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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the Fiscal Year Ended June 30, 1996 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
Securities Registered Pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Shares, $1 Par Value New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of voting stock held by non-affiliates of the
Registrant as of August 23, 1996 (based on the closing price of the Registrant's
Common Stock reported on the New York Stock Exchange Composite Tape on such
date), was approximately $392.4 million.
The number of shares of Common Stock outstanding as of August 23, 1996, was
16,785,667 shares.
Documents incorporated by reference
1996 Annual Report to Shareholders (Parts I, II and IV)
Proxy Statement for 1996 Annual Meeting of Shareholders (Part III)
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PART I
ITEM I. BUSINESS
General and Industry Segments
The Standard Products Co. (the "Company") was incorporated in the State of
Ohio in 1927 and is engaged primarily in the manufacture of rubber and plastic
parts requiring a substantial degree of product engineering and high-volume
production processes for automotive original equipment manufacturers in the
United States, Canada, Europe and Brazil (the "Transportation Equipment
Segment"). This segment also produces rubber and plastic parts for the
appliance, construction and marine industries. The Company also manufactures
precure and mold cure tread rubber for the truck tire retreading industry (the
"Tread Rubber Segment").
Additional financial information concerning the Company's reportable
business segments and geographic areas for the years ended June 30, 1996, 1995
and 1994 is included in Note 13 of the "Notes to Consolidated Financial
Statements" section of the 1996 Annual Report, which section is incorporated
herein by reference.
The Company's presence in Brazil has recently been expanded. In May 1995,
the Company increased its ownership in Itatiaia Standard from 20% to 100%. This
was done in connection with its intent to build a new production facility in
Brazil. As part of the new construction, the Company formed a new Company,
Standard Products Brazil. Currently, the Company operates both subsidiaries in
Brazil. Itatiaia Standard has a production facility in Itaquaquecetuba while
Standard Products Brazil operates a plant in Varginha. In conjunction with the
purchase, Itatiaia Standard closed its Sao Paulo facility and moved that
production to Varginha.
In 1995, the Company formed Standard Products de Mexico, S.A. de C.V.
(SPM). In 1996, the Company sold a 30% interest in this entity to Nishikawa
Rubber Company, of Hiroshima, Japan (Nishikawa). Construction of a new plant in
Mexico will commence in the first half of fiscal 1997. When completed in
September 1997, this facility is expected to manufacture automotive parts for
the Mexican automotive original equipment market.
The Company also has a 50% ownership in its North American joint venture,
Nishikawa Standard Company (NSC) with the Company's partner, Nishikawa.
TRANSPORTATION EQUIPMENT SEGMENT
Automotive Original Equipment
Products. Rubber products supplied to the automotive manufacturing industry
include flocked rubber and steel weatherstrip assemblies to seal vehicle
windows; flocked rubber window channel assemblies and rubber window gaskets; and
vehicle body and door dynamic sealing systems. These products form the sealing
system of automotive vehicles preventing water leakage and inhibiting wind noise
from entering the vehicle. Attractiveness of design is an important feature of
the sealing system. An increasing number of the Company's parts are sold to
automotive original equipment manufacturers as complete sealing systems. This is
a departure from former practices which involved more suppliers who supplied
individual parts, not complete systems. The Company also supplies molded rubber
engine mounts and body cushions, which comprise a vehicle's vibration control
system.
Plastic products include metallized, multicolored and embossed exterior and
interior vinyl trim, painted vinyl trim and flocked vinyl and steel weatherstrip
assemblies. The plastic exterior products serve protective barriers preventing
damage to the vehicle's sheet metal and have become an integral part of the
vehicle's overall styling and appearance.
Markets and Customers. The Company manufactures parts and accessories for
automotive and truck original equipment manufacturers in the United States,
Brazil, Canada, and Europe. Manufacturing operations for the automotive original
equipment market of this segment are conducted by the Company, Standard Products
Brazil, Itatiaia Standard, Standard Products (Canada) Limited, Standard Products
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Limited and Standard Products Industriel. The Company's major customers include
automotive original equipment manufacturers. The percentage of sales of each of
these major customers to total consolidated sales for the three year periods
1996, 1995 and 1994, respectively, have been as follows: Chrysler -- 17%, 15%
and 13%; Ford -- 26%, 23% and 26%; General Motors -- 14%, 18%, and 17%. Since
most of the Company's rubber and plastic automotive products are used on
original equipment, sales of such products are directly affected by the annual
car production of original equipment manufacturers. The Company does not have a
backlog of orders at any point in time. Instead, original equipment sales are
based upon purchase orders issued annually by automobile manufacturers for each
part which the Company manufactures. The purchase orders are for all or a
percentage of the customers' estimated requirements and are binding, subject to
the annual car production of original equipment manufacturers. As the year
evolves, customers issue releases under those purchase orders, specifying
quantities of the parts which the assembly plants require. The Company's sales
and product development personnel work directly with the engineering and styling
departments of the automotive original equipment manufacturers in the
engineering and development of its various products.
Distribution. The Company utilizes, as a distribution center for some of
its automotive finished products, approximately 133,000 square feet of a 283,000
square foot public warehouse which it operates in Dearborn, Michigan. The
balance of the warehouse space is allocated to commercial customers' use. The
Company also distributes automotive finished products from a leased warehouse in
Charlotte, North Carolina, central to the Company's southern plants.
Most of the Company's nondomestic customers are supplied directly by
foreign manufacturing plants of subsidiaries of the Company.
Competition. Each aspect of the Company's business in automotive products
is highly competitive. No single firm competes with the Company in all aspects
of this business, however, major competitors would include Gencorp, Inc., the
Schlegel group of BTR, Harvard Industries' Kingston-Warren subsidiary and Cooper
Tire and Rubber.
In addition to the competitors noted above, the continued globalization of
the automotive industry has brought new competition to North America. In
particular, Draftex GmbH, a subsidiary of London-based Laird Group P.L.C. has
decided to build a new production facility in North America. While the Company
competes with Draftex in Europe this will add another supplier to the field in
North America at a time when customers are trying to reduce their supply base.
Although reliable industry statistics are not available, the Company believes
that it is one of the leading manufacturers of rubber window and door weather
sealing products and plastic trim for the worldwide automotive industry.
Although each customer may emphasize a different component as its primary
criteria, the automotive industry has historically competed in three areas:
quality, cost and time. Time in this sense relates to on-time delivery, time to
bring new products to market, manufacturing cycle time, etc. The Company also
believes that engineering capabilities and design capabilities now play a
greater role in the competitive process. Management believes the Company's
investment in engineering and design capabilities is a requirement to achieving
future business. The Company has historically met the customers' requirements
regarding quality, delivery and price.
Other
The Company, through its subsidiary, Holm Industries, Inc., manufactures
rubber and plastic trim seals for the automotive replacement, construction and
marine industries and a variety of plastic and magnetic parts sold as original
equipment to appliance manufacturers and residential and commercial exterior
door and window manufacturers. These products are manufactured with some of the
raw materials similar to those used in the products manufactured by the
Transportation Equipment and Tread Rubber Segments. See "Raw Materials" for a
discussion of suppliers and available supplies. Distribution of these products
are through both internal sales personnel and manufacturing representatives.
These products are sold to many customers, and market share information is not
available for all of the products which Holm manufactures. For plastic and
magnetic seals, Holm is the largest supplier to the United States refrigeration
and freezer appliance market.
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Working Capital
The Transportation Equipment Segment typically maintains a strong working
capital position which provides adequate cash flow. Accounts receivable are
promptly paid and inventories turn over rapidly. Seasonality becomes a factor
during new model conversions and vacation and holiday periods.
Joint Ventures
The Company also manufactures vehicle body and door sealing systems for
sale to North American automotive original equipment manufacturers and Japanese
transplants, including Honda, Ford Motor Company and Automotive Alliance
International (formerly Mazda), through its North American joint venture, NSC, a
general partnership owned 50% by the Company and 50% by Nishikawa. Manufacturing
operations are conducted at plants located in Bremen, New Haven, and Topeka,
Indiana. Currently, the chief operating officer of The Standard Products Company
is the chief executive officer of NSC and chairman of its Policy Committee.
In 1996, the Company sold 30% of its ownership interest in SPM to
Nishikawa. This Company retained a 70% interest. The venture will manufacture
automotive parts for the Mexican automotive original equipment market once
construction of a new facility is completed in September 1997.
TREAD RUBBER SEGMENT
Products. The Company's wholly owned subsidiary, Oliver Rubber Company
("Oliver"), manufactures and markets precure and mold cure tread rubber, bonding
gum, cement, repair materials and equipment for the tire retreading industry.
Oliver also supplies custom mixed rubber to the Company for use in
automotive original equipment products and to NISCO for the manufacture of door
seals for automotive original equipment. Oliver also custom mixes rubber
compounds for selected customers throughout the United States.
Oliver supplies both precure and mold cure tread rubber. Precure tread
rubber is shipped to a retreader partially cured and with a specially designed
tread imprinted. The retreader cements the precure tread to a tire casing using
heat and pressure to complete a permanent bond. Mold cure tread rubber is
applied by a retread dealer to the tire casing in a pressure mold which cures
the rubber and at the same time imprints into it the tread design.
Markets. Oliver serves the trucking industry in North America through its
licensed dealer network for precure retreading and through dealers who sell mold
cure rubber. Oliver also serves markets in other areas of the world, such as
India, through license arrangements and export sales. Truck mileage, and
therefore demand for tread rubber, correlate with general economic conditions of
the market served.
Oliver also supplies mold cure tread rubber for off-the-road (OTR)
construction equipment.
Distribution. In North America, tread rubber products are marketed by
Oliver's sales force to retread dealers, some of which are licensed by Oliver.
Licensed dealers use Oliver's patented precure system and market tread rubber
under the name of Tuff-Cure.
Competition. The tread rubber industry is very competitive with more than
ten suppliers, of which three are significant. Competition is based upon the
price and quality of the products supplied. While exact market share information
is not available, it is estimated that based on pounds shipped, the largest
supplier of precure tread rubber is Bandag, Incorporated ("Bandag"). Oliver,
unlike Bandag, sells in North America both precure and mold cure tread rubber,
and management believes it is the largest supplier of mold cure rubber and it is
the second largest supplier of tread rubber in 1996.
Working Capital
The Tread Rubber Segment sells to many small independent customers.
Accounts receivable and the extension of credit must be monitored closely to
reduce the risk of losses in collection. Inventories include a
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supply of finished goods on hand to fill customer orders from stock. Working
capital requires careful management but has generally been sufficient to fund
operating needs.
RAW MATERIALS
The principal materials used by the Company and its subsidiaries in its
Transportation Equipment and Tread Rubber Segments are synthetic rubber and
rubber chemicals. In addition, other significant materials used by the Company
in its Transportation Equipment Segment are plastic resins, woven fabrics, flock
fibers, coil steel, aluminum and adhesives. The majority of these materials are
purchased on the open market from domestic suppliers.
The Company believes that it has adequate supplies of raw materials
available from reliable sources for the levels of production presently
anticipated.
ENGINEERING AND DEVELOPMENT
Although the Company operates in mature industries, it continues to spend
significant amounts for engineering and development of new products, processes
and applications. Product development is an essential part of the market
strength of the Company and its automotive subsidiaries. The Company's sales and
product development personnel work directly with the engineering and styling
departments of its major customers in the engineering and development of new
products. In recent years, the Company's involvement with its automotive
customers has begun at the earlier model design stage with the Company assuming
an increasing share of engineering and design capability and responsibility. The
Company's main sales and product development group is located in Dearborn,
Michigan, close to the purchasing and engineering groups of its customers. The
Company also has significant product development facilities at Stratford,
Ontario, Huntingdon, England and Courbevoie, France.
PATENTS AND LICENSES
The Company holds numerous patents covering various manufacturing processes
and products of the Transportation Equipment Segment and several patents
relating to application processes used by its tread rubber customers. The
Company has licensed certain of the patents. The Company has a license agreement
with Nishikawa for sales, marketing and engineering services on certain products
sold by the Company. While the Company considers some of its patents and
licenses to be important in certain aspects of its business, the Company does
not believe that the loss or expiration of any particular patent or license
would have an adverse effect on either segment of its business. The Company
actively pursues the application for patents on new products and processes.
EMPLOYEES
As of June 30, 1996, the Company employed approximately 10,177 persons, of
whom approximately 8,122 were hourly employees. Employee relations at the
Company's plants generally have been good. Approximately 48% of the Company's
employees were represented by labor unions as of June 30, 1996.
ENVIRONMENTAL MATTERS
The Company believes that it is in substantial compliance with federal,
state and local provisions regulating the discharge of materials into the
environment or otherwise relating to the protection of the environment. The
Company maintains personnel whose function is to monitor compliance with
environmental protection regulations.
At the Company's Gaylord, Michigan plant, the Company is correcting a
previously defined condition of groundwater located under its plant by injecting
such water to underground depths well below and separate from the drinking water
aquifer. All corrective activities are permitted as necessary by the Michigan
Department of Environmental Quality and the United States Environmental
Protection Agency. Chemicals, in addition to those previously defined, have also
been identified in the groundwater. Site investigations are
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being conducted to determine whether the source of the additional chemicals is
on-site or off-site. Until the source is identified, the Company will continue
to meet its obligations under applicable state statute.
The Company has been previously designated as a potentially responsible
party in connection with several disposal sites. Settlements with payment of an
immaterial amount or no amount at all have been obtained for all sites, except
two sites, one located in Jamestown, North Carolina and the other in Zionsville,
Indiana. The Company believes that it was an insignificant contributor at these
sites and believes that these matters will be resolved without material adverse
affect to the Company's financial position.
The Company has been notified by the State of New York that the property
occupied by its Schenectady, New York plant is being investigated due to
allegations concerning possible contamination resulting from the operations of
the previous property owner. The State has reclassified the site based on the
presence of several contaminants and has requested the Company to perform
certain actions. The Company voluntarily completed interim actions and is
continuing site investigations to define the extent and source of the
contaminants.
Where appropriate, the Company has accrued for the above mentioned items in
accordance with its accounting policies. See Note 1, "Environmental Compliance
and Remediation" of the "Notes to Consolidated Financial Statements" section of
the 1996 Annual Report to Shareholders, which section is incorporated herein by
reference.
FOREIGN OPERATIONS
The Company owns all of the outstanding shares of Standard Products
(Canada) Limited, a Canadian corporation which is engaged primarily in the
manufacture of parts and accessories for United States and Canadian automotive
original equipment manufacturers and for the automotive replacement parts market
and the distribution of tread rubber for the tire retreading industry.
The Company owns all of the outstanding shares (except for qualifying
shares held by nominees) of Standard Products Limited, an English corporation
which is engaged primarily in the manufacture of parts and accessories for the
North American, United Kingdom and European automotive original equipment
manufacturers and for the automotive replacement parts market.
The Company owns all of the outstanding shares (except for qualifying
shares held by nominees) of Oliver Europa, an English corporation which had been
engaged primarily in the manufacture and distribution of tread rubber and rubber
and related products in Europe. This subsidiary has been liquidated and is no
longer engaged in business.
The Company owns all of the issued and outstanding shares of capital stock
of Standard Products Industriel (SPI Group), a corporation organized under
French law. The SPI Group is engaged in the business of designing, developing,
manufacturing and distributing automotive window weatherstrips, glass
weatherstrips, vehicle body and door seals and glass encapsulation products to
French, other European and North American auto manufacturers. The SPI Group's
customers include, among others, PSA (Peugeot/Citroen), Renault, Fiat, Volvo,
Chrysler Corporation, General Motors Corporation, Volkswagen and Saab. SPI's
European customer base complements the customer base of the Company's operations
in the United Kingdom. The SPI Group has an experienced management team and
expertise in the technical design and engineering of automotive sealing products
and systems. Similar to the Company, SPI's design personnel work closely with
the engineering and styling departments of its customers.
In March 1996, the Company began shipments from its new Brazilian plant.
This 236,000 square foot facility located in Varginha, Brazil, will manufacture
plastic and rubber sealing components for Fiat's Palio world car. During 1995,
the Company had increased its presence in Brazil by incorporating Standard
Products Brazil (SPB) and by purchasing the 80% of Itatiaia Standard not then
owned by it. During 1996 the Company consolidated Itatiaia Standard's Sao Paulo
manufacturing facility into the new facility in Varginha. Itatiaia Standard also
supplies some Brazilian automotive original equipment manufacturers with rubber
sealing products from a plant located in Itaquaquecetuba. Major customers of SPB
and Itatiaia include Fiat, Ford, General Motors and Volkswagon. Itatiaia and SPB
have an experienced management team and expertise in
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technical design and engineering of automotive sealing products and systems.
Company personnel work closely with their customers' engineering and styling
departments.
In 1995, the Company formed Standard Products de Mexico, S.A. de C.V.
During 1996, the Company sold a 30% interest in this entity to Nishikawa.
Construction of a new plant will commence in the first half of fiscal 1997. When
complete, the 78,000 square foot plant is expected to manufacture automotive
parts for the Mexican automotive original equipment manufacturers.
The Company also has minority equity interests in and licensing
arrangements with firms in Japan, Korea, India, Mexico and other countries
throughout the world.
The Company's United States export sales in the aggregate for the three
fiscal years ended June 30, 1996, 1995 and 1994, were $95,793,000, $71,749,000
and $41,472,000, respectively, of which a substantial portion is represented by
sales to automotive original equipment manufacturers in Canada.
The Company's experience has been that its significant foreign businesses
in Canada and Western Europe do not present materially different risks or
problems from those encountered in its United States markets. The risks of the
Company, Standard Products (Canada) Limited, Standard Products Limited, Standard
Products Brazil, Itatiaia Standard and Standard Products Industriel involve
meeting the customers' expectations as to the timely delivery of parts which
meet their specifications. The automotive business is directly affected by the
annual car production of original equipment manufacturers. Standard Products
(Canada) Limited, Standard Products Limited, Standard Products Brazil and
Standard Products Industriel participate in the risk of varying car builds
similar to any of the Company's other automotive plants which supply domestic
assembly plants.
With respect to Brazil, the Company expects that the risks of conducting
business in the Brazilian automotive original equipment market will be greater
than the North American and European automotive markets. The Company must deal
with several new issues including, but not limited, to governmental regulation,
and a potentially highly inflationary economy. With the assistance of Itatiaia
Standard's local management, the Company believes that it can successfully
conduct business in Brazil.
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ITEM 2. PROPERTIES
The Company operates the properties described as follows:
<TABLE>
<CAPTION>
LAND PLANT
LOCATION (ACREAGE) (SQUARE FEET)
- ---------------------------------------------------------------------- --------- -------------
<S> <C> <C>
Aquascalientes, Mexico (4)............................................ 15.9 --
Asheboro, North Carolina (1).......................................... 16.4 161,000
Athens, Georgia (1)................................................... 32.0 109,000
Athens, Georgia (1)(3)................................................ 3.3 37,000
Bezons, France (4).................................................... 4.3 140,000
Bolbec, France (3)(4)................................................. 24.3 276,000
Cleveland, Ohio (4)................................................... 12.0 157,000
Courbevoie, France (3)(4)............................................. .5 23,000
Dallas, Texas (1)(3).................................................. 6.0 96,000
Dearborn, Michigan (Warehouse and Offices) (4)........................ 13.9 358,000
Etobicoke, Ontario, Canada (3)(4)..................................... .8 33,000
Export, Pennsylvania (1)(3)........................................... 2.0 40,500
Gaylord, Michigan (4)................................................. 96.2 92,000
Georgetown, Ontario, Canada (4)....................................... 5.7 89,000
Goldsboro, North Carolina (4)......................................... 6.6 140,000
Greenville, Michigan (4).............................................. 1.0 10,000
Griffin, Georgia (4).................................................. 17.5 190,000
Hartselle, Alabama (3)(4)............................................. 11.1 72,000
Huntingdon, England (4)............................................... 11.1 175,000
Itaquaquecetuba, Brazil (4)........................................... 11.9 54,000
Kittanning, Pennsylvania (4).......................................... 6.1 80,000
Lexington, Kentucky (4)............................................... 5.9 115,000
Lillebonne, France (4)................................................ 9.1 100,000
Maesteg, Wales (4).................................................... 8.4 102,000
Mississauga, Ontario, Canada (3)(4)................................... 5.0 97,000
Mitchell, Ontario, Canada (4)......................................... 10.5 88,000
New Ulm, Minnesota (4)................................................ 3.5 46,000
Oakland, California (1)............................................... 4.2 112,000
Paris, Texas (1)...................................................... 28.5 31,000
Plymouth, England (3)(4).............................................. 9.0 127,000
Port Clinton, Ohio (5)................................................ 20.0 --
Rocky Mount, North Carolina (4)....................................... 24.2 222,000
St. Charles, Illinois (4)............................................. 2.3 47,000
San Diego, California (3)(4).......................................... -- 10,000
Salisbury, NC (1)..................................................... 2.7 37,200
Schenectady, New York (4)............................................. 22.5 224,000
Scottsburg, Indiana (2)(4)............................................ 8.5 192,000
Spartanburg, South Carolina (4)....................................... 30.1 85,000
</TABLE>
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<TABLE>
<CAPTION>
LAND PLANT
LOCATION (ACREAGE) (SQUARE FEET)
- ---------------------------------------------------------------------- --------- -------------
<S> <C> <C>
Stratford, Ontario, Canada (4)........................................ 20.0 80,000
Stratford, Ontario, Canada (1)(4)..................................... 5.4 94,000
Stratford, Ontario, Canada (4)........................................ 26.8 107,000
Varginha, Brazil (4).................................................. 38.3 236,000
Vitre, France (3)(4).................................................. 16.6 207,000
Wadsworth, Ohio (1)................................................... 2.0 28,000
Winnsboro, South Carolina (4)......................................... 26.4 175,000
</TABLE>
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(1) Facilities used in the Tread Rubber Segment.
(2) This facility is encumbered by a mortgage agreement which provides for
payments sufficient to pay principal of and interest on first mortgage
industrial revenue bonds issued for the purchase of the plant and equipment.
This agreement has been capitalized for financial statement purposes.
(3) Leased from others. The leases are short to medium term operating leases,
some of which have options to renew for additional periods. Rental rates are
competitive for the market in which the property is located. The Company
believes that all of these leased facilities could be replaced for
comparable terms.
(4) Facilities used in the Transportation Equipment Segment.
(5) The plant has been demolished and the land is held for sale.
The Company operates a 283,000 square foot public warehouse in Dearborn,
Michigan of which the Company utilizes approximately 133,000 square feet for its
own products. The Company has its corporate headquarters (including engineering
and product development) at this location. These functions utilize approximately
44,000 square feet of space.
The Company believes that all of its properties, machinery and equipment
are in good operating condition and suitable and adequate for the business of
the Company as presently conducted. The utilization of the Company's
Transportation Equipment facilities varies with the production of passenger cars
and light trucks in various countries. The utilization of the Tread Rubber
facilities varies with demand for tread rubber product. Capacities of each
facility are adequate to meet current demands. Management believes capacity is
adequate to meet the demands of each segment's business, however, it continues
to evaluate its position in each geographic area of the world and will expand or
reduce capacity accordingly.
ITEM 3. LEGAL PROCEEDINGS
The Company was not a party to any pending legal proceedings other than
ordinary routine litigation incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The information below is included in this report pursuant to instruction 3
to Item 401(b) of Regulation S-K.
The Executive Officers of the Company are elected annually to serve for
one-year terms or until their successors are elected and qualified. The offices
listed below were elected on October 16, 1995. The business experience,
principal occupations and employment during the last five years of the
individuals holding the office are indicated in the table below.
<TABLE>
<CAPTION>
SERVED IN
PRESENT
OFFICE
NAME AGE POSITION WITH REGISTRANT SINCE
- ---------------------------- --- ---------------------------------------------------- ---------
<S> <C> <C> <C>
James S. Reid, Jr. ......... 70 Chairman and Chief Executive Officer 1962
In addition to his position as Chief Executive
Officer, Mr. Reid served as President from 1962 to
1988 and in 1991.
Theodore K. Zampetis........ 51 President and Chief Operating Officer 1991
Formerly, Mr. Zampetis was Vice President --
Manufacturing, North American Automotive Operations
from 1989 to 1990 and Executive Vice President --
President Standard Products Automotive Operations
from 1990.
Donald R. Sheley, Jr. ...... 54 Vice President -- Finance and Chief Financial 1995
Officer
Formerly, Mr. Sheley was Vice President, Corporate
Controller, Cooper Industries, Inc. from 1988 until
April, 1995. He joined the Company in July 1995.
Larry J. Enders............. 54 Vice President of the Company and President and 1993
Chief Executive Officer, Oliver Rubber Company
Formerly, Mr. Enders was Vice President -- Sales
from 1988 to 1991 and Vice President -- Purchasing
and Worldwide Supply from 1991.
James F. Keys............... 42 Executive Vice President -- International Operations 1996
Formerly, Mr. Keys was Vice President of the Company
and Managing Director of Standard Products Limited
from 1991 to 1996.
Steve Levitt................ 42 Managing Director, Standard Products Limited 1995
Formerly, Mr. Levitt was Finance Director and
Company Secretary of Standard Products Limited from
1991 to 1995.
Stephan J. Mack............. 59 President, Holm Industries, Inc. 1986
Ted M. McQuade.............. 42 Executive Vice President, North American Automotive 1995
Operations
Formerly, Mr. McQuade was Manager of Product Support
and Global Integration, Appliance Business, General
Electric from 1990.
Gerard Mesnel............... 57 President and Director General, Standard Products 1996
Industriel and Executive Vice President -- Advanced
Technology World Wide
Formerly, Mr. Mesnel was Executive Vice President --
Advanced Technology World Wide from 1995 and
President/Consultant, GSF Cie. since 1990.
Bernard J. Theisen.......... 37 Corporate Controller and Assistant Secretary 1995
Formerly, Mr. Theisen was Corporate Controller for
Hayes Wheels International, Inc. from 1993 and
Business Unit Controller of its Fabricated Wheel
Group from 1991.
</TABLE>
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The information required by Item 5 is incorporated herein by reference to
Note 6 of "Notes to Consolidated Financial Statements" on page 19 and "Common
Shares" on page 24 of the 1996 Annual Report to Shareholders.
ITEM 6. SELECTED FINANCIAL DATA
The information required by Item 6 is incorporated herein by reference to
"Selected Financial Data" on pages 10 and 11 of the 1996 Annual Report to
Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by Item 7 is incorporated herein by reference to
pages 9 through 12 of the 1996 Annual Report to Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and statements required by Item 8 are incorporated
herein by reference to pages 13 through 23 of the 1996 Annual Report to
Shareholders.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
As to Executive Officers, the information required is included in Part I of
this report on Form 10-K. The information required by Item 10 as to directors of
the Registrant is incorporated herein by reference to the information set forth
under the caption "Election of Directors" on pages 3 through 5 of the definitive
Proxy Statement for the Annual Meeting of Shareholders to be held October 22,
1996 ("1996 Proxy Statement"). The information required concerning Section 16
compliance is incorporated herein by reference to the information set forth
under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" on
page 16 of the 1996 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference to
the material under the caption "Executive Compensation" on pages 6 through 12 of
the 1996 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated herein by reference to
the information set forth under the captions "Security Ownership of Certain
Beneficial Owners" on pages 1 through 3 of the 1996 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated herein by reference to
the information set forth under the caption "Compensation Committee Interlocks
and Insider Participation" on page 10 of the 1996 Proxy Statement.
12
<PAGE> 13
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements:
The following consolidated financial statements and related notes of
the Registrant and its subsidiaries are incorporated herein by reference to
the 1996 Annual Report to Shareholders (pages 13 through 23):
Consolidated Balance Sheets -- June 30, 1996 and 1995
Consolidated Statements of Income for the Years Ended June 30, 1996,
1995 and 1994
Consolidated Statements of Shareholders' Equity for the Years Ended
June 30, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the Years Ended June 30,
1996, 1995 and 1994
Notes to Consolidated Financial Statements
Auditors' Report
(a) (2) Financial Statement Schedule:
Report of Independent Public Accountants on the Financial Statement
Schedule
Schedule II -- Valuation and Qualifying Accounts and Reserves for the
Years Ended June 30, 1996, 1995 and 1994
All schedules, other than Schedule II, are omitted since the information is
not required or is otherwise furnished.
Separate financial statements of the Registrant have been omitted since
restricted net assets of consolidated subsidiaries and unconsolidated investees
and the Company's share of the unconsolidated subsidiaries' equity is less than
25% of the Company's net assets at June 30, 1996.
13
<PAGE> 14
(a) (3) Exhibits:
<TABLE>
<CAPTION>
IF INCORPORATED BY
EXHIBIT NO. REFERENCE, DOCUMENTS
UNDER REG. S-K FORM 10-K WITH WHICH EXHIBIT
ITEM 601 EXHIBIT NO. DESCRIPTION WAS PREVIOUSLY FILED
- -------------- ----------- ----------- ---------------------------
<S> <C> <C> <C>
2 2a Stock Sale Agreement, Dated December 19, Form 8-K, Dated January 26,
1992 with respect to the acquisition of 1993
the Standard Products Industriel Group. (Filed with the SEC on
February 8, 1993; see
Exhibit 2 therein)
3 3a Second Amended and Restated Articles of Quarterly Report Form 10-Q
Incorporation (Filed with the SEC on
November 1, 1993; see
Exhibit 3a therein)
3 3b Amended and Restated Code of Regulations Form S-3 Registration
No. 33-62054
(Filed with the SEC on May
5, 1993; see Exhibit 3.2
therein)
4 4a Senior Notes Agreement -- $75,000,000 Quarterly Report Form 10-Q
6.55% Senior Notes due December 16, (Filed with the SEC on
2003, by and among The Standard Products February 11, 1994; see
Company and Metropolitan Life Insurance Exhibit 4 therein)
Company and certain of its Affiliates
4 4b Senior Notes Agreement -- $25,000,000 Annual Report Form 10-K
aggregate principal amount Dated as of (Filed with the SEC on
June 30, 1989, between the Company and September 25, 1989; see
Nationwide Life Insurance Company, Aid Exhibit 4b therein)
Association for Lutherans and Employers
Life Insurance Company of Wausau
4 4c Amendments to the Senior Notes Annual Report Form 10-K
Agreement -- $25,000,000 aggregate (Filed with the SEC on
principal amount (4e), dated February September 15, 1992; see
22, 1991 and, June 30, 1991, between the Exhibit 4f therein)
Company and Nationwide Life Insurance
Company, Aid Association for Lutherans
and Employers Life Insurance Company of
Wausau
4 4d Credit Agreement, Dated as of January Annual Report Form 10-K
19, 1993, Among The Standard Products (Filed with the SEC on
Company, as Borrower, and National City September 13, 1993; see
Bank, Society National Bank, Comerica Exhibit 4c therein)
Bank and NBD Bank, N.A. and National
City, as Agent.
4 4e Agreement of Amendment, Dated as of Annual Report Form 10-K
April 30, 1994, Among The Standard (Filed with the SEC on
Products Company, as Borrower, and September 14, 1995)
National City Bank, Society National
Bank, Comerica Bank and NBD Bank, N.A.
and National City, as Agent.
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
IF INCORPORATED BY
EXHIBIT NO. REFERENCE, DOCUMENTS
UNDER REG. S-K FORM 10-K WITH WHICH EXHIBIT
ITEM 601 EXHIBIT NO. DESCRIPTION WAS PREVIOUSLY FILED
- -------------- ----------- ----------- ---------------------------
<S> <C> <C> <C>
4 4f Amendments to Senior Notes Agreement -- Annual Report Form 10-K
$25,000,000 aggregate principal amount (Filed with the SEC on
(4e), dated January 19, 1993 and, September 14, 1995)
January 31, 1995, between the Company
and Nationwide Life Insurance Company,
Aid Association for Lutherans and
Employers Life Insurance Company of
Wausau
4 4g Interest Rate and Currency Exchange Annual Report Form 10-K
Agreement, dated November 12, 1993, (Filed with the SEC on
between the Company and National City September 14, 1995)
Bank
4 4h Interest Rate and Currency Exchange Annual Report Form 10-K
Agreement, Termination of $7 million in (Filed with the SEC on
principal amount, dated June 16, 1995 September 14, 1995)
between the Company and National City
Bank
10 10a Supplemental Salaried Pension Plan Annual Report Form 10-K
(Filed with the SEC on
September 23, 1986; see
Exhibit 10a therein)
10 10b The Standard Products Company 1985 Form S-8 Registration
Employee Incentive Stock Option Plan No. 33-01558
(Filed with the SEC on
November 15, 1985; see
Exhibit 4a therein)
10 10c The Standard Products Company 1989 Form S-8 Registration
Employee Incentive Stock Option Plan No. 33-33612
(Filed with the SEC on
February 28, 1990; see
Exhibit 4a therein)
10 10d The Standard Products Company 1991 Form S-8 Registration
Employee Stock Option Plan No. 33-51556
(Filed with the SEC on
September 2, 1992; see
Exhibit 4c therein)
10 10e The Standard Products Company 1991 Form S-8 Registration
Restricted Stock Plan No. 33-51554
(Filed with the SEC on
September 2, 1992; see
Exhibit 4c therein)
10 10f The Standard Products Company Restricted Annual Report Form 10-K
Stock Agreement between the Company and (Filed with the SEC on
the Chairman and Chief Executive Officer September 15, 1992; see
Exhibit 10h therein)
10 10g The Standard Products Company Restricted Annual Report Form 10-K
Stock Agreement between the Company and (Filed with the SEC on
the President and Chief Operating September 15, 1992; see
Officer Exhibit 10i therein)
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
IF INCORPORATED BY
EXHIBIT NO. REFERENCE, DOCUMENTS
UNDER REG. S-K FORM 10-K WITH WHICH EXHIBIT
ITEM 601 EXHIBIT NO. DESCRIPTION WAS PREVIOUSLY FILED
- -------------- ----------- ----------- ---------------------------
<S> <C> <C> <C>
10 10h The Standard Products Company Restricted
Stock Agreement between the Company and
the Executive Vice President--
International Operations
10 10i The Standard Products Company 1993 Form S-8 Registration
Employee Stock Option Plan No. 33-53989
(Filed with the SEC on June
6, 1994; see Exhibit 4
therein)
10 10j Receivables Purchase Agreement Dated as Quarterly Report Form 10-Q
of September 22, 1995 among The Standard (Filed with the SEC on
Products Funding Corporation as seller February 13, 1996; see
and The Standard Products Company as exhibit 10 therein)
initial Master Servicer and Clipper
Receivables Corporation as Purchaser and
State Street Boston Capital Corporation
as Administrator and National City Bank
as Relationship Bank
10 10k Purchase and Sale Agreement dated as of Quarterly Report Form 10-Q
September 22, 1995 among The Standard (Filed with the SEC on
Products Company, as Originator and February 13, 1996; see
Master Servicer, 5 Rubber Corporation, exhibit 10 therein)
Oliver Rubber Company, and Holm
Industries, Inc., as Originators and
Servicers, and The Standard Products
Funding Corporation, as the Initial
Purchaser
10 10l Standard Products Individual Retirement Form S-8 Registration
and Investment Trust Plan No. 333-01923
(Filed with SEC on March
26, 1996; see exhibit 4a
therein)
10 10m The Standard Products Company Form S-8 Registration
Collectively Bargained Savings and No. 333-01921
Retirement Plan (Filed with SEC on March
22, 1996; see exhibit 4a
therein)
13 13 Annual Report to Shareholders for the
Year Ended June 30, 1996
21 21 Subsidiaries of Registrant
23 23 Consent of Independent Public
Accountants
27 27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K: No reports have been filed during the last quarter
of the fiscal year covered by this report on Form 10-K.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on this the 27th day
of September 1996.
THE STANDARD PRODUCTS COMPANY
By: /s/ DONALD R. SHELEY, JR.
---------------------------------
Donald R. Sheley, Jr.
Vice President, Finance and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<C> <S> <C>
/s/ JAMES S. REID, JR. Chairman and Chief Executive Officer; September 27, 1996
- ----------------------------------- Director
James S. Reid, Jr.
/s/ THEODORE K. ZAMPETIS President and Chief Operating September 27, 1996
- ----------------------------------- Officer; Director
Theodore K. Zampetis
/s/ DONALD R. SHELEY, JR. Vice President, Finance and September 27, 1996
- ----------------------------------- Chief Financial Officer
Donald R. Sheley, Jr. Principal Financial Officer
/s/ BERNARD J. THEISEN Corporate Controller September 27, 1996
- ----------------------------------- Principal Accounting Officer
Bernard J. Theisen
/s/ JAMES C. BAILLIE Director September 27, 1996
- -----------------------------------
James C. Baillie
/s/ EDWARD B. BRANDON Director September 27, 1996
- -----------------------------------
Edward B. Brandon
/s/ JOHN DODDRIDGE Director September 27, 1996
- -----------------------------------
John Doddridge
/s/ JOHN D. DRINKO Director September 27, 1996
- -----------------------------------
John D. Drinko
/s/ CURTIS E. MOLL Director September 27, 1996
- -----------------------------------
Curtis E. Moll
/s/ MALCOLM R. MYERS Director September 27, 1996
- -----------------------------------
Malcolm R. Myers
/s/ LEIGH H. PERKINS, SR. Director September 27, 1996
- -----------------------------------
Leigh H. Perkins, Sr.
/s/ ALFRED M. RANKIN, JR. Director September 27, 1996
- -----------------------------------
Alfred M. Rankin, Jr.
/s/ ALAN E. RIEDEL Director September 27, 1996
- -----------------------------------
Alan E. Riedel
/s/ JOHN D. SIGEL Director September 27, 1996
- -----------------------------------
John D. Sigel
/s/ W. HAYDEN THOMPSON Director September 27, 1996
- -----------------------------------
W. Hayden Thompson
</TABLE>
17
<PAGE> 18
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON THE FINANCIAL STATEMENT SCHEDULE
To: The Standard Products Company
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements included in The Standard Products Company
and Subsidiary Companies 1996 Annual Report to Shareholders incorporated by
reference in this Form 10-K, and have issued our report thereon dated July 23,
1996. Our audit was made for the purpose of forming an opinion on those
statements taken as a whole. The schedule listed in Item 14(a)(2) of this Form
10-K is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic consolidated financial statements. This schedule has been
subjected to the auditing procedures applied in the audit of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Cleveland, Ohio
July 23, 1996.
18
<PAGE> 19
VALUATION AND QUALIFYING ACCOUNTS
SCHEDULE II
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS)
COLUMN C COLUMN F
COLUMN B ---------- --------
---------- ADDITIONS BALANCE
COLUMN A BALANCE AT CHARGED TO COLUMN D COLUMN E AT END
- ------------------------------------------ BEGINNING COSTS AND -------- ---------- OF
DESCRIPTION OF PERIOD EXPENSES RECOVERIES DEDUCTIONS PERIOD
- ------------------------------------------ ---------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
Year Ended June 30, 1996
Reserve for Plant Closing................. $6,235 $-- $-- $6,235 $-- (2)
====== ====== ==== ====== ======
Allowance for doubtful accounts........... $4,978 $ 8 $113 $2,141 $2,958
====== ====== ==== ====== ======
Year Ended June 30, 1995
Reserve for Plant Closing................. $3,975 $3,485 $-- $1,225 $6,235(1)
====== ====== ==== ====== ======
Allowance for doubtful accounts........... $3,627 $4,074 $230 $2,953 $4,978
====== ====== ==== ====== ======
Year Ended June 30, 1994
Reserve for Plant Closing................. $9,111 $-- $-- $5,136 $3,975(1)
====== ====== ==== ====== ======
Allowance for doubtful accounts........... $2,293 $ 459 $605 $ (270) $3,627
====== ====== ==== ====== ======
</TABLE>
- ---------------
(1) The balances of $3,975 and $6,235 have been classified as a current
liability in the accompanying consolidated balance sheet as of June 30, 1994
and 1995, respectively.
(2) The plant closures were completed during 1996. Remaining balances have been
reclassified to the appropriate reserve accounts such as environmental and
legal on the balance sheet at June 30, 1996.
19
<PAGE> 20
Exhibit Index
<TABLE>
<CAPTION>
IF INCORPORATED BY
EXHIBIT NO. REFERENCE, DOCUMENTS
UNDER REG. S-K FORM 10-K WITH WHICH EXHIBIT
ITEM 601 EXHIBIT NO. DESCRIPTION WAS PREVIOUSLY FILED
- -------------- ----------- ----------- ---------------------------
<S> <C> <C> <C>
2 2a Stock Sale Agreement, Dated December 19, Form 8-K, Dated January 26,
1992 with respect to the acquisition of 1993
the Standard Products Industriel Group. (Filed with the SEC on
February 8, 1993; see
Exhibit 2 therein)
3 3a Second Amended and Restated Articles of Quarterly Report Form 10-Q
Incorporation (Filed with the SEC on
November 1, 1993; see
Exhibit 3a therein)
3 3b Amended and Restated Code of Regulations Form S-3 Registration
No. 33-62054
(Filed with the SEC on May
5, 1993; see Exhibit 3.2
therein)
4 4a Senior Notes Agreement -- $75,000,000 Quarterly Report Form 10-Q
6.55% Senior Notes due December 16, (Filed with the SEC on
2003, by and among The Standard Products February 11, 1994; see
Company and Metropolitan Life Insurance Exhibit 4 therein)
Company and certain of its Affiliates
4 4b Senior Notes Agreement -- $25,000,000 Annual Report Form 10-K
aggregate principal amount Dated as of (Filed with the SEC on
June 30, 1989, between the Company and September 25, 1989; see
Nationwide Life Insurance Company, Aid Exhibit 4b therein)
Association for Lutherans and Employers
Life Insurance Company of Wausau
4 4c Amendments to the Senior Notes Annual Report Form 10-K
Agreement -- $25,000,000 aggregate (Filed with the SEC on
principal amount (4e), dated February September 15, 1992; see
22, 1991 and, June 30, 1991, between the Exhibit 4f therein)
Company and Nationwide Life Insurance
Company, Aid Association for Lutherans
and Employers Life Insurance Company of
Wausau
4 4d Credit Agreement, Dated as of January Annual Report Form 10-K
19, 1993, Among The Standard Products (Filed with the SEC on
Company, as Borrower, and National City September 13, 1993; see
Bank, Society National Bank, Comerica Exhibit 4c therein)
Bank and NBD Bank, N.A. and National
City, as Agent.
4 4e Agreement of Amendment, Dated as of Annual Report Form 10-K
April 30, 1994, Among The Standard (Filed with the SEC on
Products Company, as Borrower, and September 14, 1995)
National City Bank, Society National
Bank, Comerica Bank and NBD Bank, N.A.
and National City, as Agent.
</TABLE>
<PAGE> 21
<TABLE>
<CAPTION>
IF INCORPORATED BY
EXHIBIT NO. REFERENCE, DOCUMENTS
UNDER REG. S-K FORM 10-K WITH WHICH EXHIBIT
ITEM 601 EXHIBIT NO. DESCRIPTION WAS PREVIOUSLY FILED
- -------------- ----------- ----------- ---------------------------
<S> <C> <C> <C>
4 4f Amendments to Senior Notes Agreement -- Annual Report Form 10-K
$25,000,000 aggregate principal amount (Filed with the SEC on
(4e), dated January 19, 1993 and, September 14, 1995)
January 31, 1995, between the Company
and Nationwide Life Insurance Company,
Aid Association for Lutherans and
Employers Life Insurance Company of
Wausau
4 4g Interest Rate and Currency Exchange Annual Report Form 10-K
Agreement, dated November 12, 1993, (Filed with the SEC on
between the Company and National City September 14, 1995)
Bank
4 4h Interest Rate and Currency Exchange Annual Report Form 10-K
Agreement, Termination of $7 million in (Filed with the SEC on
principal amount, dated June 16, 1995 September 14, 1995)
between the Company and National City
Bank
10 10a Supplemental Salaried Pension Plan Annual Report Form 10-K
(Filed with the SEC on
September 23, 1986; see
Exhibit 10a therein)
10 10b The Standard Products Company 1985 Form S-8 Registration
Employee Incentive Stock Option Plan No. 33-01558
(Filed with the SEC on
November 15, 1985; see
Exhibit 4a therein)
10 10c The Standard Products Company 1989 Form S-8 Registration
Employee Incentive Stock Option Plan No. 33-33612
(Filed with the SEC on
February 28, 1990; see
Exhibit 4a therein)
10 10d The Standard Products Company 1991 Form S-8 Registration
Employee Stock Option Plan No. 33-51556
(Filed with the SEC on
September 2, 1992; see
Exhibit 4c therein)
10 10e The Standard Products Company 1991 Form S-8 Registration
Restricted Stock Plan No. 33-51554
(Filed with the SEC on
September 2, 1992; see
Exhibit 4c therein)
10 10f The Standard Products Company Restricted Annual Report Form 10-K
Stock Agreement between the Company and (Filed with the SEC on
the Chairman and Chief Executive Officer September 15, 1992; see
Exhibit 10h therein)
10 10g The Standard Products Company Restricted Annual Report Form 10-K
Stock Agreement between the Company and (Filed with the SEC on
the President and Chief Operating September 15, 1992; see
Officer Exhibit 10i therein)
</TABLE>
<PAGE> 22
<TABLE>
<CAPTION>
IF INCORPORATED BY
EXHIBIT NO. REFERENCE, DOCUMENTS
UNDER REG. S-K FORM 10-K WITH WHICH EXHIBIT
ITEM 601 EXHIBIT NO. DESCRIPTION WAS PREVIOUSLY FILED
- -------------- ----------- ----------- ---------------------------
<S> <C> <C> <C>
10 10h The Standard Products Company Restricted
Stock Agreement between the Company and
the Executive Vice President--
International Operations
10 10i The Standard Products Company 1993 Form S-8 Registration
Employee Stock Option Plan No. 33-53989
(Filed with the SEC on June
6, 1994; see Exhibit 4
therein)
10 10j Receivables Purchase Agreement Dated as Quarterly Report Form 10-Q
of September 22, 1995 among The Standard (Filed with the SEC on
Products Funding Corporation as seller February 13, 1996; see
and The Standard Products Company as exhibit 10 therein)
initial Master Servicer and Clipper
Receivables Corporation as Purchaser and
State Street Boston Capital Corporation
as Administrator and National City Bank
as Relationship Bank
10 10k Purchase and Sale Agreement dated as of Quarterly Report Form 10-Q
September 22, 1995 among The Standard (Filed with the SEC on
Products Company, as Originator and February 13, 1996; see
Master Servicer, 5 Rubber Corporation, exhibit 10 therein)
Oliver Rubber Company, and Holm
Industries, Inc., as Originators and
Servicers, and The Standard Products
Funding Corporation, as the Initial
Purchaser
10 10l Standard Products Individual Retirement Form S-8 Registration
and Investment Trust Plan No. 333-01923
(Filed with SEC on March
26, 1996; see exhibit 4a
therein)
10 10m The Standard Products Company Form S-8 Registration
Collectively Bargained Savings and No. 333-01921
Retirement Plan (Filed with SEC on March
22, 1996; see exhibit 4a
therein)
13 13 Annual Report to Shareholders for the
Year Ended June 30, 1996
21 21 Subsidiaries of Registrant
23 23 Consent of Independent Public
Accountants
27 27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10H
THE STANDARD PRODUCTS COMPANY
RESTRICTED STOCK AGREEMENT
This Restricted Stock Agreement (this "Agreement"), is made as of this
29th day of August, 1995, by and between The Standard Products Company, an Ohio
corporation (the "Company"), and James F. Keys ("Executive") under The Standard
Products Company 1991 Restricted Plan (the "Plan");
1. The Company hereby awards to Executive up to Fifty Thousand (50,000)
Common Shares, $1.00 par value, of the Company ("Common Shares"), which may be
earned at a rate of up to 5,000 Shares per year in the current fiscal year and
each of the nine succeeding fiscal years, in all respects subject to the terms,
conditions and provisions of this Agreement and the Plan, a copy of which is
attached to this Agreement and incorporated herein by reference.
2. Common Shares awarded to Executive hereunder are subject to restriction
and may not be sold, transferred or otherwise assigned until such shares are
earned in accordance with paragraph 3 hereof and have vested in accordance with
paragraph 4 hereof. Notwithstanding the foregoing, however, Common Shares
awarded to Executive hereunder which are earned but non-vested or awarded
Common Shares that remain available to Executive but are unearned shall
immediately vest in Executive upon a Change in Control of the Company (as
defined in the Plan). In the event of Executive's death, all earned but
non-vested Common Shares and one-half of awarded Common Shares that remain
available to Executive but are unearned shall vest in Executive's designated
beneficiary.
3. The number of awarded Common Shares which may be earned with respect to
each fiscal year at a rate of up to 5,000 shares per year in the current fiscal
year and each of the succeeding nine fiscal years equals the product of 5,000
multiplied by the ratio of the cash bonus earned by Executive under the
Company's Officers' Bonus Plan over the maximum possible cash bonus which
Executive could have earned under such Plan with respect to each such fiscal
year. No more than 5,000 Common Shares may be earned in any one fiscal year
and no Common Shares may be earned with respect to any fiscal year after the
fiscal year ending June 30, 2004.
4. Common Shares awarded hereunder and earned by Executive in accordance
with paragraph 3 above shall become vested in Executive at the end of the third
fiscal year following the end of the fiscal year with respect to which such
Common Shares are earned.
5. Common Shares awarded hereunder and earned in accordance with paragraph
3 above shall be issued in the name of Executive, and the Company's transfer
agent will show Executive as the owner of record of such Common Shares.
Executive will have all rights of a shareholder with respect to awarded and
earned Common Shares, including the right to vote such shares, subject to the
limitations imposed by this Agreement and the Plan. The certificates
representing awarded and
<PAGE> 2
earned Common Shares shall not be delivered to Executive until such Common
Shares become vested. If Executive shall voluntarily cease to be an employee
of the Company prior to vesting of Common Shares (whether such Common Shares
are earned or unearned), Executive shall forfeit to the Company all Common
Shares not then vested in Executive; provided, that if Executive desires to
retire as an active employee of the Company, the Compensation Committee shall
have the authority to waive such forfeiture under such terms and conditions as
said Committee deems appropriate. In this regard, simultaneously with the
issuance of certificates representing awarded and earned Common Shares,
Executive shall execute and deliver stock powers forfeiting to the Company
Common Shares awarded and earned hereunder but not vested in the event
Executive voluntarily ceases to be an employee of the Company prior to any
vesting date. Executive acknowledges that Common Shares awarded hereunder
shall be subject to the restrictions and risks of forfeiture contained herein
and in Section 8 of the Plan.
6. Executive hereby agrees that he shall pay to the Company, in cash, any
foreign, United States federal, state or local taxes of any kind required by
law to be withheld with respect to the Common Shares awarded to him hereunder.
If Executive does not make such payment to the Company, the Company shall have
the right to deduct from any payment of any kind otherwise due to Executive
from the Company (or from any subsidiary of the Company), any federal, state or
local taxes of any kind required by law to be withheld with respect to Common
Shares awarded to Executive under this Agreement.
7. Executive represents that Common Shares awarded hereunder are being
acquired by Executive not with a view toward resale or distribution and
Executive will not sell or otherwise transfer such Common Shares except in
compliance with the Securities Act of 1933 and the rules and regulations
promulgated thereunder. Executive hereby acknowledges that Common Shares
awarded hereunder shall bear legends and statements evidencing such
restrictions and other restrictions contained in Section 8 of the Plan.
THE STANDARD PRODUCTS COMPANY
By /s/ John C. Brandmahl
Title Vice President Human Resources
Date 8/29, 1995
-2-
<PAGE> 3
Executive acknowledges receipt of the Plan, a copy of which is attached
hereto, and represents that he is familiar with the terms and provisions
thereof, and hereby agrees that Common Shares granted under this Agreement are
subject to all terms and provisions of this Agreement. Executive hereby agrees
to accept as binding, conclusive and firm all decisions and interpretations of
the Compensation Committee of the Board of Directors of the Company.
EXECUTIVE
\s\ James F. Keys
Date August 16, 1995
-3-
<PAGE> 1
EXHIBIT 13
THE STANDARD PRODUCTS CO.
ANNUAL REPORT 1996
WORLDWIDE MANUFACTURING FOR THE WORLDWIDE AUTO INDUSTRY
<PAGE> 2
ABOUT THE COMPANY
The Standard Products Co. has pursued a strategic focus to grow related
businesses in rubber and plastic laminated extrusion technology into leadership
positions in their industries and to build value for shareholders. The Company
is one of the world's leading suppliers of sealing, trim and vibration-control
systems for the worldwide automotive original equipment industry. We are also
the major North American supplier of seals for home and commercial refrigerators
and freezers, and residential doors and windows. Through our Oliver Rubber
subsidiary, we are a leading manufacturer of tread rubber and equipment for the
truck retread industry. The Company has production facilities and technical
centers in five countries around the world.
[MAP]
Plants and Technical Centers; Automotive Markets
i
<PAGE> 3
SEALING AND TRIM SYSTEMS FOR THE WORLDWIDE AUTO INDUSTRY
Our products and systems protect, decorate and improve the performance of more
than 180 different car and light truck models produced around the world. Today,
as fit and finish, ride quality, noise, and durability become increasingly
critical differentiators, more attention is being focused on the products we
design and manufacture.
[DIAGRAM]
- - Plastic Bright Trim with Tape for Soft Bumpers
- - Engine Mounts
- - Hood Seals
- - Windshield Molding
- - Inner and Outer Belt Weatherstrip Assembly
- - Sunroof Sealing and Trim
- - Body Cushions
- - Bodyside Trim
ii
<PAGE> 4
[DIAGRAM]
- - Encapsulated Glass Quarter Window
- - Trunk Lid Seal
- - Back Light Trim
- - Glass Run Channel Assembly
- - Door Seals
- - Quarter Window Trim Molding
[STANDARD PRODUCTS LOGO]
A COMMITMENT TO QUALITY
Standard Products is committed to manufacturing products that meet or exceed
customer quality expectations. We reduced defective parts per million (PPM) by
30% in fiscal 1995 and by another 50% in fiscal 1996. Now we are driving toward
an extremely competitive level of quality -- less than 100 PPM. Last year, nine
of our North American automotive plants earned QS 9000 status, the U.S. auto
industry's rigorous quality certification process. Our goal is for all our
North American automotive plants to be certified QS 9000 by December 31, 1996.
In addition, all of our plants in the United Kingdom have achieved ISO 9002
status.
iii
<PAGE> 5
FISCAL YEAR HIGHLIGHTS
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS EXCEPT SHARE DATA) 1996 1995 1994
<S> <C> <C> <C>
Net Sales................................. $1,083,920 $995,926 $872,367
Net Income................................ 14,577 20,066 33,032
Earnings Per
Common Share.......................... $ .87 $ 1.20 $ 1.99
Cash Dividends Declared
Per Common Share ..................... $ .68 $ .68 $ .65
Shareholders' Equity ..................... $ 258,765 $260,495 $242,677
Book Value
Per Common Share ..................... $ 15.42 $ 15.56 $ 14.55
Shares Outstanding
at Year End .......................... 16,785 16,736 16,674
</TABLE>
FISCAL 1996 IN REVIEW
Sales reached a record $1,083,920, putting us over the billion-dollar mark for
the first time.
Earnings improved steadily throughout the year, culminating in fourth quarter
profit of $.93 per share, the best quarter in our history.
We completed construction of our 236,000-sq.-ft. plant in Varginha, Brazil, and
are now supplying 1,000 sealing systems per day for Fiat's new Palio world car.
We successfully completed the Ford Taurus/Sable launch, our largest ever,
involving nine of our plants.
NET SALES [GRAPH]
TOTAL COMPANY R, E & D [GRAPH]
CAPITAL ADDITIONS, NET [GRAPH]
EARNINGS PER SHARE [GRAPH]
1
<PAGE> 6
Standard Products stepped up its position in the rapidly expanding Brazilian
auto industry with the opening of a new 236,000-sq.-ft. plant in Varginha. The
facility is located near many of the automotive plants supplying the Brazilian
and Argentine markets.
[PHOTO]
2
<PAGE> 7
CANADA Standard Products first expanded beyond the United States in the 1930s,
setting up production in Canada. Today our Canadian production facilities,
including a rubber-mixing plant, supply sealing and trim systems to automotive
assembly plants throughout Canada and the United States.
- ---------------------
TO OUR SHAREHOLDERS:
What a difference a year makes. Twelve months ago, we were at the apex of the
most intensive three-year schedule of new programs and capital investments in
Standard Products' history. These programs had stretched our resources and
squeezed profits, but we were confident in our strategy. These investments were
the price of admission to the future. That future began to emerge in the third
quarter of fiscal 1996 and became apparent in the fourth quarter of the year.
For the three months ended June 30, we reported record-breaking quarterly sales
of $303.1 million and the highest quarterly earnings in the Company's history
- -- $15.5 million, equal to $.93 per share. This strong performance brought our
annual sales to $1,083.9 million, putting us over the billion-dollar annual
sales mark for the first time. Net income for the year was $14.6 million, or
$.87 per share, compared with $20.1 million, or $1.20 per share, a year ago.
The quarter-to-quarter improvement was due primarily to three factors: higher
volumes, stable material prices, and our ability to cut costs quickly and begin
to move up the profit curve on new programs and new ventures.
Fiscal 1996 sales from Transportation Equipment, our largest business segment,
were $958.1 million, up 10.3% over fiscal 1995. Most of the gain came from the
North American market, largely due to our participation on the Ford
Taurus/Sable, Chevrolet Lumina/Monte Carlo and Chrysler minivan programs.
Our automotive sales in Europe were $241.6 million, essentially flat
- ---------------------
BRAZIL Our world-class rubber and plastic extrusion plant in Varginha, Brazil,
began production in January 1996. The facility supplies 100% of the automotive
sealing systems for Fiat's new Palio world car. In addition to launching the
Palio, we integrated the operations of Itatiaia Standard into Varginha and now
serve other Brazilian automakers.
3
<PAGE> 8
[PHOTO]
Our newest North American plant is located in Griffin, Georgia. Opened in 1994,
the plant produces window channels, weatherstrips and doorseals for Chrysler's
popular minivans and Neon subcompact. These are among our biggest current
programs.
4
<PAGE> 9
with the prior year. Transportation Equipment volume also benefited from $29.5
million in sales from Brazil, compared with just $2.6 million a year ago. For
most of the prior year, we had only a 20% interest in Itatiaia Standard, our
Brazilian subsidiary, and its sales were not consolidated.
Oliver Rubber, our tread rubber subsidiary, was profitable on a slight increase
in sales for the year. Oliver's decision to shut down its European operations
affected the year-over-year sales comparison, but this was offset by initial
revenues from a major new contract signed during the year. Treadco, the
nation's largest independent truck-tire retreader, agreed to convert 22 of its
truck tire precure retread facilities to Oliver licensees. Oliver will supply
precured tread rubber, retread equipment and related items to the Treadco
shops. The conversion is expected to be completed later this fall, and has
grown to 25 shops.
Our Holm Industries subsidiary reported flat sales for the year in the
refrigerator and freezer market. NISCO, our U.S.-based joint venture with
Nishikawa Rubber Company of Hiroshima, Japan, which manufactures sponge
automotive door seals, was profitable for the year on higher sales. Our share
of NISCO's profits is 50% of the total. NISCO's sales are not consolidated in
our income statement.
Looking back at fiscal 1996, we began the year with the launch of the Ford
Taurus/Sable. Although launch costs on the Taurus/Sable were high, this was one
of our most successful launches ever.
Meanwhile, in Brazil, government credit tightening dramatically reduced demand
for new cars. The resulting slowdown exacerbated losses at Itatiaia Standard
just as we were starting up our new plant. By the end of the fiscal year,
however, market conditions had improved, Itatiaia
- ---------------------
UNITED STATES From our base in the U.S., we have built Standard Products into a
global company with a manufacturing presence on three continents. Through
investments in engineering and design, combined with kaizen process
simplification, we are targeting to become the low-cost producer, bringing
innovative products to our customers.
5
<PAGE> 10
[PHOTO]
An employee checks an extrusion oven at our plant in Huntingdon, England.
Standard Products' long experience in international operations represents an
important advantage as automakers increasingly demand a globally competitive
level of quality for their new generation of world vehicles.
6
<PAGE> 11
FRANCE We established a presence in continental Europe with our 1993
acquisition of SPI. In addition to SPI's production facilities, the acquisition
brought us valuable technology that has been shared throughout the Company.
SPI's relationship with Fiat led to our Brazilian investment.
- ---------------------
Standard's plant in Sao Paulo had been integrated into the new plant in
Varginha, and we had started launching our first Brazilian program, for the new
Fiat Palio.
The 236,000-sq.-ft. plant in Varginha, Brazil, was built to supply 100% of the
sealing systems for the Palio, designed by Fiat to be a world car. We are
currently supplying 1,000 sealing systems per day for the Palio, and we expect
to reach full production of 2,200 per day a year from now when Fiat ramps up
production at a second assembly plant in Argentina. Our facility is also
supplying other auto manufacturers in the rapidly expanding Brazilian and
Argentine markets.
The new plant in Brazil and the successful North American and European launches
over the past two years exemplify our aggressive growth strategy: We will
sustain our strong base of business in North America and Europe by investing
heavily in research, development and engineering, and through kaizen and
continuous improvement efforts. A key element here is our two-year-old
Worldwide Technology Organization, whose mission is to develop new products and
processes, share our technological expertise across the Company, and ensure
worldwide consistency of equipment and technology. For our customers' new
plants in Latin America, Southeast Asia and elsewhere, the world's automakers
are demanding a globally competitive level of quality and design engineering
capabilities. Standard Products has been supplying these customers throughout
the world for many, many years. We
- ---------------------
UNITED KINGDOM In addition to several production plants, the U.K. is
also home to one of our worldwide rubber mixing centers and one of our major
product development centers. The ability to interchange engineering and
manufacturing technology around the globe is a key advantage Standard Products
brings to its niche in the automotive marketplace.
7
<PAGE> 12
are excited about these opportunities in South America, as well as in other
countries with major automotive markets.
We have made significant strides in the last several years, substantially
strengthening our engineering and design capabilities. We continue to
strengthen our partnership with Nishikawa Rubber Company of Hiroshima, Japan,
which has become an important source of strength to both Nishikawa and Standard
Products.
As we improve our plant efficiency and bring costs down, we can do more with
less and will continually reassess the most efficient use of our assets. That
said, we must reiterate that this remains an intensely competitive business. We
see significant overcapacity in the North American auto industry among both
suppliers and customers. As a result, we are feeling heavy pressure from our
customers for price reductions.
Although our upcoming launch schedule is lighter than last year, we still
expect to bring on about $100 million in new business in fiscal 1997, replacing
some $60 million in existing volume. Major launches include the Buick Century
and Park Avenue, the Ford Escort coupe, the Jeep Cherokee, and the Fiat Palio
3-door in Brazil.
Barring a severe auto industry strike this fall, we look to improved results
for fiscal 1997. Assuming reasonable economic conditions over the next several
years, we see a highly competitive and slow growth world auto industry, with
pockets of opportunity for us.
On behalf of the Board of Directors, we thank our employees for their pride and
commitment and our shareholders, customers and suppliers for their ongoing
support.
[PHOTOS]
James S. Reid, Jr.
Chairman and Chief Executive Officer
Theodore K. Zampetis
President and Chief Operating Officer
August 28, 1996
8
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
(ALL AMOUNTS IN THOUSANDS OF DOLLARS)
Standard Products is recognized as one of the world's leading suppliers of
sealing, trim and vibration-control systems to original equipment manufacturers
(OEMs) of passenger cars and light trucks. The Company also maintains leading
positions in the sealing industry for the refrigeration and home building
products businesses. These operations comprise the Company's Transportation
Equipment Segment. The Company reports the results of its truck tire retreading
business as the Tread Rubber Segment. This business also has a market-leading
position in its industry.
TRANSPORTATION EQUIPMENT SEGMENT
GENERAL
Sealing and vibration control systems are usually made of extruded and molded
rubber. These products are engineered to provide the driver of an automobile a
smooth, quiet ride. The systems accomplish this by preventing moisture, wind
and other forces from penetrating the openings in a vehicle and by reducing the
impact of vibrations from poor road conditions or normal engine and powertrain
operation. As such, these systems can be extremely important to the retail
customer's satisfaction with a particular vehicle. Trim systems are generally
made from plastic. The Company typically produces these components using the
extrusion process rather than injection molding. The Company believes that its
superior extrusion technology provides it with a competitive advantage.
This segment is highly dependent on the success of the OEMs worldwide and on
three customers in particular (Ford, General Motors and Chrysler), the loss of
one or more of which would have a material adverse effect on this segment. (See
Note 13 to the financial statements for details on sales by customer.) The
market for new automobiles in any country is highly dependent on the general
economic conditions in that country. As the Company continues to expand its
global reach, it also spreads that risk over more areas. Currently, the areas
in which the Company produces and ships parts appear relatively stable. The
Brazilian economy continues to merit close attention, especially as we increase
production. Revenues from the Company's operations in Brazil are expected to
double next year from fiscal 1996 levels. The North American and European
economies remain in low growth patterns that are typical of mature markets.
In addition to the factors noted above, the globalization of the economy
continues to bring new competition for customers in North America. Management
views the Company's extensive global experience as a major asset in the battle
for new business. Continued globalization, however, will only increase the
pressure from our customers to reduce prices.
While the Company's business is not seasonal in the traditional sense, July,
August and December are usually lower volume months. OEMs typically perform
model changeovers during July, European operations are closed for vacations in
August and assembly plants are usually closed for a period from shortly before
Christmas until after New Year's Day.
SALES PERFORMANCE -- 1996 VERSUS 1995
Fiscal 1996 sales for the Transportation Equipment Segment were $958,105, an
increase of $89,213, or 10.3%, over the prior year. The following table
details the sales of this segment by geographic location:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
North America....................... $687,009 $626,152
Europe.............................. 241,617 240,100
South America....................... 29,479 2,640
-------- --------
Total.......................... $958,105 $868,892
</TABLE>
The sales increase in North America was entirely related to our automotive
group, despite flat production of passenger cars and light trucks
year-over-year in the North American auto market. Strong performance by
individual platforms within the industry accounted for the increased sales
volume. The Chrysler minivan and Jeep Grand Cherokee showed strong sales gains.
This was also our first full year of production on the Chrysler minivan. The
Ford Taurus/Sable, while slipping slightly in sales, has shown stronger volumes
as the year progressed. This helped support our strong fourth quarter
performance. The new Ford F-150 truck also helped to boost sales. North America
also includes the results of our appliance sealing business which was
essentially flat year-over-year, although fourth quarter production was strong,
helping to offset previous quarterly declines in year-over-year sales. In
Europe, volumes were up in the United Kingdom, principally on Ford platforms,
while in France volumes declined primarily with Renault and Fiat. Foreign
currency translations in France acted to almost entirely offset the volume
declines, while in the United Kingdom they reduced the volume gains by over
40%. In South America, results for fiscal 1995 reflect one month's revenue,
while fiscal 1996 reflects a full twelve months of sales. Our new plant in
Varginha came on line in the last month of the third quarter of this year,
adding solidly to the revenue base. The Fiat Palio will be the source of most
of this region's revenue next year.
SALES PERFORMANCE -- 1995 VERSUS 1994
Fiscal 1995 sales for the Transportation Equipment Segment were $868,892, an
increase of $115,128, or 15%, over the prior year. In North America, automotive
sales were $531,086, an increase of 15%. The 1995 results reflect a full year
of sales of parts for the General Motors Lumina/Monte Carlo models. Production
of these models began late in fiscal 1994 at slow rates of production. During
1995, production levels increased to normal rates and, as a result, sales of
the Company's parts to General Motors increased $45,000 compared to 1994.
Similarly, Chrysler began production of the Neon models in mid-fiscal 1994 with
rates of production gradually increasing. Fiscal 1995 includes a full year of
sales of the Company's products for the Neon. The increase in sales over 1994
was $26,038. These sales gains were partially offset by lower production
volumes of certain models and the conclusion of production of models for which
the Company does not continue to supply parts.
In Europe, sales increased by $35,504 to $240,100, an increase of 17%. During
fiscal 1995, the U.S. dollar weakened in relation to the currencies of the
countries where the Company's European subsidiaries do business. For the year,
the effect of the varying currency exchange rates contributed 56% of the
increased sales in Europe, measured in U.S. funds. The remainder of the
increase in sales is due to the sales of parts on new models and strong builds
for the year compared to fiscal 1994.
In May, the Company completed its acquisition of Itatiaia Standard of Brazil.
Its sales for June 1995 were $2,640.
Holm Industries, the Company's subsidiary which serves the appliance and
building products industries, recorded sales of $94,217, an increase of $7,173,
or 8.2% over the prior year. The increase in sales was due to strong
refrigeration appliance sales during fiscal 1995, sales of new products and
sales to new customers. In addition, Holm partially recovered raw material cost
increases through increased selling prices.
OPERATING PERFORMANCE -- 1996 VERSUS 1995
Fiscal 1996 began poorly but finished on a high note. First quarter gross
margins were affected by high start-up costs on several new launches. In
addition, raw material costs that had steadily escalated during fiscal year
1995 remained high. Beginning in the second
9
<PAGE> 14
quarter of fiscal 1996, costs related to our largest launches in history began
to subside at most locations and raw material prices started to decline.
Continuous improvement programs also generated significant margin improvements
as programs went from launch status to a more stable, repetitive environment.
Selling, general and administrative expenses increased substantially in this
segment over the prior year. This increase was the result of start-up costs in
Brazil, as well as the expenses related to the sale of receivables explained
further in Note 4 to the financial statements.
The Company completed the reduction of its Canadian plastics plant previously
accrued for in 1995. Additional costs were incurred of approximately $1,000 and
were charged to normal operations in fiscal 1996.
OPERATING PERFORMANCE -- 1995 VERSUS 1994
Automotive production volume increased significantly during 1995 compared to
the prior year. Volume increases were led by the production of parts for the
Lumina/Monte Carlo and Neon models as well as volume gains for the year in
Europe, contributing 1.7% of fiscal 1995 sales. These gains were offset,
however, by lower margins on new product programs compared with those which
were replaced. This decline represented 1.6% of fiscal 1995 sales. The Company
experienced significant raw material price increases during fiscal 1995
throughout its operating units with rubber, plastics and chemicals increasing
significantly. The effect of increases in raw material costs was .9% of fiscal
1995 sales. The Company encountered manufacturing and production problems at
its Spartanburg, South Carolina plant throughout 1995. The resulting excessive
manufacturing costs and tooling expenses were .7% of fiscal 1995 sales. The
increase in research, engineering and development expenses represented .5% of
1995 sales. These expenses were incurred for current year programs as well as
future programs.
The Company recorded $3,485 to provide for the reduction of its plastics plant
in Canada. Charges included severance, idle assets and remaining lease
commitments.
TREAD RUBBER SEGMENT
GENERAL
Oliver Rubber Company (Oliver) manufactures and markets precure and mold cure
tread rubber, bonding gum, cement, repair materials and equipment for use in
the tire retreading industry. In addition, Oliver supplies custom mixed rubber
to The Standard Products Company and certain affiliates for use in the
automotive original equipment business.
SALES PERFORMANCE -- 1996 VERSUS 1995
Sales for fiscal 1996 were $135,869, including intersegment sales of $10,054.
This was an increase of 1.7%, or $2,213 over fiscal 1995. In fiscal 1995, the
Company closed its European operations related to this segment. Accordingly,
there were no sales in Europe in fiscal 1996. During fiscal 1995, sales in
Europe were $5,239. Sales in North America increased by $7,452 in fiscal 1996.
Roughly 46% of this increase came from additional intercompany sales to the
Transportation Equipment Segment. During fiscal 1996, the Company made a
significant investment in its mixing plant in Asheboro, North Carolina,
resulting in improved quality and increased sales to the Transportation
Equipment Segment's automotive parts plants. The remainder of the increase in
sales is primarily attributable to the new agreement Oliver signed in fiscal
1996 to supply Treadco, Inc. with precure tread rubber, retread equipment and
related items at all of its truck tire precure retreading locations. Treadco,
Inc. is the largest independent truck tire retreader in the United States.
SALES PERFORMANCE -- 1995 VERSUS 1994
For fiscal 1995, sales of the Tread Rubber Segment were $133,656, including
intersegment sales of $6,622. Sales increased by 7.6%, or $9,487 over fiscal
1994. In North America, sales increased $13,150. Sales volume increased over
1994 in both precure and mold cure rubber. In addition, the Company increased
selling prices, primarily in the second half of fiscal 1995, to partially
offset raw material cost increases which occurred during the year. Increased
sales in North America were offset by a decrease in sales in Europe of $3,663.
This was the result of the Company concluding operations in Europe in this
segment.
10
<PAGE> 15
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
(THOUSANDS OF DOLLARS EXCEPT SHARE DATA) 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT
Net Sales $1,083,920 $995,926 $872,367 $763,796 $657,036
Gross Income 108,482 99,455 119,427 108,607 94,253
Selling, General & Administrative Expenses 69,616 60,121 57,787 49,768 41,760
Rationalization of Business Units -- 8,832 4,424 -- --
Interest (Income) Expense, net 12,779 13,010 9,093 8,214 13,659
Other (Income) Expense, net (2,437) 233 (2,092) 399 54
Provision for Taxes on Income 13,947 (2,807) 17,183 16,803 15,475
Income (Loss) from Continuing Operations and Before
Extraordinary Item and Cumulative Effect on Prior
Years of Change in Accounting Principle 14,577 20,066 33,032 33,423 23,305
Income (Loss) from Operations and Disposal of
Discontinued Division, Net of Tax -- -- -- -- --
Income (Loss) Before Extraordinary Item and Cumulative
Effect on Prior Years of Change in Accounting Principle 14,577 20,066 33,032 33,423 23,305
Extraordinary Item, Net of Tax -- -- -- (2,559) --
Cumulative Effect on Prior Years of Change in
Accounting Principle, Net of Tax -- -- -- (8,301) --
Net Income (Loss) $ 14,577 $ 20,066 $ 33,032 $ 22,563 $ 23,305
Percent Net Income to Sales 1.3 2.0 3.8 3.0 3.5
Percent Net Income to Average Shareholders' Equity 5.6 8.0 14.5 12.1 19.5
PER SHARE
Income (Loss) from Continuing Operations and Before
Extraordinary Item and Cumulative Effect
on Prior Years of Change in Accounting Principle $ .87 $ 1.20 $ 1.99 $ 2.21 $ 1.79
Income (Loss) from Discontinued Operations -- -- -- -- --
Extraordinary Item, Net of Tax -- -- -- $ (.17) --
Cumulative Effect on Prior Years of Change in
Accounting Principle, Net of Tax -- -- -- $ (.55) --
Net Income (Loss) $ .87 $ 1.20 $ 1.99 $ 1.49 $ 1.79
Cash Dividends Declared $ .68 $ .68 $ .65 $ .54 $ .38
Book Value $ 15.42 $ 15.56 $ 14.55 $ 13.56 $ 11.82
BALANCE SHEET
Property, Plant & Equipment $ 548,816 $489,534 $422,576 $377,564 $279,830
Accumulated Depreciation 250,278 220,095 180,567 153,137 130,410
Total Assets 684,695 701,889 624,314 564,850 398,793
Working Capital 54,034 127,498 87,922 79,396 97,303
Long-term Debt 143,041 190,522 135,381 115,607 69,289
Shareholders' Equity 258,765 260,495 242,677 224,436 177,753
Cash Dividends Declared $ 11,400 $ 11,445 $ 10,821 $ 8,450 $ 5,103
OTHER
Additions to Property, Plant & Equipment, net $ 79,684 $ 54,671 $ 59,120 $ 38,000 $ 18,367
Depreciation & Amortization $ 52,545 $ 46,839 $ 40,495 $ 29,887 $ 26,228
Shares Outstanding 16,785 16,736 16,674 16,552 15,044
Average Shares Outstanding 16,758 16,711 16,627 15,114 13,010
<CAPTION>
(THOUSANDS OF DOLLARS EXCEPT SHARE DATA) 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT
Net Sales $ 592,090 $590,699 $527,896 $473,035 $412,507
Gross Income 38,946 65,316 81,452 83,878 81,911
Selling, General & Administrative Expenses 40,073 35,011 27,111 23,694 21,388
Rationalization of Business Units -- -- -- -- --
Interest (Income) Expense, net 11,663 8,608 3,125 1,430 (86)
Other (Income) Expense, net 285 1,846 2,062 1,612 (1,720)
Provision for Taxes on Income 7,879 8,060 18,333 20,373 29,165
Income (Loss) from Continuing Operations and Before
Extraordinary Item and Cumulative Effect on Prior
Years of Change in Accounting Principle (20,954) 11,791 30,821 36,769 33,164
Income (Loss) from Operations and Disposal of
Discontinued Division, Net of Tax (24,655) -- (2,132) (2,712) (1,639)
Income (Loss) Before Extraordinary Item and Cumulative
Effect on Prior Years of Change in Accounting Principle (45,609) 11,791 28,689 34,057 31,525
Extraordinary Item, Net of Tax -- -- -- -- --
Cumulative Effect on Prior Years of Change in
Accounting Principle, Net of Tax -- -- -- -- --
Net Income (Loss) $ (45,609) $ 11,791 $ 28,689 $ 34,057 $ 31,525
Percent Net Income to Sales -- 2.0 5.4 7.2 7.6
Percent Net Income to Average Shareholders' Equity -- 7.7 18.8 25.5 25.5
PER SHARE
Income (Loss) from Continuing Operations and Before
Extraordinary Item and Cumulative Effect
on Prior Years of Change in Accounting Principle $ (1.65) $ .93 $ 2.33 $ 2.71 $ 2.33
Income (Loss) from Discontinued Operations $ (1.94) -- $ (.16) $ (.20) $ (.11)
Extraordinary Item, Net of Tax -- -- -- -- --
Cumulative Effect on Prior Years of Change in
Accounting Principle, Net of Tax -- -- -- -- --
Net Income (Loss) $ (3.59) $ .93 $ 2.17 $ 2.51 $ 2.22
Cash Dividends Declared $ .47 $ .74 $ .69 $ .61 $ .46
Book Value $ 8.06 $ 12.05 $ 12.05 $ 10.96 $ 9.14
BALANCE SHEET
Property, Plant & Equipment $ 251,151 $239,773 $ 200,801 $ 154,623 $131,036
Accumulated Depreciation 102,553 91,739 76,591 65,922 55,878
Total Assets 369,272 362,399 333,741 255,211 226,009
Working Capital 61,594 90,014 88,937 74,759 74,572
Long-term Debt 113,298 99,480 75,213 16,577 18,180
Shareholders' Equity 102,366 152,829 156,348 145,800 127,359
Cash Dividends Declared $ 5,992 $ 9,365 $ 9,084 $ 8,194 $ 6,516
OTHER
Additions to Property, Plant & Equipment, net $ 21,179 $ 39,230 $ 32,506 $ 21,345 $ 23,741
Depreciation & Amortization $ 24,747 $ 19,975 $ 14,196 $ 11,078 $ 9,437
Shares Outstanding 12,695 12,689 12,975 13,293 13,928
Average Shares Outstanding 12,694 12,753 13,250 13,571 14,241
</TABLE>
OPERATING PERFORMANCE -- 1996 VERSUS 1995
Operating income for the Tread Rubber Segment increased from $1,727 in fiscal
1995 to $4,078 in fiscal 1996. While this segment has made several improvements
in its operating performance, particularly the quality of its mixing
capabilities, the primary source of its improved profitability came from supply
chain management. This resulted in savings on raw material costs that
translated to improved operating income.
OPERATING PERFORMANCE -- 1995 VERSUS 1994
The effect of volume increases exceeded profitability decreases, representing
.1% of fiscal 1995 sales. The effect of foreign currency variations on gross
margins was minor. In 1995, the Company concluded its European tread rubber
operations with the closure of the Oliver Rubber subsidiary in the United
Kingdom. The Company reduced assets to their net realizable value, accrued
costs for severance, liquidation and other expenses, and recognized deferred
currency losses
11
<PAGE> 16
formerly included in the foreign currency translation account in the balance
sheet. Total losses recorded amounted to $5,347, with $2,309 recorded in the
first quarter and the balance recorded in the fourth quarter of fiscal 1995.
The Company attempted to realize as much value as possible on remaining assets
before beginning formal liquidation.
OTHER (INCOME) EXPENSE
Interest expense, net in fiscal 1996 was $12,779, a decrease of $231 from 1995
levels. This was primarily the result of two factors. Proceeds from the sale
of accounts receivable (see Note 4 to the financial statements) were used to
reduce outstanding debt. During the year the Company increased its borrowings
to fund investments in Brazil and other capital programs. Therefore, average
debt levels were only slightly lower in fiscal 1996 as compared to fiscal 1995.
By year end, however, debt levels were substantially lower than June 30, 1995.
Interest expense, net in fiscal 1995 was $13,010 compared to $9,093 in 1994.
Interest expense increased as rates and the level of borrowings both increased
from 1994 levels. This was partially offset by higher interest income earned by
more funds being invested by the Company's United Kingdom subsidiary.
Royalty and dividend income were comparable for each of the last three years.
Other, net was income in fiscal 1996 of $1,764, an improvement of $2,811 over
the 1995 expense of $1,047. As explained in Note 1 of the financial statements,
the operating income of the Company's joint venture, Nishikawa Standard
Company, increased by $2,073. Fiscal 1995 expense also included $942 of losses
incurred in disposing of fixed assets.
Results of operations for fiscal 1996 include an effective tax rate of 48.9%.
This high effective tax rate is the result of the Company's inability to
utilize net operating losses generated in its Brazilian operations. The
recognition of tax benefits related to the losses will be reported in future
periods as opportunities to utilize these carryforwards become more certain.
The fiscal 1995 tax provision reflected the recognition of the benefit of the
remaining net operating loss carryforward of $3,181 from the Company's
subsidiary in the United Kingdom. The Company also recognized a tax benefit of
$4,441 related to the write-off for tax purposes of Oliver Rubber's investment
in the United Kingdom. Absent these two transactions, the Company's effective
tax rate would have been 28%.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $122,740 from operating activities in fiscal 1996. This
was a $69,631 increase over fiscal 1995. The large increase was primarily the
result of the sale of $50,000 of receivables described in Note 4 of the
financial statements. The Company also had several large tooling programs
outstanding at year end that had the impact of increasing accounts receivable
and accrued expenses. In addition, the Company reduced its inventories by over
$9,000 through continuous improvement efforts at various locations.
During fiscal 1996, the Company continued its investment in new technology and
equipment. Capital spending of $79,684 includes approximately $43,000 in
Brazil. In addition, the Company has nearly completed a worldwide upgrade of
its mixing facilities. New mixers in Brazil, the United States and Canada, will
be joined in 1997 by new equipment in the United Kingdom. Fiscal 1997 capital
additions are expected to be $65,000, including investment in a new facility in
Mexico.
During the three-year period ended June 30, 1996, inflation has been relatively
moderate and operating costs reflect current costs for raw materials and
inventory, operating expenses and depreciation. It is important to understand
that inflation, as reported on a consumer price index basis, may not bear a
direct relationship to the Company's costs. Although inflation on the whole was
stable during the period, as mentioned above, fiscal 1995 saw significant price
increases in the raw materials used in operations. This was the result of
increased costs of petroleum, polymers and chemicals used in our business that
rose at a rate higher than general inflation. The Company does not expect
inflation to have any near-term material effect on the costs of its products,
although there can be no assurance that such an effect will not occur in the
future.
Except for Brazil, the value of the Company's consolidated assets and
liabilities located outside the United States (which are translated at
period-end exchange rates) and income and expenses (which are translated using
rates prevailing during the fiscal year) have been affected by the translation
values of the Canadian dollar, French franc and British pound. Such translation
adjustments are reported as a separate component of shareholders' equity. While
exchange rate fluctuations have historically not had a significant impact on
the Company's reported operating results, changes in the values of the
currencies noted above will impact the translation adjustments in the future.
The Company's operations in Brazil use the U.S. dollar as their functional
currency. Translation adjustments for these operations are included in the
determination of income.
At June 30, 1996, the Company was in compliance with the various covenants
under the agreements pursuant to which it may borrow money. Management expects
that it will remain in compliance with these covenants through the year ending
June 30, 1997.
During the next year, 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.
PROSPECTIVE INFORMATION
During fiscal 1997, the Company anticipates that passenger car and light truck
production in North America will remain flat compared to fiscal 1996. In
addition, while the Company will launch several new programs in 1997, new
volume will not approach the record levels of last year. With this in mind,
fiscal 1997 should show improvement over last year's results. Operations in
Brazil will be a key determinant in the success of next year.
CAUTIONARY STATEMENTS FOR PURPOSES OF "SAFE HARBOR"
UNDER THE PRIVATE SECURITIES REFORM ACT OF 1995
Certain statements in this Annual Report, in the Company's press releases and
in oral statements made by or with the approval of an authorized executive
officer of the Company constitute "forward-looking statements" as that term is
defined under the Private Securities Litigation Reform Act of 1995. These may
include statements projecting, forecasting or estimating Company performance
and industry trends. The achievement of the projections, forecasts or estimates
is subject to certain risks and uncertainties. Actual results and events may
differ materially from those projected, forecasted or estimated. The applicable
risks and uncertainties include general economic and industry conditions that
affect all international businesses, as well as matters that are specific to
the Company and the markets it serves.
General risks that may impact the achievement of such forecasts include:
compliance with new laws and regulations, significant raw material price
fluctuations, currency exchange rate fluctuations, limits on repatriation of
funds and political uncertainties. Specific risks to the Company include: risk
of recession in the economies in which its products are sold, the concentration
of a substantial percentage of the Company's sales with a few major OEM
customers, labor relations at the Company, its customers and its suppliers;
competition in pricing and new product development from larger companies with
substantial resources; and continued globalization of the automotive supply
base resulting in new competition in certain locations.
12
<PAGE> 17
CONSOLIDATED STATEMENTS OF INCOME
The Standard Products Company and Subsidiary Companies
for the Years Ended June 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS EXCEPT SHARE DATA) 1996 1995 1994
<S> <C> <C> <C>
Net Sales $ 1,083,920 $ 995,926 $ 872,367
Cost of Goods Sold:
Materials, wages and other manufacturing costs 934,504 863,260 724,090
Research, engineering and development expenses 40,934 33,211 28,850
----------- ----------- -----------
975,438 896,471 752,940
----------- ----------- -----------
Gross Income 108,482 99,455 119,427
Selling, General and Administrative Expenses 69,616 60,121 57,787
Rationalization of Business Unit -- 8,832 4,424
----------- ----------- -----------
38,866 30,502 57,216
----------- ----------- -----------
Other (Income) Expense:
Royalty and dividend income (673) (814) (770)
Net interest expense 12,779 13,010 9,093
Other, net (1,764) 1,047 (1,322)
----------- ----------- -----------
10,342 13,243 7,001
----------- ----------- -----------
Income before Taxes on Income 28,524 17,259 50,215
Provision for Taxes on Income 13,947 (2,807) 17,183
----------- ----------- -----------
Net Income $ 14,577 $ 20,066 $ 33,032
----------- ----------- -----------
Earnings Per Common Share:
Primary $ 0.87 $ 1.20 $ 1.99
----------- ----------- -----------
Fully Diluted $ 0.87 $ 1.20 $ 1.99
----------- ----------- -----------
Weighted average shares outstanding 16,757,767 16,711,451 16,626,927
</TABLE>
The accompanying notes are an integral part of these statements.
13
<PAGE> 18
CONSOLIDATED BALANCE SHEETS
The Standard Products Company and Subsidiary Companies, June 30, 1996 and 1995
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS) 1996 1995
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ -- $ 19,546
Receivables, less allowances of $2,958 in 1996 and $4,978 in 1995 180,787 196,613
Inventories 60,377 69,458
Prepaid insurance, taxes, etc. 19,680 21,820
---------- ------------
Total current assets 260,844 307,437
---------- ------------
Property, Plant and Equipment, at cost:
Land 9,668 7,553
Buildings and improvements 106,039 92,907
Machinery and equipment 368,697 332,729
Furniture and fixtures 43,103 37,407
Capital projects in process 21,309 18,938
---------- ------------
548,816 489,534
Less - Accumulated depreciation (250,278) (220,095)
---------- ------------
298,538 269,439
Goodwill, net 71,653 64,976
Other Assets, net 53,660 60,037
---------- ------------
$ 684,695 $ 701,889
- --------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term notes payable $ 1,198 $ 4,609
Current maturities of long-term debt 2,450 2,176
Accounts payable
Accrued payrolls 99,093 102,066
Accrued expenses 26,651 26,360
Dividend payable 74,565 41,883
Total current liabilities 2,853 2,845
---------- ------------
Long-term Debt, net of current maturities 206,810 179,939
---------- ------------
Other Postretirement Benefits 143,041 190,522
---------- ------------
Deferred Income Taxes and Other Credits 26,023 25,907
---------- ------------
50,056 45,026
---------- ------------
Commitments and Contingent Liabilities
Shareholders' Equity:
Serial preferred shares, without par value, authorized
6,000,000 voting shares and 6,000,000 non-voting
shares, none issued -- --
Common shares, par value $1 per share; authorized
50,000,000 shares, issued and outstanding 16,784,867
in 1996 and 16,736,155 in 1995 16,785 16,736
Paid-in capital 96,906 96,237
Retained earnings 154,669 151,492
Foreign currency translation adjustments (6,318) (496)
Minimum pension liability (3,277) (3,474)
---------- ------------
Total shareholders' equity 258,765 260,495
---------- ------------
$ 684,695 $ 701,889
- --------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
14
<PAGE> 19
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
The Standard Products Company and Subsidiary Companies
for the Years Ended June 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
FOREIGN TOTAL
CURRENCY MINIMUM SHARE-
COMMON PAID-IN RETAINED TRANSLATION PENSION HOLDERS'
(THOUSANDS OF DOLLARS EXCEPT SHARE DATA) 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) $ 24,436
Net income -- -- 33,032 -- -- 33,032
Cash dividends ($.65 per share) -- -- (10,821) -- -- (10,821)
Foreign currency translation adjustments -- -- -- (3,709) -- (3,709)
Restricted stock awards -- 585 -- -- -- 585
Sale of 122,042 shares to option holders 122 946 -- -- -- 1,068
Minimum pension liability -- -- -- -- (1,914) (1,914)
------- -------- -------- -------- ------- --------
BALANCE, JUNE 30, 1994 $16,674 $95,614 142,871 $(10,359) $(2,123) $242,677
Net income -- -- 20,066 -- -- 20,066
Cash dividends ($.68 per share) -- -- (11,445) -- -- (11,445)
Foreign currency translation adjustments -- -- -- 9,863 -- 9,863
Restricted stock awards -- 208 -- -- -- 208
Sale of 61,894 shares to option holders 62 415 -- -- -- 477
Minimum pension liability -- -- -- -- (1,351) (1,351)
------- -------- -------- -------- ------- --------
BALANCE, JUNE 30, 1995 $16,736 $96,237 $151,492 $ (496) $(3,474) $260,495
Net income -- -- 14,577 -- -- 14,577
Cash dividends ($.68 per share) -- -- (11,400) -- -- (11,400)
Foreign currency translation adjustments -- -- -- (5,822) -- (5,822)
Restricted stock awards -- 419 -- -- -- 419
Sale of 48,712 shares to option holders 49 250 -- -- -- 299
Minimum pension liability -- -- -- -- 197 197
------- -------- -------- -------- ------- --------
BALANCE, JUNE 30, 1996 $16,785 $96,906 $154,669 $ (6,318) $(3,277) $258,765
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
15
<PAGE> 20
CONSOLIDATED STATEMENTS OF CASH FLOWS
The Standard Products Company and Subsidiary Companies
for the Years Ended June 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS) 1996 1995 1994
<S> <C> <C> <C>
Net cash provided by (used for) operating activities:
Net income $ 14,577 $ 20,066 $ 33,032
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 52,545 46,839 40,495
Deferred taxes and other credits 265 (2,631) (7,839)
Equity in income of non-consolidated affiliates (2,436) (786) (1,603)
Effect of changes in foreign currency 192 (2,834) (627)
Other operating items 1,216 (2,151) (6,464)
--------- --------- ---------
Net cash provided by operations 66,359 58,503 56,994
--------- --------- ---------
Net cash provided by (used for) changes in operating
assets and liabilities:
Receivables 18,160 9,436 (34,419)
Inventories 9,081 (14,790) (6,304)
Accounts payable and accrued expenses 27,000 6,465 31,047
Other, net 2,140 (6,505) (981)
Net cash provided by (used for) changes in
operating assets and liabilities 56,381 (5,394) (10,657)
--------- --------- ---------
Net cash provided by operating activities 122,740 53,109 46,337
--------- --------- ---------
Net cash provided by (used for) investments:
Purchase of property, plant and equipment, net (79,684) (54,671) (59,120)
Investments in affiliates and non-consolidated entities (199) (8,679) (1,500)
Assets acquired by purchase of businesses (1,581) (840) --
--------- --------- ---------
Net cash (used for) investments (81,464) (64,190) (60,620)
--------- --------- ---------
Net cash provided by (used for) financing:
Proceeds from exercise of stock options 299 477 1,068
Proceeds of long-term borrowings 37,791 55,929 140,343
Net increase (decrease) in short-term borrowings (3,561) (11,740) 2,247
Repayment of long-term borrowings (84,659) (1,914) (124,031)
Cash dividends (11,400) (11,445) (10,821)
--------- --------- ---------
Net cash provided by (used for) financing (61,530) 31,307 8,806
--------- --------- ---------
Effect of exchange rate changes on cash and cash equivalents 708 (680) (71)
--------- --------- ---------
Increase (decrease) in cash and cash equivalents (19,546) 19,546 (5,548)
Cash and cash equivalents at the beginning of the year 19,546 -- 5,548
--------- --------- ---------
Cash and cash equivalents at the end of the year $ -- $ 19,546 $ --
- --------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
16
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
The Standard Products Company and Subsidiary Companies
for the Years Ended June 30, 1996, 1995 and 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
The Company's investments in affiliate operations are accounted for by both the
equity and cost methods of accounting. The cost method is followed in those
situations where the Company's ownership is less than 20% and operations are
conducted by management of the affiliate. Income is recorded as received. The
equity method of accounting is followed in those situations of larger ownership
interests but less than 51%, and the Company's results of operations include
those of the affiliate to the extent of its ownership interest.
The Company's investment in Nishikawa Standard Company (NSC), a 50% owned joint
venture in the United States, is accounted for under the equity method. The
Company's investment in NSC at June 30, 1996 and 1995 was $18,644 and $16,140,
respectively and is included in Other Assets in the accompanying consolidated
balance sheet. The Company's share of NSC's operating income was $2,504, $431
and $1,603 in fiscal 1996, 1995 and 1994, respectively.
Under the terms of NSC's revolving credit and term loan facility, the joint
venture partners are required to guarantee 50% of NSC's borrowings. The
Company's share of the guarantee at June 30, 1996 was $6,000.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include bank deposits and repurchase agreements at
varying rates of interest and with original maturities less than thirty days.
These investments are carried at cost which approximates market value.
The following is additional information related to the accompanying
consolidated statements of cash flows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Cash paid for interest .............. $14,962 $13,935 $ 9,655
Cash paid for income taxes .......... $ 6,206 $ 3,600 $20,338
- -----------------------------------------------------------------
</TABLE>
FOREIGN CURRENCY TRANSLATION
The financial statements of the Company's foreign subsidiaries have been
translated in accordance with Statement of Financial Accounting Standards
(SFAS) No. 52. Except for the Brazilian subsidiaries, current rates of exchange
are used to translate the balance sheets of these entities, while the average
exchange rate of each fiscal year is used for the translation of income and
expense accounts. The resulting unrealized gains and losses are recorded as a
component of shareholders' equity. As the Company's Brazilian subsidiaries
operate in a highly inflationary economy, the U.S. dollar has been used as the
functional currency in the translation of the Brazilian financial statements.
Accordingly, foreign currency gains or losses of the Brazilian subsidiaries
have been reflected in income currently.
PROPERTY, PLANT AND EQUIPMENT
For financial reporting purposes, the Company provides for depreciation of
plant and equipment using the straight-line and sum-of-years' digits methods at
annual rates based on the estimated service lives of the property. Maintenance
and repair expenditures are charged to income as incurred. Expenditures for
improvements and major renewals are capitalized. When assets are retired, the
related cost and accumulated depreciation are removed from the accounts, and
any gain or loss on the disposition is credited or charged to income.
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.
EXCESS OF COST OVER NET ASSETS OF ACQUIRED COMPANIES
The excess cost over the fair value of acquired net assets is amortized on the
straight-line method over the estimated useful life but not in excess of 40
years. The Company periodically evaluates its accounting for goodwill,
considering historical and future profitability and business opportunities. At
June 30, 1996, the Company believes that the goodwill is realizable and that
the period of amortization is proper.
INCOME TAXES
Income tax expense includes United States, foreign and state income taxes,
exclusive of taxes on the undistributed income of foreign subsidiaries where it
is the intention of the Company to have those subsidiaries reinvest the income
locally. The Company has determined tax expense and other deferred tax
information using the liability method, which recognizes the differences in
financial reporting bases and tax bases of assets and liabilities at tax rates
currently in effect.
RETIREMENT PLANS
The Company's policy is to fund the pension costs of defined benefit plans in
accordance with Internal Revenue Service regulations. Defined contribution and
multi-employer plans are funded as accrued, and the accrual is based upon
hourly rates, or a percentage of the unit's performance.
POSTRETIREMENT MEDICAL BENEFITS
The Company provides postretirement health and life insurance benefits for
retired salaried and certain retired hourly employees. Benefits provided under
various plans, individually arranged by business unit, include health and life
insurance. The plans generally provide for a means to limit the cost of the
plans to the Company through cost sharing or spending limitations.
FINANCIAL INSTRUMENTS
The Company's financial instruments recorded on the balance sheet include cash
and cash equivalents, trade receivables and payables and debt obligations. The
book value of cash and cash equivalents, trade receivables and payables and
short-term debt are considered to be representative of fair value because of
the short maturity of these instruments. The Company's trade accounts
receivable are heavily concentrated in automotive original equipment
manufacturers. The Company does not view such a concentration in the automotive
market as an unusual credit risk. The fair value of long-term debt is based on
rates available to the Company for debt with comparable terms and maturities.
Off balance sheet derivative financial instruments include a currency and
interest rate swap transaction, an interest rate swap contract and foreign
exchange contracts. The currency and interest rate swap transaction protects
the Company from fluctuations in the value of the U.S. dollar in relation to
the French franc and establishes a fixed U.S. dollar rate of return on a loan
from the Company to its French subsidiary.
17
<PAGE> 22
The interest rate swap transaction converts floating rate debt under its
Revolving Credit Agreement to fixed rate debt.
The Company and its subsidiaries enter into foreign exchange contracts to
manage exposure to foreign exchange fluctuations related to sales to foreign
customers or purchases of equipment or inventory from foreign suppliers. These
contracts hedge firm commitments to pay or receive European or Canadian foreign
currency within a one-year period and the maturity coincides with the receipt
or payment of the foreign funds. The Company does not engage in speculation and
does not hedge foreign currency positions which are not related to specific
transactions. Recognition of gains and losses on the foreign exchange contracts
are generally deferred until settlement of the transaction being hedged. The
gains and losses on the contracts offset losses and gains of the transactions
being hedged, resulting in protection from the risks of foreign exchange
movement for those transactions and avoiding losses affecting results of
operations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
ENVIRONMENTAL COMPLIANCE AND REMEDIATION
Environmental expenditures that relate to current operations are
expensed or capitalized as appropriate. Expenditures that relate to an existing
condition caused by past operations and do not contribute to current or future
revenue generation, are expensed. Liabilities are recorded when environmental
assessments and/or remedial efforts are probable and the costs can be
reasonably estimated. Estimated costs are based upon enacted laws and
regulations, existing technology and the most probable method of remediation.
The costs determined are not discounted and exclude the effects of inflation
and other societal and economic factors. Where the cost estimates result in a
range of equally probable amounts, the lower end of the range is accrued.
REVENUE RECOGNITION
The Company recognizes revenues as products are shipped to its customers.
ACCOUNTING STANDARDS
In 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets," and No. 123, "Accounting
for Stock-Based Compensation." These statements are effective for fiscal years
beginning after December 15, 1995. The Company expects the adoption of these
accounting standards will not materially impact its results of operations or
financial position.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to their 1996
presentation in the financial statements.
2. ACQUISITIONS
In May 1995, the Company acquired the 80% of Itatiaia Standard not previously
owned by it for total consideration of $4,040. The acquisition was 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 for June 1995. Pro forma sales and operating results are not
material. Valuation of the assets acquired and liabilities assumed in
accordance with Accounting Principles Board Opinion No. 16 was finalized during
fiscal 1996 and resulted in recording goodwill of approximately $10,800.
3. RATIONALIZATION OF BUSINESS UNITS
In 1995, the Company provided $8,832 to rationalize two business units. The
Company has submitted the remaining assets of Oliver Rubber's European
subsidiary for formal liquidation proceedings in the United Kingdom. As a
result, a provision of $5,347 was recorded to reduce asset values to net
realizable amounts, to accrue expenses of liquidation including severance for
several employees, and to recognize foreign currency losses which were formerly
deferred in the Company's foreign currency translation account. Of the amount
provided, $2,309 was recorded in the first quarter of fiscal 1995 with the
balance recorded in the fourth quarter. The Company attempted to realize as
much asset value as possible before beginning formal liquidation. The
liquidation was substantially completed in fiscal 1996.
The second business unit involves the Company's plastic plant in Canada. As
part of its formal plan, in fiscal 1995, the Company recorded $3,485 to provide
for a work force reduction of 328 employees at this plant. Costs included in
this provision in the fourth quarter were pension curtailment, severance as
required by Canadian law, lease obligations for the idled portion of the leased
facility, removal costs of the Company-owned equipment and reduction of idled
assets to net realizable value. Work force reductions began in the first
quarter of fiscal 1996.
At June 30, 1996 the business was closed and all production was moved to other
locations. Additional costs incurred to close this business were charged to
normal operations as incurred.
4. ACCOUNTS RECEIVABLE SECURITIZATION
In September 1995, the Company and certain of its U.S. subsidiaries entered
into an agreement to sell, on an ongoing 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 those
subsidiaries, irrevocably and without recourse, transfer all of their U.S.
dollar denominated trade accounts receivable (principally representing 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 June 30, 1996, $50,000 has been advanced. Unless extended by
amendment, the agreement expires in September 1998.
Proceeds from the sale were used to reduce outstanding borrowings under the
Company's Revolving Credit Agreement and are reflected as operating cash flows
in the accompanying consolidated statement of cash flows. Costs of the program,
which primarily consist of the purchasers' financing and administrative costs,
totaled $2,603 in fiscal 1996 and have been classified as Selling, General and
Administrative Expenses in the accompanying consolidated statement of income.
18
<PAGE> 23
The Company maintains an allowance for doubtful accounts receivable ($2,958 and
$4,978 at June 30, 1996 and 1995, respectively) based on the expected
collectibility of all trade accounts receivable, including receivables sold.
5. INVENTORY
The major components of inventory are as follows:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS) 1996 1995
<S> <C> <C>
Raw materials . . . . . . . . . . $27,186 $25,726
Work-in-process
and finished goods . . . . . . . 33,191 43,732
Total, at both FIFO ------- -------
and LIFO cost . . . . . . $60,377 $69,458
Excess of FIFO cost ------- -------
over LIFO cost . . . . . . . . . $13,719 $14,427
- -------------------------------------------------------
</TABLE>
Approximately 50% of the Company's inventories are valued at LIFO cost.
6. FINANCING ARRANGEMENTS
Long-term debt at June 30, 1996 and 1995 consisted of the following:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS) 1996 1995
<S> <C> <C>
Senior notes . . . . . . . . . . . . $100,000 $100,000
Revolving credit agreement . . . . . 40,000 85,000
Other debt . . . . . . . . . . . . . 5,491 7,698
-------- --------
Total . . . . . . . . . . . . . . . 145,491 192,698
Less -- current maturities . . . . . 2,450 2,176
-------- --------
$143,041 $190,522
- --------------------------------------------------------------
</TABLE>
At June 30, 1996, Senior Notes outstanding of $100,000 include two issues,
$75,000 and $25,000. The $75,000 Senior Notes, placed directly with three
affiliated insurance companies, are unsecured and accrue interest at 6.55%.
Interest payments are payable semiannually, and annual principal payments of
$12,500 begin in December 1998 through December 2002, with the balance due on
maturity in December 2003. The $25,000 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.
The Revolving Credit Agreement (Credit Agreement) represents unsecured
borrowings from a group of banks that have committed to make available for
borrowing up to $125,000 until January 1998 with provisions for extending the
agreement beyond that date upon satisfaction of certain requirements. 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 June 30, 1996,
borrowings under the Credit Agreement bear interest at 6.19%. A commitment fee
of .25% is due on the unused portion of the agreement. The Company has the
right to convert up to $50,000 of revolving loans into a five-year term loan
with quarterly repayments thereafter. 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,
$58,627 of retained earnings were not restricted at June 30, 1996 for the
payment of dividends, and the ratio of current assets to current liabilities
was 1.26 to 1, in excess of the minimum requirement of 1.25 to 1.
The maturities of long-term debt for the five years subsequent to June 30, 1996
are:
<TABLE>
<S> <C>
(THOUSANDS OF DOLLARS)
1997 . . . . . . . . . . . . . . . . . . . . $ 2,450
1998 . . . . . . . . . . . . . . . . . . . . 41,706
1999 . . . . . . . . . . . . . . . . . . . . 13,825
2000 . . . . . . . . . . . . . . . . . . . . 37,510
2001 . . . . . . . . . . . . . . . . . . . . 12,500
Thereafter . . . . . . . . . . . . . . . . . 37,500
- --------------------------------------------------------
</TABLE>
The Company and its subsidiaries also have, from various banking sources,
approximately $52,400 of unused short-term lines of credit at rates of interest
approximating Eurodollar interest rates. These funds are available subject to
satisfying covenant restrictions as to funded debt limitations. In 1996, the
average month-end borrowings on these lines were $9,000, and the highest
month-end balance was $17,400. Comparable amounts for 1995 were $17,800 and
$23,000 and $8,400 and $13,400 for 1994. The effective annual borrowing rate
was 6.8% in 1996, 6.8% in 1995 and 4.2% in 1994. At year end, the weighted
average interest rate was 6.2%.
7. FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts and fair values of the Company's significant balance sheet
financial instruments at June 30, 1996 and 1995, are as follows:
<TABLE>
<CAPTION>
1996 (THOUSANDS OF DOLLARS) CARRYING AMOUNT FAIR VALUES
<S> <C> <C>
Cash and cash equivalents . . . . . . . $ -- $ --
Short-term bank debt . . . . . . . . . . 1,198 1,198
Long-term bank debt
(including current portion) . . . . . 145,491 143,889
- ----------------------------------------------------------------
1995 (THOUSANDS OF DOLLARS)
Cash and cash equivalents $ 19,546 $ 19,546
Short-term bank debt . . . . . . . . . . 4,609 4,609
Long-term bank debt
(including current portion) . . . . . 192,698 192,198
- ----------------------------------------------------------------
</TABLE>
Off balance sheet derivative financial instruments at June 30, 1996 and 1995,
held for purposes other than trading, were as follows:
<TABLE>
<CAPTION>
1996 1995
----------------- ---------------
CONTRACT/ CONTRACT/
NOTIONAL FAIR NOTIONAL FAIR
(THOUSANDS OF DOLLARS) AMOUNT VALUES AMOUNT VALUES
<S> <C> <C> <C> <C>
Currency and
interest rate swaps . . . . . $38,350 $(431) $18,350 $ 402
Foreign currency
exchange agreements . . . . . 35,673 505 8,982 (186)
- --------------------------------------------------------------------
</TABLE>
19
<PAGE> 24
With regard to the combined currency and interest rate swap agreement, the
nominal amount of 108,580 French francs is payable by the Company to a bank,
while the amount due from the bank to the Company is $18,350. Periodic payments
are made by the Company and the bank until maturity in November 2000. Interest
rates are fixed with a rate of 6.5% on payments to the bank and 5.8% on
payments from the bank. Exchange rate fluctuations of the French franc payable
to the bank are offset by the French franc receivable from the French
subsidiary.
The interest rate swap contract matures in March 1999. The Company pays a
fixed interest rate of 5.18% to the bank and receives a floating rate LIBOR
payment from the bank on the $20,000 notional amount of the swap contract.
Foreign exchange contracts hedging trade transactions mature over the next
twelve months. Exchange contracts hedging foreign denominated intercompany
loans mature no later than the maturity of the loan.
The counterparties to each of these agreements are major commercial banks.
Management believes that losses related to credit risk are remote.
8. RETIREMENT PLANS
The Company and its subsidiary companies have a number of plans providing
pension, retirement or profit sharing benefits for substantially all employees.
These plans include defined benefit, defined contribution and multi-employer
plans. For defined benefit plans, those covering salaried employees provide
pension benefits based upon the individual employee's average compensation over
the last five years, while hourly plans provide benefits of stated amounts for
each year of service. The assets of the plans consist of listed bonds, stocks,
mutual investment funds and cash securities.
Pension expense is determined using assumptions at the beginning of the year.
The projected benefit obligation (PBO) is determined using the assumptions at
the end of the year. Assumptions used to deter-mine pension expense and the PBO
were:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Discount rate 7.75% 8.50% 8.00%
Long-term rate of return
on plan assets 9.50% 10.00% 9.00%
Rate of increase in future
compensation levels 5.00% 5.00% 5.00%
- ---------------------------------------------------------------------
</TABLE>
The cost of providing pension, retirement and profit sharing benefits charged
to operations amounted to $6,999 in 1996, $5,444 in 1995, and $4,932 in 1994.
For 1996, the expense of defined contribution plans was $4,102 and
multi-employer plan expense was $449. Comparable figures for 1995 were $3,683
and $508, and for 1994, $3,859 and $540. The expense of defined benefit plans
increased during 1995 as a result of including employees of subsidiary
companies in the Company's salaried pension plan. Components of pension expense
for defined benefit plans included the following items:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS) 1996 1995 1994
<S> <C> <C> <C>
Service cost $ 2,737 $ 2,753 $ 2,113
Interest cost on PBO 6,265 5,868 4,750
Actual loss (gain)
on plan assets (12,654) 457 (1,391)
Net amortization
and deferral 6,100 (7,871) (4,939)
--------- --------- ---------
Net pension expense $ 2,448 $ 1,207 $ 533
- --------------------------------------------------------------
</TABLE>
The funded status of the foreign and domestic defined benefit plans is
displayed below and is based on information supplied by the Company's actuary
as of March 31 of each year. In connection with the recognition of the minimum
liability as required by SFAS No. 87, as of June 30, 1996, the Company has
recorded an intangible asset of $1,085 included in Other Assets in the
accompanying consolidated balance sheet, and an equity reduction of $3,277.
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS) 1996 1995
------------------- ------------------
LESS GREATER LESS GREATER
THAN THAN THAN THAN
PLAN PLAN PLAN PLAN
Accumulated benefits are: ASSETS ASSETS ASSETS ASSETS
<S> <C> <C> <C> <C>
Vested benefits $ 46,166 $ 25,278 $ 41,143 $ 22,930
Non-vested benefits 2,230 530 1,373 639
Accumulated benefit --------- --------- --------- ---------
obligation 48,396 25,808 42,516 23,569
Projected future
compensation
increases 5,719 642 7,196 840
--------- --------- --------- ---------
PBO 54,115 26,450 49,712 24,409
Plan assets at fair
market value 60,413 21,056 52,870 19,145
--------- --------- --------- ---------
PBO (in excess of)
or less than
plan assets 6,298 (5,394) 3,158 (5,264)
Unrecognized transition
asset (5,634) (256) (6,268) (248)
Unrecognized loss 2,054 3,696 7,136 3,741
Adjustment required to
recognize minimum
liability -- (4,362) -- (4,569)
Unrecognized prior
service cost 2,247 1,526 2,320 1,611
--------- --------- --------- ----------
Prepaid pension cost,
(liability) $ 4,965 $ (4,790) $ 6,346 $ (4,729)
- ------------------------------------------------------------------------------------------
</TABLE>
The Company has accrued $13,289 and $11,175 for Workers' Compensation claims as
of June 30, 1996 and 1995, respectively.
9. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The cost of providing health and life insurance benefits for certain retired
employees has been accrued based on the employees' active service lives. The
expense for postretirement benefits other than pensions is detailed below. All
plans under which these benefits are provided are unfunded.
The Company continues to fund these benefits as claims are incurred. Spending
limitations per annum are in effect for several plans and future retirees of
other plans will pay a portion of these costs.
20
<PAGE> 25
A summary of plan information is as follows:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS) 1996 1995 1994
<S> <C> <C> <C>
Accumulated postretirement
benefit obligation (APBO):
Retirees $20,989 $19,874 $21,782
Active participants eligible
to receive benefits 2,177 1,872 1,978
Other active plan
participants 2,516 2,558 2,519
------- ------- -------
25,682 24,304 26,279
Unrecognized gain (loss) 2,048 3,689 1,522
------- ------- -------
$27,730 $27,993 $27,801
------- ------- -------
Periodic postretirement
benefit cost:
Current service cost $ 286 $ 248 $ 243
Interest on postretirement
benefit obligation 1,990 2,033 2,201
Net amortization (74) -- --
------- ------- -------
$ 2,202 $ 2,281 $ 2,444
------- ------- -------
Actuarial assumptions:
Discount rate 7.75% 8.50% 8.00%
1996 to 2004 -- health care
cost trend rate 11.5%-5.5% 13.9%-5.5% 15%-5.5%
Effect of a 1% increase in
health care cost trend rate:
Increase year end APBO 6.6% 6.3% 7.3%
Increase expense 9.5% 7.3% 6.8%
- ----------------------------------------------------------------------------------------------
</TABLE>
10. LEASES
The Company and its subsidiaries have operating leases covering manufacturing
facilities, transportation and material handling equipment, and computer
hardware and software expiring at various dates through 2006.
The following is a schedule of future minimum rental payments required under
operating leases that have initial or remaining non-cancelable lease terms in
excess of one year as of June 30, 1996:
1997 $ 8,660
1998 6,500
1999 3,720
2000 1,710
2001 and later years 4,440
--------
Total minimum payments required $ 25,030
- --------------------------------------------
Rent expense was $14,627, $14,209 and $11,844 for the years ended June 30,
1996, 1995 and 1994, respectively.
11. COMMITMENTS AND CONTINGENT LIABILITIES
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.
12. COMMON SHARES
Options to purchase common shares have been granted under various employee
stock option plans adopted by shareholders. For each plan, options are
exercisable over periods of five or ten years. The option price is either the
fair market value at the time the option is granted or 110% of the fair market
value at the time the option is granted for those individuals owning more than
ten percent of the common shares of the Company. Generally, options become
exercisable one year from the date of grant and annually thereafter. No more
than 40% of the grant can be exercised in any one plan year. Summarized below
is stock option activity for 1995 and 1996.
<TABLE>
<CAPTION>
SHARES RANGE OF OPTION PRICES
<S> <C> <C>
Stock options outstanding
at June 30, 1994 389,358 $13.50 - $36.99
Options granted 58,600 21.63
Options exercised (59,807) 13.50 - $17.70
Options cancelled (54,580) 13.50 - $33.63
-------
Stock options outstanding
at June 30, 1995 333,571 $13.50 - $36.99
Options granted 156,000 17.88 - $23.50
Options exercised (44,056) 13.50 - $15.84
Options cancelled (57,875) 21.63 - $33.63
-------
Stock options outstanding
at June 30, 1996 387,640 $17.88 - $36.99
- --------------------------------------------------------------
</TABLE>
At June 30, 1996, options for 104,016 shares were exercisable at an average
exercise price of $29.66 a share. Shares reserved for the future granting of
options were 245,193 at year end; 369,978 were reserved a year ago.
Under The Standard Products Company 1991 Restricted Stock Plan, 375,000 common
shares were reserved for restricted stock awards. Shares awarded are earned
ratably over the term of the restricted stock agreement, based upon achieving
specified performance goals. Generally, transferability of shares earned is
restricted for a specified number of years following the year in which they
were earned. Until the restrictions lapse, the recipient of earned restricted
shares is entitled to all of the rights of a shareholder, including the right
to vote the shares, but the shares are restricted as to transferability and
subject to forfeiture to the Company during the restricted period. Shares
awarded were 75,000 in 1995 and 187,500 in 1992. Of the shares awarded, 18,400
shares were earned in 1996, 16,800 shares in 1995 and 20,800 shares in 1994. In
1996, $419 was charged to operations as compensation expense based upon the
market value of the earned shares. The similar charge to operations in 1995 and
1994 was $208 and $585, respectively. At year end, 112,500 shares remain
available for future awards.
13. SEGMENT INFORMATION
The Company's operations are in two industry segments. The Transportation
Equipment Segment includes extruded and molded rubber and plastic products for
automotive, building and marine industries and plastic and magnetic door seals
for home appliances. The Tread Rubber Segment produces tread rubber for the
truck tire retreading industry. Net sales by segment include both sales to
unaffiliated customers, as reported in the Company's consolidated statements of
income, and intersegment sales. Operating income consists of net sales less
applicable operating costs and expenses related to those sales. In computing
operating income, general corporate expenses are excluded. Identifiable assets
by segment are those assets that are used in the operations of each segment.
General corporate assets are those not identifiable with the operations of a
segment.
21
<PAGE> 26
The Company's major customers include automotive original equipment
manufacturers. The percentage of sales of each of these major customers to
total consolidated sales for the three-year periods 1996, 1995 and 1994,
respectively, has been as follows: Chrysler -- 17%, 15% and 13%; Ford -- 26%,
23% and 26%; General Motors -- 14%, 18% and 17%. Sales to the automotive
original equipment customers include a number of different products and types
of the same product, the sales of which are not interdependent.
<TABLE>
<CAPTION>
BUSINESS SEGMENT INFORMATION
(THOUSANDS OF DOLLARS) 1996 1995 1994
<S> <C> <C> <C>
Net Sales:
Transportation
equipment $ 958,105 $ 868,892 $ 753,764
Tread rubber 135,869 133,656 124,169
Less -- intersegment
sales (10,054) (6,622) (5,566)
------------ ------------ -------------
Net sales $ 1,083,920 $ 995,926 $ 872,367
- --------------------------------------------------------------------------------------------
Operating Income:
Transportation
equipment $ 39,836 $ 41,882 $ 59,676
Tread rubber 4,078 1,727 6,114
Rationalization of
business units -- (8,832) (4,424)
General corporate
expenses (5,048) (4,275) (4,150)
------------ ------------ -------------
Total operating
income $ 38,866 $ 30,502 $ 57,216
------------ ------------ -------------
Other expense, net (10,342) (13,243) (7,001)
------------ ------------ -------------
Income from
operations
before taxes $ 28,524 $ 17,259 $ 50,215
- --------------------------------------------------------------------------------------------
Identifiable Assets:
Transportation
equipment $ 585,274 $ 595,109 $ 519,088
Tread rubber 70,788 74,229 81,365
General corporate
assets 28,633 32,551 23,861
------------ ------------ -------------
Total identifiable
assets $ 684,695 $ 701,889 $ 624,314
- --------------------------------------------------------------------------------------------
Capital Additions, net:(1)
Transportation
equipment $ 74,456 $ 48,904 $ 55,305
Tread rubber 5,228 5,767 3,815
------------ ------------ -------------
Total capital
additions $ 79,684 $ 54,671 $ 59,120
- --------------------------------------------------------------------------------------------
Depreciation and Amortization:
Transportation
equipment $ 48,328 $ 42,951 $ 37,340
Tread rubber 4,217 3,888 3,155
------------ ------------ -------------
Total depreciation
and amortization $ 52,545 $ 46,839 $ 40,495
- --------------------------------------------------------------------------------------------
</TABLE>
(1) Includes assets acquired by purchase of businesses in 1995.
<TABLE>
<CAPTION>
GEOGRAPHIC AREA
(THOUSANDS OF DOLLARS) 1996 1995 1994
<S> <C> <C> <C>
Net Sales:
United States $ 618,491 $ 574,064 $ 532,546
Canada 212,046 203,265 153,484
Europe 242,977 245,362 213,961
Brazil 29,479 2,640 --
Less -- inter-area sales (19,073) (29,405) (27,624)
------------ ------------ -------------
Net sales $ 1,083,920 $ 995,926 $ 872,367
- --------------------------------------------------------------------------------------------
Net Income:
United States $ 5,423 $ 12,821 $ 19,691
Canada 8,785 1,946 7,114
Europe 10,732 7,915 8,796
Brazil (10,345) (51) --
General corporate
expenses, net of tax (2,843) (2,565) (2,569)
------------ ------------ -------------
Net income $ 14,577 $ 20,066 $ 33,032
- --------------------------------------------------------------------------------------------
Identifiable Assets:
United States $ 297,744 $ 340,235 $ 311,947
Canada 79,845 81,979 62,193
Europe 210,215 234,918 226,313
Brazil 68,258 12,206 --
General corporate
assets 28,633 32,551 23,861
------------ ------------ -------------
Total identifiable
assets $ 684,695 $ 701,889 $ 624,314
- --------------------------------------------------------------------------------------------
<CAPTION>
14. INCOME TAXES
(THOUSANDS OF DOLLARS) 1996 1995 1994
<S> <C> <C> <C>
Income before taxes:
United States $ 10,626 $ 1,265 $ 36,097
Foreign 17,898 15,994 14,118
------------ ------------ -------------
$ 28,524 $ 17,259 $ 50,215
- --------------------------------------------------------------------------------------------
Amounts currently payable:
Federal $ 3,822 $ (3,174) $ 8,591
Foreign 3,585 5,779 4,139
State and local 1,304 1,038 1,262
------------ ------------ -------------
$ 8,711 $ 3,643 $ 13,992
- --------------------------------------------------------------------------------------------
Deferred taxes:
Federal $ 2,656 $ (233) $ 4,485
Foreign 2,536 (6,101) (1,317)
State and local 44 (116) 23
------------ ------------ -------------
5,236 (6,450) 3,191
------------ ------------ -------------
Total provision $ 13,947 $ (2,807) $ 17,183
- --------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 27
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
A reconciliation of income tax expense to the U.S. statutory rate is as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Tax at U.S. statutory rate 35.0% 35.0% 35.0%
Difference in effective rate
of international operations 10.6 (34.3) (2.1)
Write-off of investment -- (25.7) --
State and local income tax 3.1 3.4 1.7
Permanent book to tax
differences not deductible 2.9 6.0 --
Other, net (2.7) (.7) (.4)
---- ---- ----
Effective tax rate 48.9% (16.3)% 34.2%
- --------------------------------------------------------
</TABLE>
In accordance with the Company's policy, as of June 30, 1996, federal income
taxes have not been provided on the undistributed earnings of foreign
subsidiaries. If these earnings were distributed, approximately $8,000 of tax
would be payable.
In fiscal 1995, the Company recognized the benefit of tax loss carryforwards at
Standard Products Limited (SPL) in the United Kingdom by reducing its valuation
allowance to zero on these amounts. During fiscal 1996, SPL generated
sufficient taxable income to fully utilize those net operating loss
carryforwards. As of June 30, 1996, the Company has recorded a valuation
allowance to reflect the estimated amount of deferred tax assets which may not
be realized principally due to the inability of its Brazilian subsidiaries to
fully utilize available net operating loss carryforwards. The subsequent
recognition of tax benefits relating to the valuation allowance will be
reported in the consolidated statement of income as opportunities to utilize
these carryforwards become more certain.
At June 30, 1996, deferred tax liabilities were $34,300 and deferred tax
assets, included in prepaids and other assets, were $23,900. The major
component of deferred tax liabilities is $28,300 for excess depreciation and
amortization. Deferred tax assets include $1,400 for discontinued operations
and rationalization of business units and $16,600 related to employee benefits.
15. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table sets forth a summary of the quarterly results of operations
for the years ended June 30, 1996 and 1995:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS 1996
EXCEPT PER SHARE DATA) THREE MONTHS ENDED
SEPT. 30 DEC. 31 MARCH 31 JUNE 30
<S> <C> <C> <C> <C>
Net sales $238,760 $264,747 $277,274 $303,139
Gross income 9,405 21,769 33,879 43,429
Net income (9,784) 1,545 7,283 15,533
Earnings per
common share $ (0.58) $ 0.09 $ 0.43 $ 0.93
- -------------------------------------------------------------------
<CAPTION>
(THOUSANDS OF DOLLARS 1995
EXCEPT PER SHARE DATA) THREE MONTHS ENDED
SEPT. 30 DEC. 31 MARCH 31 JUNE 30
<S> <C> <C> <C> <C>
Net sales $220,927 $243,808 $265,013 $266,178
Gross income 21,598 26,385 26,015 25,457
Net income 2,898 5,331 6,851 4,986
Earnings per
common share $ 0.17 $ 0.32 $ 0.41 $ 0.30
- -------------------------------------------------------------------
</TABLE>
TO THE SHAREHOLDERS AND THE BOARD OF DIRECTORS,
THE STANDARD PRODUCTS COMPANY:
We have audited the accompanying consolidated balance sheets of The Standard
Products Company (an Ohio corporation) and Subsidiary Companies as of June 30,
1996 and 1995, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three fiscal years in the period ended
June 30, 1996. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits. We conducted our
audits in accordance with generally accepted auditing standards. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Standard
Products Company and Subsidiary Companies as of June 30, 1996 and 1995, and the
results of their operations and their cash flows for each of the three fiscal
years in the period ended June 30, 1996 in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
July 23, 1996
Cleveland, Ohio
23
<PAGE> 28
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The accompanying financial statements were prepared under management's
direction, which has responsibility for their integrity and objectivity. These
statements have been prepared in conformity with generally accepted accounting
principles consistently applied and, where appropriate, reflect estimates based
upon management's best judgment.
Management is further responsible for maintaining a system of internal
accounting controls, designed to provide reasonable assurance that the books
and records reflect the transactions of the companies and that its established
policies and procedures are carefully followed. The system is continually
reviewed for its effectiveness and is augmented by segregation of
responsibilities, written policies and guidelines, the careful selection and
training of qualified personnel and an internal audit program.
Management believes that the Company's accounting controls provide reasonable
assurance that errors or irregularities that could be material to the financial
statements do not occur or would be detected within a timely period by
employees performing their assigned functions. However, inherent limitations
exist in any system of internal controls and, of course, the cost of controls
should not exceed their benefits. Management believes that the Company's
balance between the costs and benefits of controls reasonably assures the
reliability of its financial reporting at reasonable costs.
Arthur Andersen LLP, independent public accountants, are engaged to audit the
financial statements of the Company and issue reports thereon. Their audit is
conducted in accordance with generally accepted auditing standards and,
accordingly, includes tests of accounting records and such other auditing
procedures as they consider necessary in the circumstances. The accountants'
report appears elsewhere.
The Board of Directors, through the Audit Committee of the Board, is
responsible for: (1) assuring that management fulfills its responsibilities in
the preparation of the financial statements; and (2) engaging the independent
public accountants, with whom the Committee reviews the scope of the audit and
the accounting principles to be applied in financial reporting. The Audit
Committee, which is comprised entirely of outside Directors, meets regularly
(separately and jointly) with the independent public accountants,
representatives of management, and the internal auditors to review the
activities of each and to ensure that each is properly discharging its
responsibilities. To ensure complete independence, Arthur Andersen LLP has full
and free access to meet with the Audit Committee, without management
representatives present, to discuss the results of their audit, accounting and
financial reporting matters and internal accounting controls.
J.S. Reid, Jr.
James S. Reid, Jr.
Chairman and
Chief Executive Officer
D.R. Sheley, Jr.
Donald R. Sheley, Jr.
Vice President, Finance and Chief Financial Officer
<PAGE> 29
The Company's common shares are listed on the New York Stock Exchange.
Quarterly market and dividend data are shown in the following table.
<TABLE>
<CAPTION>
Cash Dividends
Price Range Declared
1996 1995 1996 1995
Quarter High Low High Low
<S> <C> <C> <C> <C> <C> <C>
1st $24.00 $17.00 $31.13 $24.88 $0.17 $0.17
2nd $18.75 $13.50 $25.25 $21.38 $0.17 $0.17
3rd $25.00 $16.38 $24.13 $18.50 $0.17 $0.17
4th $28.25 $23.00 $22.63 $19.13 $0.17 $0.17
$0.68 $0.68
</TABLE>
There were approximately 1,005 shareholders as of August 1, 1996.
24
<PAGE> 30
THE STANDARD PRODUCTS COMPANY
Directors
JAMES C. BAILLIE *
Senior Partner and Chairman
Tory Tory DesLauriers & Binnington
Barristers & Solicitors
EDWARD B. BRANDON *+
Retired Chairman
National City Corporation
(Bank holding company)
JOHN DODDRIDGE o
Chairman and Chief Executive Officer
Intermet Corporation
(Manufacturer of precision ductile and gray iron castings for the automotive
and truck industries)
JOHN D. DRINKO o
Attorney - Baker & Hostetler
Attorneys at Law
CURTIS E. MOLL *o
Chairman and Chief Executive Officer MTD Products, Inc.
(Manufacturer of outdoor power equipment, and tools, dies and stampings for the
automotive industry)
MALCOLM R. MYERS *+
Chairman
Cloyes Gear & Products, Inc.
(Manufacturer of automotive timing components)
LEIGH H. PERKINS +o
Chairman
The Orvis Company, Inc.
(Manufacturer and distributor of fishing tackle and sporting goods)
ALFRED M. RANKIN, JR. *
Chairman, President and Chief Executive Officer
NACCO Industries, Inc.
(Holding company with operations in mining, manufacturing of small electrical
appliances and fork lift trucks and service parts)
JAMES S. REID, JR.
Chairman and Chief Executive Officer
ALAN E. RIEDEL +O
Retired Vice Chairman
Cooper Industries, Inc.
(A worldwide diversified manufacturer of electrical products, electric power
equipment, tools and hardware and automotive products)
JOHN D. SIGEL *
Senior Partner - Hale and Dorr
Attorneys at Law
W. HAYDEN THOMPSON *o
Chairman and Chief Executive Officer Solarflo Corporation
(Manufacturer of gas and electric heating equipment)
THEODORE K. ZAMPETIS
President and Chief Operating Officer
DIRECTOR EMERITUS
RICHARD J. BOLAND
Consultant; Retired Senior Partner Arthur Andersen LLP
OFFICERS
JAMES S. REID, JR.
Chairman and Chief Executive Officer
THEODORE K. ZAMPETIS
President and Chief Operating Officer
JAMES F. KEYS
Executive Vice President
International Operations
TED M. MCQUADE
Executive Vice President
North American Automotive Operations
GERARD MESNEL
Executive Vice President, Worldwide Technology and President and Directeur
General, Standard Products Industriel
DONALD R. SHELEY, JR.
Vice President, Finance and Chief Financial Officer
JOHN C. BRANDMAHL
Vice President, Human Resources
LARRY J. ENDERS
Vice President and President and Chief Executive Officer
Oliver Rubber Company
STEPHAN J. MACK
President, Holm Industries, Inc.
STEPHEN J. LEVITT
Managing Director
Standard Products Limited
DAVID P. GREENEISEN
Vice President, Engineering
WAYNE E. HODGES
Vice President, Sales and Marketing
GEORGE E. KRANZ
Vice President, Purchasing and
Supply Worldwide
J. RICHARD HAMILTON
Secretary
CHARLES F. NAGY
Treasurer
BERNARD J. THEISEN
Corporate Controller and Assistant Secretary
FACILITIES
CORPORATE HEADQUARTERS AND WESTBORN SERVICE CENTER
2401 South Gulley Road
Dearborn, Michigan 48124
(313) 561-1100
PLANTS
UNITED STATES:
Hartselle, Alabama; Oakland and San Diego, California; Athens and Griffin,
Georgia; St. Charles, Illinois; Scottsburg, Indiana; Lexington, Kentucky;
Gaylord, Michigan; New Ulm, Minnesota; Schenectady, New York; Asheboro,
Goldsboro, Rocky Mount and Salisbury, North Carolina; Cleveland and Wadsworth,
Ohio; Export and Kittanning, Pennsylvania; Spartanburg and Winnsboro, South
Carolina; Dallas and Paris, Texas
BRAZIL:
Itaquaquecetuba and Varginha, Brazil
CANADA:
Etobicoke, Georgetown, Mississauga, Mitchell and Stratford, Ontario
FRANCE:
Bezons, Bolbec, Lillebonne and Vitre, France
UNITED KINGDOM:
Huntingdon and Plymouth, England; Maesteg, Wales
WAREHOUSE OPERATIONS:
Dearborn and Greenville, Michigan; Charlotte, North Carolina
SHAREHOLDER INFORMATION
COMMON SHARES
New York Stock Exchange
(Symbol SPD)
REGISTRAR AND TRANSFER AGENT
National City Bank
Cleveland, Ohio
ANNUAL MEETING
The Annual Meeting of Shareholders will be held at 9 a.m., Tuesday, October 22,
1996 at the Company's Reid Division, 2130 West 110th Street, Cleveland, Ohio.
FORM 10-K
Copies of the Company's Annual Report on Form 10-K as submitted to the
Securities and Exchange Commission are available to shareholders without charge
upon written request. Please address your request to Mr. Donald R. Sheley, Jr.,
Vice President, Finance, at the Company's Corporate Headquarters, 2401 South
Gulley Road, Dearborn, Michigan 48124.
COUNSEL
Baker & Hostetler
Cleveland, Ohio
AUDITORS
Arthur Andersen LLP
Cleveland, Ohio
INVESTOR RELATIONS COUNSEL
Edward Howard & Co.
Cleveland, Ohio
* Audit Committee
o Finance Committee
+ Compensation Committee
<PAGE> 31
[STANDARD PRODUCTS COMPANY LOGO]
THE STANDARD PRODUCTS CO.
Corporate Headquarters
2401 South Gulley Road
Dearborn, Michigan 48124
(313) 561-1100
<PAGE> 1
EXHIBIT NO. 21
SUBSIDIARIES OF THE STANDARD PRODUCTS COMPANY
The following is a list of all subsidiaries of the Registrant as of June 30,
1996.
Jurisdiction
In Which
Name Incorporated
----------------------------------------- ------------------
Admiral Retread Equipment, Inc. Ohio
5 Rubber Corporation Pennsylvania
Holm Industries, Inc. Indiana
Itatiaia Standard Brazil
Nisco Holding Company Delaware
Oliver Rubber Company California
Standard Products Brazil Brazil
Standard Products Funding Corporation Delaware
Standard Products Industriel France
Standard Products Limited United Kingdom
Standard Products (Canada) Limited Dominion of Canada
Standard Products International, Inc. Delaware
Standard Products de Mexico, S.A. de C.V. Mexico
Stantech, Inc. Delaware
Westborn Service Center, Inc. Michigan
Union Trucking Company Michigan
<PAGE> 1
EXHIBIT NO. 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our reports dated July 23, 1996, included and incorporated by reference in
this Form 10-K, into the Company's previously filed Registration Statements on
Form S-8 File Numbers 333-01923, 333-01921, 33-53989, 33-51554, 33-51556,
33-34437, 33-33612, 33-38348, 33-01558, 2-63498, 2-91928 and 2-86957.
ARTHUR ANDERSEN LLP
Cleveland, Ohio
September 27, 1996.
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<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
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0
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