expense was $5,392,000 and interest income was
$261,000.
Interest expense for the second quarter and first half periods
increased $979,000 and $1,231,000, respectively, with the increase related to
an increased level of borrowed funds combined with the effect of borrowings
under a 6.55% Senior Note issue negotiated in December 1993. These funds were
borrowed for the full second quarter and first half periods of fiscal 1995
versus the shortened period of fiscal 1994. Interest income reflects a lower
level of invested funds.
Other income (expense), net was expense of $287,000 for the second
quarter and $2,236,000 for the first half of fiscal 1995. A year ago, the
Company's reported other income of $71,000 for the second quarter and other
expense of $766,000 for the first half. In the second quarter, the Company's
share of the operating results of its joint venture was a loss of $182,000
compared to a year earlier gain of $289,000. For the first half, the Company
provided a closing reserve of $2,309,000 related to the decision of its
subsidiary, Oliver Rubber Company, to close its European operations. The
reserve was recorded in the first quarter of fiscal 1995.
The Company's effective tax rate for the second quarter of fiscal
1995 was 35.5% compared to 32.6% in the prior year. A lower level of tax
credits has raised the effective rate between years. For the first half period
of fiscal 1995, the provision for taxes reflects the benefit associated with
Oliver's closing of its European subsidiary. Exclusive of the benefit, the
effective rate for the first half of fiscal 1995 was 34.3% versus 36.1% a year
ago.
-9-
<PAGE> 10
Financial Condition
-------------------
For the first half of fiscal 1995, funds provided by operations
were $21,635,000, including working capital provided by short-term borrowings.
Additions to property, plant and equipment were $32,895,000. Proceeds of
borrowed funds were $25,000,000, while borrowing repayments were $1,549,000 and
dividend requirements were $5,681,000.
At December 31, 1994, the ratio of current assets to current
liabilities was 1.54 to 1. Of total capitalization of $405,689, debt was 39.2%
and equity was 60.7%. Considering available borrowing capacity on the
Company's Revolving Credit Agreement, its short-term borrowing arrangements and
the funds to be generated from operations, the Company believes it has
sufficient available resources to meet its needs for the remainder of the year.
-10-
<PAGE> 11
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- ------ --------------------------------
(a) EXHIBITS:
Exhibit No.
Under Reg. S-K Form 10-Q
Item 601 Exhibit No. Description
-------------- ----------- --------------------------
27 27 Financial Data Schedule
(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.
-11-
<PAGE> 12
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: February 8, 1995 /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
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 6,288
<SECURITIES> 0
<RECEIVABLES> 204,042
<ALLOWANCES> 5,042
<INVENTORY> 59,825
<CURRENT-ASSETS> 277,333
<PP&E> 452,642
<DEPRECIATION> 196,596
<TOTAL-ASSETS> 646,326
<CURRENT-LIABILITIES> 179,829
<BONDS> 159,150
<COMMON> 16,713
0
0
<OTHER-SE> 229,826
<TOTAL-LIABILITY-AND-EQUITY> 646,326
<SALES> 464,735
<TOTAL-REVENUES> 464,735
<CGS> 416,752
<TOTAL-COSTS> 446,211
<OTHER-EXPENSES> 2,236
<LOSS-PROVISION> 1,415
<INTEREST-EXPENSE> 6,066
<INCOME-PRETAX> 10,222
<INCOME-TAX> 1,993
<INCOME-CONTINUING> 8,229
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,229
<EPS-PRIMARY> .49
<EPS-DILUTED> .49
</TABLE>
