<PAGE> 1
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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, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to __________________
Commission file number: 1-2917
THE STANDARD PRODUCTS COMPANY
(Exact Name of Registrant as Specified in Its Charter)
OHIO 34-0549970
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
2401 SOUTH GULLEY ROAD
DEARBORN, MICHIGAN 48124
(Address of Principal Executive Offices)(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 MAY 10, 1996
WAS 16,779,633 SHARES.
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This report consists of 10 pages
<PAGE> 2
THE STANDARD PRODUCTS COMPANY
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C>
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. Management'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
</TABLE>
Unless otherwise indicated, references to "Company" mean The Standard Products
Company and its subsidiaries and reference to a fiscal year means the Company's
fiscal 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).
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE STANDARD PRODUCTS COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIODS ENDED MARCH 31,
(UNAUDITED)
(THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
---------------------- -----------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales ................................................................... $ 277,274 $ 265,013 $ 780,781 $ 729,748
Cost of Goods Sold:
Materials, wages and other manufacturing costs ........................... 233,046 229,277 685,265 630,183
Research, engineering and development expenses ........................... 10,349 9,721 30,462 25,567
--------- --------- --------- ---------
243,395 238,998 715,727 655,750
--------- --------- --------- ---------
Gross income ........................................................... 33,879 26,015 65,054 73,998
Selling, General and Administrative Expenses ................................ 19,290 15,135 53,181 44,594
--------- --------- --------- ---------
14,589 10,880 11,873 29,404
--------- --------- --------- ---------
Other (Income) Expense:
Royalty and dividend income .............................................. (318) (405) (557) (723)
Net interest expense ..................................................... 3,155 3,347 9,952 9,413
Other, net ............................................................... (390) (836) (23) 1,718
--------- --------- --------- ---------
2,447 2,106 9,372 10,408
--------- --------- --------- ---------
Income before Taxes on Income ............................................... 12,142 8,774 2,501 18,996
Provision for Taxes on Income ............................................... 4,859 1,923 3,457 3,916
--------- --------- --------- ---------
Net Income (Loss) ........................................................ $ 7,283 $ 6,851 $ (956) $ 15,080
========= ========= ========= =========
Earnings (Loss) Per Common Share ............................................ $ 0.43 $ 0.41 $ (0.06) $ 0.90
========= ========= ========= =========
Weighted average shares outstanding (in thousands) .......................... 16,755 16,720 16,752 16,705
========= ========= ========= =========
Dividends declared per share ................................................ $ 0.17 $ 0.17 $ 0.51 $ 0.51
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
THE STANDARD PRODUCTS COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31, JUNE 30,
1996 1995
--------- ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ............................................. $ 5,496 $ 19,546
Receivables, less allowances of $5,314 at March 31 and
$4,978 at June 30 (Note 4) .......................................... 146,784 196,613
Inventories .......................................................... 71,185 69,458
Prepaid insurance, taxes, etc ........................................ 24,329 21,820
--------- ---------
Total current assets ........................................... 247,794 307,437
--------- ---------
Property, Plant and Equipment, at cost ................................... 538,779 489,534
Less - Accumulated depreciation ........................................ (251,025) (220,095)
--------- ---------
287,754 269,439
Goodwill, net ............................................................ 62,539 64,976
Other Assets ............................................................. 57,063 60,037
--------- ---------
$ 655,150 $ 701,889
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term notes payable ............................................... $ 2,285 $ 4,609
Current maturities of long-term debt ................................... 2,561 2,176
Accounts payable ....................................................... 90,627 102,066
Accrued payrolls ....................................................... 26,802 26,360
Accrued expenses ....................................................... 63,467 50,931
Dividend payable ....................................................... 2,849 2,845
--------- ---------
Total current liabilities ............................................. 188,591 188,987
--------- ---------
Long-term Debt, net of current maturities ................................ 158,281 190,522
Other Postretirement Benefits ............................................ 26,115 25,907
Deferred Income Taxes and Other Credits .................................. 34,966 35,978
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, 16,761,572 shares at March 31 and
16,736,155 at June 30 ............................................... 16,762 16,736
Paid-in capital ....................................................... 96,295 96,237
Retained earnings ..................................................... 141,990 151,492
Foreign currency translation adjustments .............................. (4,376) (496)
Minimum pension liability ............................................. (3,474) (3,474)
--------- ---------
Total shareholders' equity ........................................... 247,197 260,495
--------- ---------
$ 655,150 $ 701,889
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
THE STANDARD PRODUCTS COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31,
---------------------------
1996 1995
-------- --------
<S> <C> <C>
Net cash provided by (used for) operating activities:
Net income (loss) ............................................................................ ($ 956) $ 15,080
Adjustments to reconcile net income to net cash provided by (used for) operating
activities:
Depreciation and amortization ............................................................. 39,167 33,888
Deferred taxes and other credits .......................................................... (1,178) (3,798)
Effect of changes in foreign currency ..................................................... (240) (8,190)
Other operating items ..................................................................... (5,532) (6,793)
-------- --------
Net cash provided by operations ....................................................... 31,261 30,187
-------- --------
Net cash provided by (used for) changes in operating assets and liabilities:
Receivables (Note 4) ..................................................................... 52,162 (4,368)
Inventories .............................................................................. (1,727) (15,772)
Accounts payable and accrued expenses .................................................... 1,543 4,396
Other .................................................................................... (2,509) 3,278
-------- --------
Net cash provided by (used for) changes in operating assets and liabilities ............. 49,469 (12,466)
-------- --------
Net cash provided by operating activities ......................................... 80,730 17,721
-------- --------
Net cash used for investments:
Purchase of property, plant and equipment, net ............................................ (52,481) (47,882)
Investment in affiliates and nonconsolidated entities ..................................... (266) (1,937)
-------- --------
Net cash used for investments ......................................................... (52,747) (49,819)
-------- --------
Net cash provided by (used for) financing:
Proceeds of long-term borrowings .......................................................... 38,862 40,000
Repayment of long-term borrowings (Note 4) ................................................ (69,413) 6,667
Net decrease in short-term borrowings ..................................................... (3,448) (1,626)
Cash dividends ............................................................................ (8,546) (8,599)
-------- --------
Net cash provided by (used for) financing ............................................. (42,545) 36,442
-------- --------
Effect of exchange rate changes on cash ...................................................... 512 3,537
-------- --------
Increase (decrease) in cash and cash equivalents ............................................. (14,050) 7,881
Cash and cash equivalents at the beginning of the period ..................................... 19,546 --
-------- --------
Cash and cash equivalents at the end of the period ........................................... $ 5,496 $ 7,881
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
THE STANDARD PRODUCTS COMPANY AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(AMOUNTS IN THOUSANDS)
------------------------------
(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 March 31, 1996 and June 30, 1995, and
the results of its operations for the three and nine months ended March 31, 1996
and 1995 and cash flows for the nine months ended March 31, 1996 and 1995. 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
fiscal 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:
<TABLE>
<CAPTION>
March 31, 1996 June 30, 1995
-------------- -------------
<S> <C> <C>
Raw materials............................................. $26,240 $25,726
Work-in-process and finished goods........................ 44,945 43,732
------- -------
Totals................................................ $71,185 $69,458
======= =======
</TABLE>
(3) COMMITMENTS AND CONTINGENCIES
At March 31, 1996, 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, $59,732 of retained earnings were not restricted at March 31, 1996
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 March 31, 1997.
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 and certain of its U.S. subsidiaries
entered into an agreement to sell, on a revolving basis, all of their accounts
receivable to The Standard Products Funding Corporation (Funding Co.), a wholly
owned subsidiary of the Company. Accordingly, the Company and its subsidiaries,
irrevocably and without recourse, transferred all of their U.S. dollar
denominated trade accounts receivable (principally representing, in the case of
the Company, amounts owed by original equipment customers in the U.S. automotive
and related industries to the Funding Co.). The Funding Co. has sold and,
subject to certain conditions, may from time to time sell an undivided interest
in those receivables to the Clipper Receivables Corporation. The Funding Co. is
permitted to receive advances of up to $50,000 for the sale of such undivided
interest. At March 31, 1996, $50,000 has been advanced. Unless extended by
amendment, the agreement expires in September 1998.
6
<PAGE> 7
The Company maintains an allowance for doubtful accounts receivable
($5,314 and $4,978 at March 31, 1996 and June 30, 1995 respectively) based on
the expected collectibility of all trade accounts receivable, including
receivables sold.
(5) INTEREST RATE SWAP
Interest rate swap agreements are utilized by the Company to convert
certain floating rate debt instruments into fixed rate debt. On March 20, 1996
the Company entered into an interest rate swap agreement which terminates in
March 1999. The agreement requires the Company to pay interest, on a quarterly
basis, at a rate of 5.805% on $20 million of debt. The counter party will pay
interest to the Company on the same $20 million in debt at the three month
LIBOR. The Company uses the settlement method of accounting for interest rate
swaps.
(6) IMPACT OF NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be disposed of," and SFAS No. 123, "Accounting for Stock-Based Compensation."
Management is currently evaluating the impact, if any, the adoption of SFAS No.
121 and SFAS No. 123 and will make a determination with respect to the same no
later than the first quarter of fiscal 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(1) RESULTS OF OPERATIONS
Net sales for the third quarter of fiscal 1996 increased 4.6% to
$277.3 million from $265.0 million the same period a year ago. Net income for
the third quarter was $7.3 million or $0.43 per share, compared to $6.9 million
or $0.41 a share in the last year's third quarter. For the first nine months of
fiscal 1996, net sales amounted to $780.8 million versus $729.7 million in last
year's period. The net loss for fiscal 1996's first nine months was $1.0 million
or $0.06 a share, compared to net income of $15.1 million or $0.90 a share for
last year's first nine months.
Third quarter sales of the Transportation Equipment Segment were
$244.0 million, an increase of 4.0% over the sales of the fiscal 1995 third
quarter. In North America, third quarter sales were $147.7 million, increasing
4.0% or $5.7 million since last year. Management believes that during the third
quarter of fiscal 1996 passenger car production in North American decreased more
than 20% over the comparable period of last year, and that for the first nine
months of fiscal 1996, North American car and light truck production was down
over 7.0% compared with the same period in fiscal 1995. While production
decreased during the periods, the Company experienced increased sales due to
increased content and volumes on the Chrysler minivans and Jeep Grand Cherokee
Models.
In Europe, sales of $64.7 million in the third quarter of fiscal 1996
were 4.1% behind of last year's third quarter and were the result of decreased
volume in the United Kingdom and France.
Consolidated third quarter sales include $7.4 million from the
Company's wholly owned subsidiaries in Brazil. These sales included the first
production shipments from our new plant in Varginha. In the third quarter of
fiscal 1995, the new plant was still under construction and our ownership in
Itatiaia Standard was only 20% and not consolidated.
At Holm Industries, Inc., the Company's subsidiary that supplies the
appliance and building products industries, sales decreased during the third
quarter of fiscal 1996 when compared to the prior year period by 3.9% or $1.0
million. Appliance production continues to lag behind record levels of a year
ago.
For the first nine months of fiscal 1996, sales of the Transportation
Equipment Segment were $686.4 million or 8.2% ahead of the prior year period.
In North America, this year's first nine months began slowly with the launches
of certain key new vehicle programs, principally the Ford Taurus/Sable and the
Plymouth Voyager and Dodge Caravan minivans. After an initial slow launch, the
Chrysler minivans have been selling extremely well. From July 1, 1995 through
7
<PAGE> 8
March 31, 1996, management believes production of the Taurus/Sable platform
was down over 15.0% from the levels produced during July 1, 1994 to March 31,
1995. European sales increases of 2.3% primarily related to currency changes in
the United Kingdom.
Consolidated sales for the first nine months of fiscal 1996 include
$21.0 million of sales from the Company's Brazilian subsidiaries. As mentioned
above, these amounts were not consolidated during fiscal 1995.
In the Company's Tread Rubber Segment, net sales increased 9.4% from
prior year levels to $33.2 million for the fiscal 1996 third quarter. This is
the result of new business coming on line from the previously announced deal
with Treadco, Inc. offset by this segment's departure from the European market.
Tread Rubber Segment sales during the first nine months of fiscal 1996 declined
from the same period of the prior year by 1.3% with the North American market
ahead of the previous year by 3.6%.
Consolidated gross margin in the third quarter of fiscal 1996 was
12.2% compared to 9.8% a year ago. For the first nine months of fiscal 1996,
consolidated gross margins were 8.3% versus 10.1% last year. During the third
quarter, Transportation Segment margins continued to improve due to improved
sales volumes in North America and the positive effects of cost reduction
programs in the plants. Raw material costs have remained flat in comparison to
the second quarter of fiscal 1996. Last year's third quarter and fourth quarter
reflected large amounts of launch costs not incurred this year. The improvements
in the margin during the third quarter were still not enough to offset the
effects of heavy launch costs in the first and second quarter. Therefore, gross
margin through the first nine months of fiscal 1996 remains behind 1995 levels
for the same period.
Selling, general and administrative expenses represented 7.0% of net
sales for the third quarter of fiscal 1996, up from 5.7% a year ago. For the
first nine months of fiscal 1996, selling, general and administrative expenses
were 6.8% versus 6.1% in the prior year period. These increases relate to the
addition of Itatiaia Standard and the new Brazilian plant which has not
commenced commercial production, as well as expenses related to the Company's
sale of receivables.
Net interest expense for the third quarter of fiscal year 1996
decreased slightly over the prior year. This was attributable to using the
proceeds from the sale of receivables to pay down outstanding debt and lower
rates compared with the prior year, partially offset by increased borrowings for
capital investments.
The Company's effective tax rate for the third quarter of fiscal 1996
was 40.0% compared to 21.9% in the prior year period. The Company's increased
rate from 1995 to 1996 is the result of two factors. First, in the third
quarter of fiscal 1995, the Company utilized net operating loss carryforwards
in the United Kingdom. In addition, the Company generated net operating losses
in Brazil in the third quarter of fiscal 1996 that were not present in fiscal
1995.
(2) FINANCIAL CONDITION
At March 31, 1996 the ratio of current assets to current liabilities
was 1.31 to 1. Debt represented 39.8% of total capitalization at March 31, 1996.
Since June 30, 1995, debt to capitalization has improved reflecting the use of
proceeds from the sale of accounts receivable to repay borrowings under the
Company's Revolving Credit Agreement.
Additions to property, plant and equipment during the first nine
months of fiscal 1996 were $52.5 million. The Company believes that total
capital expenditures and investments for the year will be approximately $75.0
million. Dividends paid through March 31, 1996 totaled $8.5 million. No changes
to the Company's dividend policy are expected in the near future.
During the third quarter, the Company entered into an interest rate
swap agreement related to $20.0 million of floating rate debt. This agreement
effectively converts the floating rate debt to a fixed rate through March 1999.
Management believes this was an advantageous time to fix a portion of the
Company's interest expense.
8
<PAGE> 9
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
No response required pursuant to instructions 2, 3, and 4 of
item 4.
Item 5. Other Information
None.
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
None.
9
<PAGE> 10
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
Dated: May 15, 1996 by /s/ Donald R. Sheley, Jr.
--------------------------------
Donald R. Sheley, Jr.
Vice President -- Chief Financial Officer
/s/ Bernard J. Theisen
--------------------------------
Bernard J. Theisen
Corporate Controller
Principal Accounting Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 5,496
<SECURITIES> 0
<RECEIVABLES> 152,098
<ALLOWANCES> 5,314
<INVENTORY> 71,185
<CURRENT-ASSETS> 247,794
<PP&E> 538,779
<DEPRECIATION> 251,025
<TOTAL-ASSETS> 655,150
<CURRENT-LIABILITIES> 188,591
<BONDS> 158,281
<COMMON> 16,762
0
0
<OTHER-SE> 230,435
<TOTAL-LIABILITY-AND-EQUITY> 655,150
<SALES> 277,274
<TOTAL-REVENUES> 277,274
<CGS> 243,395
<TOTAL-COSTS> 262,685
<OTHER-EXPENSES> (708)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,155
<INCOME-PRETAX> 12,142
<INCOME-TAX> 4,859
<INCOME-CONTINUING> 7,283
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,283
<EPS-PRIMARY> .43
<EPS-DILUTED> .43
</TABLE>
