<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 SEPTEMBER 30, 1995
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 number: 1-2917
THE STANDARD PRODUCTS COMPANY
(Exact Name of Registrant as Specified in its Charter)
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<S> <C>
OHIO 34-0549970
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
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2401 SOUTH GULLEY ROAD
DEARBORN, MICHIGAN 48124
(Address of Principal Executive Offices and Zip Code)
Registrant's telephone number, including area code: (313) 561-1100
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
----- -----
THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF OCTOBER 27, 1995 WAS
16,754,555 SHARES.
This report consists of 10 pages.
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THE STANDARD PRODUCTS COMPANY
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
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Item 1. Financial Statements
Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . 4
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . 6
Item 2. Managements's Discussion and Analysis of Financial Condition and Results of Operations . . .. . . . . 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . 9
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . 9
Item 3. Defaults upon Senior Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . 9
Item 4. Submission of Matters to a Vote of Security-Holders . . . . . . . . . . . . . . . . . . . .. . . . . 9
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . 9
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . 9
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . 10
UNLESS OTHERWISE INDICATED, REFERENCES TO "COMPANY" MEAN THE STANDARD PRODUCTS COMPANY AND ITS SUBSIDIARIES AND
REFERENCE TO A FISCAL YEAR MEANS THE COMPANY'S YEAR ENDED JUNE 30 OF THE SAME YEAR (E.G., "FISCAL 1996" REFERS
TO THE PERIOD BEGINNING JULY 1, 1995 AND ENDING JUNE 30, 1996).
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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THE STANDARD PRODUCTS COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<CAPTION>
THREE MONTHS ENDED SEPT. 30,
----------------------------
1995 1994
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Net Sales........................................................................ $238,760 $220,927
Cost of Goods Sold:
Materials, wages and other manufacturing costs................................. 219,778 191,884
Research, engineering and development expenses................................. 9,577 7,445
-------- --------
229,355 199,329
-------- --------
Gross income.................................................................. 9,405 21,598
Rationalization of Business Units................................................ -- 2,309
Selling, General and Administrative Expenses (Note 4)............................ 17,143 14,748
-------- --------
(7,738) 4,541
-------- --------
Other (Income) Expense:
Royalty and dividend income.................................................... (119) (292)
Net interest expense........................................................... 3,733 2,948
Other, net..................................................................... 435 (68)
-------- --------
4,049 2,588
-------- --------
Income (Loss) before Taxes on Income............................................. (11,787) 1,953
Provision for Taxes on Income.................................................... (2,003) (945)
-------- --------
Net Income (Loss)............................................................. $ (9,784) $ 2,898
======== ========
Earnings Per Common Share........................................................ $ (0.58) $ 0.17
======== ========
Weighted average shares outstanding (in thousands)............................... 16,746 16,687
======== ========
Dividends declared per share..................................................... $ 0.17 $ 0.16
======== ========
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The accompanying notes are an integral part of these statements.
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<TABLE>
THE STANDARD PRODUCTS COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(THOUSANDS OF DOLLARS)
<CAPTION>
SEPT. 30, JUNE 30,
1995 1995
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ASSETS
Current Assets:
Cash and cash equivalents......................................................... $ 8,008 $ 19,546
Receivables, less allowances of $4,853 at September 30 and
$4,978 at June 30 (Note 4)....................................................... 157,640 196,613
Inventories....................................................................... 72,750 69,458
Prepaid insurance, taxes, etc..................................................... 23,497 21,820
-------- --------
Total current assets............................................................. 261,895 307,437
-------- --------
Property, Plant and Equipment, at cost.............................................. 507,051 489,534
Less - Accumulated depreciation................................................... (231,120) (220,095)
-------- --------
275,931 269,439
Goodwill, net....................................................................... 61,566 64,976
Other Assets........................................................................ 61,076 60,037
-------- --------
$660,468 $701,889
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term notes payable.......................................................... $ 1,379 $ 4,609
Current maturities of long-term debt.............................................. 2,142 2,176
Accounts payable.................................................................. 103,639 102,066
Accrued payrolls.................................................................. 24,106 26,360
Accrued expenses.................................................................. 51,090 50,931
Dividend payable.................................................................. 2,847 2,845
-------- --------
Total current liabilities........................................................ 185,203 188,987
-------- --------
Long-term Debt, net of current maturities........................................... 164,890 190,522
Other Postretirement Benefits....................................................... 25,998 25,907
Deferred Income Taxes and Other Credits............................................. 36,827 35,978
Commitments and Contingent Liabilities (Note 3)
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, 16,754,055 shares at September 30 and
16,736,155 at June 30............................................................ 16,754 16,736
Paid-in capital................................................................... 96,234 96,237
Retained earnings................................................................. 138,861 151,492
Foreign currency translation adjustments.......................................... (818) (496)
Minimum pension liability......................................................... (3,481) (3,474)
-------- --------
Total shareholders' equity....................................................... 247,550 260,495
-------- --------
$660,468 $701,889
======== ========
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The accompanying notes are an integral part of these statements.
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<TABLE>
THE STANDARD PRODUCTS COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(THOUSANDS OF DOLLARS)
<CAPTION>
THREE MONTHS ENDED SEPT. 30,
-----------------------------
1995 1994
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Net cash provided by (used for) operating activities:
Net income (loss)........................................................... $ (9,784) $ 2,898
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization........................................... 10,765 10,736
Deferred taxes and other credits........................................ 799 1,235
Effect of changes in foreign currency................................... 605 (703)
Other operating items................................................... 1,556 (653)
--------- ---------
Net cash provided by continuing operations........................... 3,941 13,513
--------- ---------
Net cash provided by (used for) changes in operating assets and
liabilities:
Receivables (Note 4).................................................... 38,758 (12,575)
Inventories............................................................. (3,292) (4,764)
Accounts payable and accrued expenses................................... (520) (7,384)
Other................................................................... (1,462) 2,745
--------- ---------
Net cash used for changes in operating assets and liabilities ....... 33,484 (21,978)
--------- ---------
Net cash provided by operating activities............................ 37,425 (8,465)
--------- ---------
Net cash used for investments:
Purchase of property, plant and equipment, net.............................. (17,063) (16,311)
Investments in affiliates................................................... (340) -
--------- ---------
Net cash used for investments........................................ (17,403) (16,311)
--------- ---------
Net cash provided by (used for) financing:
Proceeds of long-term borrowings............................................ 14,456 20,000
Net increase (decrease) in short-term borrowings............................ (3,230) 8,126
Repayment of long-term borrowings (Note 4).................................. (40,131) (213)
Cash dividends.............................................................. (2,847) (2,840)
--------- ---------
Net cash provided by financing....................................... (31,752) 25,073
--------- ---------
Effect of exchange rate changes on cash....................................... 192 (297)
--------- ---------
Decrease in cash and cash equivalents......................................... (11,538) -
Cash and cash equivalents at the beginning of the period...................... 19,546 -
--------- ---------
Cash and cash equivalents at the end of the period............................ $ 8,008 $ -
========= =========
The accompanying notes are an integral part of these statements.
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THE STANDARD PRODUCTS COMPANY AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(1) BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared
by management and in the opinion of management, contain all adjustments,
consisting of normal recurring adjustments, necessary to present fairly the
financial position of the Company as of September 30, 1995 and June 30, 1995,
and the results of its operations for the three months ended September 30, 1995
and 1994 and cash flows for the three months ended September 30, 1995 and 1994.
The consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1995. Results
for interim periods are not necessarily indicative of those to be expected for
the year.
(2) 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 are as follows:
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Sept. 30, 1995 June 30, 1995
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(Thousands of Dollars)
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Raw materials........................................... $27,182 $25,726
Work-in-process and finished goods................ 45,568 43,732
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Totals............................................. $72,750 $69,458
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(3) COMMITMENTS AND CONTINGENCIES
At September 30, 1995, management believes that the Company was in
compliance with its various financial covenants. Under the most restrictive
covenants of the Company's various loan agreements, principally the Revolving
Credit Agreement, $64,140,000 of retained earnings were not restricted at
September 30, 1995 for the payment of dividends, and the ratio of current
assets to current liabilities was in excess of the minimum requirement of 1.25
to 1. Management expects that the Company will remain in compliance with its
financial covenants in all material respects through the period ending
September 30, 1996.
The Company and its subsidiaries are involved in certain legal actions
and claims. In the opinion of management, any liability which may ultimately
be incurred would not materially affect the financial position or results of
operations of the Company.
(4) ACCOUNTS RECEIVABLE SECURITIZATION
In September 1995, the Company entered into an agreement to sell, on a
revolving basis, an undivided interest in a designated pool of the Company's
accounts receivable. Accordingly, the Company irrevocably and without recourse
transferred all of its U.S. dollar denominated trade accounts receivable
(principally representing amounts owed to the Company by original equipment
customers in the U.S. automotive and related industries) to the Standard
Products Funding Company (Funding Co.). The Funding Co. sold an interest in a
portion of the receivables to the Clipper Receivables Corporation. The Funding
Co. is permitted to receive advances of up to 84% of the receivables purchased
up to $50,000,000. At September 30, 1995 the entire amount available has been
advanced. The agreement expires in September 1998.
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The Company maintains an allowance for accounts receivable ($4,853,000
and $4,978,000 at September 30, 1995 and June 30, 1995, respectively) based on
the expected collectibility of all trade accounts receivable, including
receivables sold.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(1) RESULTS OF OPERATIONS
Sales for the first quarter of fiscal 1996 were $238,760,000, an
increase of $17,833,000, or 8.1%, over the first quarter of fiscal 1995. The
Company reported a net loss of $9,784,000, or .58 cents per share for this
year's first quarter period. A year ago, the Company reported net income of
$2,898,000, or .17 cents per share, for the first quarter of fiscal 1995.
In the Transportation Equipment Segment, sales for the first quarter
of 1996 were $207,392,000, an increase of 10.5% over the prior year first
quarter period. In North America, sales of $126,400,000 for the fiscal 1996
first quarter were 8.8% ahead of the prior year. North American sales reflect
the contribution of new business on new models for Ford's Taurus/Sable and
Chrysler's minivan which were not in production for last year's first quarter
period. These increases were reduced by production volume declines on existing
carryover models.
In Europe, Transportation Equipment Segment sales were $51,024,000, an
increase of 8% over the prior year first quarter period. The weakened U.S.
dollar in relation to European currencies accounted for the majority of the
increase. New model startups caused the remainder of the increase net of
volume declines of sales of parts for existing models. New vehicle sales
declined during the first quarter period compared to the prior year, thereby
affecting our European sales.
The first quarter of fiscal 1996 also includes Itatiaia Standard sales
of $6,682,000.
At Holm Industries, Inc., the Company's subsidiary which supplies the
appliance and building products industries, sales declined 4.9%. Appliance
industry sales have declined from the strong levels of a year ago and Holm's
sales have followed that trend.
In the Tread Rubber Segment, sales declined 5.8% from the prior year
first quarter period. This decline was caused by the Company's decision to
exit the European market for tread rubber.
Consolidated gross margin for the first quarter of fiscal 1995 was
3.9% compared to 9.8% a year ago. In North America and Europe, the Company
experienced launch costs, including tooling, on new projects, primarily the
Ford Taurus/Sable in North America and the Renault Laguna in Europe and these
costs were in excess of launch costs recorded in last year's first quarter
period. Research and development also increased over the prior year period in
connection with development efforts related to future projects. Lastly,
margins in the first quarter of fiscal 1996 reflect the higher material costs
which the Company began to experience in fiscal 1995's third quarter.
Selling, general and administrative expenses, were 7.2% of sales
compared to 6.7% a year ago. The current fiscal year first quarter
expenditures include the effect of the Itatiaia Standard acquisition plus the
administrative expenses related to the start-up of the Company's new Brazilian
subsidiary, Standard Products Brazil. In addition, in the first quarter of
fiscal 1996, the Company entered an agreement for the sale of accounts
receivable on a revolving basis. The administrative, legal and accounting
expenses related to the beginning of this program as well as the discount on
the sale were included in selling, general and administrative expenses.
Net interest expense for the first quarter of fiscal 1996 was
$3,733,000 compared to $2,948,000 a year ago. Net interest expense increased
between years due primarily to a higher level of borrowed funds.
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Other income (expense) net was expense of $316,000 for the current
year first quarter period compared to income of $360,000 a year ago. The
variation between years related to the Company's joint venture, Nishikawa
Standard (NSC). The current year period reflects the combined effects on NSC
of a new product launch and new plant start up versus the prior year period
which was absent similar activity.
The provision for taxes on income reflects a lower than expected
tax rate. In the current year quarter, the Company recorded the effect of an
increase in the tax rates in France in accordance with recently enacted French
legislation. Deferred and current tax accounts were adjusted accordingly. The
earnings of the Company's subsidiary, Standard Products Limited (SPL), were tax
impacted for the first time since 1991 since the remaining tax benefits of
SPL's operating loss carryforward were recorded in fiscal 1995 in accordance
with Financial Accounting Standard No. 109. In comparison to last year, the
prior year first quarter period reflects tax benefits related to decision of
the Company's subsidiary, Oliver Rubber Company, to exit the European market.
(2) FINANCIAL CONDITION
At September 30, 1995, the ratio of current assets to current
liabilities was 1.41 to 1. Debt represented 40% of total capitalization and
equity was 60%. Since June 30, 1995, debt to capitalization has improved
reflecting the sale of accounts receivable and the use of proceeds to repay
borrowings under the Company's Revolving Credit Agreement.
For the first quarter, cash provided by operations, including the sale
of accounts receivable amounted to $37,425,000. In addition to repaying
borrowed funds, cash of $17,403,000 was used for capital additions and
investments and dividends required $2,847,000. The Company anticipates that
capital expenditures and investments for fiscal 1996 will be approximately
$75,000,000.
During the next five years, the Company believes that its cash
requirements for working capital, capital expenditures, dividends, interest and
debt repayments will be met through internally generated funds and utilization
of available borrowing sources.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
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<CAPTION>
Exhibit No.
Under Reg. S-K Form 10-Q
Item 601 Exhibit No. Description
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27 27 Financial Data Schedule
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(B) REPORTS ON FORM 8-K:
None.
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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
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Dated: November 10, 1995 /s/ Donald R. Sheley, Jr.
----------------- -------------------------------------------------
Donald R. Sheley, Jr.
Vice President-Finance
Chief Financial Officer
/s/ Bernard J. Theisen
------------------------------------------------
Bernard J. Theisen
Corporate Controller
Principal Accounting Officer
</TABLE>
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 8,008
<SECURITIES> 0
<RECEIVABLES> 162,493
<ALLOWANCES> 4,853
<INVENTORY> 72,750
<CURRENT-ASSETS> 261,895
<PP&E> 507,051
<DEPRECIATION> 231,120
<TOTAL-ASSETS> 660,468
<CURRENT-LIABILITIES> 185,203
<BONDS> 164,890
<COMMON> 16,754
0
0
<OTHER-SE> 230,796
<TOTAL-LIABILITY-AND-EQUITY> 660,468
<SALES> 238,760
<TOTAL-REVENUES> 238,760
<CGS> 229,355
<TOTAL-COSTS> 246,498
<OTHER-EXPENSES> 316
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,733
<INCOME-PRETAX> (11,787)
<INCOME-TAX> (2,003)
<INCOME-CONTINUING> (9,784)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,784)
<EPS-PRIMARY> (0.58)
<EPS-DILUTED> (0.58)
</TABLE>
