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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, 1998 Commission File Number: 1-2917
THE STANDARD PRODUCTS COMPANY
(Exact Name of Registrant as Specified in its Charter)
OHIO
(State or Other Jurisdiction of
Incorporation or Organization)
34-0549970
(IRS Employer
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:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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<S> <C>
Common Shares, $1 Par Value New York Stock Exchange
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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 September 1, 1998 (based on the closing price of the
Registrant's Common Shares reported on the New York Stock Exchange Composite
Tape on such date), was approximately $420.8 million.
The number of Common Shares, $1 par value outstanding as of September 1, 1998
was 16,502,692 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Definitive Proxy Statement for the Annual Meeting of Shareholders to be held on
October 20, 1998 into Part III.
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PART I
ITEM 1. BUSINESS
General and Industry Segments
The Standard Products Company (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
("OEMs") in North America, Europe and South America. Through its Holm
Industries, Inc. subsidiary, the Company is the largest supplier of rubber and
plastic sealing components for the refrigeration industry in North America.
These two businesses form the Company's Transportation Equipment Segment. The
Company also manufactures precure and moldcure tread rubber for the truck tire
retreading industry. This business, which operates through the Company's
subsidiary, Oliver Rubber Company, constitutes the Tread Rubber Segment.
Additional financial information concerning the Company's reportable
business segments and geographic areas for the years ended June 30, 1998, 1997
and 1996 is included in Note 15 of the Consolidated Financial Statements found
on page F-24.
The Company has expanded its international operations over the past three
years. In May 1995, the Company increased its ownership in Itatiaia Standard, a
Brazilian company, from 20% to 100%. The Company then formed a new entity,
Standard Products Brasil Industria E Comercio Ltda. ("SPB"), which took
ownership of a new manufacturing facility constructed in Varginha, Brazil. Upon
completion of the new facility, all manufacturing operations at the Itatiaia
Standard locations ceased, and were transferred to the Varginha plant.
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 began during fiscal 1997 and the plant opened in March 1998. This
facility will manufacture automotive parts for the North American automotive
original equipment market.
In 1998, the Company formed a new entity, Standard Products Polska Sp.
z o.o. The Company has acquired land and a facility in Bielsko-Biala, Poland.
The plant will be utilized as a secondary finishing operation for OEMs now
locating in Eastern Europe and will be expanded as market conditions warrant.
The Company also has a 50% ownership interest in Nishikawa Standard Company
("NSC"), a North American joint venture with Nishikawa and a 40% ownership
interest in Jin Young Standard, Inc., a sealing supplier based in South Korea.
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 OEMs as complete sealing systems. This is a departure from former
practices, in which more suppliers furnished individual parts, and not complete
systems. The Company also supplies molded rubber engine mounts and body
cushions, which comprise a vehicle's vibration control system.
Plastic products made by the Company 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 as
protective barriers preventing damage to the vehicle's sheet metal and can be an
integral part of the vehicle's overall styling and appearance.
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Markets and Customers. The Company manufactures parts and accessories for
automotive and truck OEMs in North America, South America, and Europe.
Manufacturing operations for the OEM market of this segment are conducted by the
Company, SPB, Standard Products (Canada) Limited ("SP Canada"), Standard
Products Limited ("SPL") and Standard Products Industriel ("SPI"). This segment
is highly dependent on the success of 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 15 of the
Consolidated Financial Statements found on page F-24 for the percentage of sales
to its three largest customers). As the Company continues to expand its global
position, it also spreads the risk over those additional countries and develops
stronger relationships with other major OEMs, such as Fiat in South America and
Europe.
The economic climate in the various geographic areas in which the Company
produces and ships parts is generally favorable. North America and Europe remain
in modest growth patterns that are typical of mature markets. However, the
Brazilian economy is experiencing elevated interest rates due to pressure on its
currency as a result of the current turmoil which began in Asia in late 1997.
These higher interest rates have adversely impacted automobile sales in Brazil.
Changes in foreign exchange rates could also affect the Company adversely.
Although Brazil is strongly resisting further significant devaluations of its
currency, the impact of the recent currency turmoil affecting emerging markets
generally could force Brazil to devalue its currency. In addition, a weak
Canadian dollar and continuing pressure on the peso in Mexico could affect the
Company's financial results from sales in those countries. In addition, the
adoption of measures by various European countries to meet the requirements for
use of the euro beginning in 1999 could impact their economies.
Another external factor impacting the Company is the increased
globalization of the economy and the automotive industry. This has brought new
competition for customers in North America. Management views the Company's
extensive worldwide experience as a major asset in retaining and generating new
business. However, this globalization trend has only added to the pressure from
the Company's major customers to reduce prices.
Sales and Distribution. The market for new automobiles in any country is
highly dependent on the general economic conditions in that country. Since most
of the Company's rubber and plastic automotive products are sold as original
equipment, sales of such products are directly affected by the annual car
production of OEMs. 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 produces.
The purchase orders are for all or a percentage of the customers' estimated
requirements and are binding, subject to annual car production levels. 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 OEMs in the engineering and development of its
various products. The Company maintains sales offices in strategic locations to
provide support and service to its customers.
While the Company's business is not seasonal in the traditional sense,
July, August and December are generally lower volume months. OEMs typically
perform model changeovers and have plant shutdowns 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.
The Company utilizes, as a distribution center for some of its finished
automotive products, approximately 85,000 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 research and development and commercial
customers' use. In 1997, the Company acquired a 207,000 square foot warehouse in
Goldsboro, North Carolina for use by the Company's two North Carolina plants in
the storage of raw materials and finished goods. The Company also distributes
finished automotive products from a leased warehouse in Charlotte, North
Carolina, which is central to the Company's other southern plants. Most of the
Company's nondomestic customers are supplied directly by foreign manufacturing
plants of subsidiaries of the Company.
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Competition. Each product line of the Company's automotive businesses is
highly competitive. Although no single firm competes with the Company in all
aspects of this business, major competitors in North America include Gencorp,
Inc., the Schlegel group of British Tire & Rubber, Harvard Industries'
Kingston-Warren subsidiary and Cooper Tire and Rubber. In its international
markets, the Company also competes with several other manufacturers in Europe
and South America who are large and have substantial resources. There can be no
assurance that competitors will not be able to take actions, including
developing new technology or products, or offering prolonged reduced pricing,
which could adversely affect the Company.
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 PLC has built
a production facility in North America. While the Company competes with Draftex
in Europe, this has added another supplier in North America at a time when
customers are trying to reduce their supplier 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 in
providing customer service: 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 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 its customers'
requirements in these areas.
Other
The Company, through its subsidiary, Holm Industries, Inc., manufactures a
variety of custom-designed extruded plastic (primarily polyvinyl chloride (PVC)
compounds) gaskets and seals sold as original equipment to manufacturers of
residential and commercial refrigerators, dishwashers and air conditioners.
These products are custom designed to enhance energy control and, in the case of
dishwashers, to prevent water leakage. Holm also produces extruded plastic parts
for the residential exterior door and window industries and extruded rubber
products for the automobile restoration and truck manufacturing industries. Holm
is the largest supplier of extruded plastic gaskets and seals to the North
American refrigeration and freezer market. In addition to manufacturing
facilities in the United States and Mexico, Holm also has varying ownership
interest in joint ventures in Mexico and India. It also has license agreements
with other manufacturers in Argentina, Brazil and Mexico.
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. The Company entered into an
agreement in 1995 to sell $50,000,000 of accounts receivable (See Note 3 to the
Consolidated Financial Statements found on page F-18). During fiscal 1998, this
agreement was extended until November 1, 2000. The Company maintains sufficient
credit under borrowing arrangements to meet the Company's cash requirements.
Joint Ventures
Through its North American joint venture, NSC, a general partnership owned
50% by the Company and 50% by Nishikawa, the Company manufactures vehicle body
and door sealing systems for sale to North American automotive OEMs and Japanese
transplants. Major customers include Honda, Ford Motor Company and Automotive
Alliance International (formerly Mazda). Manufacturing operations are conducted
at plants located in Bremen, New Haven, and Topeka, Indiana. Currently, the
chief operating officer of the Company is the chief executive officer of NSC and
chairman of its Policy Committee.
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In 1996, the Company sold 30% of its ownership interest in SPM to
Nishikawa. The Company retained a 70% interest. The venture will manufacture
automotive parts for the North American automotive original equipment market.
Construction of the first phase of the facility, located in Aguascalientes,
Mexico, was completed in fiscal 1998.
TREAD RUBBER SEGMENT
Products. The Company's wholly owned subsidiary, Oliver Rubber Company
("Oliver"), manufactures and markets precure and moldcure 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 NSC 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 moldcure tread rubber. Precure tread
rubber is shipped to a retreader fully cured and with a specially designed tread
imprinted. The retreader bonds the precure tread to a tire casing using a
combination of bonding material, heat and pressure to complete the retreading
process. Moldcure tread rubber is applied by a retread dealer to the tire
casing. A pressure mold is then used to cure the rubber and imprint 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
retreaded tires using the moldcure processes. Oliver also serves markets in
other areas of the world, such as Central America and the Middle East, through
export sales. Truck mileage, and therefore demand for tread rubber, correlate
with general economic conditions of the market served.
Oliver also supplies moldcure tread rubber for off-the-road (OTR)
construction equipment.
Sales and 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 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 and services 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"). Unlike Bandag, Oliver sells both precure and moldcure tread rubber.
Management believes Oliver is currently one of the largest supplier of moldcure
rubber in North America and the second largest supplier of tread rubber. Other
significant competitors include Goodyear Tire and Rubber Company and Michelin
North America, Inc.
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 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 include 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.
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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. These amounts are disclosed on the Consolidated Statements of
Income found on page F-11 included herein. Product development is an essential
part of the market strength of the Company. The Company's sales and product
development personnel work directly with the engineering and styling departments
of its major customers in the development of new products. In recent years, the
Company's involvement with its automotive customers has begun at the earlier
model design stage, and the Company has assumed 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 largest customers. The Company also has
significant product development facilities at Stratford, Ontario, Huntingdon,
England and Bezons, 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, 1998, the Company employed approximately 10,017 persons, of
whom approximately 7,000 were hourly employees. Employee relations at the
Company's plants generally have been good. Approximately 50% of the Company's
employees were represented by labor unions as of June 30, 1998.
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 its 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.
To the extent necessary, permits for all corrective activities have been
obtained from 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. The Company
continues to investigate whether the source of the additional chemicals is
on-site or off-site.
The Company was designated as a potentially responsible party in connection
with several disposal sites. Settlements with payment of an immaterial amount
have been obtained for all sites, except for sites located in Zionsville,
Indiana, Kansas City, Kansas, Lenoir and Jamestown, North Carolina, and Toledo,
Ohio. The Company was an insignificant contributor at these sites and believes
that these matters will be resolved without a material adverse affect on
liquidity, capital resources or the consolidated financial condition of the
Company.
The Company was notified by the State of New York that the property
occupied by its Schenectady plant, which ceased operations in 1997, is being
investigated concerning possible contamination resulting from the operations of
the previous property owner. In 1998, the Company entered into an agreement with
the New York State Department of Environmental Conservation (NYSDEC) to conduct
further investigations and, if necessary, remedial activities at the site. The
Company has been meeting the obligations of its agreement with
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the NYSDEC and has identified a source of contamination that apparently existed
prior to the Company owning the property. As a result of these recent
activities, the Company now believes that this matter will be resolved without a
material adverse affect on liquidity, capital resources or the consolidated
financial condition of the Company.
Where appropriate, the Company has accrued for the above mentioned items.
See Note 1, of the Consolidated Financial Statements "Environmental Compliance
and Remediation" found on page F-17. Management believes, on the basis of
presently available information, that resolution of these matters will not
materially affect liquidity, capital resources or the consolidated financial
condition of the Company.
FOREIGN OPERATIONS
The Company owns all of the outstanding shares of SP Canada, a Canadian
corporation which is engaged primarily in the manufacture of rubber and plastic
parts and accessories for United States and Canadian automotive OEMs. SP Canada
also serves the automotive replacement parts market and distributes products for
the truck tire retreading industry.
The Company owns all of the outstanding shares (except for qualifying
shares held by nominees) of SPL, an English corporation, which is engaged
primarily in the manufacture of rubber and plastics parts and accessories for
the North American and European automotive OEMs and for the automotive
replacement parts market in Europe.
The Company and one of its subsidiaries owns all of the issued and
outstanding stock of SPI, a corporation organized under French law. SPI is
engaged in the business of designing, developing, manufacturing and distributing
rubber and plastic parts and accessories principally for the European automotive
OEMs and for the automotive replacement parts market.
In March 1996, SPB commenced production at a newly-constructed plant
located in Varginha, Brazil. This 236,000 square foot facility manufactures
plastic and rubber sealing components for the automotive original equipment
industry in South America. A substantial portion of the plant's business is the
production of parts for Fiat's world car, the Palio. During 1995, the Company
had increased its presence in Brazil by incorporating SPB and by purchasing the
80% of Itatiaia Standard not then owned by it. During 1996 and 1997, the Company
consolidated all of Itatiaia Standard's manufacturing operations into the new
facility in Varginha. In addition to Fiat, customers of SPB include Ford,
General Motors and Volkswagen.
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 in Aguascalientes was completed during fiscal 1998.
This 76,000 square foot plant will manufacture rubber and plastic automotive
parts for the North American OEMs.
In 1998, the Company formed Standard Products Polska Sp. z o.o. This Polish
corporation has acquired land and a facility in Bielsko-Biala, Poland which will
be utilized as a secondary finishing operation in the production of sealing
parts for sale to Fiat's assembly operations in Poland. The facility will be
expanded as new business is obtained from OEMs now locating in Eastern Europe
and will expand as market conditions warrant.
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, 1998, 1997 and 1996, were $99,889,000, $111,017,000
and $95,793,000, respectively, of which a substantial portion is represented by
sales to automotive OEMs 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, SP Canada, SPL, SPB, and SPI involve meeting customers' expectations as
to the timely delivery of parts which meet their specifications. The automotive
business is directly affected by the
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annual car production of the OEMs. SP Canada, SPL, SPB and SPI participate in
the risk of varying car builds similar to any of the Company's other automotive
plants which supply domestic assembly plants.
The Company expects that the risks of conducting business in the Brazilian,
Mexican and Polish automotive original equipment market will be greater than the
North American and Western European automotive markets. The Company must deal
with several new issues, including but not limited to, more stringent
governmental regulation, currency instability, potential high interest and
inflation rates, and the general economic instability associated with emerging
markets.
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ITEM 2. PROPERTIES
The Company operates the following properties for the Transportation
Equipment segment:
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<CAPTION>
LAND PLANT
LOCATION (ACREAGE) (SQUARE FEET)
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<S> <C> <C>
Aguascalientes, Mexico...................................... 15.9 76,000
Auburn Hills, Michigan (1).................................. 5.9 11,000
Baclair, France (1)......................................... 4.2 206,000
Bezons, France.............................................. 4.3 140,000
Bielsko-Biala, Poland....................................... 2.8 62,000
Bolbec, France (1).......................................... 24.3 276,000
Bombay, India (1)........................................... 0.9 6,000
Charlotte, South Carolina (1)............................... 4.5 15,000
Cleveland, Ohio............................................. 12.0 157,000
Dearborn, Michigan (Offices) (1)............................ 0.9 40,000
Dearborn, Michigan (Warehouse and Offices).................. 13.9 358,000
Fairfield, South Carolina (1)............................... 4.0 13,000
Ft. Smith, Arkansas (1)..................................... 4.0 20,000
Gaylord, Michigan........................................... 92.6 93,000
Georgetown, Ontario, Canada................................. 5.7 89,000
Goldsboro, North Carolina................................... 37.6 374,000
Greenville, Michigan........................................ 1.0 10,000
Griffin, Georgia............................................ 17.5 192,000
Hartselle, Alabama (1)...................................... 5.0 72,000
Huntingdon, England......................................... 11.1 175,000
Itaquaquecetuba, Brazil (2)................................. 11.9 54,000
Kittanning, Pennsylvania.................................... 6.1 84,000
Lillebonne, France.......................................... 9.1 100,000
Maesteg, Wales.............................................. 8.4 120,000
Mitchell, Ontario, Canada................................... 30.0 165,000
New Ulm, Minnesota.......................................... 3.5 57,000
New Ulm, Minnesota (1)...................................... 40.0 29,000
Plymouth, England........................................... 9.0 127,000
Port Clinton, Ohio (2)...................................... 20.0 41,000
Ranjangaon, India........................................... 1.2 15,000
Rocky Mount, North Carolina................................. 24.2 222,000
Scottsburg, Indiana......................................... 11.0 207,000
Scottsburg, Indiana (1)..................................... 5.0 61,000
Spartanburg, South Carolina................................. 30.1 85,000
St. Charles, Illinois (1)................................... 4.0 96,000
Stratford, Ontario, Canada.................................. 52.2 434,000
Stratford, Ontario, Canada (1).............................. 4.0 35,000
Tijuana, Mexico (1)......................................... -- 16,000
</TABLE>
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<TABLE>
<CAPTION>
LAND PLANT
LOCATION (ACREAGE) (SQUARE FEET)
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<S> <C> <C>
Varginha, Brazil............................................ 91.4 236,000
Warren, Michigan (1)........................................ 0.5 2,000
Winnsboro, South Carolina................................... 26.4 188,000
</TABLE>
The Company operates the following properties for the Tread Rubber segment:
<TABLE>
<CAPTION>
LAND PLANT
LOCATION (ACREAGE) (SQUARE FEET)
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<S> <C> <C>
Asheboro, North Carolina.................................... 16.4 171,000
Athens, Georgia............................................. 32.0 127,000
Athens, Georgia (1)......................................... 6.8 120,000
Dallas, Texas............................................... 4.7 102,000
Export, Pennsylvania........................................ 2.0 40,500
Oakland, California (1) (Distribution Center)............... 1.1 25,000
Oakland, California (2)..................................... 4.2 60,000
Paris, Texas................................................ 30.0 30,000
Paris, Texas (1)............................................ 0.5 10,000
Salisbury, North Carolina................................... 11.4 141,000
Salisbury, North Carolina (1)............................... 2.0 16,000
</TABLE>
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(1) 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.
(2) Land and buildings held for sale.
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 use of the Company's Transportation
Equipment facilities varies with the production of passenger cars and light
trucks in various countries. The use of the Tread Rubber facilities varies with
demand for tread rubber product. Capacities of each facility are adequate to
meet current demands. The Company believes capacity is presently adequate to
meet the demands of each segment's business.
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
None
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
Executive Officers listed below were elected on October 21, 1997.
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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.............. 72 Chairman of the Board of Directors 1981
Mr. Reid resigned from his position as Chief Executive
Officer, which he held since 1962, effective July 24,
1997.
Ronald L. Roudebush............ 51 Vice Chairman and Chief Executive Officer 1997
Formerly, Mr. Roudebush was part owner and an officer of
Milford Dodge, Inc. from 1995 and President of Rockwell
Automotive from 1991 to 1994.
Theodore K. Zampetis........... 53 President and Chief Operating Officer 1991
Donald R. Sheley, Jr........... 56 Vice President, Finance and Chief Financial Officer 1995
Formerly, Mr. Sheley was Vice President and Corporate
Controller, Cooper Industries, Inc. from 1988.
Larry J. Enders................ 56 Vice President of the Company and President and Chief 1993
Executive Officer, Oliver Rubber Company
James F. Keys.................. 44 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.
Stephan J. Mack................ 61 President, Holm Industries, Inc. 1986
Ted M. McQuade................. 44 Executive Vice President, North American Automotive 1995
Operations
Formerly, Mr. McQuade was Manager of Production Support
and Global Integration, Appliance Business, General
Electric from 1990.
Gerard Mesnel.................. 59 Executive Vice President -- Advanced Technology 1995
Worldwide and President and Directeur General, Standard
Products Industriel
Formerly, Mr. Mesnel was President/Consultant, GSF Cie.
since 1990.
Richard N. Jacobson............ 48 General Counsel and Secretary 1997
Formerly, Mr. Jacobson was Senior Corporate Counsel for
The B. F. Goodrich Company from 1987.
John C. Brandmahl.............. 59 Vice President -- Human Resources 1991
David P. Greeneisen............ 57 Vice President -- Engineering 1995
Formerly, Mr. Greeneisen was Vice President, Product
Engineering for Masland Industries from 1992.
Wayne E. Hodges................ 48 Vice President -- Sales and Marketing 1995
Formerly, Mr. Hodges was Senior Vice President and
Corporate Secretary of Toyoda Gosei Company Ltd. from
1989.
George E. Kranz................ 56 Vice President -- Purchasing and Supply Worldwide 1996
Formerly, Mr. Kranz was Director, Global Supply
Management for Kelsey-Hayes Company from 1990.
Charles F. Nagy................ 46 Treasurer 1992
Bernard J. Theisen............. 39 Corporate Controller and Assistant Secretary 1995
Formerly, Mr. Theisen was Corporate Controller for Hayes
Wheels International, Inc. from 1993.
</TABLE>
11
<PAGE> 12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
On September 1, 1998, the Company had 16,502,692 shares of its Common
Shares $1 par value outstanding, which were owned by 921 shareholders of record.
During 1998 and 1997, the Company paid quarterly cash dividends on its
Common Shares of $.17 per share. Information concerning long-term debt,
including restrictions and provisions relating to distributions and cash
dividends on the Company's Common Shares, appears on Note 7 of the Consolidated
Financial Statements on page F-19 of this report.
The Company's Common Shares are traded on the New York Stock Exchange under
the symbol SPD. Market data is shown in the following table:
<TABLE>
<CAPTION>
1998 1997
--------------------- ---------------------
FISCAL QUARTER HIGH LOW HIGH LOW
- -------------- ---- --- ---- ---
<S> <C> <C> <C> <C>
1st.............................................. $27.50 $25.13 $25.75 $18.50
2nd.............................................. $31.00 $24.44 $26.25 $22.75
3rd.............................................. $33.56 $25.56 $26.50 $22.00
4th.............................................. $35.88 $27.75 $26.88 $21.38
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
The information required by the Item is on page F-1 included herein.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The information required by this Item is on pages F-2 through F-9 included
herein.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is found in Note 8 of the
Consolidated Financial Statements which appears on page F-19 included herein.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and supplementary data are as set forth in the "Index
to Consolidated Financial Statements, Supporting Schedules and Supplemental
Data" on page 23 included herein.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
12
<PAGE> 13
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 4 through 6 of the definitive
Proxy Statement for the Annual Meeting of Shareholders to be held October 20,
1998 ("1998 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 17 of the 1998 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 7 through 16 of
the 1998 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 and Management" on pages 1 through 4 of the 1998 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 13 of the 1998 Proxy Statement.
13
<PAGE> 14
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements:
See Index to Consolidated Financial Statements, Supporting Schedules
and Supplemental Data on page 23 included herein.
(a)(2) Financial Statement Schedule:
See Index to Consolidated Financial Statements, Supporting Schedules
and Supplemental Data on page 23 included herein.
14
<PAGE> 15
(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
- -------------- ----------- ----------- --------------------
<C> <C> <S> <C>
2 2a Stock Sale Agreement, Dated Form 8-K, Dated January 26, 1993
December 19, 1992 with respect to (Filed with the SEC on February
the acquisition of the Standard 9, 1993; see Exhibit 2 therein)
Products Industriel Group.
3 3a Second Amended and Restated Quarterly Report Form 10-Q (Filed
Articles of Incorporation with the SEC on November 1, 1993;
see Exhibit 3a therein)
3 3b Amended and Restated Code of Form S-3 Registration No.
Regulations 33-62054 (Filed with the SEC on
May 5, 1993; see Exhibit 3.2
therein)
4 4a Senior Notes Agreement -- Quarterly Report Form 10-Q (Filed
$75,000,000 6.55% Senior Notes with the SEC on February 11,
due December 16, 2003, by and 1994; see Exhibit 4 therein)
among The Standard Products
Company and Metropolitan Life
Insurance Company and certain of
its Affiliates
4 4b First Amendment to Senior Notes Annual Report Form 10-K (Filed
Agreement -- $75,000,000 6.55% with the SEC on September 16,
Senior Notes due December 16, 1997)
2003 by and among The Standard
Products Company and Metropolitan
Life Insurance Company and
certain of its Affiliates dated
September 22, 1995
4 4c Second Amendment to Senior Notes Quarterly Report on Form 10Q
Agreement -- $75,000,000 6.55% (Filed with the SEC on February
Senior Notes due December 16, 10, 1997; see Exhibit 10c
2003 by and among The Standard therein)
Products Company and Metropolitan
Life Insurance Company and
certain of its Affiliates dated
December 9, 1996
4 4d Third Amendment to Senior Notes
Agreement -- $75,000,000 6.55%
Senior Notes due December 16,
2003 by and among The Standard
Products Company and Metropolitan
Life Insurance Company and
certain of its Affiliates dated
September 2, 1998
</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
- -------------- ----------- ----------- --------------------
<C> <C> <S> <C>
4 4e Senior Notes Agreement -- Annual Report Form 10-K (Filed
$25,000,000 aggregate principal with the SEC on September 25,
amount 9.56% Senior Notes due 1989; see Exhibit 4b therein)
July 1, 1999 by and between the
Company and Nationwide Life
Insurance Company ($12,000,000),
Aid Association for Lutherans
($10,000,000) and Employers Life
Insurance Company of Wausau
($3,000,000) dated as of June 30,
1989
4 4f First and Second Amendments to Annual Report Form 10-K (Filed
the Senior Notes Agreement -- with the SEC on September 15,
$25,000,000 aggregate principal 1992; see Exhibit 4f therein)
amount, dated February 22, 1991
(First Amendment) and, June 30,
1991 (Second Amendment), between
the Company and Nationwide Life
Insurance Company, Aid
Association for Lutherans and
Employers Life Insurance Company
of Wausau
4 4g Third Amendment to Senior Notes Annual Report Form 10-K (Filed
Agreement aggregate principal with the SEC on September 16,
amount $25,000,000 dated January 1997)
19, 1993, between the Company and
Nationwide Life Insurance
Company, and Aid Association for
Lutherans and Employers Life
Insurance Company of Wausau
4 4h Fourth Amendment to Senior Note Annual Report Form 10-K (Filed
Agreement principal amount with the SEC on September 13,
$3,000,000, dated as of January 1995)
31, 1995 by and between the
Company and Employers Life
Insurance Company of Wausau
Fourth Amendment to Senior Note
Agreement principal amount
$12,000,000 dated as of January
31, 1995 by and between the
Company and Nationwide Life
Insurance Company
Fourth Amendment to Senior Note
Agreement principal amount
$10,000,000 dated as of January
31, 1995 by and between the
Company and Aid Association for
Lutherans
</TABLE>
16
<PAGE> 17
<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
- -------------- ----------- ----------- --------------------
<C> <C> <S> <C>
4 4i Fifth Amendment to Senior Note Annual Report Form 10-K (Filed
Agreement dated September 22, with the SEC on September 16,
1995, aggregate principal amount 1997)
$25,000,000 between the Company
and Nationwide Life Insurance
Company, Aid Association for
Lutherans and Employers Life
Insurance Company of Wausau
4 4j Credit Agreement, dated as of Annual Report Form 10-K (Filed
January 19, 1993, among The with the SEC on September 14,
Standard Products Company, as 1993; see Exhibit 4c therein)
Borrower, and National City Bank,
Society National Bank, Comerica
Bank and NBD Bank, N.A. and
National City, as Agent.
4 4k First Amendment to Credit Quarterly Report 10-Q (Filed with
Agreement, dated as of April 30, the SEC on May 9, 1997; see
1994, among The Standard Products Exhibit 4e therein)
Company, as Borrower, and
National City Bank, Society
National Bank, Comerica Bank and
NBD Bank, N.A. and National City,
as Agent.
4 4l Second Agreement of Amendment to Annual Report Form 10-K (Filed
the Credit Agreement, dated as of with the SEC on September 16,
August 25, 1995, among The 1997)
Standard Products Company, as
borrower, and National City Bank
as agent and for itself, Society
National Bank, Comerica Bank and
NBD Bank
4 4m Third Agreement of Amendment to Quarterly Report 10-Q (Filed with
the Credit Agreement, dated as of the SEC on November 14, 1996; see
October 25, 1996, among The Exhibit 4 therein)
Standard Products Company, as
borrower, and National City Bank
as agent and for itself, KeyBank
National Association, Comerica
Bank and NBD Bank.
4 4n Confirmation and Interest Rate Annual Report Form 10-K (Filed
and Currency Exchange Agreement, with the SEC on September 13,
dated November 12, 1993, between 1995)
the Company and National City
Bank
4 4o Interest Rate and Currency Annual Report Form 10-K (Filed
Exchange Agreement, Termination with the SEC on September 13,
of $7 million in principal 1995)
amount, dated June 16, 1995
between the Company and National
City Bank
</TABLE>
17
<PAGE> 18
<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
- -------------- ----------- ----------- --------------------
<C> <C> <S> <C>
4 4p Credit Agreement among The Quarterly Report 10-Q (Filed with
Standard Products Company, the SEC on November 14, 1997; see
Comerica Bank, NBD Bank, KeyBank Exhibit 4a therein)
National Association, The Bank of
New York, Harris Trust and
Savings Bank, Boston Bank, N.A.
and National City Bank, as Agent
10 10a Supplemental Salaried Pension Annual Report Form 10-K (Filed
Plan with the SEC on September 29,
1986; see Exhibit 10a therein)
10 10b The Standard Products Company Form S-8 Registration No.
1985 Employee Incentive Stock 33-01558 (Filed with the SEC on
Option Plan November 15, 1985; see Exhibit 4a
therein)
10 10c The Standard Products Company Form S-8 Registration No.
1989 Employee Incentive Stock 33-33612 (Filed with the SEC on
Option Plan February 28, 1990; see Exhibit 4a
therein)
10 10d The Standard Products Company Form S-8 Registration No.
1991 Employee Stock Option Plan 33-51556 (Filed with the SEC on
September 2, 1992; see Exhibit 4c
therein)
10 10e The Standard Products Company Form S-8 Registration No.
1991 Restricted Stock Plan 33-51554 (Filed with the SEC on
September 2, 1992; see Exhibit 4c
therein)
10 10f The Standard Products Company Annual Report Form 10-K (Filed
Restricted Stock Agreement with the SEC on September 15,
between the Company and the 1992; see Exhibit 10h therein)
Chairman and Chief Executive
Officer
10 10g The Standard Products Company Annual Report Form 10-K (Filed
Restricted Stock Agreement with the SEC on September 15,
between the Company and the 1992; see Exhibit 10i therein)
President and Chief Operating
Officer
10 10h The Standard Products Company Annual Report Form 10-K (Filed
Restricted Stock Agreement with the SEC on September 27,
between the Company and the 1996; see Exhibit 10h therein)
Executive Vice
President-International
Operations
10 10i The Standard Products Company Form S-8 Registration No.
1993 Employee Stock Option Plan 33-53989 (Filed with the SEC on
June 6, 1994; see Exhibit 4
therein)
10 10j Receivables Purchase Agreement Quarterly Report Form 10-Q (Filed
dated as of September 22, 1995 with the SEC on February 13,
among The Standard Products 1996; see Exhibit 10a therein)
Funding Corporation as seller and
The Standard Products Company as
initial Master Servicer and
Clipper Receivables Corporation
as Purchaser and State Street
Boston Capital Corporation as
Administrator and National City
Bank as Relationship Bank
</TABLE>
18
<PAGE> 19
<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
- -------------- ----------- ----------- --------------------
<C> <C> <S> <C>
10 10k Amendment to Receivables Purchase Annual Report Form 10-K (Filed
Agreement with the SEC on September 16,
1997)
10 10l Purchase and Sale Agreement dated Quarterly Report Form 10-Q (Filed
as of September 22, 1995 among with the SEC on February 13,
The Standard Products Company, as 1996; see Exhibit 10b therein)
Originator and Master Servicer, 5
Rubber Corporation, Oliver Rubber
Company, and Holm Industries,
Inc., as Originators and
Servicers, and The Standard
Products Funding Corporation, as
the Initial Purchaser
10 10m Standard Products Individual Form S-8 Registration No.
Retirement and Investment Trust 333-01923 (Filed with SEC on
Plan March 22, 1996; see Exhibit 4a
therein)
10 10n The Standard Products Company Form S-8 Registration No.
Collectively Bargained Savings 333-01921 (Filed with SEC on
and Retirement Plan March 22, 1996; see Exhibit 4a
therein)
10 10o Second Amendment to Receivables Quarterly Report 10-Q (Filed with
Purchase Agreement the SEC on February 10, 1997; see
Exhibit 10a therein)
10 10p The Standard Products Company Annual Report Form 10-K (Filed
Restricted Stock Agreement with the SEC on September 16,
between the Company and the 1997)
Executive Vice President-Advanced
Technology Worldwide
10 10q The Standard Products Company Form S-8 Registration Statement
1996 Employee Stock Option Plan No. 333-21225 (Filed with SEC on
February 6, 1997; see Exhibit
4(a) therein)
10 10r Letter Re: Employment of J.S. Annual Report Form 10-K (Filed
Reid, Jr., dated July 24, 1997. with the SEC on September 16,
1997)
10 10s Employment Agreement between the Annual Report Form 10-K (Filed
Standard Products Company and with the SEC on September 16,
Ronald L. Roudebush dated July 1, 1997)
1997.
10 10t Employment Agreement between the Annual Report Form 10-K (Filed
Standard Products Company and with the SEC on September 16,
Theodore K. Zampetis dated 1997)
September 1, 1997.
10 10u The Standard Products Company Annual Report Form 10-K (Filed
Restricted Stock Agreement with the SEC on September 16,
between the Company and the 1997)
Chairman of the Board of
Directors dated July 1, 1997.
</TABLE>
19
<PAGE> 20
<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
- -------------- ----------- ----------- --------------------
<C> <C> <S> <C>
10 10v 1997 Employee Stock Option Plan Quarterly Report 10-Q (Filed with
the SEC on November 14, 1997; see
Exhibit 10a therein)
10 10w 1997 Restricted Stock Option Plan Quarterly Report 10-Q (Filed with
the SEC on November 14, 1997; see
Exhibit 10b therein)
10 10x Third Amendment to Receivables Quarterly Report 10-Q (Filed with
Purchase Agreement the SEC on November 14, 1997; see
Exhibit 10c therein)
10 10y Amendment No. 1 to the Restricted
Stock Agreement between the
Company and the Vice Chairman and
Chief Executive Officer
10 10z Amendment to Restricted Stock
Agreement between the Company and
the President and Chief Operating
Officer
10 10aa Amendment No. 2 to the Restricted
Stock Agreement between the
Company and the President and
Chief Operating Officer
13 13 Proxy Statement for the Annual
Meeting of Shareholders to be
held on October 20, 1998
21 21 Subsidiaries of Registrant
23 23 Consent of Independent
Accountants
24 24 Power of Attorney
27 27 Financial Data Schedule
99 99a Standard Products Individual
Retirement and Investment Trust
Plan for the fiscal year ended
June 30, 1998
99 99b The Standard Products Company
(Gaylord, Michigan Plant) UAW
Local 388 Collectively Bargained
Savings and Retirement Plan for
the fiscal year ended June 30,
1998
99 99c The Standard Products Company
Collectively Bargained Savings
and Retirement Plan (Lexington
Division) UAW Local 1681,
Lexington, KY for the fiscal year
ended June 30, 1998
</TABLE>
20
<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
- -------------- ----------- ----------- --------------------
<C> <C> <S> <C>
99 99d The Standard Products Company
(Campbell Plastics Division)
IUE-AFL-CIO, Local #318,
Collectively Bargained Savings
and Retirement Plan for the
fiscal year ended June 30, 1998
99 99e The Standard Products Company
Collectively Bargained Savings
and Retirement Plan for the
Employees of the Reid Division
covered by the Collective
Bargaining Agreement with the
United Steel Workers of America,
Local No. 3586 for the fiscal
year ended June 30, 1998
99 99f The Standard Products Company
Collectively Bargained Savings
and Retirement Plan for Members
of the Bargaining Unit certified
by NLRB Case No. 10-RC-7481 at
Oliver Rubber Company for the
fiscal year ended June 30, 1998
</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.
21
<PAGE> 22
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 16th day
of September 1998.
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/ RONALD L. ROUDEBUSH Vice Chairman and Chief Executive September 16, 1998
- ------------------------------------------ Officer; Director
Ronald L. Roudebush
/s/ THEODORE K. ZAMPETIS President and Chief Operating September 16, 1998
- ------------------------------------------ Officer; Director
Theodore K. Zampetis
/s/ DONALD R. SHELEY, JR. Vice President, Finance and Chief September 16, 1998
- ------------------------------------------ Financial Officer
Donald R. Sheley, Jr. Principal Financial Officer
/s/ BERNARD J. THEISEN Corporate Controller September 16, 1998
- ------------------------------------------ Principal Accounting Officer
Bernard J. Theisen
JAMES S. REID, JR.* Chairman of the Board of Directors, September 16, 1998
- ------------------------------------------ Director
James S. Reid, Jr.
JAMES C. BAILLIE* Director September 16, 1998
- ------------------------------------------
James C. Baillie
EDWARD B. BRANDON* Director September 16, 1998
- ------------------------------------------
Edward B. Brandon
JOHN DODDRIDGE* Director September 16, 1998
- ------------------------------------------
John Doddridge
JOHN D. DRINKO* Director September 16, 1998
- ------------------------------------------
John D. Drinko
CURTIS E. MOLL* Director September 16, 1998
- ------------------------------------------
Curtis E. Moll
MALCOLM R. MYERS* Director September 16, 1998
- ------------------------------------------
Malcolm R. Myers
LEIGH H. PERKINS, SR.* Director September 16, 1998
- ------------------------------------------
Leigh H. Perkins, Sr.
ALFRED M. RANKIN, JR.* Director September 16, 1998
- ------------------------------------------
Alfred M. Rankin, Jr.
ALAN E. RIEDEL * Director September 16, 1998
- ------------------------------------------
Alan E. Riedel
JOHN D. SIGEL* Director September 16, 1998
- ------------------------------------------
John D. Sigel
W. HAYDEN THOMPSON* Director September 16, 1998
- ------------------------------------------
W. Hayden Thompson
</TABLE>
*By: /s/ RICHARD N. JACOBSON
-----------------------------------------
Richard N. Jacobson
Attorney-in-Fact
22
<PAGE> 23
THE STANDARD PRODUCTS COMPANY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS,
SUPPORTING SCHEDULES AND SUPPLEMENTAL DATA
<TABLE>
<S> <C>
Selected Financial Data..................................... F-1
Management's Discussion and Analysis of Results of
Operations and Financial Condition........................ F-2
Consolidated Financial Statements and Supplemental Data
Management's Responsibility for Financial Statements...... F-10
Report of Independent Public Accountants.................. F-10
Consolidated Statements of Income for the Years ended June
30, 1998, 1997 and 1996................................ F-11
Consolidated Balance Sheets, June 30, 1998 and 1997....... F-12
Consolidated Statements of Cash Flows for the Years ended
June 30, 1998, 1997 and 1996........................... F-13
Consolidated Statements of Shareholders' Equity for the
Years ended June 30, 1998, 1997 and 1996............... F-14
Notes to Consolidated Financial Statements................ F-15
Financial Statement Schedules:
Report of Independent Public Accountants on the Financial
Statement Schedule..................................... S-1
Schedule II Valuation and Qualifying Accounts for the
Years Ended June 30, 1998, 1997 and 1996............... S-2
</TABLE>
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, 1998.
23
<PAGE> 24
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT
Net Sales............................. $1,101,309 $1,108,268 $1,083,920 $995,926 $872,367
Gross Income.......................... 165,969 145,456 108,482 99,455 119,427
Selling, General & Administrative
Expenses............................ 78,025 68,559 69,616 60,121 57,787
Non-recurring Charge.................. -- 17,661 -- 8,832 4,424
Interest Expense...................... 12,389 12,914 14,944 14,085 9,982
Other (Income) Expense, net........... 7,033 (137) (4,602) (842) (2,981)
Income before Taxes on Income......... 68,522 46,459 28,524 17,259 50,215
Provision for Taxes on Income......... 25,078 18,929 13,947 (2,807) 17,183
Net Income............................ $ 43,444 $ 27,530 $ 14,577 $ 20,066 $ 33,032
PER SHARE
Net Income -- Basic................... $ 2.58 $ 1.64 $ .87 $ 1.20 $ 1.99
Net Income -- Diluted................. $ 2.56 $ 1.63 $ .87 $ 1.20 $ 1.97
Cash Dividends Declared............... $ .68 $ .68 $ .68 $ .68 $ .65
Book Value............................ $ 17.79 $ 15.96 $ 15.42 $ 15.56 $ 14.55
BALANCE SHEET
Property, Plant & Equipment........... $ 624,188 $ 583,614 $ 548,816 $489,534 $422,576
Accumulated Depreciation.............. 293,836 280,608 250,278 220,095 180,567
Total Assets.......................... 684,246 691,859 684,695 701,889 624,314
Working Capital....................... 24,078 46,565 53,455 127,498 87,922
Long-term Debt........................ 92,457 121,804 143,041 190,522 135,381
Shareholders' Equity.................. 300,172 268,357 258,765 260,495 242,677
Cash Dividends Declared............... $ 11,465 $ 11,579 $ 11,400 $ 11,445 $ 10,821
OTHER
Additions to Property, Plant &
Equipment, net...................... $ 77,335 $ 59,004 $ 79,684 $ 54,671 $ 59,120
Depreciation & Amortization........... 55,131 53,130 52,545 46,839 40,495
EBITDA................................ 136,042 112,503 96,013 78,183 100,692
Cash Flow from Operating Activities
less Dividends and Net Fixed Asset
Additions........................... $ 17,497 $ 9,462 $ 31,656 $(13,007) $(23,604)
Number of Employees................... 10,017 10,350 10,177 10,308 9,480
Shares Outstanding (Year-end)......... 16,878 16,810 16,785 16,736 16,674
Average Shares Outstanding -- Basic... 16,849 16,804 16,758 16,711 16,627
Average Shares
Outstanding -- Diluted.............. 16,975 16,856 16,780 16,748 16,808
Return on Sales....................... 3.9% 2.5% 1.3% 2.0% 3.8%
Return on Average Shareholders'
Equity.............................. 15.3% 10.4% 5.6% 8.0% 14.1%
</TABLE>
F-1
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
(ALL AMOUNTS IN THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
OVERVIEW
The Standard Products Company (the "Company") 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 a leading position in providing sealing solutions for
the refrigeration industry. These operations comprise the Company's
Transportation Equipment Segment.
The Company's truck tire retreading business is reported as the Tread
Rubber Segment. This business also has a significant position in its industry.
Net income of the Company and its consolidated subsidiaries was $43,444 in
fiscal 1998, or $2.56 per common diluted share compared with $27,530, or $1.63
per common diluted share in fiscal 1997. Results in fiscal 1997 included a
non-recurring charge of $17,661, or $0.63 per share net of tax, for the closure
of manufacturing facilities in Lexington, Kentucky and Schenectady, New York.
The Company also incurred costs related to the closures of approximately $1,665,
or $0.06 per share net of tax, in the second half of fiscal 1997 which did not
qualify for immediate accrual.
The Company's Financial Statements and Notes to Financial Statements on
Pages F-10 through F-27, including the Report of Independent Public Accountants
(the "Consolidated Financial Statements"), should be read as an integral part of
this discussion and analysis.
TRANSPORTATION EQUIPMENT SEGMENT
Net sales by geographic location in this segment were:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
North America........ $663,952 $682,817 $687,009
Europe............... 228,563 234,504 241,617
South America........ 76,913 58,680 29,479
-------- -------- --------
Total........... $969,428 $976,001 $958,105
======== ======== ========
</TABLE>
SALES PERFORMANCE -- 1998 VERSUS 1997
Fiscal 1998 sales for the Transportation Equipment Segment were $969,428, a
decrease of $6,573, or 0.7% from the prior year.
North American automotive sales decreased $26,828 to $560,347 as volumes
were down approximately $14,000 and translation losses from a weakened Canadian
dollar diminished sales by an additional $8,300. The volume decrease was the
result of lower sales on several different platforms, as well as the impact of
the United Auto Workers ("UAW") strike against General Motors, which started
late in the fourth quarter of 1998. Lower sales resulted in part from reduced
unit volumes on certain platforms and from the effects of price concessions
granted to customers during the year. European automotive operations experienced
a sales decrease of $5,941, or 2.5% to $228,563, as a result of translation
losses on the weakened French franc, which totaled $13,900, and customer price
reductions of $5,100. These declines were partially offset by improved volumes
of $7,300 in the United Kingdom on the Opel Astra and certain Saab and Rover
models, and $3,100 in France on several new Volvo platforms. The Transportation
Segment's overall sales decrease was balanced by improvements at the Company's
Brazilian subsidiary, where sales increased $18,233, or 31.1% to $76,913. This
increase is primarily attributable to volume gains on the Fiat Palio platform.
High interest rates in Brazil did not affect sales in fiscal 1998, both because
the subsidiary was able to export a portion of its production to Fiat in Poland
and other countries, and because Fiat did not significantly reduce production
due to slowing automotive sales in Brazil until after the end of fiscal 1998.
Sales at the Company's Holm Industries subsidiary were 7.9% higher than the same
period last year, primarily due to higher volumes from existing customers.
SALES PERFORMANCE -- 1997 VERSUS 1996
Fiscal 1997 sales for the Transportation Equipment Segment were $976,001,
an increase of $17,896, or 1.9% over the prior year.
The overall sales increase was primarily attributable to the fact that the
Company's new plant in Brazil was operational for the entire year. The new
F-2
<PAGE> 26
plant shipped products for only the final four
months of fiscal 1996.
The sales reduction in North America resulted primarily from decreases in
sales of the Ford Taurus/Sable and Escort, Chevrolet Lumina and Plymouth/Dodge
Neon. These reductions were not completely offset by increases in sales of the
Jeep(R) Grand Cherokee and Chrysler minivan and by increased participation in
various General Motors programs. In fiscal 1997, automotive production in North
America was essentially flat compared to 1996, and trended downward in the
fourth quarter of fiscal 1997, when car production by General Motors, Ford and
Chrysler combined was more than 10% lower than in the same period of fiscal
1996. The Company was also under continued pressure from the OEMs to reduce the
unit price of its products. The appliance sealing business experienced a $2,099
increase in sales over 1996 levels due to continued strong appliance demand in
the United States.
European sales decreased $7,113, or 2.9%, primarily as a result of currency
translation related to the French franc. This was partially offset by currency
translation gains arising from a stronger British pound. Volumes in Europe were
up slightly over 1996 levels, principally as a result of sales to Toyota,
Renault and Volvo.
OPERATING PERFORMANCE -- 1998 VERSUS 1997
Excluding the effect of the U.S. plant closures announced in fiscal 1997,
operating income for the Transportation Equipment segment improved by $6,605, or
9.0% to $79,705 from the previous year despite reduced sales.
Gross margins on the Company's products improved by $15,953, or 13.5%, over
prior year levels. The improved results occurred primarily in North America and
Brazil. Improvements in North American automotive operations totaled $16,153,
and were attributable to continued process enhancements, cost reduction
initiatives (particularly material savings) and efficiencies gained from the
closure of two manufacturing facilities. Operations in Brazil turned profitable
during fiscal 1998, and operating income was up $11,400 from fiscal 1997. These
improvements were offset by margin reductions in Europe, principally the United
Kingdom, as a result of start-up costs associated with a substantial number of
product launches, including the Opel Astra. In addition, the Company estimates
that the UAW strike at General Motors reduced fourth quarter pretax earnings by
approximately $2,700.
Research and development costs increased by $729, or 1.7% from the previous
year for the segment. The increase is primarily attributable to increased
personnel costs in the United Kingdom related to a substantial number of
concurrent product launches, in which several new manufacturing processes were
introduced.
Selling, general and administrative expenses increased substantially for
the segment to $54,579, a 20.7% increase from prior year levels due to
additional personnel costs of $3,400, facility costs of $1,500, depreciation on
capital expenditures $1,300 and professional fees of $1,100. This large increase
reflects the full-year cost of employees added in the fourth quarter of fiscal
1997 as part of an effort to upgrade the talent of the people in the
organization; an upgrade of leased computer hardware throughout the Company;
professional fees utilized in the support of acquisitions and other strategic
projects; and the leasing of additional space to support the foregoing efforts.
OPERATING PERFORMANCE -- 1997 VERSUS 1996
Despite only modest sales growth from 1996 to 1997, the Transportation
Equipment segment experienced strong improvements in operating results.
Operating income after charges for the plant closings in Lexington, Kentucky,
and Schenectady, New York, was $55,439, an increase of $15,603, or 39.2% over
fiscal 1996 levels. This improvement was attributable to the success of ongoing
process improvement and cost reduction initiatives, including a focused effort
on lowering raw material costs. Gross margin on sales showed continued
improvement throughout the year. Operating income in Brazil also improved by
over $8,500 as this operation moved from start-up toward full production.
Research and development costs increased substantially due in large part to
an investment by the Company in vehicle sealing systems with cosmetic, weight
and performance characteristics superior to those then in existence, and which
would allow for cycle time improvements when placed in production. This
investment totaled approximately $1,500 in fiscal 1997. The Company also
incurred increased costs totaling $972 from the addition of engineering staff
for its Brazilian operation.
F-3
<PAGE> 27
Selling, general and administrative expenses decreased from prior year
levels due to the absence of start-up costs related to the Brazilian plant of
$6,100. This decrease was substantially offset by increased personnel costs for
areas targeted to improve customer service.
The Company incurred a charge of $17,661, before tax, for the closure of
two North American manufacturing facilities. These closures were deemed
necessary by management to consolidate operations and reduce overcapacity in
this geographic area. Ongoing production programs at these sites were
transferred to existing locations in the United States. The closures were
completed in December 1997 and have enhanced the Company's profitability.
TREAD RUBBER SEGMENT
GENERAL
Oliver Rubber Company ("Oliver") manufactures and markets precure and
moldcure 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 Company and certain affiliates for use in the automotive original
equipment business.
SALES PERFORMANCE -- 1998 VERSUS 1997
Sales for fiscal 1998 for the North American based Tread Rubber segment
were $150,256, an increase of $4,759 or 3.3%, over fiscal 1997. Included in this
amount were intersegment sales of $18,375, an increase of $5,145 or 38.9%
compared to the prior year. The intersegment sales increase is the continuation
of a trend to take advantage of Oliver's upgraded mixing operations to meet the
raw material needs within the Transportation Equipment segment. Sales to third
parties in fiscal 1998 were down slightly when compared to the prior year,
decreasing $386. Reduced equipment sales in fiscal 1998 related to the Oliver's
agreement with Treadco, Inc. were offset by increased precure, moldcure and
custom mix volume gains.
SALES PERFORMANCE -- 1997 VERSUS 1996
Fiscal 1997 sales totaled $145,497, an increase of 7.1% over fiscal 1996
sales of $135,869. Included in this amount were $13,230 of intersegment sales,
an increase of 31.6% over prior year levels. The increase in intersegment sales
resulted from investments made by Oliver to upgrade the capacity and quality of
rubber mixing operations at its Asheboro, North Carolina plant. Increased sales
to third parties were primarily the result of Oliver's agreement with Treadco,
Inc., the largest independent truck tire retreader in the United States, which
was signed in 1996.
OPERATING PERFORMANCE -- 1998 VERSUS 1997
Operating income in the Tread Rubber segment for fiscal 1998 was $14,040,
an increase of $4,912, or 53.8% over the same period last year. The enhanced
operating performance is the result of continued process improvements resulting
from the upgrade of manufacturing facilities and efficiencies gained with the
closure of a manufacturing plant in Oakland, California and the relocation of
business to existing plants. The costs to close the facility, net of any gains
on the sale of land and building, were insignificant and were included in normal
operations. Oliver also benefited from favorable raw material prices, partly as
a result of the Company's worldwide procurement initiatives.
OPERATING PERFORMANCE -- 1997 VERSUS 1996
Operating income in the Tread Rubber segment for fiscal 1997 was $9,128, an
increase of $5,050, over fiscal 1996. Approximately $2,300 of this increase is
the result of the sales increases noted above. In addition, improved operating
efficiencies due to the upgrade of manufacturing facilities, and an emphasis on
improving product mix contributed to increased operating income. These increases
were partially offset by increased administrative costs related to enhancing the
information systems and selling capabilities of this segment.
OTHER (INCOME) EXPENSE
Interest expense was $12,389 for 1998, compared to $12,914 for 1997, a
decrease of $525. The decrease was primarily attributable to lower borrowings
under revolving credit agreements in the United States and France during 1998,
lower short-term interest rates in the United States and decreased interest from
hedging transactions. The lower borrowing levels are a direct result of
increased cash generated by operations. These improvements were substantially
offset by interest costs from increased short-term borrowings in Brazil and the
United Kingdom. Interest expense in
F-4
<PAGE> 28
Brazil was also impacted by its government's actions to substantially increase
short-term interest rates.
Interest expense was $12,914 for 1997, compared to $14,944 for 1996, a
decrease of $2,030. The decrease was primarily attributable to lower borrowings
under the Company's revolving credit agreement during 1997. This resulted from
reduced capital expenditures due to the completion of the Brazilian plant and
favorable cash flow from improved operations. The improvement was partially
offset by increased interest from short-term borrowings, primarily in Brazil.
Royalty and dividend income have been comparable for each of the last three
years. "Other, net" was an expense in fiscal 1998 of $7,459, an increase of
$6,938 over the 1997 expense amount of $521. This increase is primarily
attributable to: (i) increased royalty expenditures ($1,168), (ii) exchange
losses ($599), and (iii) operating losses at the Company's joint venture,
Nishikawa Standard Company ("NSC"). As explained in Note 1 of the consolidated
financial statements, the Company's share of NSC's earnings decreased by $4,702.
Other, net in fiscal 1997 declined from the prior year level by $4,450,
principally due to reduced earnings at NSC.
The Company's effective tax rate for fiscal 1998 was 36.6% as compared to
40.7% in fiscal 1997. This reduction is attributable primarily to the reversal
of prior tax adjustments and differences in the overall effective tax rate of
foreign operations. In addition, the impact from the utilization of tax credits
was reduced as a result of an overall improvement in earnings.
The Company's effective tax rate for fiscal 1997 was 40.7% as compared to
fiscal 1996 of 48.9% with the reduction related primarily to improved operating
results in Brazil. While SPB lost money in both 1996 and 1997, reduced losses in
1997 resulted in a lower effective tax rate. The Company did not recognize these
benefits in either year. Implementation of royalty agreements between the
Company and certain of its foreign subsidiaries also lowered the effective tax
rate.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $106,297 of net cash from operating activities in
fiscal 1998. The major sources were net income, non-cash items such as
depreciation and amortization and a reduction in accounts receivable.
Receivables decreased by $23,161 from the prior year due to reduced amounts
outstanding on tooling for OEMs and a decrease in general receivables as a
result of the General Motors work stoppage.
During fiscal 1998, the Company's net capital spending totaled $77,335, an
increase of $18,331 from the prior year. Fiscal 1998 capital spending included
significant expenditures in the United Kingdom related to a substantial number
of new product launches occurring in fiscal 1998 and 1999 and expenditures
totaling $7,510 for Oliver, related to a production agreement with Michelin
North America, Inc. Also included are expenditures of approximately $8,900 for
completion of the Company's new facilities in Baclair, France and in
Aguascalientes, Mexico. The plant in Mexico is owned by a joint venture which is
70% owned by the Company and 30% owned by Nishikawa Rubber Company of Hiroshima,
Japan. Capital spending for fiscal 1999 is planned to be approximately $65,000.
The Company used improved cash flow from operations in fiscal 1998 to
reduce long-term debt obligations under the Company's revolving credit agreement
and also reduce short-term debt in Brazil, which experienced significant
increases in short-term borrowing rates due to pressure on the Real, resulting
from economic deterioration in Asia. The Company also paid quarterly dividends
throughout fiscal 1998 of $0.17 per share. Dividends are expected to continue
throughout fiscal 1999.
During the three-year period ended June 30, 1998, 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, the potential exists for price increases in
the raw materials used in operations such as the costs of petroleum, polymers
and chemicals at a rate greater than the general inflation rate. 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 and Mexico, 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
F-5
<PAGE> 29
expenses (which are translated using rates prevailing during the fiscal year)
have been affected by the translation values of the Canadian dollar, French
franc, British pound and Polish zloty. 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 and Mexico use the U.S. dollar as their functional currency.
Translation adjustments for these operations are included in the determination
of income.
At June 30, 1998, 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, 1999.
On June 23, 1998, the Company's Board of Directors authorized the
repurchase of up to 5% of the Company's outstanding common shares over a three
year period should market conditions warrant. During the next year, the Company
believes that its cash requirements for the share repurchase, working capital,
capital expenditures, certain acquisitions, dividends, interest and debt
repayments will be met through internally generated funds and utilization of
available borrowing sources. For a description of the Company's financing
arrangements at June 30, 1998, see Note 7 to the Consolidated Financial
Statements.
YEAR 2000
The "Year 2000" problem relates to computer systems that have time and
date-sensitive programs that were designed to read years beginning with "19,"
but may not properly recognize the year 2000. If a computer system or software
application used by the Company or a third party dealing with the Company fails
because of the inability of the system or application to properly read the year
"2000," the results could conceivably have a material adverse effect on the
Company.
As a key supplier to the automotive, appliance and retreading industries,
the Company's major exposure for Year 2000 problems is the effect of shutting
down production at one of its customer's factories. While lost revenues from
such an event are a concern for the Company, the greater risks are the
consequential damages for which the Company could be liable if it in fact is
found responsible for the shutdown of one of its customer's facilities. Such a
finding could have a material adverse impact on the Company's results of
operations.
The most likely way in which the Company would shut down production at a
customer's facility is by being unable to supply parts to that customer. The
parts supplied by the Company, in most instances, are integral components of the
end products produced by the customer, and the inability to provide them may
render the customer unable to manufacture and sell its products. Breakdowns in
any number of the Company's computer systems and applications could prevent the
Company from being able to manufacture and ship its products. Examples are
failures in the Company's manufacturing application software, barcoding systems,
computer chips embedded in plant floor equipment, lack of supply of materials
from its suppliers, or lack of power, heat or water from utilities servicing its
facilities. The Company's products do not contain computer devices that require
remediation to meet Year 2000 requirements. A review of the Company's status
with respect to remediating its computer systems for Year 2000 compliance is
presented below.
For its information technology, the Company currently utilizes an IBM
AS400-based computing environment which is complemented by a series of
local-area networks ("LANs") that are connected worldwide via a wide-area
network ("WAN"). Substantially all operating systems related to the AS400s, LANs
and WAN have been updated to comply with Year 2000 requirements. In addition,
upgraded and modified versions of the Company's financial, manufacturing
(including bar coding), human resource, and other software applications which
are Year 2000 ready are available, and are now in the process of being
integrated into the Company's systems. The Company presently expects that this
integration will be substantially completed by the end of calendar year 1998.
The Company utilizes non-mainframe computers and software in its various
production processes throughout the world. In several locations it has retained
consulting firms to assist it in identifying potential Year 2000 problems in
those processes, and evaluating the readiness of the computer systems used in
those processes. General findings to date have identified only a few changes
F-6
<PAGE> 30
that need to be made to these systems. Problems have generally related to old
personal computers or memory chips which must be replaced. Although there can be
no assurance that the Company will identify and correct every Year 2000 problem
found in the computer applications used in its production processes, the Company
believes that it has in place a comprehensive program to identify and correct
any such problems, and expects to have substantially completed the remediation
of its production systems by the end of calendar year 1998. At the present time,
the Company does not believe that it requires a contingency plan with respect to
its information technology and production processes, and has therefore not
developed one.
The Company is also reviewing its building and utility systems (heat,
light, phones, etc.) for the impact of Year 2000. Many of the systems in this
area are Year 2000 ready. While the Company is working diligently with all of
its utility suppliers and has no reason to expect that they will not meet their
required Year 2000 compliance targets, there can be no assurance that these
suppliers will in fact meet the Company's requirements. The failure of any such
supplier to fully remediate its systems for Year 2000 compliance could cause a
shutdown of one or more of the Company's plants, which could impact the
Company's ability to meet its obligations to supply products to its customers.
The Company has also commenced a program to determine the Year 2000
compliance efforts of its equipment and material suppliers. The Company has sent
comprehensive questionnaires to all of its significant suppliers regarding their
Year 2000 compliance and is attempting to identify any problem areas with
respect to them. This program will be ongoing and the Company's efforts with
respect to specific problems identified will depend in part upon its assessment
of the risk that any such problems may cause the shutdown of a customer's plant
or other problem which the Company believes would have a material adverse impact
on its operations. Unfortunately, the Company cannot fully control the conduct
of its suppliers, and there can be no guarantee that Year 2000 problems
originating with a supplier will not occur. The Company has not yet developed
contingency plans in the event of a Year 2000 failure caused by a supplier or
third party, but would intend to do so if a specific problem is identified
through the programs described above. In some cases, especially with respect to
its utility vendors, alternative suppliers may not be available.
As a Tier 1 supplier in the auto industry, the Company takes an active role
in many industry-sponsored organizations, including the Automotive Industry
Action Group ("AIAG"). The AIAG has been proactive in working with OEMs and Tier
1, 2 and 3 suppliers to ensure that the industry as a whole addresses the Year
2000 problem. Tools to assist in achieving compliance include standardized
questionnaires, regular meetings of members, follow-up by AIAG personnel
regarding answers to questionnaires, etc. The Company continues to work with
such industry groups to ensure compliance.
The information presented above sets forth the key steps taken by the
Company to address the Year 2000 problem. There can be no absolute assurance
that third parties will convert their systems in a timely manner and in a way
that is compatible with the Company's systems. The Company believes that its
actions with suppliers will minimize these risks and that the cost of Year 2000
compliance for its information and production systems will not be material to
its consolidated results of operations and financial position.
NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income." This standard establishes guidelines for the display of comprehensive
income for financial statement purposes. The objective of the statement is to
report a measure of all changes in equity of an enterprise that result from
transactions and other economic events of the period other than transactions
with owners.
The FASB has issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This standard requires extensive disclosure
of operating segments based on the "management approach." This approach
organizes segments within a company for making operating decisions and assessing
performance. Reportable segments can be based on products and services,
geography, legal structure or any other manner in which management disaggregates
the company. This Statement requires reporting segment profit or loss, certain
specific revenue and expense items and segment assets. It also requires
reconciliations of total segment revenues, total segment profit or loss, total
segment assets and other amounts disclosed for
F-7
<PAGE> 31
segments to corresponding amounts reported in the Consolidated Financial
Statements. Restatement of comparative information for earlier periods presented
is required in the initial year of application. Interim information is not
required until the second year of application, at which time comparative
information is required.
The FASB has issued SFAS No. 132, "Employer's Disclosures about Pensions
and Other Post-retirement Benefits." This standard revises employers'
disclosures on pension and other postretirement benefit plans. The objective of
the statement is to standardize the disclosure requirements and report
additional information on changes in the benefit obligations and fair value of
plan assets.
SFAS Nos. 130, 131 and 132 are effective for fiscal years beginning after
December 15, 1997.
The FASB also issued SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This standard provides a comprehensive and consistent
standard for the recognition and measurement of derivatives and hedging
activities. This standard is effective for fiscal years beginning after June 15,
1999.
The Company has not determined the impact that the adoption of these new
standards will have on its Consolidated Financial Statements or disclosures.
PROSPECTIVE INFORMATION
In August 1998 the Company's Holm Industries, Inc. subsidiary purchased
certain assets and assumed certain liabilities of OEM/Miller Corporation of
Aurora, Ohio, a privately owned manufacturer of specialty corrugated plastic
tubing and molded parts for the appliance, automotive and construction
industries.
Late in fiscal 1998, the United Auto Workers called a strike against
General Motors that lasted until late July 1998. The Company has previously
reported that the impact on fiscal 1998 results was estimated at $0.10 diluted
earnings per share. The strike will also impact earnings in fiscal 1999. The
following comments do not however take into account any such impact.
The Company expects that its worldwide sales for fiscal 1999 will be down
slightly from fiscal 1998 levels. Despite the lack of revenue growth, the
Company has targeted to deliver a ten to fifteen percent improvement in diluted
earnings per share from fiscal 1998's $2.56. This improvement is partly
dependent on improved operating results by the Company's subsidiary in the
United Kingdom and at Nisco, the Company's U.S.-based joint venture with
Nishikawa Rubber. Both of these operations experienced significant losses in
fiscal 1998 related to the introduction of numerous new programs. While more new
product introductions are expected in fiscal 1999, the Company believes that the
most intense period for these operations is behind them. The targeted earnings
improvement is also significantly dependent upon continued results from the
Company's Low Cost Producer strategy. This strategy has four components: Six
Sigma quality in all operations of the Company; 100% on time delivery; use of
breakthrough technologies; and developing synergy worldwide. Further successful
initiatives as a part of this strategy are necessary to fund customer givebacks
and economic increases planned for fiscal 1999, as well as provide for true
productivity gains. The Company has achieved its goals in each of the past two
years in part through the success of its Low Cost Producer strategy.
A closer look at the sales line shows that North American automotive sales
are expected to decline by over 10% in fiscal 1999. This decline is related
primarily to the loss of some programs, principally the Jeep(R) Grand Cherokee,
and expected lower volumes on certain models for which the Company supplies
systems, such as the Ford Taurus and Escort. Customer price concessions are also
a significant factor in the anticipated sales decline. As mentioned above, this
projected sales decline does not include the impact of the UAW strike against
General Motors. The sales decline in North America is expected to be offset by
increased sales in the Tread Rubber segment as well as continued launches of new
programs in the United Kingdom.
The Company's primary market risks in fiscal 1999 are those shared by its
global customers and include, among other things, fluctuations in interest rates
and currency exchange rates, particularly in emerging markets. To the extent
these fluctuations lead to changes in consumer demand for vehicles in general or
give one automaker or group of automakers a competitive advantage over another,
the Company's sales volumes may go up or down.
A specific concern of the Company in this regard is Brazil. During fiscal
1998, the government in Brazil acted to raise interest rates to protect its
F-8
<PAGE> 32
currency from further devaluation. This had the effect of lowering demand for
"big ticket" consumer goods such as automobiles. While some automakers reduced
production significantly during this period, others made smaller adjustments or
waited to determine what, if any, adjustments they would make to their
production schedules. Now, with inventory building in their systems as
automobile sales have remained sluggish, they are lowering production, thereby
reducing demand for the Company's products. Any prolonged reduction of this
nature would have a significant impact on the Company's ability to meet its
targeted earnings performance. While a similar exposure exists in other emerging
markets in which the Company competes, especially Mexico and Poland, the impact
on financial results is unlikely to be material due to the start-up status of
these operations.
In addition to the economic impact of currency exposure, the Company is
also exposed to translation losses related to currency changes. The recent slide
in the value of the Canadian dollar will reduce the U.S. dollar reported value
of both sales and earnings generated in that country.
Price pressures in the Company's automotive businesses are due in part to
the overcapacity that exists in the global automotive industry. This
overcapacity has forced OEMs to keep prices low or offer larger incentives to
lure buyers into the showroom. OEMs have then turned to their suppliers seeking
continued price reductions. However, if current economic problems in Asia and
other emerging markets continue to spread globally, the overcapacity in the
industry could further intensify the Company's competition and lead to even
greater demands for price reductions from its customers at a time when demand
may be reduced as well. In such a scenario, the Company's financial performance
could be adversely impacted. It is important to note, however, that the Company
has successfully managed the impact of these pricing pressures in the past.
CAUTIONARY STATEMENTS FOR PURPOSES OF "SAFE HARBOR" UNDER THE PRIVATE SECURITIES
REFORM ACT OF 1995
Certain statements in this Management's Discussion and Analysis, the
attached Consolidated Financial Statements, in the Company's press releases and
in oral statements made by or with the approval of an authorized executive
officer of the Company, and in particular certain statements set forth in the
preceding section entitled "Prospective Information," 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, especially in
emerging markets where recent currency weakness may lead to recessionary
conditions; 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.
F-9
<PAGE> 33
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The Standard Products Company
and Consolidated Subsidiaries
Management is responsible for the preparation, integrity and objectivity of
the consolidated financial statements and other financial information presented
in this report. The accompanying consolidated financial statements were prepared
in accordance with generally accepted accounting principles, applying certain
estimates and judgments as required.
Standard Products' internal controls are designed to provide reasonable
assurance as to the integrity and reliability of the financial statements and to
adequately safeguard, verify and maintain accountability of assets. Such
controls are based on established written policies and procedures, are
implemented by trained, skilled personnel with an appropriate segregation of
duties and are monitored through a comprehensive internal audit program. These
policies and procedures prescribe that the Company and all its employees are to
maintain the highest ethical standards and that its business practices
throughout the world are to be conducted in a manner which is above reproach.
Arthur Andersen LLP, independent auditors, are retained to audit the
Company's financial statements. Their accompanying report is based on audits
conducted in accordance with generally accepted auditing standards, which
include the consideration of the Company's internal controls to establish a
basis for reliance thereon in determining the nature, timing and extent of
audits tests to be applied.
The Board of Directors exercises its responsibility for these financial
statements through its Audit Committee, which consists entirely of independent
non-management Board members. The audit committee meets periodically with the
independent auditors and with the Company's internal auditors, both privately
and with management present, to review accounting, auditing, internal controls
and financial reporting matters.
<TABLE>
<S> <C>
RONALD L. ROUDEBUSH DONALD R. SHELEY, JR.
Ronald L. Roudebush Donald R. Sheley, Jr.
Vice Chairman and Chief Vice President, Finance
Executive Officer and Chief Financial
Officer
</TABLE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
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 Consolidated Subsidiaries as
of June 30, 1998 and 1997, 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, 1998. 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 Consolidated Subsidiaries as of June 30, 1998 and 1997, and
the results of their operations and their cash flows for each of the three
fiscal years in the period ended June 30, 1998 in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
July 23, 1998
Detroit, Michigan
F-10
<PAGE> 34
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THE STANDARD PRODUCTS COMPANY
AND CONSOLIDATED SUBSIDIARIES
FOR THE YEARS ENDED JUNE 30,
-----------------------------------------
1998 1997 1996
---- ---- ----
(THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
<S> <C> <C> <C>
Net Sales................................................ $1,101,309 $1,108,268 $1,083,920
Cost of Goods Sold:
Materials, wages and other manufacturing costs......... 888,385 916,821 934,504
Research, engineering and development expenses......... 46,955 45,991 40,934
---------- ---------- ----------
935,340 962,812 975,438
---------- ---------- ----------
Gross Income............................................. 165,969 145,456 108,482
Selling, General and Administrative Expenses............. 78,025 68,559 69,616
Non-recurring Charge (Note 2)............................ -- 17,661 --
---------- ---------- ----------
87,944 59,236 38,866
---------- ---------- ----------
Other (Income) Expense:
Royalty and dividend income............................ (426) (658) (673)
Interest expense....................................... 12,389 12,914 14,944
Other, net............................................. 7,459 521 (3,929)
---------- ---------- ----------
19,422 12,777 10,342
---------- ---------- ----------
Income before Taxes on Income............................ 68,522 46,459 28,524
Provision for Taxes on Income............................ 25,078 18,929 13,947
---------- ---------- ----------
Net Income.......................................... $ 43,444 $ 27,530 $ 14,577
========== ========== ==========
Earnings Per Common Share:
Basic.................................................. $ 2.58 $ 1.64 $ 0.87
---------- ---------- ----------
Diluted................................................ $ 2.56 $ 1.63 $ 0.87
---------- ---------- ----------
Weighted average shares outstanding:
Basic.................................................. 16,848,967 16,803,849 16,757,767
Diluted................................................ 16,975,321 16,855,624 16,779,828
</TABLE>
The accompanying notes are an integral part of these statements.
F-11
<PAGE> 35
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
THE STANDARD PRODUCTS
COMPANY AND CONSOLIDATED
SUBSIDIARIES, JUNE 30,
-------------------------
1998 1997
---- ----
(THOUSANDS OF DOLLARS
EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 1,625 $ 6,972
Receivables, less allowances of $3,949 in 1998 and $2,863
in 1997................................................ 151,535 174,696
Inventories (Note 4)...................................... 61,139 66,633
Prepaid expenses.......................................... 25,319 23,685
--------- ---------
Total current assets................................. 239,618 271,986
--------- ---------
Property, Plant and Equipment, at cost:
Land and buildings........................................ 125,906 123,103
Machinery and equipment................................... 498,282 460,511
--------- ---------
624,188 583,614
Less -- Accumulated depreciation.......................... (293,836) (280,608)
--------- ---------
Net property, plant and equipment.................... 330,352 303,006
Goodwill, net............................................... 63,617 66,169
Other Assets, net (Note 5).................................. 50,659 50,698
--------- ---------
$ 684,246 $ 691,859
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term notes payable.................................. $ 14,994 $ 19,645
Current maturities of long-term debt...................... 14,031 1,289
Accounts payable and accrued expenses (Note 6)............ 183,646 201,629
Dividend payable.......................................... 2,869 2,858
--------- ---------
Total current liabilities............................ 215,540 225,421
Long-term Debt, net of current maturities................... 92,457 121,804
Other Postretirement Benefits............................... 24,362 24,953
Deferred Income Taxes and Other Credits..................... 51,715 51,324
Commitments and Contingent Liabilities (Note 12)
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 16,877,693 in
1998 and 16,809,723 in 1997............................ 16,878 16,810
Paid-in capital........................................... 99,462 98,066
Retained earnings......................................... 202,599 170,620
Foreign currency translation adjustments.................. (16,991) (12,870)
Minimum pension liability................................. (1,776) (4,269)
--------- ---------
Total shareholders' equity........................... 300,172 268,357
--------- ---------
$ 684,246 $ 691,859
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-12
<PAGE> 36
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THE STANDARD PRODUCTS COMPANY
AND CONSOLIDATED SUBSIDIARIES
FOR THE YEARS ENDED JUNE 30,
------------------------------------
1998 1997 1996
---- ---- ----
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income................................................ $ 43,444 $ 27,530 $ 14,577
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 55,131 53,130 52,545
Deferred taxes and other credits....................... 1,005 (974) 265
Equity in income of non-consolidated affiliates........ 3,478 (1,103) (2,436)
Effect of changes in foreign currency.................. 1,163 929 192
Other.................................................. (2,528) 2,763 1,216
Net changes in assets and liabilities:
Receivables (Note 3)................................. 23,161 5,877 18,160
Inventories.......................................... 5,025 (6,079) 9,081
Accounts payable and accrued expenses................ (23,582) (2,028) 29,140
-------- -------- --------
Net cash provided by operating activities......... 106,297 80,045 122,740
-------- -------- --------
Cash Flows from Investing Activities:
Purchase of property, plant and equipment, net............ (77,335) (59,004) (79,684)
Investments in affiliates and non-consolidated entities... (1,307) (264) (199)
Assets acquired by purchase of businesses................. -- -- (1,581)
-------- -------- --------
Net cash used by investing activities............. (78,642) (59,268) (81,464)
-------- -------- --------
Cash Flows from Financing Activities:
Proceeds of long-term borrowings.......................... 27,144 18,076 37,791
Net increase (decrease) in short-term borrowings.......... (4,651) 18,447 (3,561)
Repayment of long-term borrowings......................... (43,666) (39,586) (84,659)
Cash dividends............................................ (11,465) (11,579) (11,400)
Proceeds from exercise of stock options................... 533 134 299
-------- -------- --------
Net cash used by financing activities............. (32,105) (14,508) (61,530)
-------- -------- --------
Effect of exchange rate changes on cash and cash
equivalents............................................... (897) 703 708
-------- -------- --------
Increase (decrease) in cash and cash equivalents............ (5,347) 6,972 (19,546)
Cash and cash equivalents at the beginning of the year...... 6,972 -- 19,546
-------- -------- --------
Cash and cash equivalents at the end of the year............ $ 1,625 $ 6,972 $ --
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-13
<PAGE> 37
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
THE STANDARD PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
----------------------------------------------------------------------
FOREIGN
CURRENCY MINIMUM TOTAL
COMMON PAID-IN RETAINED TRANSLATION PENSION SHAREHOLDERS'
SHARES CAPITAL EARNINGS ADJUSTMENTS LIABILITY EQUITY
------ ------- -------- ----------- --------- -------------
(THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
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) $258,765
Net income........................ -- -- 27,530 -- -- 27,530
Cash dividends ($.68 per share)... -- -- (11,579) -- -- (11,579)
Foreign currency translation
adjustments.................... -- -- -- (6,552) -- (6,552)
Restricted stock awards........... -- 1,051 -- -- -- 1,051
Sale of 24,856 shares to option
holders........................ 25 109 -- -- -- 134
Minimum pension liability......... -- -- -- -- (992) (992)
------- ------- -------- -------- ------- --------
BALANCE, JUNE 30, 1997.............. $16,810 $98,066 $170,620 $(12,870) $(4,269) $268,357
Net income........................ -- -- 43,444 -- -- 43,444
Cash dividends ($.68 per share)... -- -- (11,465) -- -- (11,465)
Foreign currency translation
adjustments.................... -- -- -- (4,121) -- (4,121)
Restricted stock awards........... -- 931 -- -- -- 931
Sale of 67,950 shares to option
holders........................ 68 465 -- -- -- 533
Minimum pension liability........... -- -- -- -- 2,493 2,493
------- ------- -------- -------- ------- --------
BALANCE, JUNE 30, 1998.............. $16,878 $99,462 $202,599 $(16,991) $(1,776) $300,172
======= ======= ======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-14
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
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, 1998 and 1997 was $17,076 and
$19,609, respectively, and is included in Other Assets in the accompanying
consolidated balance sheets. In 1998, the Company made a $1,200 contribution in
capital to the partnership to be used for general operating purposes. The
Company's share of NSC's operating income (loss) was ($3,733), $969 and $2,504
in fiscal 1998, 1997 and 1996, respectively.
Under the terms of NSC's revolving credit and term loan facility, the joint
venture partners are required to guarantee a portion of NSC's borrowings. The
Company's share of these guarantees at June 30, 1998 was $8,050.
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>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash paid for
interest........... $13,054 $12,314 $14,962
Cash paid for income
taxes.............. $20,087 $18,819 $ 6,206
</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 and Mexican 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. Because the Company's Mexican subsidiary
operates in a highly inflationary economy, the U.S. dollar has been used as the
functional currency in the translation of the Mexican financial statements. The
Brazilian economy ceased to be high inflationary during fiscal 1998, however
SFAS 52 prescribes criteria which, if met, allows for the translation of its
results using the remeasurement process. The Company will continue to use the
U.S. dollar as the functional currency until the criteria specified in SFAS 52
are no longer met. Accordingly, foreign currency gains or losses of the
Brazilian and Mexican subsidiaries have been reflected in income currently.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. 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 following estimated
service lives of the property:
<TABLE>
<S> <C>
Buildings.................... 15 to 25 years
Machinery and Equipment...... 10 to 14 years
Furniture and Fixtures....... 7 to 10 years
</TABLE>
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. A substantial
portion of domestic invento-
F-15
<PAGE> 39
ries are valued using the last-in, first-out (LIFO) method, and the remaining
inventories are valued using the first-in, first-out (FIFO) method. Cost
includes the cost of materials, direct labor and the applicable share of
manufacturing overhead.
GOODWILL
Goodwill, which represents the excess of purchase price over the fair value
of assets acquired, is amortized on a straight-line basis over the estimated
useful life but not in excess of 40 years. Recoverability is reviewed annually
or sooner if events or changes in circumstances indicate that the carrying
amount may exceed fair value. Recoverability is then determined by comparing the
undiscounted net cash flows of the net assets on which the goodwill applies to
the net book value, including goodwill, of those assets.
TAXES ON INCOME
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. 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.
RETIREMENT PLANS
The Company's policy is to fund the pension costs of defined benefit plans
in accordance with the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"). 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 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 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.
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 foreign currency within a
one-year period. The Company does not engage in speculation and does not hedge
foreign currency positions which are not related to specific transactions. 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.
F-16
<PAGE> 40
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.
CONCENTRATION OF CREDIT RISK
The Company designs and manufactures rubber and plastic components for
automotive original equipment manufacturers. Financial instruments which
potentially subject the Company to concentrations of credit risk are primarily
accounts receivable. The Company performs ongoing credit evaluations of its
customers' financial condition. The allowance for non-collection of accounts
receivable is based on the expected collectibility of all accounts receivable.
IMPAIRMENT OF ASSETS
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of " on July 1, 1996. This Statement
requires that long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The adoption of SFAS No. 121
did not have a material effect on the Company's consolidated financial
statements.
STOCK-BASED COMPENSATION
Prior to July 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees," and related interpretations.
As such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
July 1, 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," which allows entities to continue to apply the provisions of APB
Opinion No. 25, and provide pro forma net income and pro forma earnings per
share disclosures for employee stock option grants made in fiscal 1997 and
future years as if the fair-value based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to their 1998
presentation in the financial statements.
2. NON-RECURRING CHARGE
In 1997, the Company announced it would permanently close two automotive
parts plants in Schenectady, New York and Lexington, Kentucky, and recorded a
non-recurring charge of $17,661 or $0.63 per share of common stock, after tax.
The closures were undertaken to reduce overcapacity, which management feels will
allow the Company to improve customer service, reduce operating costs, and
improve productivity and asset utilization. The closures were completed by
December 1997, resulting in the reduction of 470 employees.
The Company's provision consisted of $12,485 to recognize severance and
benefits for terminated employees and $5,176 for asset writedowns and building
razing costs. Additional costs will be charged to normal operations as incurred.
During fiscal 1997, the Company also incurred $1,665 in expenses related to
the transfer of business from the closed facilities to those that will remain in
operations. Since these costs are expected to benefit future operations they
were not included in the non-recurring charge. Examples include costs to move
F-17
<PAGE> 41
machinery, equipment and inventory, equipment set-up and relocation of employees
retained by the Company.
3. 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, 1998, $50,000
has been advanced. The agreement, which was to expire in September 1998, was
extended to November 2000.
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 $3,158 and $3,104 in fiscal 1998 and 1997 and have been classified as
Selling, General and Administrative Expenses in the accompanying consolidated
statement of income. The Company maintains an allowance for doubtful accounts
receivable ($3,949 and $2,863 at June 30, 1998 and 1997, respectively) based on
the expected collectibility of all trade accounts receivable, including
receivables sold.
4. INVENTORY
The major components of inventory are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
Raw materials............. $24,898 $29,069
Work-in-process and
finished goods.......... 36,241 37,564
------- -------
Total, at both FIFO and
LIFO cost............... $61,139 $66,633
Excess of FIFO cost over
LIFO cost............... $13,119 $14,019
</TABLE>
Approximately 46% of the Company's inventories are valued at LIFO cost.
5. OTHER ASSETS, NET
Other assets consist of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
Investments................... $18,976 $22,508
Tooling....................... 9,312 3,450
Patents and license
agreements.................. 3,299 2,448
Other intangibles............. 1,967 3,386
Deferred taxes................ 8,810 9,401
Other......................... 8,295 9,505
------- -------
Total..................... $50,659 $50,698
</TABLE>
Where applicable, amounts are presented net of accumulated amortization.
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Accounts payable........... $ 92,965 $ 81,214
Accrued payrolls........... 30,675 34,451
Accrued other taxes........ 4,108 5,035
Federal income tax......... 1,996 3,681
Other accrued expenses..... 53,902 77,248
-------- --------
Total.................. $183,646 $201,629
</TABLE>
F-18
<PAGE> 42
7. FINANCING ARRANGEMENTS
<TABLE>
<CAPTION>
1998 1997
---- ----
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Senior notes............. $100,000 $100,000
Revolving credit
agreement.............. -- 20,000
Other debt............... 6,488 3,093
-------- --------
Total............... 106,488 123,093
Less -- current
maturities............. 14,031 1,289
-------- --------
$ 92,457 $121,804
</TABLE>
At June 30, 1998, 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 of 9.81% is paid
semiannually and the notes are payable July 1, 1999.
Each of the Senior Note agreements requires the Company to maintain certain
financial covenants as to net worth and leverage.
The Revolving Credit Agreement (Credit Agreement) represents unsecured
borrowings from a group of banks that have committed to make available for
borrowing up to $225,000 until September 2002 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. An annual facility fee
of 0.125% is due on the total commitment. The terms of the Credit Agreement also
require the Company to maintain certain financial covenants as to net worth and
leverage.
Under the most restrictive covenants of the Company's various loan
agreements, $66,558 of retained earnings were not restricted at June 30, 1998
for the payment of dividends.
The maturities of long-term debt for the five years subsequent to June 30,
1998 are:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS)
<S> <C>
1999..................... $14,031
2000..................... 38,070
2001..................... 13,089
2002..................... 12,907
2003..................... 12,905
Thereafter............... 15,486
</TABLE>
The Company and its subsidiaries also have, from various banking sources,
approximately $56,400 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 1998, the
average borrowings under these sources was $24,800, and the highest month-end
balance was $37,800. Comparable amounts for 1997 were $20,200 and $38,000 and
$9,000 and $17,400 for 1996. The effective annual borrowing rate was 8.3% in
1998, 7.3% in 1997 and 6.8% in 1996. At June 30, 1998, the weighted interest
rate was 7.9%.
8. FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts and fair values of the Company's significant balance
sheet financial instruments at June 30, 1998 and 1997, are as follows:
<TABLE>
<CAPTION>
1998 CARRYING FAIR
(THOUSANDS OF DOLLARS) AMOUNT VALUES
---------------------- -------- ------
<S> <C> <C>
Cash and cash
equivalents........... $ 1,625 $ 1,625
Short-term bank debt.... 14,994 14,994
Long-term bank debt
(including current
portion).............. 106,488 106,988
</TABLE>
<TABLE>
<CAPTION>
1997
(THOUSANDS OF DOLLARS)
----------------------
<S> <C> <C>
Cash and cash
equivalents........... $ 6,972 $ 6,972
Short-term bank debt.... 19,645 19,645
Long-term bank debt
(including current
portion).............. 123,093 121,793
</TABLE>
F-19
<PAGE> 43
Off balance sheet derivative financial instruments at June 30, 1998 and
1997, held for purposes other than trading, were as follows:
<TABLE>
<CAPTION>
1998 1997
------------------- -------------------
CONTRACT/ CONTRACT/
NOTIONAL FAIR NOTIONAL FAIR
AMOUNT VALUES AMOUNT VALUES
--------- ------ --------- ------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Currency and interest
rate swaps......... $31,010 $(219) $34,680 $ (509)
Foreign currency
exchange
agreements......... 14,000 148 41,388 1,844
</TABLE>
With regard to the combined currency and interest rate swap agreement, the
nominal amount of 65,148 French francs is payable by the Company to a bank,
while the amount due from the bank to the Company is $11,010. 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.
The Company actively monitors its exposure to risk from changes in foreign
exchange rates and interest rates. Derivative financial instruments are used to
reduce the impact of these risks. The Company does not use these instruments for
trading purposes and does not use instruments where there are no underlying
exposures. Management believes that its use of these instruments to reduce risk
is in the Company's best interest.
The Company has estimated its market risk exposures using sensitivity
analyses. Market risk exposure has been defined as the change in fair value of a
derivative financial instrument and related balance sheet position assuming a
10% adverse change in market prices or rates. Fair value was determined using
quoted market prices.
A 63 basis point increase in interest rates (10% of the Company's weighted
average worldwide interest rate) affecting the company's floating financial
instruments, including debt obligations, interest rate swap contract and
accounts receivable securitization, would result in an increase in annual
interest expense of approximately $283.
The Company has financial and related balance sheet positions that are
sensitive to foreign currency exchange rates, including foreign currency forward
exchange contracts and non-functional currency denominated receivables and
payables. The net amount that is exposed to changes in foreign currency rates is
then subjected to a 10% change in the value of the foreign currency versus the
U.S. dollar. A 10% adverse change in foreign exchange rates would result in a
pre-tax expense of approximately $248.
9. RETIREMENT PLANS
The Company and its consolidated subsidiaries 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 determine pension expense and the
PBO were:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Discount rate............ 7.25% 7.75% 7.75%
Long-term rate of return
on plan assets......... 9.50% 9.50% 9.50%
Rate of increase in
future compensation
levels................. 4.50% 5.00% 5.00%
</TABLE>
F-20
<PAGE> 44
The cost of providing pension, retirement and profit-sharing benefits
charged to operations amounted to $7,634 in 1998, $7,295 in 1997 and $6,999 in
1996. For 1998, the expense of defined contribution plans was $5,550 and
multi-employer plan expense was $232. Comparable figures for 1997 were $5,033
and $486, and for 1996, $4,102 and $449. Components of pension expense for
defined benefit plans included the following items:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Service cost......... $ 2,470 $ 2,435 $ 2,737
Interest cost on
PBO................ 6,648 6,262 6,265
Actual gain on plan
assets............. (23,887) (6,163) (12,654)
Net amortization and
deferral........... 16,225 (1,361) 6,100
Loss due to
curtailment........ 396 602 --
-------- ------- --------
Net pension
expense............ $ 1,852 $ 1,775 $ 2,448
</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, 1998, the Company has
recorded an intangible asset of $1,229 included in Other Assets, net in the
accompanying consolidated balance sheet, and an equity reduction of $1,776.
<TABLE>
<CAPTION>
1998 1997
----------------- -----------------
LESS GREATER LESS GREATER
THAN THAN THAN THAN
PLAN PLAN PLAN PLAN
ASSETS ASSETS ASSETS ASSETS
------ ------- ------ -------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
ACCUMULATED BENEFITS
ARE:
Vested benefits........ $60,894 $22,937 $49,540 $27,046
Non-vested benefits.... 3,550 479 2,576 423
------- ------- ------- -------
Accumulated benefit
obligation........... 64,444 23,416 52,116 27,469
Projected future
compensation
increases............ 7,306 824 6,166 735
------- ------- ------- -------
PBO.................... 71,750 24,240 58,282 28,204
Plan assets at fair
market value......... 83,430 18,769 62,772 20,702
------- ------- ------- -------
PBO (in excess of) or
less than plan
assets............... 11,680 (5,471) 4,490 (7,502)
Unrecognized transition
asset................ (4,566) (67) (4,998) (263)
Unrecognized net (gain)
loss................. (4,036) 2,668 3,416 5,061
Adjustment required to
recognize minimum
liability............ -- (3,005) -- (5,304)
Unrecognized prior
service cost......... 2,291 1,228 2,443 1,241
------- ------- ------- -------
Prepaid pension cost,
(liability).......... $ 5,369 (4,647) $ 5,351 $(6,767)
</TABLE>
The Company has accrued $9,791 and $11,434 for Workers' Compensation claims
as of June 30, 1998 and 1997, respectively.
10. 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.
F-21
<PAGE> 45
A summary of plan information is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Accumulated
postretirement
benefit obligation
(APBO):
Retirees........... $ 21,854 $ 22,196 $ 20,989
Active participants
eligible to
receive
benefits......... 2,157 2,442 2,177
Other active plan
participants..... 3,385 3,174 2,516
---------- ----------- ----------
27,396 27,812 25,682
Unrecognized gain
(loss)........... (636) (438) 2,048
Unrecognized prior
service cost..... (42) -- --
---------- ----------- ----------
$ 26,718 $ 27,374 $ 27,730
---------- ----------- ----------
Periodic
postretirement
benefit cost:
Current service
cost............. $ 356 $ 271 $ 286
Interest on
postretirement
benefit
obligation....... 2,087 1,922 1,990
Net amortization... 84 (11) (74)
---------- ----------- ----------
$ 2,527 $ 2,182 $ 2,202
---------- ----------- ----------
Actuarial
assumptions:
Discount rate...... 7.25% 7.75% 7.75%
1998 to 2005 --
health care cost
trend rate....... 10.0%-5.5% 10.75%-5.5% 11.5%-5.5%
Effect of a 1%
increase in health
care cost trend
rate:
Increase year end
APBO............. 7.4% 7.0% 6.6%
Increase expense... 8.7% 9.2% 9.5%
</TABLE>
11. 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 2036.
The following is a schedule of future minimum rental payments required
under operating leases that have initial or remaining noncancelable lease terms
in excess of one year as of June 30, 1998:
<TABLE>
<S> <C>
1999............................... $ 7,186
2000............................... 4,978
2001............................... 2,765
2002............................... 1,433
2003 and later years............... 2,387
-------
Total minimum payments required.... $18,749
</TABLE>
Rent expense was $13,445, $14,372 and $14,627 for the years ended June 30,
1998, 1997 and 1996, respectively.
12. 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.
The Company retains the risk with respect to certain employee medical and
workers' compensation benefits. Medical coverage is capped at $1,000 over the
lifetime of the employee. The Company has insurance to cover catastrophic claims
for workers' compensation benefits in excess of $500 per claim and $15,100 in
the aggregate. Reserves are included in accrued liabilities in the accompanying
consolidated balance sheets.
13. 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. Under the plan, 40% of the
options become exercisable one year from the date of grant, an additional 40%
after the second year, and the remainder after the third year. The options have
a maximum life of ten years
F-22
<PAGE> 46
from the date of the grant. Summarized below is
stock option activity for 1997 and 1998.
<TABLE>
<CAPTION>
RANGE OF
SHARES OPTION PRICES
------ -------------
<S> <C> <C>
Stock options
outstanding at June
30, 1996.............. 387,640 $17.88 - $36.99
Options granted......... 233,450 25.25 - 26.25
Options exercised....... (6,400) 19.25 - 21.63
Options cancelled....... (65,986) 29.13 - 36.99
-------
Stock options
outstanding at June
30, 1997.............. 548,704 $17.88 - $36.99
Options granted......... 342,550 25.25 - 29.00
Options exercised....... (53,070) 17.88 - 29.13
Options cancelled....... (56,024) 19.25 - 36.99
-------
Stock options
outstanding at June
30, 1998.............. 782,160
</TABLE>
The Company adopted the disclosure requirements of Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation," effective with the 1997 financial statements, but elected to
continue to measure compensation cost using the intrinsic value method, in
accordance with APB Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to
Employees." Accordingly, no compensation cost for stock options has been
recognized. If compensation cost had been determined based on the estimated fair
value of options previously granted, consistent with the methodology in SFAS
123, the pro forma effects on the Company's net income and income per share
would have been:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net Earnings
As reported............. $43,444 $27,530
Pro forma............... 42,017 26,836
Diluted
Earnings per Share
As reported............. $2.56 $1.63
Pro forma............... 2.48 1.59
</TABLE>
The estimated fair value as of date of grant of options granted in 1998 and
1997, using the Black-Scholes option-pricing model, was as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Estimated fair value per share
of options granted during the
year......................... $9.05 $8.38
Assumptions:
Annualized dividend yield.... 2.3% 2.7%
Common Stock price
volatility................ 28.1% 30.5%
Risk-free rate of return..... 5.5% 6.5%
Expected option term (in
years).................... 7 7
</TABLE>
At June 30, 1998, options for 260,240 shares were exercisable at an average
exercise price of $23.63 a share. Shares reserved for the future granting of
options were 456,895 at year end; 410,629 were reserved a year ago.
Under The Standard Products Company's 1997 and 1991 Restricted Stock Plans,
525,000 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 62,500 in 1998, 75,000 in 1995 and 187,500 in 1992.
Of the shares awarded, 32,600 shares were earned in 1998, 35,000 shares in 1997
and 18,400 shares in 1996. In 1998, $931 was charged to operations as
compensation expense based upon the market value of the earned shares. The
similar charge to operations in 1997 and 1996 was $1,051 and $419, respectively.
At year end, 200,000 shares remain available for future awards.
14. EARNINGS PER SHARE
The Company has adopted the provisions of SFAS No. 128, "Earnings per
Share." The information required by this pronouncement is presented on the face
of the Company's "Consolidated Statements of Operations." A reconciliation of
the numerators and denominators of the basic and diluted earnings per share are
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net Income........... $43,444 $27,530 $14,577
------- ------- -------
Basic:
Basic Shares....... 16,849 16,804 16,758
------- ------- -------
Basic EPS.......... $2.58 $1.64 $0.87
------- ------- -------
Diluted:
Basic Shares....... 16,849 16,804 16,758
Stock Options...... 126 52 22
------- ------- -------
16,975 16,856 16,780
------- ------- -------
Diluted EPS.......... $2.56 $1.63 $0.87
------- ------- -------
</TABLE>
F-23
<PAGE> 47
15. 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.
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 1998, 1997 and 1996, respectively,
has been as follows: Chrysler -- 18%, 18% and 17%; Ford -- 22%, 24% and 26%;
General Motors -- 13%, 13% and 14%. 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.
BUSINESS SEGMENT INFORMATION
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Net Sales:
Transportation
equipment......... $ 969,428 $ 976,001 $ 958,105
Tread rubber........ 150,256 145,497 135,869
Less -- intersegment
sales............. (18,375) (13,230) (10,054)
---------- ---------- ----------
Net sales......... $1,101,309 $1,108,268 $1,083,920
Operating Income:
Transportation
equipment......... $ 79,705 $ 73,100 $ 39,836
Tread rubber........ 14,040 9,128 4,078
Non-recurring
charge............ -- (17,661) --
General corporate
expenses.......... (5,801) (5,331) (5,048)
---------- ---------- ----------
Total operating
income........ $ 87,944 $ 59,236 $ 38,866
---------- ---------- ----------
Other expense,
net............... (19,422) (12,777) (10,342)
---------- ---------- ----------
Income from
operations
before taxes.... $ 68,522 $ 46,459 $ 28,524
Identifiable Assets:
Transportation
equipment......... $ 573,902 $ 590,579 $ 585,274
Tread rubber........ 82,464 72,483 70,788
General corporate
assets............ 27,880 28,797 28,633
---------- ---------- ----------
Total
identifiable
assets........ $ 684,246 $ 691,859 $ 684,695
Capital Additions,
net:
Transportation
equipment......... $ 66,099 $ 53,683 $ 74,456
Tread rubber........ 11,236 5,321 5,228
---------- ---------- ----------
Total capital
additions..... $ 77,335 $ 59,004 $ 79,684
Depreciation and
Amortization:
Transportation
equipment......... $ 50,492 $ 48,571 $ 48,328
Tread rubber........ 4,639 4,559 4,217
---------- ---------- ----------
Total
depreciation
and
amortization... $ 55,131 $ 53,130 $ 52,545
</TABLE>
F-24
<PAGE> 48
GEOGRAPHIC AREA
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Net Sales:
United States....... $ 593,747 $ 619,068 $ 618,491
Canada.............. 224,515 218,427 212,046
Europe.............. 229,593 234,504 242,977
Brazil.............. 76,913 58,680 29,479
Mexico.............. 833 -- --
Less -- inter-area
sales............. (24,292) (22,411) (19,073)
---------- ---------- ----------
Net sales......... $1,101,309 $1,108,268 $1,083,920
Net Income:
United States....... $ 30,288 $ 16,415 $ 8,248
Canada.............. 18,628 10,928 8,785
Europe.............. (2,719) 9,180 10,732
Brazil.............. 1,943 (5,642) (10,345)
Mexico.............. (1,018) -- --
General corporate
expenses, net of
tax............... (3,678) (3,351) (2,843)
---------- ---------- ----------
Net income........ $ 43,444 $ 27,530 $ 14,577
Identifiable Assets:
United States....... $ 265,302 $ 270,036 $ 297,744
Canada.............. 85,009 95,362 79,845
Europe.............. 212,130 202,358 210,215
Brazil.............. 84,512 90,114 68,258
Mexico.............. 9,413 5,192 --
General corporate
assets............ 27,880 28,797 28,633
---------- ---------- ----------
Total identifiable
assets.......... $ 684,246 $ 691,859 $ 684,695
</TABLE>
16. INCOME TAXES
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Income before taxes:
United States....... $43,570 $17,016 $10,626
Foreign............. 24,952 29,443 17,898
------- ------- -------
Total........... $68,522 $46,459 $28,524
Provision for income
taxes:
Current taxes:
Federal............. $ 7,760 $ 8,887 $ 3,822
Foreign............. 8,994 11,030 3,585
State and local..... 2,217 1,882 1,304
------- ------- -------
Total........... $18,971 $21,799 $ 8,711
Deferred taxes:
Federal............. $ 6,881 $(3,111) $ 2,656
Foreign............. (875) 321 2,536
State and local..... 101 (80) 44
------- ------- -------
Total........... 6,107 (2,870) 5,236
------- ------- -------
Total
provision..... $25,078 $18,929 $13,947
</TABLE>
A reconciliation of income tax expense to the U.S. statutory rate is as
follows:
<TABLE>
<S> <C> <C> <C>
Tax at U.S. statutory rate......... 35.0% 35.0% 35.0%
Difference in effective rate of
international operations......... (.9) 2.2 10.6
State and local income tax......... 2.2 2.5 3.1
Permanent book to tax differences
not deductible................... .5 2.7 2.9
Tax credits........................ (.2) (1.4) --
Other, net......................... -- (0.3) (2.7)
---- ---- ----
Effective tax rate................. 36.6% 40.7% 48.9%
</TABLE>
Deferred tax assets (liabilities) result from differences in the basis of
assets and liabilities for tax and financial statement purposes. The cumulative
effect of the major items follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Deferred tax assets:
Nondeductible accrued
expenses.............. $ 5,500 $ 8,200
Employee benefits....... 15,100 16,000
Net operating loss and
tax credit
carryforwards......... 11,200 11,100
All other items......... 800 1,700
-------- --------
Total deferred tax
assets........... $ 32,600 $ 37,000
Valuation allowance..... (11,200) (11,100)
-------- --------
Net deferred tax
assets........... $ 21,400 $ 25,900
Deferred tax liabilities:
Depreciation and
amortization.......... $(28,800) $(24,600)
All other items......... (3,900) (5,400)
-------- --------
Total deferred tax
liabilities...... $(32,700) $(30,000)
-------- --------
Net deferred tax
liabilities......... $(11,300) $ (4,100)
</TABLE>
In accordance with the Company's policy, as of June 30, 1998, federal
income taxes have not been provided on the undistributed earnings of foreign
subsidiaries. If these earnings were distributed, approximately $5,800 of
additional tax would be payable.
F-25
<PAGE> 49
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
tax loss carryforwards in addition to unutilized tax credits and state net
operating tax 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.
Deferred tax assets are included in Prepaid expenses and Other Assets, net
in the accompanying consolidated balance sheets.
17. QUARTERLY AND OTHER FINANCIAL DATA (UNAUDITED)
The following tables set forth a summary of the quarterly results of
operations for the years ended June 30, 1998 and 1997;
<TABLE>
<CAPTION>
1998
THREE MONTHS ENDED
-----------------------------------------
SEPT. 30 DEC. 31 MARCH 31 JUNE 30
-------- ------- -------- -------
(THOUSANDS OF DOLLARS
EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales............ $246,173 $282,544 $277,942 $294,650
Gross income......... 27,237 39,304 46,088 53,340
Net income........... 2,811 8,761 13,559 18,313
Earnings per common
share -- Diluted... $ 0.16 $ 0.52 $ 0.80 $ 1.08
</TABLE>
<TABLE>
<CAPTION>
1997
THREE MONTHS ENDED
-----------------------------------------
SEPT. 30 DEC. 31 MARCH 31 JUNE 30
-------- ------- -------- -------
(THOUSANDS OF DOLLARS
EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net Sales............ $265,611 $266,620 $281,774 $294,263
Gross income......... 25,292 31,696 38,761 49,708
Net income........... 1,397 6,344 515 19,275
Earnings per common
share -- Diluted... $ 0.08 $ 0.38 $ 0.03 $ 1.14
</TABLE>
The Company's common shares are listed on the New York Stock Exchange.
Quarterly market and dividend data are shown in the following tables.
<TABLE>
<CAPTION>
PRICE RANGE
------------------------------------
1998 1997
---------------- ----------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
Quarter
1st................ $27.50 $25.13 $25.75 $18.50
2nd................ $31.00 $24.44 $26.25 $22.75
3rd................ $33.56 $25.56 $26.50 $22.00
4th................ $35.88 $27.75 $26.88 $21.38
</TABLE>
<TABLE>
<CAPTION>
CASH DIVIDENDS
DECLARED
--------------
1998 1997
---- ----
<S> <C> <C>
Quarter
1st.................................. $0.17 $0.17
2nd.................................. $0.17 $0.17
3rd.................................. $0.17 $0.17
4th.................................. $0.17 $0.17
----- -----
$0.68 $0.68
</TABLE>
There were approximately 921 shareholders as of September 1, 1998.
18. NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income."
This standard establishes guidelines for the display of comprehensive income for
financial statement purposes. The objective of the statement is to report a
measure of all changes in equity of an enterprise that result from transactions
and other economic events of the period other than transactions with owners.
The FASB also issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This standard requires extensive disclosure
of operating segments based on the "management approach." This approach
organizes segments within a company for making operating decisions and assessing
performance. Reportable segments can be based on products and services,
geography, legal structure or any other manner in which management disaggregates
the company. This Statement requires reporting segment profit or loss, certain
specific revenue and expense items and segment assets. It also requires
reconciliations of total segment revenues, total segment profit or loss, total
segment assets and other amounts disclosed for segments to corresponding amounts
reported in the Consolidated Financial Statements. Restatement of comparative
information for earlier periods
F-26
<PAGE> 50
presented is required in the initial year of application. Interim information is
not required until the second year of application, at which time comparative
information is required.
The FASB has issued SFAS No. 132, "Employer's Disclosures about Pensions
and Other Postretirement Benefits." This standard revises employers' disclosures
on pension and other postretirement benefit plans. The objective of the
statement is to standardize the disclosure requirements and report additional
information on changes in the benefit obligations and fair value of plan assets.
SFAS Nos. 130, 131 and 132 are effective for fiscal years beginning after
December 15, 1997.
The FASB also issued SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This standard provides a comprehensive and consistent
standard for the recognition and measurement of derivatives and hedging
activities. This standard is effective for fiscal years beginning after June 15,
1999.
The Company has not determined the impact that the adoption of these new
standards will have on its Consolidated Financial Statements or disclosures.
F-27
<PAGE> 51
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 Consolidated Subsidiaries 1998 Annual Report to Shareholders and have issued
our report thereon dated July 23, 1998. 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
ARTHUR ANDERSON LLP
Detroit, Michigan
July 23, 1998.
S-1
<PAGE> 52
VALUATION AND QUALIFYING ACCOUNTS
SCHEDULE II
FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
-------- ---------- ---------- ---------- ---------- -------------
BALANCE ADDITIONS
AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
DESCRIPTION OF PERIOD EXPENSES RECOVERIES DEDUCTIONS OF PERIOD
----------- --------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Year Ended June 30, 1998
Reserve for Plant Closings.............. $12,545 $ -- $ -- $8,495 $ 4,050
======= ======= ==== ====== =======
Allowance for doubtful accounts......... $ 2,863 $ 2,549 $447 $1,910 $ 3,949
======= ======= ==== ====== =======
Year Ended June 30, 1997
Reserve for Plant Closings(1)........... $ -- $17,661 $ -- $5,116 $12,545
======= ======= ==== ====== =======
Allowance for doubtful accounts......... $ 2,958 $ 543 $ 96 $ 734 $ 2,863
======= ======= ==== ====== =======
Year Ended June 30, 1996
Reserve for Plant Closings.............. $ 6,235 $ -- $ -- $6,235 $ --
======= ======= ==== ====== =======
Allowance for doubtful accounts......... $ 4,978 $ 8 $113 $2,141 $ 2,958(2)
======= ======= ==== ====== =======
</TABLE>
- -------------------------
(1) Additions are related to the closure of the Lexington, Kentucky and
Schenectady, New York plants. These operations were discontinued and plants
were closed by December 31, 1997.
(2) Material changes in the allowances for doubtful accounts are due to
additional doubtful account reserve established in 1995 for a subsidiary
plant closing and write off of these receivables during 1996.
S-2
<PAGE> 53
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
- -------------- ----------- ----------- --------------------
<C> <C> <S> <C>
2 2a Stock Sale Agreement, Dated Form 8-K, Dated January 26, 1993
December 19, 1992 with respect to (Filed with the SEC on February
the acquisition of the Standard 9, 1993; see Exhibit 2 therein)
Products Industriel Group.
3 3a Second Amended and Restated Quarterly Report Form 10-Q (Filed
Articles of Incorporation with the SEC on November 1, 1993;
see Exhibit 3a therein)
3 3b Amended and Restated Code of Form S-3 Registration No.
Regulations 33-62054 (Filed with the SEC on
May 5, 1993; see Exhibit 3.2
therein)
4 4a Senior Notes Agreement -- Quarterly Report Form 10-Q (Filed
$75,000,000 6.55% Senior Notes with the SEC on February 11,
due December 16, 2003, by and 1994; see Exhibit 4 therein)
among The Standard Products
Company and Metropolitan Life
Insurance Company and certain of
its Affiliates
4 4b First Amendment to Senior Notes Annual Report Form 10-K (Filed
Agreement -- $75,000,000 6.55% with the SEC on September 16,
Senior Notes due December 16, 1997)
2003 by and among The Standard
Products Company and Metropolitan
Life Insurance Company and
certain of its Affiliates dated
September 22, 1995
4 4c Second Amendment to Senior Notes Quarterly Report on Form 10Q
Agreement -- $75,000,000 6.55% (Filed with the SEC on February
Senior Notes due December 16, 10, 1997; see Exhibit 10c
2003 by and among The Standard therein)
Products Company and Metropolitan
Life Insurance Company and
certain of its Affiliates dated
December 9, 1996
4 4d Third Amendment to Senior Notes
Agreement -- $75,000,000 6.55%
Senior Notes due December 16,
2003 by and among The Standard
Products Company and Metropolitan
Life Insurance Company and
certain of its Affiliates dated
September 2, 1998
4 4e Senior Notes Agreement -- Annual Report Form 10-K (Filed
$25,000,000 aggregate principal with the SEC on September 25,
amount 9.56% Senior Notes due 1989; see Exhibit 4b therein)
July 1, 1999 by and between the
Company and Nationwide Life
Insurance Company ($12,000,000),
Aid Association for Lutherans
($10,000,000) and Employers Life
Insurance Company of Wausau
($3,000,000) dated as of June 30,
1989
</TABLE>
<PAGE> 54
<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
- -------------- ----------- ----------- --------------------
<C> <C> <S> <C>
4 4f First and Second Amendments to Annual Report Form 10-K (Filed
the Senior Notes Agreement -- with the SEC on September 15,
$25,000,000 aggregate principal 1992; see Exhibit 4f therein)
amount, dated February 22, 1991
(First Amendment) and, June 30,
1991 (Second Amendment), between
the Company and Nationwide Life
Insurance Company, Aid
Association for Lutherans and
Employers Life Insurance Company
of Wausau
4 4g Third Amendment to Senior Notes Annual Report Form 10-K (Filed
Agreement aggregate principal with the SEC on September 16,
amount $25,000,000 dated January 1997)
19, 1993, between the Company and
Nationwide Life Insurance
Company, and Aid Association for
Lutherans and Employers Life
Insurance Company of Wausau
4 4h Fourth Amendment to Senior Note Annual Report Form 10-K (Filed
Agreement principal amount with the SEC on September 13,
$3,000,000, dated as of January 1995)
31, 1995 by and between the
Company and Employers Life
Insurance Company of Wausau
Fourth Amendment to Senior Note
Agreement principal amount
$12,000,000 dated as of January
31, 1995 by and between the
Company and Nationwide Life
Insurance Company
Fourth Amendment to Senior Note
Agreement principal amount
$10,000,000 dated as of January
31, 1995 by and between the
Company and Aid Association for
Lutherans
4 4i Fifth Amendment to Senior Note Annual Report Form 10-K (Filed
Agreement dated September 22, with the SEC on September 16,
1995, aggregate principal amount 1997)
$25,000,000 between the Company
and Nationwide Life Insurance
Company, Aid Association for
Lutherans and Employers Life
Insurance Company of Wausau
</TABLE>
<PAGE> 55
<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
- -------------- ----------- ----------- --------------------
<C> <C> <S> <C>
4 4j Credit Agreement, dated as of Annual Report Form 10-K (Filed
January 19, 1993, among The with the SEC on September 14,
Standard Products Company, as 1993; see Exhibit 4c therein)
Borrower, and National City Bank,
Society National Bank, Comerica
Bank and NBD Bank, N.A. and
National City, as Agent.
4 4k First Amendment to Credit Quarterly Report 10-Q (Filed with
Agreement, dated as of April 30, the SEC on May 9, 1997; see
1994, among The Standard Products Exhibit 4e therein)
Company, as Borrower, and
National City Bank, Society
National Bank, Comerica Bank and
NBD Bank, N.A. and National City,
as Agent.
4 4l Second Agreement of Amendment to Annual Report Form 10-K (Filed
the Credit Agreement, dated as of with the SEC on September 16,
August 25, 1995, among The 1997)
Standard Products Company, as
borrower, and National City Bank
as agent and for itself, Society
National Bank, Comerica Bank and
NBD Bank
4 4m Third Agreement of Amendment to Quarterly Report 10-Q (Filed with
the Credit Agreement, dated as of the SEC on November 14, 1996; see
October 25, 1996, among The Exhibit 4 therein)
Standard Products Company, as
borrower, and National City Bank
as agent and for itself, KeyBank
National Association, Comerica
Bank and NBD Bank.
4 4n Confirmation and Interest Rate Annual Report Form 10-K (Filed
and Currency Exchange Agreement, with the SEC on September 13,
dated November 12, 1993, between 1995)
the Company and National City
Bank
4 4o Interest Rate and Currency Annual Report Form 10-K (Filed
Exchange Agreement, Termination with the SEC on September 13,
of $7 million in principal 1995)
amount, dated June 16, 1995
between the Company and National
City Bank
4 4p Credit Agreement among The Quarterly Report 10-Q (Filed with
Standard Products Company, the SEC on November 14, 1997; see
Comerica Bank, NBD Bank, KeyBank Exhibit 4a therein)
National Association, The Bank of
New York, Harris Trust and
Savings Bank, Boston Bank, N.A.
and National City Bank, as Agent
</TABLE>
<PAGE> 56
<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
- -------------- ----------- ----------- --------------------
<C> <C> <S> <C>
10 10a Supplemental Salaried Pension Annual Report Form 10-K (Filed
Plan with the SEC on September 29,
1986; see Exhibit 10a therein)
10 10b The Standard Products Company Form S-8 Registration No.
1985 Employee Incentive Stock 33-01558 (Filed with the SEC on
Option Plan November 15, 1985; see Exhibit 4a
therein)
10 10c The Standard Products Company Form S-8 Registration No.
1989 Employee Incentive Stock 33-33612 (Filed with the SEC on
Option Plan February 28, 1990; see Exhibit 4a
therein)
10 10d The Standard Products Company Form S-8 Registration No.
1991 Employee Stock Option Plan 33-51556 (Filed with the SEC on
September 2, 1992; see Exhibit 4c
therein)
10 10e The Standard Products Company Form S-8 Registration No.
1991 Restricted Stock Plan 33-51554 (Filed with the SEC on
September 2, 1992; see Exhibit 4c
therein)
10 10f The Standard Products Company Annual Report Form 10-K (Filed
Restricted Stock Agreement with the SEC on September 15,
between the Company and the 1992; see Exhibit 10h therein)
Chairman and Chief Executive
Officer
10 10g The Standard Products Company Annual Report Form 10-K (Filed
Restricted Stock Agreement with the SEC on September 15,
between the Company and the 1992; see Exhibit 10i therein)
President and Chief Operating
Officer
10 10h The Standard Products Company Annual Report Form 10-K (Filed
Restricted Stock Agreement with the SEC on September 27,
between the Company and the 1996; see Exhibit 10h therein)
Executive Vice
President-International
Operations
10 10i The Standard Products Company Form S-8 Registration No.
1993 Employee Stock Option Plan 33-53989 (Filed with the SEC on
June 6, 1994; see Exhibit 4
therein)
10 10j Receivables Purchase Agreement Quarterly Report Form 10-Q (Filed
dated as of September 22, 1995 with the SEC on February 13,
among The Standard Products 1996; see Exhibit 10a therein)
Funding Corporation as seller and
The Standard Products Company as
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 Amendment to Receivables Purchase Annual Report Form 10-K (Filed
Agreement with the SEC on September 16,
1997)
</TABLE>
<PAGE> 57
<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
- -------------- ----------- ----------- --------------------
<C> <C> <S> <C>
10 10l Purchase and Sale Agreement dated Quarterly Report Form 10-Q (Filed
as of September 22, 1995 among with the SEC on February 13,
The Standard Products Company, as 1996; see Exhibit 10b therein)
Originator and Master Servicer, 5
Rubber Corporation, Oliver Rubber
Company, and Holm Industries,
Inc., as Originators and
Servicers, and The Standard
Products Funding Corporation, as
the Initial Purchaser
10 10m Standard Products Individual Form S-8 Registration No.
Retirement and Investment Trust 333-01923 (Filed with SEC on
Plan March 22, 1996; see Exhibit 4a
therein)
10 10n The Standard Products Company Form S-8 Registration No.
Collectively Bargained Savings 333-01921 (Filed with SEC on
and Retirement Plan March 22, 1996; see Exhibit 4a
therein)
10 10o Second Amendment to Receivables Quarterly Report 10-Q (Filed with
Purchase Agreement the SEC on February 10, 1997; see
Exhibit 10a therein)
10 10p The Standard Products Company Annual Report Form 10-K (Filed
Restricted Stock Agreement with the SEC on September 16,
between the Company and the 1997)
Executive Vice President-Advanced
Technology Worldwide
10 10q The Standard Products Company Form S-8 Registration Statement
1996 Employee Stock Option Plan No. 333-21225 (Filed with SEC on
February 6, 1997; see Exhibit
4(a) therein)
10 10r Letter Re: Employment of J.S. Annual Report Form 10-K (Filed
Reid, Jr., dated July 24, 1997. with the SEC on September 16,
1997)
10 10s Employment Agreement between the Annual Report Form 10-K (Filed
Standard Products Company and with the SEC on September 16,
Ronald L. Roudebush dated July 1, 1997)
1997.
10 10t Employment Agreement between the Annual Report Form 10-K (Filed
Standard Products Company and with the SEC on September 16,
Theodore K. Zampetis dated 1997)
September 1, 1997.
10 10u The Standard Products Company Annual Report Form 10-K (Filed
Restricted Stock Agreement with the SEC on September 16,
between the Company and the 1997)
Chairman of the Board of
Directors dated July 1, 1997.
10 10v 1997 Employee Stock Option Plan Quarterly Report 10-Q (Filed with
the SEC on November 14, 1997; see
Exhibit 10a therein)
</TABLE>
<PAGE> 58
<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
- -------------- ----------- ----------- --------------------
<C> <C> <S> <C>
10 10w 1997 Restricted Stock Option Plan Quarterly Report 10-Q (Filed with
the SEC on November 14, 1997; see
Exhibit 10b therein)
10 10x Third Amendment to Receivables Quarterly Report 10-Q (Filed with
Purchase Agreement the SEC on November 14, 1997; see
Exhibit 10c therein)
10 10y Amendment No. 1 to the Restricted
Stock Agreement between the
Company and the Vice Chairman and
Chief Executive Officer
10 10z Amendment to Restricted Stock
Agreement between the Company and
the President and Chief Operating
Officer
10 10aa Amendment No. 2 to the Restricted
Stock Agreement between the
Company and the President and
Chief Operating Officer
13 13 Proxy Statement for the Annual
Meeting of Shareholders to be
held on October 20, 1998
21 21 Subsidiaries of Registrant
23 23 Consent of Independent
Accountants
24 24 Power of Attorney
27 27 Financial Data Schedule
99 99a Standard Products Individual
Retirement and Investment Trust
Plan for the fiscal year ended
June 30, 1998
99 99b The Standard Products Company
(Gaylord, Michigan Plant) UAW
Local 388 Collectively Bargained
Savings and Retirement Plan for
the fiscal year ended June 30,
1998
99 99c The Standard Products Company
Collectively Bargained Savings
and Retirement Plan (Lexington
Division) UAW Local 1681,
Lexington, KY for the fiscal year
ended June 30, 1998
99 99d The Standard Products Company
(Campbell Plastics Division)
IUE-AFL-CIO, Local #318,
Collectively Bargained Savings
and Retirement Plan for the
fiscal year ended June 30, 1998
</TABLE>
<PAGE> 59
<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
- -------------- ----------- ----------- --------------------
<C> <C> <S> <C>
99 99e The Standard Products Company
Collectively Bargained Savings
and Retirement Plan for the
Employees of the Reid Division
covered by the Collective
Bargaining Agreement with the
United Steel Workers of America,
Local No. 3586 for the fiscal
year ended June 30, 1998
99 99f The Standard Products Company
Collectively Bargained Savings
and Retirement Plan for Members
of the Bargaining Unit certified
by NLRB Case No. 10-RC-7481 at
Oliver Rubber Company for the
fiscal year ended June 30, 1998
</TABLE>
<PAGE> 1
EXHIBIT 4d
[THE STANDARD PRODUCTS CO. LETTERHEAD]
September 2, 1998
Metropolitan Life Insurance Company
Fixed Income Investments - Private Placement Unit
334 Madison Avenue
P.O. Box 633
Convent Station, NJ 07961-0633
Dear Sir or Madam:
Metropolitan Life Insurance Company, Metropolitan Insurance and Annuity
Company, and Metropolitan Property and Casualty Insurance Company (collectively,
the "Purchasers"), are holders of $75,000,000 aggregate principal amount of the
6.55% Senior Notes due December 16, 2003, as amended (the "Notes"), issued
pursuant to the Note Purchase Agreement, dated December 16, 1993 (the
"Agreements"), between The Standard Products Company (the "Company") and the
Purchasers.
As holders of the Notes and parties to the Agreements, and subject to the
agreement of the Company and the Purchasers as evidenced by their signatures set
forth below, the Purchasers hereby agree with the Company that Section 8.3
("Current Ratio") of the Notes shall be deleted from the Notes.
It is understood that no compensation has been paid to any other senior
lenders of the Company for agreement to the amendment referred to in this letter
and that all senior lenders have agreed to such amendment.
If you are in agreement with the foregoing amendment, please sign below and
return three of the enclosed copies of this letter to The Standard Products
Company, 2401 South Gulley Road, Dearborn, Michigan 48124, to the attention of
Charles F. Nagy, Treasurer.
Very truly yours,
THE STANDARD PRODUCTS COMPANY
By: /s/ CHARLES F. NAGY
-------------------------------------
Charles F. Nagy, Treasurer
The foregoing amendment to the Agreement
is accepted and agreed to:
METROPOLITAN LIFE INSURANCE COMPANY
By: [SIG]
-------------------------------------
METROPOLITAN PROPERTY AND
CASUALTY INSURANCE COMPANY
By: [SIG]
-------------------------------------
METROPOLITAN INSURANCE AND
ANNUITY COMPANY
By: [SIG]
-------------------------------------
<PAGE> 1
EXHIBIT 10y
AMENDMENT NO. 1
TO
THE STANDARD PRODUCTS COMPANY
RESTRICTED STOCK AGREEMENT
This Amendment No. 1 (the "Amendment") to the Restricted Stock Agreement
(the "Agreement") made as of the 1st day of July 1997, by and between The
Standard Products Company, an Ohio corporation (the "Company") and Ronald L.
Roudebush (the "Executive") under The Standard Products Company 1991 Restricted
Stock Plan (the "Plan"), is made and becomes effective as of the 1st day of July
1998.
WHEREAS the Company has awarded restricted Common Shares to the Executive
under the Plan, and has entered into the Agreement, which sets forth the terms
and conditions with respect to the award of the restricted Common Shares; and
WHEREAS, the parties, pursuant to authorization granted by the Compensation
Committee of the Board of Directors, desire to amend the Agreement.
NOW THEREFORE, the parties, for good and valuable consideration, the
receipt of which is hereby acknowledged, do hereby agree as follows:
1. Paragraph 3 of the Agreement shall be amended by substituting the
following therefor:
The number of awarded Common Shares which may be earned with respect
to each fiscal year at a rate of up to 12,500 Common Shares per year in the
current fiscal year and each of the succeeding three fiscal years equals
the product of 12,500 multiplied by the ratio of the cash bonus earned by
Executive under the Company's Officers' Bonus Plan over the target bonus
which Executive would earn under such Plan if the target established by the
Compensation Committee of the Board of Directors of the Company is exactly
met with respect to each such fiscal year.
Notwithstanding the foregoing, however, no more than 12,500 Common
Shares may be earned in the Company's fiscal year 1998, ended June 30,
1998, and no more than an aggregate number of 37,500 Common Shares may be
earned in the next three fiscal years of the Company, following fiscal year
1998. No Common Shares may be earned with respect to any fiscal year of the
Company after the fiscal year ended June 30, 2001.
IN WITNESS WHEREOF, this Agreement is executed by and on behalf of the
undersigned parties as of the 1st day of July 1998.
THE STANDARD PRODUCTS COMPANY
By: /s/ RICHARD N. JACOBSON
------------------------------------
Title: General Counsel and Secretary
-----------------------------------
/s/ RONALD L. ROUDEBUSH
-----------------------------------
Ronald L. Roudebush
Executive
<PAGE> 1
EXHIBIT 10z
AMENDMENT TO RESTRICTED STOCK AGREEMENT
This Amendment to the Restricted Stock Agreement (the "Agreement") dated
December 9, 1991, by and between THE STANDARD PRODUCTS COMPANY (the "Company")
and THEODORE K. ZAMPETIS (the "Executive") is made in connection with the
execution of an Employment Agreement between the Company and the Executive dated
September 1, 1997. The Company and Executive agree that:
1. The Agreement is hereby amended by adding the following to paragraph 2:
In the event:
(i) the employment of the Executive is terminated by the Company
without "Cause" or by Executive for "Good Reason," as those terms are
defined in the Employment Agreement between the Company and the Executive
dated September 1, 1997 (the "Employment Agreement"), or
(ii) at the end of the Initial Term of the Employment Agreement the
parties are unable mutually to agree on its continuation into the Renewal
Term,
all earned but unvested common shares shall immediately vest. In addition,
if Executive's Annual Base Salary is continued pursuant to the provisions
of paragraph 5.02 or 5.04 of the Employment Agreement, Executive shall be
deemed to continue to be actively employed and therefore eligible to earn
Restricted Stock for the period described in paragraph 5.02(b) in the event
of termination during or at the end of the Initial Term or for the period
described in paragraph 5.04(b) in the event of termination during the
Renewal Term, and any Restricted Stock so earned shall become immediately
vested in Executive.
2. In all other respects, said Agreement remains unchanged and in full
force and effect.
Executed effective September 1, 1997.
THE STANDARD PRODUCTS COMPANY
By /s/ R. L. ROUDEBUSH
------------------------------------
Ronald L. Roudebush
Chief Executive Officer
By /s/ THEODORE K. ZAMPETIS
------------------------------------
Theodore K. Zampetis
<PAGE> 1
EXHIBIT 10aa
AMENDMENT NO. 2
TO
THE STANDARD PRODUCTS COMPANY
RESTRICTED STOCK AGREEMENT
This Amendment No. 2 (the "Amendment") to the Restricted Stock Agreement
(the "Agreement") made as of the 29th day of December 1991, by and between The
Standard Products Company, an Ohio corporation (the "Company") and Theodore K.
Zampetis (the "Executive") under The Standard Products Company 1991 Restricted
Stock Plan (the "Plan"), is made and becomes effective as of the 1st day of July
1998.
WHEREAS the Company has awarded restricted Common Shares to the Executive
under the Plan, and has entered into the Agreement, which sets forth the terms
and conditions with respect to the award of the restricted Common Shares; and
WHEREAS, the parties, pursuant to authorization granted by the Compensation
Committee of the Board of Directors, desire to amend the Agreement; and
WHEREAS, this Amendment No. 2 shall not affect in any way the terms of
Amendment No. 1 to the Agreement, entered into effective September 1, 1997.
NOW THEREFORE, the parties, for good and valuable consideration, the
receipt of which is hereby acknowledged, do hereby agree as follows:
1. Paragraph 3 of the Agreement shall be amended by adding the
following as new paragraphs thereto:
Notwithstanding the foregoing, however, the number of awarded Common
Shares which may be earned with respect to the fiscal year which commences
on July 1, 1998, and each of the next two succeeding fiscal years equals
the product of 12,500 multiplied by the ratio of the cash bonus earned by
Executive under the Company's Officers' Bonus Plan over the target bonus
which Executive would earn under such Plan if the target established by the
Compensation Committee of the Board of Directors of the Company is exactly
met with respect to each such fiscal year.
Further notwithstanding the foregoing, however, no more than an
aggregate number of 37,500 Common Shares may be earned in the fiscal year
of the Company commencing on July 1, 1998, and the next two succeeding
fiscal years. No Common Shares may be earned with respect to any fiscal
year of the Company after the fiscal year ended June 30, 2001.
IN WITNESS WHEREOF, this Agreement is executed by and on behalf of the
undersigned parties as of the 1st day of July 1998.
THE STANDARD PRODUCTS COMPANY
By: /s/ RICHARD N. JACOBSON
------------------------------------
Title: General Counsel and Secretary
-----------------------------------
/s/ THEODORE K. ZAMPETIS
-----------------------------------
Theodore K. Zampetis
Executive
<PAGE> 1
<TABLE>
<S> <C> <C>
PROXY STATEMENT
SELECTED FINANCIAL DATA
MANAGEMENT'S DISCUSSION
AND ANALYSIS
1998 CONSOLIDATED
THE STANDARD PRODUCTS COMPANY FINANCIAL STATEMENTS
AND NOTES
</TABLE>
THE STANDARD PRODUCTS COMPANY LOGO
- --------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
------------------
Notice is hereby given that the annual meeting of shareholders of The
Standard Products Company, an Ohio corporation (the "Company"), will be held at
the Company's Reid Division offices located at 2130 West 110th Street,
Cleveland, Ohio 44102, on Tuesday, October 20, 1998, at 9:00 a.m., Cleveland
time, for the following purposes:
1. To receive reports at the meeting. No action constituting approval
or disapproval of the matters referred to in said reports is contemplated.
2. To elect five directors, each to serve for a term of three years.
3. To transact such other business as may properly come before the
meeting.
Only shareholders of record at the close of business on September 8, 1998,
will be entitled to notice of and to vote at said meeting or any adjournment
thereof. Shareholders are urged to complete, date and sign the enclosed proxy
and return it in the enclosed envelope.
By order of the Board of Directors,
Richard N. Jacobson
RICHARD N. JACOBSON
General Counsel and Secretary
Dated: September 15, 1998
<PAGE> 2
THE STANDARD PRODUCTS COMPANY
PROXY STATEMENT
------------------
This proxy statement is furnished in connection with the solicitation of
proxies to be used at the annual meeting of shareholders of The Standard
Products Company, an Ohio corporation (the "Company"), to be held at the
Company's Reid Division offices located at 2130 West 110th Street, Cleveland,
Ohio 44102, on Tuesday, October 20, 1998, at 9:00 a.m., Cleveland time. This
proxy statement and the accompanying notice and proxy will first be sent to
shareholders by mail on or about September 15, 1998.
Annual Report. A copy of the Company's Summary Annual Report to
Shareholders for the fiscal year ended June 30, 1998, is enclosed with this
proxy statement. The Company's audited consolidated financial statements and
certain other financial information for its fiscal year ended June 30, 1998, are
included as pages F-1 to F-27, inclusive, annexed to this proxy statement.
Solicitation and Revocation of Proxies. This solicitation of proxies is
made by and on behalf of the Board of Directors. The cost of the solicitation of
proxies will be borne by the Company. The Company has retained Georgeson &
Company, at an estimated cost of $8,500 plus reimbursement of expenses, to
assist in the solicitation of proxies from brokers, nominees, institutions and
individuals. In addition to solicitation of proxies by mail, Georgeson & Company
and regular employees of the Company may solicit proxies by telephone or
facsimile.
If the enclosed proxy is returned, the shares represented thereby will be
voted in accordance with any specifications made therein by the shareholder. In
the absence of any such specifications, they will be voted to elect the
directors set forth under "Election of Directors" below. A shareholder's
presence alone at the meeting will not operate to revoke his or her proxy. The
proxy is revocable by a shareholder at any time insofar as it has not been
exercised by executing and delivering a later-dated proxy or by giving notice to
the Company in writing at its corporate headquarters at 2401 South Gulley Road,
Dearborn, Michigan 48124, Attn: Corporate Secretary or in open meeting.
Outstanding Shares. The close of business on September 8, 1998, has been
fixed as the record date for the determination of shareholders entitled to
notice of and to vote at the meeting. On such date, the Company's voting
securities outstanding consisted of 16,469,692 Common Shares, $1 par value, each
of which is entitled to one vote at the meeting.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information with respect to persons
known to management to be the beneficial owners as of June 30, 1998, of more
than five percent of the Company's Common Shares:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
------------------------------------ -------------------- --------
<S> <C> <C>
James S. Reid, Jr.(1)....................................... 1,296,494(2) 7.9%
2401 South Gulley Road
Dearborn, MI 48124
National City Corp.(3)...................................... 980,756 6.0%
1900 East Ninth Street
Cleveland, OH 44114
</TABLE>
- -------------------------
(1) Mr. Reid is Chairman of the Board of Directors of the Company.
(2) Comprised of 817,554 shares owned by Mr. Reid; 139,196 shares owned by his
wife, Donna S. Reid; 2,400 shares which Mr. Reid has the right to acquire
pursuant to stock options currently exercisable or
1
<PAGE> 3
exercisable within 60 days; 71,987 shares held by a life trust in which Mr.
Reid has a remainder interest; 1,817 shares held for his account under the
Company's Employee Stock Purchase Plan and 14,709 shares held for his
account under the Company's Individual Retirement and Investment Trust Plan;
and 249,431 shares held by The Standard Products Foundation, of which Mr.
Reid is President and a trustee. The number of shares shown above does not
include shares owned by Mr. Reid's children or grandchildren, and 205,157
shares held by a trust as to which Mr. Reid is an income beneficiary and
John D. Drinko, a member of the Board of Directors, is trust advisor, which
shares are included in the number of shares reported by Mr. Drinko.
(3) The information contained herein is based upon a Schedule 13G filing made by
National City Corp. ("NCC") for the period ended December 31, 1997.
According to its Schedule 13G filing, NCC has sole dispositive power over
2,300 shares, shared dispositive power over 440,030 shares, and sole voting
power over all 980,756 shares held by it. The shares reported by NCC include
321,418 shares reported by Mr. Reid (see footnote 2 above); 325,709 shares
reported by John D. Drinko (see footnote 2 to "Security Ownership of
Directors and Executive Officers" below), with respect to all of which
shares NCC's 13G filing states that it has shared dispositive power; 80,700
shares reported by Mr. Sigel (see footnote 3 to "Security Ownership of
Directors and Executive Officers" below), with respect to all of which
shares NCC's 13G filing states that it has shared dispositive power; and
3,000 shares reported by Mr. Myers (see footnote 7 to "Security Ownership of
Directors and Executive Officers" below).
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
beneficial ownership of Common Shares of the Company as of June 30, 1998, by (a)
the Company's directors (including nominees for director); (b) the persons who
served as the Company's Chief Executive Officer during fiscal 1998 and the other
four most highly compensated executive officers named in the Summary
Compensation Table; and (c) the Company's executive officers and directors as a
group. Except as otherwise described in the notes below or in footnotes 2 and 3
to "Security Ownership of Certain Beneficial Owners" above, the following
beneficial owners have sole voting power and sole dispositive power with respect
to all Common Shares set forth opposite their names.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS
------------------------ ------------------ --------
<S> <C> <C>
James S. Reid, Jr........................................... 1,296,494(1) 7.9%
John D. Drinko.............................................. 772,052(2) 4.7%
John D. Sigel............................................... 305,980(3) 1.9%
Leigh H. Perkins............................................ 270,872(4) 1.6%
Theodore K. Zampetis........................................ 148,666(5) (6)
Malcolm R. Myers............................................ 87,125(7) (6)
Ronald L. Roudebush......................................... 62,283(8) (6)
Curtis E. Moll.............................................. 52,185(9) (6)
Alan E. Riedel.............................................. 25,012 (6)
W. Hayden Thompson.......................................... 20,000 (6)
John Doddridge.............................................. 10,000 (6)
Edward B. Brandon........................................... 6,825(10) (6)
Alfred M. Rankin, Jr........................................ 2,500 (6)
James C. Baillie............................................ 2,000 (6)
James F. Keys............................................... 49,704(11) (6)
Stephan J. Mack............................................. 26,480(12) (6)
Donald R. Sheley, Jr........................................ 16,589(13) (6)
All Executive Officers and Directors as a Group............. 3,230,244 19.6%
</TABLE>
- -------------------------
(1) A description of the Common Shares beneficially owned by Mr. Reid is set
forth in Note 2 under "Security Ownership of Certain Beneficial Owners"
above.
2
<PAGE> 4
(2) Comprised of 46,920 shares owned by Mr. Drinko; 22,680 shares held in an
individual retirement account of which Mr. Drinko is the beneficiary;
38,933 shares owned by his wife, Elizabeth G. Drinko; 155,076 shares owned
by a corporation of which Mr. Drinko is a shareholder, officer and
director; 54,218 shares owned by a charitable foundation established by Mr.
Drinko and his wife; 205,157 shares held by a trust as to which Mr. Drinko
is a trust advisor and of which Mr. Reid is an income beneficiary; 124,062
shares owned by a foundation of which Mr. Drinko is President and a
trustee; and 125,006 shares held by a charitable lead trust of which Mr.
Drinko is a co-trustee. The number of shares shown in the table above does
not include 77,700 shares held by a charitable lead trust in which Mr.
Drinko and Mr. Sigel are co-trustees; 78,125 shares owned by Cloyes Gear &
Products, Inc. of which Mr. Drinko and Mr. Myers are directors; 3,000
shares owned by a foundation of which Mr. Drinko and Mr. Myers are
trustees; and 29,752 shares owned by a foundation of which Mr. Drinko and
Mr. Perkins are trustees.
(3) Comprised of 17,888 shares owned by Mr. Sigel; 179,766 shares owned by his
wife, Sally C. Reid; 27,626 shares held in custodial accounts for Mr.
Sigel's minor children; and 80,700 shares owned by a charitable lead trust
of which Mr. Sigel and Mr. Drinko are co-trustees. In addition, Mr. Sigel
is a trustee of The Standard Products Foundation, which owns 249,431
shares, which shares are included in the number of shares reported by Mr.
Reid, and are not included in the number reported by Mr. Sigel. Mr. Sigel
is the son-in-law of Mr. Reid, Chairman of the Board of Directors of the
Company.
(4) Comprised of 125,473 shares owned by Mr. Perkins; 88,147 shares owned by
his wife, Romi Perkins, who has voting and dispositive power over such
shares; 29,752 shares owned by a foundation of which he and Mr. Drinko are
trustees; and 27,500 shares owned by a foundation of which Mr. Perkins is a
co-trustee, and over which shares Mr. Perkins has shared dispositive power.
(5) Comprised of 110,080 shares owned by Mr. Zampetis (which amount includes
30,727 restricted shares earned in fiscal 1996, 1997, and 1998 but subject
to forfeiture); 24,833 shares owned by his wife, Ann J. Zampetis; 806
shares held for his account under the Company's Employee Stock Purchase
Plan; 11,747 shares held for his account under the Company's Individual
Retirement and Investment Trust Plan; and 1,200 shares which Mr. Zampetis
has the right to acquire pursuant to stock options currently exercisable or
exercisable within 60 days.
(6) Represents less than one percent.
(7) Comprised of 6,000 shares owned by Mr. Myers; 78,125 shares owned by Cloyes
Gear & Products, Inc., in which shares Mr. Myers shares voting and
dispositive power; and 3,000 shares owned by a foundation of which Mr.
Myers and Mr. Drinko are trustees, and with respect to which Mr. Myers
shares voting and dispositive power.
(8) Comprised of 110 shares held for Mr. Roudebush's account under the
Company's Employee Stock Purchase Plan; 537 shares held for his account
under the Company's Individual Retirement and Investment Trust Plan; 11,636
restricted shares earned in fiscal 1998, but subject to forfeiture; and
50,000 shares which Mr. Roudebush has the right to acquire pursuant to
stock options currently exercisable or exercisable within 60 days.
(9) Comprised of 210 shares owned by his wife, Sara Moll; 45,725 shares owned
by the pension fund of MTD Products, Inc.; and 6,250 shares owned by a
charitable foundation of which he is a trustee.
(10) In addition, Mr. Brandon is a trustee of The Standard Products Foundation,
which owned 249,431 shares as of June 30, 1998, which shares are included
in the number of shares reported by Mr. Reid.
(11) Comprised of 36,466 shares owned by Mr. Keys (which amount includes 12,291
restricted shares earned in fiscal 1996, 1997, and 1998 but subject to
forfeiture); 2,458 shares held for Mr. Keys in his account under the
Company's Individual Retirement and Investment Trust Plan; and 10,780
shares which Mr. Keys has the right to acquire pursuant to stock options
currently exercisable or exercisable within 60 days.
(12) Comprised of 16,055 shares owned by Mr. Mack; 1,105 shares held for Mr.
Mack in his account under the Company's Individual Retirement and
Investment Trust Plan; and 9,320 shares which Mr. Mack has the right to
acquire pursuant to stock options currently exercisable or exercisable
within 60 days.
3
<PAGE> 5
(13) Comprised of 6,000 shares owned by Mr. Sheley; 484 shares held by Mr.
Sheley's account under the Company's Employee Stock Purchase Plan; 105
shares held for his account under the Company's Individual Retirement and
Investment Trust Plan; and 10,000 shares which Mr. Sheley has the right to
acquire pursuant to stock options currently exercisable or exercisable
within 60 days.
ELECTION OF DIRECTORS
In accordance with the Company's Amended Code of Regulations, the Board of
Directors has fixed the number of directors at fourteen, divided into two
classes of five and one class of four. The number of directors had been fixed at
thirteen until July 24, 1997, when the Board, acting under its authority as set
forth in the Company's Amended Code of Regulations, voted to increase the number
of directors to fourteen. At the Annual Meeting, the shares represented by
proxies, unless otherwise specified, will be voted for the election of the five
nominees hereinafter named, each to serve for a term of three years and until
his successor is duly elected and qualified.
The nominees for director are John Doddridge, Leigh H. Perkins, Alfred M.
Rankin, Jr., John D. Sigel, and W. Hayden Thompson, all of whom are presently
directors of the Company. Each of the nominees was most recently elected at the
1995 Annual Meeting of the Company's Shareholders. Proxies cannot be voted at
the Annual Meeting for a greater number of persons than the five persons
hereinafter named, although persons in addition to those nominees named herein
may be nominated by the shareholders at the meeting.
If for any reason any of the nominees is not a candidate (which is not
expected) when the election occurs, it is intended that proxies will be voted
for the election of a substitute nominee designated by management. The following
information is furnished with respect to each person nominated for election as a
director.
NOMINEES FOR ELECTION AT THE ANNUAL MEETING
<TABLE>
<CAPTION>
EXPIRATION
PERIOD OF TERM
OF SERVICE FOR WHICH
NAME AND AGE PRINCIPAL OCCUPATION AS DIRECTOR PROPOSED
------------ -------------------- ----------- ----------
<S> <C> <C> <C>
John Doddridge Chairman and Chief Executive Officer, Intermet 1995 to date 2001
58 Corporation (manufacturer of precision ductile
and gray iron castings for the automotive and
truck industries)
Leigh H. Perkins Chairman, The Orvis Company, Inc. (manufacturer 1969 to date 2001
70 and distributor of fishing tackle and sporting
goods)
Alfred M. Rankin, Chairman, President and Chief Executive Officer, 1989 to date 2001
Jr. NACCO Industries, Inc. (holding company with
56 operations in mining and manufacturing of small
electrical appliances, forklift trucks, and
related service parts)
John D. Sigel Partner, Hale and Dorr LLP, Boston, 1991 to date 2001
45 Massachusetts (law firm)
W. Hayden Thompson Chairman and Chief Executive Officer, Solarflo 1982 to date 2001
71 Corporation (manufacturer of gas and electric
heating equipment)
</TABLE>
4
<PAGE> 6
DIRECTORS WHOSE TERMS WILL CONTINUE AFTER THE ANNUAL MEETING
The following information is furnished with respect to each person
continuing as a director.
<TABLE>
<CAPTION>
PERIOD EXPIRATION
OF SERVICE OF CURRENT
NAME AND AGE PRINCIPAL OCCUPATION AS DIRECTOR TERM
------------ -------------------- ----------- ----------
<S> <C> <C> <C>
John D. Drinko Senior Partner, Baker & Hostetler LLP, 1957-1958 1999
77 Cleveland, Ohio (law firm) 1967-1968
1969 to date
Curtis E. Moll Chairman and Chief Executive Officer, MTD 1991 to date 1999
59 Products, Inc. (manufacturer of outdoor power
equipment and tools, dies and stampings for the
automotive industry)
Malcolm R. Myers Chairman, Cloyes Gear & Products, Inc. 1984 to date 1999
64 (manufacturer of automotive timing components)
Theodore K. Zampetis President and Chief Operating Officer of the 1991 to date 1999
53 Company
James C. Baillie Partner, Tory Tory DesLauriers & Binnington, 1994 to date 2000
60 Barristers & Solicitors, Toronto, Ontario,
Canada
Edward B. Brandon Retired Chairman, President and Chief Executive 1976 to date 2000
66 Officer, National City Corporation (bank
holding company)
James S. Reid, Jr. Chairman of the Company 1959 to date 2000
72
Alan E. Riedel Retired Vice Chairman, Cooper Industries, Inc. 1976 to date 2000
68 (worldwide diversified manufacturer of
electrical products, electric power equipment,
tools and hardware)
Ronald L. Roudebush Vice Chairman and Chief Executive Officer of 1997 to date 2000
51 the Company
</TABLE>
Each of the above directors and nominees for election as a director has had
the principal occupation indicated for at least five years, except Messrs.
Doddridge, Rankin, Brandon, and Roudebush. Mr. Doddridge served as Vice Chairman
and Chief Executive Officer of Magna International, Inc., from November 1992 to
November 1994. Mr. Rankin was elected Chairman of NACCO Industries, Inc., in May
1994, in addition to his position as President and Chief Executive Officer.
Prior to that date, he served solely as President and Chief Executive Officer.
Mr. Brandon served as Chairman, President, and Chief Executive Officer of
National City Corporation until his retirement on September 30, 1995. Mr.
Roudebush was part owner and an officer of Milford Dodge, Inc., Milford, Ohio,
an auto dealership, from August 1995 through May 1997. Prior to that, he had
been employed from 1991 through November 1994 as President, Rockwell Automotive,
the operating unit of Rockwell International Corporation which included all of
Rockwell's worldwide automotive businesses.
Mr. Brandon is a director of National City Corporation and RPM, Inc. Mr.
Doddridge is a director of Detroit Diesel Corporation. Mr. Moll is a director of
Shiloh Industries, Inc. and Sherwin-Williams Company. Mr. Rankin is a director
of The B.F.Goodrich Company and The Vanguard Group. Mr. Riedel is a director of
Belden Inc., Arkwright Mutual Insurance Inc. and Chairman of Gardner Denver,
Inc. Mr. Roudebush is a director of Simpson Industries, Inc. Mr. Zampetis is a
director of Shiloh Industries, Inc.
During the fiscal year ended June 30, 1998, the Board of Directors held
seven meetings and appointed an Audit Committee, a Finance Committee and a
Compensation Committee. The Board of Directors does not have a Nominating
Committee. With the exception of Messrs. Baillie, Doddridge, Myers and Sigel,
each member of the Board of Directors attended at least 75% of the meetings of
the Board of Directors and of the committees on which he served.
5
<PAGE> 7
The Audit Committee of the Board of Directors of the Company (the "Audit
Committee"), of which Mr. Brandon is Chairman and Messrs. Baillie, Doddridge,
Moll, Myers, Rankin, Sigel and Thompson are members, held three meetings and
consulted informally on other occasions during the last fiscal year. The Audit
Committee recommends annually to the Board of Directors the independent public
accountants for the Company, reviews with the independent public accountants the
arrangements for and scope of the audits to be conducted by them and the results
of those audits, and reviews various financial and accounting matters affecting
the Company.
The Compensation Committee of the Board of Directors of the Company (the
"Compensation Committee"), of which Mr. Riedel is Chairman and Messrs. Brandon,
Moll, Myers, and Perkins are members, held four meetings and consulted
informally on other occasions during the last fiscal year. The Compensation
Committee periodically reviews and determines the compensation, including fringe
benefits and incentive compensation, of officers and management personnel of the
Company and administers the Company's restricted stock and stock option plans.
The Compensation Committee also determines the officers and key employees of the
Company who participate in those plans and the stock options and restricted
stock awards to be granted. In addition, the Committee established stock
ownership guidelines for executive officers and directors of the Company.
The Finance Committee, of which Mr. Drinko is Chairman, Mr. Thompson is
Vice Chairman, and Messrs. Perkins, Reid, Riedel, Roudebush, and Zampetis are
members, held four meetings and consulted informally during the last fiscal
year. The Finance Committee administers the investments of the Company's
retirement funds and renders advice and counsel to management on financial
matters affecting the Company.
Director's Compensation. Each director who is not an officer of the Company
or a subsidiary of the Company is compensated at the rate of $23,000 per year.
Each director also receives $1,000 for attendance at each meeting of the Board
of Directors and for each meeting of any committee not held in conjunction with
a meeting of the Board of Directors. Committee Chairmen receive an additional
$1,000 per year. In addition, Mr. Riedel, Chairman of the Compensation
Committee, was paid $25,000 for his services as Chairman of the Compensation
Committee in leading the search for a chief executive officer to succeed Mr.
Reid. This search culminated in Mr. Roudebush's hiring.
In June 1998, the Compensation Committee established share ownership
guidelines for directors pursuant to which all current and future directors of
the Company will be expected to own Common Shares of the Company equal in value
to at least four times the base retainer (currently $23,000) payable annually to
such directors.
6
<PAGE> 8
EXECUTIVE COMPENSATION
The following information is set forth with respect to both persons who
served as the Company's Chief Executive Officer during fiscal year 1998, and the
Company's four other most highly compensated executive officers for fiscal year
1998.
I. SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------- -----------------------
AWARDS
-----------------------
RESTRICTED
OTHER ANNUAL STOCK STOCK ALL OTHER
NAME AND FISCAL SALARY BONUS COMPENSATION AWARD(S) OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($)(1) ($)(2) ($) (#) ($)(3)
------------------ ------ ------ ------ ------------ ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
James S. Reid, Jr. 1998 $217,203 $279,273 -- $317,188(5) -- $210,341
Chairman(4) 1997 600,000 300,000 -- -- -- 3,454
1996 600,000 158,190 -- (6) -- 3,594
Ronald L. Roudebush 1998 500,000 232,727 -- (8) 200,000 11,566
Vice Chairman and Chief 1997 -- -- -- -- -- --
Executive Officer(7) 1996 -- -- -- -- -- --
Theodore K. Zampetis 1998 440,000 204,800 -- (9) -- 3,480
President and Chief 1997 440,000 220,000 -- -- -- 3,454
Operating Officer 1996 410,000 108,096 -- -- 50,000 3,594
James F. Keys 1998 313,500 145,920 -- (10) 3,000 3,120
Executive Vice 1997 289,750 144,875 -- -- 5,000 3,094
President -- International 1996 241,074 63,559 -- -- 15,000 3,734
Stephan J. Mack 1998 243,980 122,944 -- -- 3,000 7,659
President, Holm Industries,
Inc. 1997 236,256 94,502 -- -- 4,000 3,115
1996 231,075 90,750 -- -- 4,000 130
Donald R. Sheley, Jr. 1998 248,775 115,794 -- -- 6,000 8,636
Vice President -- Finance 1997 238,125 119,063 -- -- 10,000 360
And Chief Financial
Officer(11) 1996 215,625 56,849 -- -- 10,000 240
</TABLE>
- -------------------------
(1) Amounts shown represent bonuses earned pursuant to the Company's Officers
Incentive Compensation Plan.
(2) Total perquisites and other personal benefits for each of the named
executive officers do not exceed the threshold amounts specified in the
regulations promulgated by the Securities and Exchange Commission.
(3) Amounts shown include the Company's contributions on behalf of Messrs. Reid
and Roudebush and each other named executive officer under the Individual
Retirement and Investment Trust Plan, in the following amounts for fiscal
1998: Mr. Roudebush, $6,563; and each other named executive officer,
including Mr. Reid, $3,120. Amounts shown also include the Company's
contributions on behalf of Messrs. Roudebush, Reid, Zampetis, and Sheley
under the Employee Stock Purchase Plan in the following amounts for fiscal
1998: Mr. Roudebush, $315, and Messrs. Reid, Zampetis, and Sheley, $360.
Amounts shown also include the Company's contributions on behalf of Messrs.
Roudebush, Reid, Mack, and Sheley under the Supplemental 401(k) Plan in the
following amounts: Mr. Roudebush, $4,688; Mr. Reid, $8,923; Mr. Mack,
$4,539; and Mr. Sheley, $5,156. The Supplemental 401(k) Plan first became
effective on January 1, 1998. The amount shown for Mr. Reid includes
payments totaling $197,938 made to him under the Company's Supplemental
Salaried Employees' Pension Plan. For a description of that plan, see
"Pension Plan and Supplemental Plans" on page 11 of this proxy statement.
Payments to Mr. Reid under that plan commenced on September 1, 1997,
pursuant to the terms of a letter agreement between Mr. Reid and the
Company. For a description of the terms of that agreement, see "Certain
Employment Agreements" on page 10 of this proxy statement.
(4) Mr. Reid served as Chief Executive Officer of the Company until July 24,
1997. His compensation after that date is governed by a letter agreement,
the terms of which are described under "Certain Employment Agreements" on
page 10 of this proxy statement. The amounts shown herein do not
7
<PAGE> 9
include retirement benefits paid to Mr. Reid under the Company's Salaried
Employees' Pension Plan. See "Pension Plan and Supplemental Plans" on page
11 of this proxy statement for a description of how benefits are calculated
under that plan.
(5) Mr. Reid was awarded 12,500 restricted Common Shares, effective July 1,
1997. Under the terms of the award, all of the shares were considered
earned on the effective date of the award. The shares are subject to
forfeiture until the earlier of July 1, 1999 or the date on which Mr. Reid
retires from his position as Chairman of the Board of the Company. In the
event of Mr. Reid's death, all awarded Common Shares will vest in his
designated beneficiary. Based on the last reported sale price of the
Company's Common Shares on the New York Stock Exchange on June 30, 1998,
the Common Shares earned under the 1997 award had a fair market value of
$351,563.
(6) Mr. Reid was awarded 62,500 restricted Common Shares (adjusted to reflect a
5-for-4 stock split of the Company's Common Shares effected in the form of
a stock dividend paid on June 3, 1993, to shareholders of record on May 20,
1993) in fiscal 1992. Under the terms of the award, up to 12,500 of the
awarded Common Shares could be earned in each of five consecutive fiscal
years beginning in fiscal 1992, based on the percentage of bonus earned
during such fiscal year. Awarded Common Shares earned by Mr. Reid are
subject to forfeiture until the end of the second fiscal year following the
fiscal year in which such awarded Common Shares are earned. Mr. Reid earned
6,591 of the awarded Common Shares in fiscal year 1996, which vested on
June 30, 1998. Based on the last reported sale price of the Company's
Common Shares on the New York Stock Exchange on June 30, 1998, the total
Common Shares earned during the past three years under the 1992 award had a
fair market value of $185,372. Including the shares earned under the 1997
award (see footnote 5 above), the total value of all restricted Common
Shares earned by Mr. Reid during the past three fiscal years was $536,934.
No more shares can be earned by Mr. Reid under either award. Dividends are
paid only with respect to the awarded Common Shares which have been earned.
(7) Mr. Roudebush commenced employment with the Company on July 1, 1997, and
became its Chief Executive Officer on July 24, 1997.
(8) Mr. Roudebush was awarded 50,000 restricted Common Shares upon joining the
Company. Under the terms of the award, up to 12,500 of the awarded Common
Shares could have been earned in fiscal year 1998, based upon the
percentage of bonus earned in that fiscal year. Pursuant to an amendment to
Mr. Roudebush's restricted stock agreement effective beginning in fiscal
year 1999 made in connection with changes to the Company's Officers
Incentive Compensation Plan, up to 18,750 of the awarded Common Shares can
be earned in each of fiscal years 1999, 2000, and 2001, based upon the
percentage of bonus earned during each such fiscal year, but in no event
can the aggregate number of shares earned over that three-year period
exceed 37,500. Awarded Common Shares earned by Mr. Roudebush are subject to
forfeiture until the end of the third fiscal year following the fiscal year
in which such awarded Common Shares are earned, except that in the event of
a "change in control" of the Company, as defined in the restricted stock
plan pursuant to which the restricted Common Shares were awarded to Mr.
Roudebush, all restricted Common Shares awarded to Mr. Roudebush will
immediately vest. In the event of Mr. Roudebush's death, all earned but
unvested awarded Common Shares and one-half of awarded but unearned Common
Shares will vest in his designated beneficiary. Mr. Roudebush earned 11,636
of the awarded Common Shares in fiscal year 1998. Those shares will vest on
June 30, 2001. Based on the last reported sale price of the Company's
Common Shares on the New York Stock Exchange on June 30, 1998, the Common
Shares earned by Mr. Roudebush had a fair market value of $327,263.
Dividends are paid only with respect to the awarded Common Shares which
have been earned.
(9) Mr. Zampetis was awarded 125,000 restricted Common Shares (adjusted to
reflect a 5-for-4 stock split of the Company's Common Shares effected in
the form of a stock dividend paid on June 3, 1993 to shareholders of record
on May 20, 1993) in fiscal 1992. Under the terms of the award, up to 12,500
of the awarded Common Shares may be earned in each of ten consecutive
fiscal years beginning in fiscal 1992, based on the percentage of bonus
earned during such fiscal year. Pursuant to an amendment to Mr. Zampetis'
restricted stock agreement effective beginning in fiscal year 1999 made in
connection with the changes to the Company's Officers Incentive
Compensation Plan, Mr. Zampetis can earn up to 18,750 of the awarded Common
Shares in each of fiscal years 1999, 2000, and 2001, based upon the
percentage of bonus earned during each such fiscal year, but in no event
can the aggregate number of shares earned over that three-year period
exceed 37,500. Awarded Common Shares earned by Mr. Zampetis are subject to
forfeiture until the end of the third fiscal year following the fiscal year
in
8
<PAGE> 10
which such awarded Common Shares are earned, except that if his employment
is terminated by the Company without "cause" or if he terminates his
employment for "good reason," as defined in his employment agreement (see
"Certain Employment Agreements" on page 10 of this Proxy Statement) or if
his employment is not continued beyond August 31, 1999, all Common Shares
then earned by him which are subject to forfeiture will become immediately
vested. In addition, he will continue to be eligible to earn additional
Common Shares, which will not be subject to forfeiture, during any period
when his base salary is continued after his employment ends. Mr. Zampetis
earned 6,591 of the awarded Common Shares in fiscal year 1996, 12,500 in
fiscal year 1997, and 11,636 in fiscal year 1998. 6,000 shares earned by
Mr. Zampetis in fiscal year 1995 vested on June 30, 1998. The shares earned
in fiscal years 1996, 1997, and 1998 will vest on the last day of fiscal
years 1999, 2000, and 2001, respectively. In the event of Mr. Zampetis'
death, all earned but unvested awarded Common Shares and one-half of
awarded but unearned Common Shares will vest in his designated beneficiary.
Based on the last reported sale price of the Company's Common Shares on the
New York Stock Exchange on June 30, 1998, the total Common Shares earned
during the past three years under the 1992 award had a fair market value of
$864,197. Dividends are paid only with respect to the awarded Common Shares
which have been earned.
(10) Mr. Keys was awarded 50,000 restricted Common Shares in fiscal 1995. Under
the terms of the award, up to 5,000 of the awarded Common Shares may be
earned in each of ten consecutive fiscal years beginning in fiscal 1995,
based on the percentage of bonus earned during such fiscal year. Pursuant
to an amendment to Mr. Keys' restricted stock agreement beginning in fiscal
year 1999 authorized in connection with changes to the Company's Officers
Incentive Compensation Plan, which amendment will become effective upon
signature, Mr. Keys can earn up to 7,500 of the awarded Common Shares in
each of fiscal years 1999 through 2004, based upon the percentage of bonus
earned during each such fiscal year, but in no event can the aggregate
number of shares earned over that six-year period exceed 30,000. Awarded
Common Shares earned by Mr. Keys are subject to forfeiture until the end of
the third fiscal year following the fiscal year in which such awarded
Common Shares are earned. Mr. Keys earned 2,637 of the awarded Common
Shares in fiscal year 1996, 5,000 in fiscal year 1997, and 4,654 in fiscal
year 1998. These shares will vest on the last day of fiscal years 1999,
2000, and 2001, respectively. In the event of Mr. Keys' death, all earned
but unvested awarded Common Shares and one-half of awarded but unearned
Common Shares will vest in his designated beneficiary. Based on the last
reported sale price of the Company's Common Shares on the New York Stock
Exchange on June 30, 1998, the total Common Shares earned during the past
three years under the 1995 award had a fair market value of $345,684.
Dividends are paid only with respect to the awarded Common Shares which
have been earned.
(11) Mr. Sheley commenced employment with the Company on July 17, 1995.
II. OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------- POTENTIAL REALIZABLE
VALUE AT ASSUMED
PERCENTAGE OF ANNUAL RATES OF
TOTAL OPTIONS STOCK
GRANTED TO PRICE APPRECIATION
OPTIONS EMPLOYEES EXERCISE FOR OPTION TERM(3)
GRANTED IN FISCAL PRICE EXPIRATION ------------------------
NAME #(1) YEAR(2) ($/SHARE) DATE 5%($) 10%($)
---- ------- ------------- --------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
James S. Reid, Jr.......... -- -- -- -- -- --
Ronald L. Roudebush........ 200,000 58.38 25.25 July 2007 $2,713,327 $6,662,783
Theodore K. Zampetis....... -- -- -- -- -- --
James F. Keys.............. 3,000 0.88 29.00 June 2008 54,714 138,656
Stephan J. Mack............ 3,000 0.88 29.00 June 2008 54,714 138,656
Donald R. Sheley, Jr....... 6,000 1.75 29.00 June 2008 109,428 277,311
</TABLE>
- -------------------------
(1) Except for the option granted to Mr. Roudebush, options granted to the
executive officers in the above table are not exercisable for the one-year
period from the date of grant. 40% of the grant becomes exercisable one year
after the date of the grant, an additional 40% becomes exercisable two years
after the date of the grant, and the remaining 20% becomes exercisable three
years after the date of the grant. The
9
<PAGE> 11
option granted to Mr. Roudebush becomes exercisable in four equal
installments, occurring one, two, three, and four years after the date of
the grant. No more than 40% of Mr. Roudebush's total option can be exercised
in any one fiscal year.
(2) Based on 342,550 options granted to all employees during the fiscal year.
(3) These amounts are based on hypothetical appreciation rates of 5% and 10% and
are not intended to forecast the actual future appreciation of the price of
the Company's Common Shares. No gain to optionees is possible without an
actual increase in the price of the Company's Common Shares, which increase
will benefit all of the Company's shareholders. All calculations except the
one for Mr. Roudebush are based on a ten-year option period, and upon the
assumption that each option grant will be exercised at the end of the
ten-year term. The option for Mr. Roudebush is based on a ten-year option
period, and upon the assumption that 40% of his option grant will be
exercised at the end of the eighth and ninth years after the date of the
grant, and the remaining 20% will be exercised at the end of the ten-year
term.
III. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FISCAL FISCAL
YEAR-END(#) YEAR-END($)
SHARES VALUE -------------- ----------------
ACQUIRED ON REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) ($) UNEXERCISABLE UNEXERCISABLE
---- ----------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Ronald L. Roudebush................ -- -- 0/200,000 0/$575,000
James S. Reid, Jr.................. -- -- 2,400/ 0 0/ 0
Theodore K. Zampetis............... 20,000 $132,500 1,200/ 30,000 0/ 138,750
James F. Keys...................... -- -- 10,780/ 12,620 $44,508/ 39,243
Stephan J. Mack.................... -- -- 9,320/ 5,400 40,100/ 6,900
Donald R. Sheley, Jr. ............. 4,000 26,750 10,000/ 12,000 35,500/ 29,250
</TABLE>
CERTAIN EMPLOYMENT AGREEMENTS
The Company entered into a letter agreement with James S. Reid, Jr., dated
July 24, 1997, with respect to Mr. Reid's continuing employment arrangements.
The letter confirmed that Mr. Reid would resign his position as Chief Executive
Officer of the Company, effective July 24, 1997, but will remain as Chairman of
the Board. The letter provides that effective September 1, 1997, Mr. Reid's
annual salary will be $200,000 per year. That rate of compensation will continue
until the Company's Annual Meeting of Shareholders in October 1999, when it is
anticipated that Mr. Reid will resign from his position as Chairman of the
Board. In addition to receiving his pension under the Company's Salaried
Employees' Retirement Plan (under federal law, payment of his pension commenced
on April 1, 1997, after he reached age 70 1/2), he began receiving payments on
September 1, 1997, from the Company's Supplemental Salaried Employees' Pension
Plan. Mr. Reid also continues to participate in all other executive and employee
benefit plans of the Company. For purposes of calculating Mr. Reid's annual
bonus under the Company's Officers Incentive Compensation Plan, his pension and
supplemental pension payments will be considered part of his base salary.
Ronald L. Roudebush became employed by the Company on July 1, 1997, and was
elected by the Board of Directors as a member of the Board and Vice Chairman and
Chief Executive Officer, effective July 24, 1997. He has entered into a two-year
"evergreen" employment agreement with the Company, expiring on June 30, 2007.
Under the agreement, Mr. Roudebush received an initial base salary of $500,000
per year, and became entitled to participate in all executive and employee
benefit plans of the Company, including the Officers Incentive Compensation
Plan. In the event of his termination without "cause," or upon his resignation
for "good reason" or within six months after a "change in control," Mr.
Roudebush will be entitled to a lump sum equal to two years of base salary and
bonus payments, and a continuation of benefits during the two-year period. Upon
a change in control of the Company, all nonvested stock options granted to Mr.
Roudebush in fiscal 1998 will immediately become vested and to the extent not
then exercisable, will become exercisable
10
<PAGE> 12
upon his termination or, in certain cases, resignation. See also footnote 8
under "Executive Compensation -- Summary Compensation Table" regarding the award
of restricted stock made to Mr. Roudebush under his agreement. Mr. Roudebush has
also executed a non-compete agreement with the Company.
The Company also entered into an employment agreement with Theodore K.
Zampetis on September 1, 1997, pursuant to which he will continue to serve as
President and Chief Operating Officer. The agreement provides an incentive for
Mr. Zampetis to remain in his present position at least through August 31, 1999,
by providing for his base salary to continue after August 31, 1999 for one month
for each year of service if he serves through that date and then elects not to
continue his employment. Mr. Zampetis had 25 years of service as of June 30,
1998. He will also be entitled to the same salary continuation if, prior to
August 31, 1999, his employment is terminated without "cause," or if he resigns
his employment for "good reason" or within six months after a "change in
control". In addition, he will receive pension service credit for the same
period his base salary continues. See also footnote 9 under "Executive
Compensation -- Summary Compensation Table" regarding amendments to the
restricted stock agreement entered into between the Company and Mr. Zampetis
with respect to the award of restricted stock made to him in fiscal 1992.
If Mr. Zampetis and the Company agree to continue his employment after
August 31, 1999, the employment term will convert to a three-year "evergreen"
arrangement, under which he will be entitled to a continuation of his base
salary and the benefits described in the previous paragraph for a three-year
period following the occurrence of any of the events described in the previous
paragraph. In no event will payments under his agreement continue beyond his
65th birthday. Mr. Zampetis has also signed a non-compete agreement.
PENSION PLAN AND SUPPLEMENTAL PLANS
Salaried employees of the Company with one year of full-time service are
eligible to participate in The Standard Products Company Salaried Employees'
Pension Plan (the "Pension Plan") and The Standard Products Company Supplemental
Salaried Employees' Pension Plan (the "Supplemental Plan").
The Pension Plan provides for normal retirement benefits based on the
highest average monthly compensation for 60 consecutive months within the last
120 months prior to retirement (final average compensation). The basic formula
is 1 1/15% times final average compensation (up to but not exceeding Social
Security-covered compensation), plus 1 2/3% of the amount (if any) of final
average compensation in excess of Social Security-covered compensation, all
multiplied by the participant's years of pension service under the Plan (up to a
maximum of 30 years). Employees who were hired prior to July 1, 1976, may have
their normal retirement benefit calculated under an alternative formula as
follows: final average compensation multiplied by a percentage equal to the sum
of (i) 21.25%, plus (ii) 0.75% for each year of pension service up to a maximum
of 25 years (that is, a maximum of 40%). In addition, the Plan provides that the
minimum normal retirement benefit shall in all events be no less than $13
multiplied by a participant's years of pension service. Certain of these benefit
formulas were adopted effective July 1, 1989, to comply with the Tax Reform Act
of 1986. Notwithstanding any new benefit formulas, each participant is entitled
to a benefit no less than his or her accrued benefit as of June 30, 1989.
Participants may elect that retirement benefits be paid in the form of a life
annuity, a ten-year or five-year sum certain annuity, or various joint and
surviving spouse options; the Plan's normal retirement benefit amount is payable
monthly, based on a single-life annuity with five years certain.
Compensation covered under the Pension Plan includes (i) base salary, (ii)
bonuses, (iii) payments for overtime, (iv) salary deferred under the Company's
Individual Retirement and Investment Trust Plan, and (v) the taxable value of
restricted Common Shares that vest in a particular year. Extraordinary payments,
Company contributions to the Company's Individual Retirement and Investment
Trust Plan, and salary deferred under the Supplemental 401(k) and Salary and
Bonus Deferral Plans are not included in compensation. Additionally, the
collective value of the taxable amount of vested restricted Common Shares and
bonuses received in any plan year in excess of 50% of base salary in that plan
year is not included in compensation.
The Supplemental Plan is a nonqualified plan which provides a supplemental
benefit for eligible salaried employees under terms and conditions similar to
those under the Pension Plan. The supplemental benefit is
11
<PAGE> 13
equal to the excess of (i) the benefit that would have been payable to the
employee under the Pension Plan without regard to certain compensation, annual
retirement income and benefit limitations imposed by federal law over (ii) the
benefit payable to the employee under the Pension Plan.
The table below shows estimated annual benefits payable (assuming payments
made in the normal retirement form, and not under any of the various survivor
forms of benefit payments) under the Pension Plan and the Supplemental Plan to
any salaried employee upon retirement in the 1998 plan year at age 65 after
selected periods of service.
<TABLE>
<CAPTION>
AVERAGE ANNUAL ESTIMATED ANNUAL BENEFITS UPON RETIREMENT IN 1998 PLAN YEAR
SALARY USED WITH YEARS OF SERVICE INDICATED
TO DETERMINE --------------------------------------------------------------
BENEFITS 15 YEARS 20 YEARS 25 YEARS 30 YEARS AND OVER
- -------------- -------- -------- -------- -----------------
<S> <C> <C> <C> <C>
$125,000 ............................ $ 28,448 $ 37,931 $ 50,000 $ 56,897
150,000 ............................ 34,698 46,265 60,000 69,397
175,000 ............................ 40,948 54,598 70,000 81,897
200,000 ............................ 47,198 62,931 80,000 94,397
225,000 ............................ 53,448 71,265 90,000 106,897
250,000 ............................ 59,698 79,598 100,000 119,397
300,000 ............................ 72,198 96,265 120,331 144,397
350,000 ............................ 84,698 112,931 141,164 169,397
400,000 ............................ 97,198 129,598 161,997 194,397
450,000 ............................ 109,698 146,265 182,831 219,397
500,000 ............................ 122,198 162,931 203,664 244,397
550,000 ............................ 134,698 179,598 224,497 269,397
600,000 ............................ 147,198 196,265 245,331 294,397
650,000 ............................ 159,698 212,931 266,164 319,397
700,000 ............................ 172,198 229,598 286,997 344,397
750,000 ............................ 184,698 246,265 307,831 369,397
800,000 ............................ 197,198 262,931 328,664 394,397
850,000 ............................ 209,698 279,598 349,497 419,397
900,000 ............................ 222,198 296,265 370,331 444,397
</TABLE>
As of June 30, 1998, the credited years of service for retirement purposes
were as follows: Mr. Roudebush -- 1; Mr. Reid -- 42; Mr. Zampetis -- 25; Mr.
Keys -- 26; Mr. Mack -- 9; and Mr. Sheley -- 2.
Two non-qualified deferred compensation plans, the Supplemental 401(k) Plan
and the Salary and Bonus Deferral Plan, became effective on January 1, 1998.
Under the Supplemental 401(k) Plan, management and executive-level employees of
the Company, including the named executive officers, are permitted to defer
compensation that could have been deferred under the Company's 401(k) plan but
for the limitations placed on "highly-compensated" employees under the Internal
Revenue Code, and but for the dollar limit that can be contributed annually to
such a plan under Section 402(g) of the Internal Revenue Code. The Salary and
Bonus Deferral Plan permits additional amounts of compensation to be deferred by
the same individuals, regardless of any limitation placed on their ability to
contribute to the 401(k) plan.
Under both plans, compensation deferred by eligible participants will be
credited to an unfunded account established for each participant. No funds will
be set aside to satisfy the obligation owed under the plans. Amounts deferred
will be credited with interest at the Moody's Long-Term Baa Corporate Bond Index
rate, which approximates the Company's long-term borrowing rate. Participants
will receive payment of the amounts owed to them from the general assets of the
Company. Those amounts will generally not be payable until after the participant
terminates employment. In the event of a change in control of the Company, as
such term is defined in the plans, cash equal to the amounts credited to the
accounts of participants will be funded in a "rabbi trust," which will exist
solely to pay benefits to participants, except that such funds will be available
to creditors of the Company in the event of the insolvency of the Company.
12
<PAGE> 14
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Brandon, Moll, Myers, Perkins and Riedel are the members of the
Company's Compensation Committee. There are no Compensation Committee
interlocks.
Transactions with Management. Edward B. Brandon, a director of the Company,
is a director and the retired Chairman, President and Chief Executive Officer of
National City Corporation. The Company has a $225,000,000 revolving credit
agreement with National City Bank, Cleveland, Ohio ("National City"), a wholly
owned subsidiary of National City Corporation, and six other banks, until
September 30, 2002. National City has a 22.2% participation in such credit
agreement. The Company borrowed from National City during the 1998 fiscal year
on a short-term uncommitted line of credit at prevailing market rates.
John D. Drinko, a director of the Company, is senior advisor to the policy
committee of Baker & Hostetler LLP, which law firm acts as principal outside
counsel for the Company.
PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total return of a
hypothetical investment in the Company's Common Shares with the cumulative total
return of a hypothetical investment in each of the Standard & Poor's Composite
- -- 500 Index and the Dow Jones Auto Parts Index based on the respective market
price of each such investment at the end of each of the Company's fiscal years
shown below, assuming in each case an initial investment of $100 on July 1,
1993, and reinvestment of dividends.
<TABLE>
<CAPTION>
STANDARD
Measurement Period PRODUCTS INDUSTRY BROAD
(Fiscal Year Covered) CO. INDEX MARKET
<S> <C> <C> <C>
1993 100.00 100.00 100.00
1994 86.08 99.26 101.41
1995 65.86 109.58 127.85
1996 72.87 121.05 161.09
1997 81.52 147.65 216.99
1998 92.99 167.48 216.99
</TABLE>
COMPENSATION COMMITTEE REPORT
The Company's executive compensation program is administered by the
Compensation Committee of the Board of Directors, which has responsibility for
reviewing all aspects of the compensation program for the executive officers of
the Company. The Compensation Committee is comprised of the five directors
listed at the end of this report, none of whom is an employee of the Company.
13
<PAGE> 15
The Committee's primary objective with respect to executive compensation is
to establish programs which attract and retain key executives and align their
compensation with the financial and stock market performance of the Company and,
in the case of executives who are the heads of business units or subsidiaries of
the Company, with the financial performance of those business units or
subsidiaries. As such, the Committee has established management incentive
compensation programs to provide annual cash bonuses based upon the financial
performance of the Company, and where appropriate, its business units and
subsidiaries, relative to performance targets established by or under the
auspices of the Committee. In keeping with the Committee's belief that aligning
the interests of management with those of the shareholders through stock-based
incentives is important to the creation of shareholder value, the Committee has
also established stock option and restricted stock plans as an important part of
the Company's executive compensation program.
The primary components of the Company's executive compensation program are:
(i) base salaries, (ii) annual cash incentive opportunities, and (iii) long-term
incentive opportunities in the form of stock-based awards. Each of these
components is discussed below.
Base Salaries. Base salaries for each of the Company's executive officers
are generally reviewed every 12 to 14 months by the Committee. In deciding upon
the appropriate level of base salary, the Committee uses commercially available
compensation surveys to determine market pay levels for similar positions in
similarly sized automotive parts and selected general manufacturing companies.
The Committee's objective is to use such survey data to establish a midpoint for
each position that is at approximately the 50th percentile of base pay for such
position among such comparable companies, and to compensate each executive in an
amount that is within a range from approximately 20% above to approximately 20%
below the midpoint established for the position. The actual base salary within
the range will be based upon a variety of factors, including experience,
performance, skill level, and internal equity.
With respect to the $500,000 base salary established for Mr. Roudebush when
he joined the Company in July 1997, the Committee took into account Mr.
Roudebush's overall experience and responsibilities, as well as the compensation
paid to chief executive officers of comparable companies, as shown in relevant
survey data. The Committee also utilized the services of the executive search
consultant who assisted the Company in hiring Mr. Roudebush for guidance in
determining his appropriate level of compensation.
Annual Cash Incentives. All executive officers of the Company are eligible
to participate in the Officers Incentive Compensation Plan and receive annual
cash bonus awards based on a percentage of base salary. For fiscal year 1998,
the maximum bonus attainable for each executive officer was 50% of base salary.
Each year, the Compensation Committee sets a target goal for maximum bonus
awards based on the Company's earnings per Common Share. Actual bonus awards
paid are proportional to the percentage of the target goal actually attained.
The bonus target for fiscal year 1998 was $2.75 per Common Share. Had the target
been reached, the bonus paid to each executive officer would have been 50% of
base salary. Since earnings per Common Share for fiscal 1998 were $2.56, the
bonus award for fiscal 1998 to the executive officers of the Company, including
Mr. Roudebush, was equal to 46.55% of base salary. The bonus paid to executive
officers who are also the heads of subsidiaries of the Company is based upon the
financial performance of those subsidiaries versus budgeted financial
performance targets. In fiscal year 1998, the performance of the Company's two
domestic subsidiaries, Holm Industries, Inc., and Oliver Rubber Company, both of
which are headed by executive officers of the Company, exceeded the budgeted
performance targets, and bonuses equal to 50% of base salary were paid to those
executives.
For fiscal year 1999 and beyond, the Compensation Committee has changed the
Company's annual bonus plan for executives. Bonuses for all executive officers
who are not the heads of subsidiaries or separate business units of the Company
will continue to be based upon a targeted level of earnings per Common Share
established each year by the Committee, and will continue to equal 50% of base
salary if the earnings per Common Share target is exactly met. However, no bonus
will be payable unless the Company's actual earnings per Common Share reach at
least 50% of the targeted level. Previously, some bonus was payable so long as
the Company was profitable for the year. Any bonus payable if the earnings per
Common Share target is not reached will be a lower percentage of base salary
than was the case previously. A bonus equal to 25% of
14
<PAGE> 16
base salary will be payable if 50% of the earnings per Common Share target is
reached. That percentage increases by 1 1/2% for each percentage point increase
in earnings per Common Share relative to the target. If the earnings per Common
Share target is exceeded, however, the executive will be entitled to a bonus of
between 50% and 75% of base salary, depending upon the extent to which the
earnings per Common Share target is exceeded. The maximum bonus of 75% of base
salary will be paid if the Company's actual earnings per Common Share equals or
exceeds 116 2/3% of the earnings per Common Share target. The Committee believes
that this change will provide executives with a greater incentive to meet or
exceed the Company's earnings per share target. In addition, under the revisions
made to the bonus plans the Committee has specifically reserved the ability to
reduce an executive's bonus if it determines that specific performance factors
so warrant.
For executive officers who are also the heads of separate business units or
subsidiaries of the Company, 60% of the bonus will be attributable to the
performance of the Company, under the formula set out above, and 40% will be
based upon the performance of the business unit versus a budgeted performance
target established each year for that unit, using the same formula used to
determine the portion of bonus which is attributable to the Company's
performance. Payment for business unit performance which exceeds the targeted
level will be made only if the performance of the total Company equals or
exceeds the targeted level of earnings per share.
In setting the earnings per share target for a particular fiscal year, the
Committee reviews in detail management's budget for the year, and the components
and assumptions for the Company's business used in preparing the budget, and
establishes a target based upon the budget which provides a substantial
challenge to the Company's executive officers to improve the operating
performance of the Company, and thus enhance long-term shareholder value.
Long-Term Stock Incentives. The Company provides long-term stock incentives
to its executive officers and key employees through grants of options to
purchase the Company's Common Shares and, in the case of a select group of
senior executives, awards of restricted Common Shares. Plans providing for these
stock-based incentives have been approved by the Company's shareholders. The
decision as to who will be awarded restricted Common Shares, the number to be
awarded, and the terms of the awards is within the sole discretion of the
Committee. The awards made under the plans have generally provided for Common
Shares to be earned in annual installments over a period of years, with the
amount actually earned each year determined under the same percentage formula
used to determine the bonus paid for corporate performance under the Officers
Incentive Compensation Plan. The awards provide that shares earned under them
are subject to forfeiture if the executive receiving them does not remain
employed for some period of time (generally three years) after the shares are
earned. Awards under the plans have been made to Messrs. Reid, Roudebush,
Zampetis, Keys, and Gerard Mesnel, Executive Vice President -- Advanced
Technology Worldwide. A description of the awards made to Messrs. Reid,
Roudebush, Zampetis and Keys is set forth in "Executive Compensation -- Summary
Compensation Table" on page 7 of this proxy statement.
The Company's stock option plans permit the Committee, in its sole
discretion, to grant stock option awards to key management employees of the
Company, upon terms and conditions which provide an incentive for those
employees to remain employed by the Company and benefit from long-term increases
in the Company's stock price. Options are granted under the plan at exercise
prices at least equal to the fair market value of underlying Common Shares on
the date of grant, and generally become exercisable in installments over a
period of approximately three years. Under stock option grant guidelines adopted
by the Committee in June 1998, executives at particular job grade levels can
expect to be considered annually for the grant of a number of options which is
within a range established for each grade level. The amounts actually awarded to
a particular executive within the parameters of the guidelines will be based in
significant part on that executive's personal performance during the year. The
Committee retains discretion to grant more or fewer options to a particular
executive if it determines that doing so is appropriate. Stock options granted
during the last fiscal year to Mr. Roudebush and the other named executive
officers are set forth in "Table II -- Option Grants in Last Fiscal Year" on
page 9 of this proxy statement.
15
<PAGE> 17
Mr. Roudebush was granted an option to purchase 200,000 Common Shares and
was awarded 50,000 restricted Common Shares upon the commencement of his
employment with the Company. The Committee felt that a significant component of
Mr. Roudebush's compensation should be tied to improvements in the value of the
Company's Common Shares, since taking steps to substantially increase
shareholder value is a key measurement of Mr. Roudebush's performance. Coupled
with the stock ownership requirement applicable to Mr. Roudebush (see "Executive
Stock Ownership Requirements" below), the Committee believes that Mr. Roudebush
has a stake in the share performance of the Company which is sufficient to
closely align his interests with those of the Company's shareholders. Further
discussion regarding the terms of Mr. Roudebush's employment are set forth under
"Certain Employment Agreements" on page 10 of this proxy statement.
Executive Stock Ownership Guidelines. In June 1998, the Compensation
Committee adopted stock ownership guidelines applicable to all executive
officers of the Company. The Committee determined that members of senior
management who are in a position to affect shareholder value should accumulate
and retain a certain ownership interest in the Company's Common Shares. The
Committee believes that such a requirement will increase the focus of all
executives on the enhancement of shareholder value, and will provide them with a
direct interest in continuing improvements in the price of the Company's Common
Shares.
Under the guidelines, executives in the following positions will be
expected to own Common Shares in the following amounts:
<TABLE>
POSITION DOLLAR VALUE OWNED
- ------------------------------------------------------------ ---------------
<S> <C>
Chief Executive Officer..................................... 4 x Base Salary
Chief Operating Officer..................................... 3 x Base Salary
Vice Presidents (including Executive Vice Presidents and the
Presidents of Holm Industries, Inc., and Standard Products
Canada)................................................... 2 x Base Salary
Officers other than Vice Presidents......................... 1 x Base Salary
</TABLE>
All current executive officers are expected to meet the ownership
guidelines by July 1, 2003. All future executive officers will have five years
from the date on which they commence employment to meet them. While no absolute
requirement has been imposed as to what level of ownership executives shall be
expected to meet at particular points in time before they must satisfy the
requirements, the Committee will monitor the progress being made by each
executive from time to time, and will expect that demonstrable progress toward
meeting the guidelines will be made. The Committee may consider an executive's
personal financial circumstances in determining whether an executive has made a
reasonable effort to comply with the guidelines. Restricted Common Shares earned
under the Company's restricted stock plans and Common Shares held in the
Company's Individual Retirement and Investment Trust Plan will be included in
determining whether the ownership guidelines have been met by a particular
executive. Unexercised stock options will not be included.
Policy on Deductibility of Compensation. It is the Company's policy that
all compensation paid to its executive officers be deductible for federal income
tax purposes, and that the Company will take such steps with respect to
performance-based compensation plans as are necessary to ensure the
deductibility of all compensation under Section 162(m) of the Internal Revenue
Code.
Alan E. Riedel, Chairman
Edward B. Brandon
Curtis E. Moll
Malcolm R. Myers
Leigh H. Perkins
16
<PAGE> 18
SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Any shareholder proposals meeting the requirements of Rule 14a-8
promulgated under the Securities Exchange Act of 1934 which are intended to be
presented at the Company's 1999 Annual Meeting of Shareholders must be received
by the Company at 2401 South Gulley Road, Dearborn, Michigan 48124, Attention:
Corporate Secretary, on or before May 19, 1999, for inclusion in the Company's
proxy statement and form of proxy relating to the 1999 Annual Meeting of
Shareholders. For those shareholder proposals which are not submitted in
accordance with Rule 14a-8 (i.e., a proposal to be submitted at the next Annual
Meeting of Shareholders but not submitted for inclusion in the Company's proxy
statement), the Company's management proxies may exercise their discretionary
voting authority, without any discussion of the proposal in the Company's proxy
materials, for any proposal which is received by the Company after August 2,
1999.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and owners of more than 10% of the Company's
Common Shares, to file with the Securities and Exchange Commission (the "SEC")
and the New York Stock Exchange initial reports of ownership and reports of
changes in ownership of Common Shares and other equity securities of the
Company. Executive officers, directors and owners of more than 10% of the Common
Shares are required by SEC regulations to furnish the Company with copies of all
forms they file pursuant to Section 16(a).
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required during the fiscal year ended June 30, 1998, all Section
16(a) filing requirements applicable to its executive officers, directors and
greater-than-10% beneficial owners have been met, except that Mr. Moll
inadvertently failed to file a Form 4 with respect to an acquisition of Common
Shares on May 2, 1995. A corrective Form 4 was filed for Mr. Moll in September
1998.
OTHER MATTERS
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.
The Company has not selected its independent public accountants for the
current fiscal year. This selection will be made later in the year by the Board
of Directors. Representatives of Arthur Andersen LLP, which served as the
Company's independent public accountants during the fiscal year ended June 30,
1998, are expected to be present at the annual meeting with the opportunity to
make a statement if they so desire and to be available to respond to appropriate
questions.
If the enclosed proxy is executed and returned to the Company, the persons
named in it will vote the shares represented by such proxy at the meeting. The
form of proxy permits specification of a vote for the election of directors as
set forth under "Election of Directors" above, the withholding of authority to
vote in the election of directors, or the withholding of authority to vote for
one or more specified nominees.
Where a choice has been specified in the proxy, the shares represented will
be voted in accordance with such specification. If no specification is made,
such shares will be voted at the meeting to elect directors as set forth under
"Election of Directors" above. Under Ohio law and the Company's Second Amended
and Restated Articles of Incorporation, as amended, broker non-votes and
abstaining votes will not be counted in favor of or against any nominee. If any
other matters shall properly come before the meeting, the persons
17
<PAGE> 19
named in the proxy will vote thereon in accordance with their judgment.
Management does not know of any other matters which will be presented for action
at the meeting.
By order of the Board of Directors,
Richard N. Jacobson
RICHARD N. JACOBSON
General Counsel and Secretary
Dated: September 15, 1998
18
<PAGE> 20
THE STANDARD PRODUCTS COMPANY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS,
SUPPORTING SCHEDULES AND SUPPLEMENTAL DATA
<TABLE>
<S> <C>
Selected Financial Data..................................... F-1
Management's Discussion and Analysis of Results of
Operations and Financial Condition........................ F-2
Consolidated Financial Statements and Supplemental Data
Management's Responsibility for Financial Statements...... F-10
Report of Independent Public Accountants.................. F-10
Consolidated Statements of Income for the Years ended June
30, 1998, 1997 and 1996................................ F-11
Consolidated Balance Sheets, June 30, 1998 and 1997....... F-12
Consolidated Statements of Cash Flows for the Years ended
June 30, 1998, 1997 and 1996........................... F-13
Consolidated Statements of Shareholders' Equity for the
Years ended June 30, 1998, 1997 and 1996............... F-14
Notes to Consolidated Financial Statements................ F-15
</TABLE>
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, 1998.
<PAGE> 21
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT
Net Sales............................. $1,101,309 $1,108,268 $1,083,920 $995,926 $872,367
Gross Income.......................... 165,969 145,456 108,482 99,455 119,427
Selling, General & Administrative
Expenses............................ 78,025 68,559 69,616 60,121 57,787
Non-recurring Charge.................. -- 17,661 -- 8,832 4,424
Interest Expense...................... 12,389 12,914 14,944 14,085 9,982
Other (Income) Expense, net........... 7,033 (137) (4,602) (842) (2,981)
Income before Taxes on Income......... 68,522 46,459 28,524 17,259 50,215
Provision for Taxes on Income......... 25,078 18,929 13,947 (2,807) 17,183
Net Income............................ $ 43,444 $ 27,530 $ 14,577 $ 20,066 $ 33,032
PER SHARE
Net Income -- Basic................... $ 2.58 $ 1.64 $ .87 $ 1.20 $ 1.99
Net Income -- Diluted................. $ 2.56 $ 1.63 $ .87 $ 1.20 $ 1.97
Cash Dividends Declared............... $ .68 $ .68 $ .68 $ .68 $ .65
Book Value............................ $ 17.79 $ 15.96 $ 15.42 $ 15.56 $ 14.55
BALANCE SHEET
Property, Plant & Equipment........... $ 624,188 $ 583,614 $ 548,816 $489,534 $422,576
Accumulated Depreciation.............. 293,836 280,608 250,278 220,095 180,567
Total Assets.......................... 684,246 691,859 684,695 701,889 624,314
Working Capital....................... 24,078 46,565 53,455 127,498 87,922
Long-term Debt........................ 92,457 121,804 143,041 190,522 135,381
Shareholders' Equity.................. 300,172 268,357 258,765 260,495 242,677
Cash Dividends Declared............... $ 11,465 $ 11,579 $ 11,400 $ 11,445 $ 10,821
OTHER
Additions to Property, Plant &
Equipment, net...................... $ 77,335 $ 59,004 $ 79,684 $ 54,671 $ 59,120
Depreciation & Amortization........... 55,131 53,130 52,545 46,839 40,495
EBITDA................................ 136,042 112,503 96,013 78,183 100,692
Cash Flow from Operating Activities
less Dividends and Net Fixed Asset
Additions........................... $ 17,497 $ 9,462 $ 31,656 $(13,007) $(23,604)
Number of Employees................... 10,017 10,350 10,177 10,308 9,480
Shares Outstanding (Year-end)......... 16,878 16,810 16,785 16,736 16,674
Average Shares Outstanding -- Basic... 16,849 16,804 16,758 16,711 16,627
Average Shares
Outstanding -- Diluted.............. 16,975 16,856 16,780 16,748 16,808
Return on Sales....................... 3.9% 2.5% 1.3% 2.0% 3.8%
Return on Average Shareholders'
Equity.............................. 15.3% 10.4% 5.6% 8.0% 14.1%
</TABLE>
F-1
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
(ALL AMOUNTS IN THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
OVERVIEW
The Standard Products Company (the "Company") 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 a leading position in providing sealing solutions for
the refrigeration industry. These operations comprise the Company's
Transportation Equipment Segment.
The Company's truck tire retreading business is reported as the Tread
Rubber Segment. This business also has a significant position in its industry.
Net income of the Company and its consolidated subsidiaries was $43,444 in
fiscal 1998, or $2.56 per common diluted share compared with $27,530, or $1.63
per common diluted share in fiscal 1997. Results in fiscal 1997 included a
non-recurring charge of $17,661, or $0.63 per share net of tax, for the closure
of manufacturing facilities in Lexington, Kentucky and Schenectady, New York.
The Company also incurred costs related to the closures of approximately $1,665,
or $0.06 per share net of tax, in the second half of fiscal 1997 which did not
qualify for immediate accrual.
The Company's Financial Statements and Notes to Financial Statements on
Pages F-10 through F-27, including the Report of Independent Public Accountants
(the "Consolidated Financial Statements"), should be read as an integral part of
this discussion and analysis.
TRANSPORTATION EQUIPMENT SEGMENT
Net sales by geographic location in this segment were:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
North America........ $663,952 $682,817 $687,009
Europe............... 228,563 234,504 241,617
South America........ 76,913 58,680 29,479
-------- -------- --------
Total........... $969,428 $976,001 $958,105
======== ======== ========
</TABLE>
SALES PERFORMANCE -- 1998 VERSUS 1997
Fiscal 1998 sales for the Transportation Equipment Segment were $969,428, a
decrease of $6,573, or 0.7% from the prior year.
North American automotive sales decreased $26,828 to $560,347 as volumes
were down approximately $14,000 and translation losses from a weakened Canadian
dollar diminished sales by an additional $8,300. The volume decrease was the
result of lower sales on several different platforms, as well as the impact of
the United Auto Workers ("UAW") strike against General Motors, which started
late in the fourth quarter of 1998. Lower sales resulted in part from reduced
unit volumes on certain platforms and from the effects of price concessions
granted to customers during the year. European automotive operations experienced
a sales decrease of $5,941, or 2.5% to $228,563, as a result of translation
losses on the weakened French franc, which totaled $13,900, and customer price
reductions of $5,100. These declines were partially offset by improved volumes
of $7,300 in the United Kingdom on the Opel Astra and certain Saab and Rover
models, and $3,100 in France on several new Volvo platforms. The Transportation
Segment's overall sales decrease was balanced by improvements at the Company's
Brazilian subsidiary, where sales increased $18,233, or 31.1% to $76,913. This
increase is primarily attributable to volume gains on the Fiat Palio platform.
High interest rates in Brazil did not affect sales in fiscal 1998, both because
the subsidiary was able to export a portion of its production to Fiat in Poland
and other countries, and because Fiat did not significantly reduce production
due to slowing automotive sales in Brazil until after the end of fiscal 1998.
Sales at the Company's Holm Industries subsidiary were 7.9% higher than the same
period last year, primarily due to higher volumes from existing customers.
SALES PERFORMANCE -- 1997 VERSUS 1996
Fiscal 1997 sales for the Transportation Equipment Segment were $976,001,
an increase of $17,896, or 1.9% over the prior year.
The overall sales increase was primarily attributable to the fact that the
Company's new plant in Brazil was operational for the entire year. The new
F-2
<PAGE> 23
plant shipped products for only the final four
months of fiscal 1996.
The sales reduction in North America resulted primarily from decreases in
sales of the Ford Taurus/Sable and Escort, Chevrolet Lumina and Plymouth/Dodge
Neon. These reductions were not completely offset by increases in sales of the
Jeep(R) Grand Cherokee and Chrysler minivan and by increased participation in
various General Motors programs. In fiscal 1997, automotive production in North
America was essentially flat compared to 1996, and trended downward in the
fourth quarter of fiscal 1997, when car production by General Motors, Ford and
Chrysler combined was more than 10% lower than in the same period of fiscal
1996. The Company was also under continued pressure from the OEMs to reduce the
unit price of its products. The appliance sealing business experienced a $2,099
increase in sales over 1996 levels due to continued strong appliance demand in
the United States.
European sales decreased $7,113, or 2.9%, primarily as a result of currency
translation related to the French franc. This was partially offset by currency
translation gains arising from a stronger British pound. Volumes in Europe were
up slightly over 1996 levels, principally as a result of sales to Toyota,
Renault and Volvo.
OPERATING PERFORMANCE -- 1998 VERSUS 1997
Excluding the effect of the U.S. plant closures announced in fiscal 1997,
operating income for the Transportation Equipment segment improved by $6,605, or
9.0% to $79,705 from the previous year despite reduced sales.
Gross margins on the Company's products improved by $15,953, or 13.5%, over
prior year levels. The improved results occurred primarily in North America and
Brazil. Improvements in North American automotive operations totaled $16,153,
and were attributable to continued process enhancements, cost reduction
initiatives (particularly material savings) and efficiencies gained from the
closure of two manufacturing facilities. Operations in Brazil turned profitable
during fiscal 1998, and operating income was up $11,400 from fiscal 1997. These
improvements were offset by margin reductions in Europe, principally the United
Kingdom, as a result of start-up costs associated with a substantial number of
product launches, including the Opel Astra. In addition, the Company estimates
that the UAW strike at General Motors reduced fourth quarter pretax earnings by
approximately $2,700.
Research and development costs increased by $729, or 1.7% from the previous
year for the segment. The increase is primarily attributable to increased
personnel costs in the United Kingdom related to a substantial number of
concurrent product launches, in which several new manufacturing processes were
introduced.
Selling, general and administrative expenses increased substantially for
the segment to $54,579, a 20.7% increase from prior year levels due to
additional personnel costs of $3,400, facility costs of $1,500, depreciation on
capital expenditures $1,300 and professional fees of $1,100. This large increase
reflects the full-year cost of employees added in the fourth quarter of fiscal
1997 as part of an effort to upgrade the talent of the people in the
organization; an upgrade of leased computer hardware throughout the Company;
professional fees utilized in the support of acquisitions and other strategic
projects; and the leasing of additional space to support the foregoing efforts.
OPERATING PERFORMANCE -- 1997 VERSUS 1996
Despite only modest sales growth from 1996 to 1997, the Transportation
Equipment segment experienced strong improvements in operating results.
Operating income after charges for the plant closings in Lexington, Kentucky,
and Schenectady, New York, was $55,439, an increase of $15,603, or 39.2% over
fiscal 1996 levels. This improvement was attributable to the success of ongoing
process improvement and cost reduction initiatives, including a focused effort
on lowering raw material costs. Gross margin on sales showed continued
improvement throughout the year. Operating income in Brazil also improved by
over $8,500 as this operation moved from start-up toward full production.
Research and development costs increased substantially due in large part to
an investment by the Company in vehicle sealing systems with cosmetic, weight
and performance characteristics superior to those then in existence, and which
would allow for cycle time improvements when placed in production. This
investment totaled approximately $1,500 in fiscal 1997. The Company also
incurred increased costs totaling $972 from the addition of engineering staff
for its Brazilian operation.
F-3
<PAGE> 24
Selling, general and administrative expenses decreased from prior year
levels due to the absence of start-up costs related to the Brazilian plant of
$6,100. This decrease was substantially offset by increased personnel costs for
areas targeted to improve customer service.
The Company incurred a charge of $17,661, before tax, for the closure of
two North American manufacturing facilities. These closures were deemed
necessary by management to consolidate operations and reduce overcapacity in
this geographic area. Ongoing production programs at these sites were
transferred to existing locations in the United States. The closures were
completed in December 1997 and have enhanced the Company's profitability.
TREAD RUBBER SEGMENT
GENERAL
Oliver Rubber Company ("Oliver") manufactures and markets precure and
moldcure 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 Company and certain affiliates for use in the automotive original
equipment business.
SALES PERFORMANCE -- 1998 VERSUS 1997
Sales for fiscal 1998 for the North American based Tread Rubber segment
were $150,256, an increase of $4,759 or 3.3%, over fiscal 1997. Included in this
amount were intersegment sales of $18,375, an increase of $5,145 or 38.9%
compared to the prior year. The intersegment sales increase is the continuation
of a trend to take advantage of Oliver's upgraded mixing operations to meet the
raw material needs within the Transportation Equipment segment. Sales to third
parties in fiscal 1998 were down slightly when compared to the prior year,
decreasing $386. Reduced equipment sales in fiscal 1998 related to the Oliver's
agreement with Treadco, Inc. were offset by increased precure, moldcure and
custom mix volume gains.
SALES PERFORMANCE -- 1997 VERSUS 1996
Fiscal 1997 sales totaled $145,497, an increase of 7.1% over fiscal 1996
sales of $135,869. Included in this amount were $13,230 of intersegment sales,
an increase of 31.6% over prior year levels. The increase in intersegment sales
resulted from investments made by Oliver to upgrade the capacity and quality of
rubber mixing operations at its Asheboro, North Carolina plant. Increased sales
to third parties were primarily the result of Oliver's agreement with Treadco,
Inc., the largest independent truck tire retreader in the United States, which
was signed in 1996.
OPERATING PERFORMANCE -- 1998 VERSUS 1997
Operating income in the Tread Rubber segment for fiscal 1998 was $14,040,
an increase of $4,912, or 53.8% over the same period last year. The enhanced
operating performance is the result of continued process improvements resulting
from the upgrade of manufacturing facilities and efficiencies gained with the
closure of a manufacturing plant in Oakland, California and the relocation of
business to existing plants. The costs to close the facility, net of any gains
on the sale of land and building, were insignificant and were included in normal
operations. Oliver also benefited from favorable raw material prices, partly as
a result of the Company's worldwide procurement initiatives.
OPERATING PERFORMANCE -- 1997 VERSUS 1996
Operating income in the Tread Rubber segment for fiscal 1997 was $9,128, an
increase of $5,050, over fiscal 1996. Approximately $2,300 of this increase is
the result of the sales increases noted above. In addition, improved operating
efficiencies due to the upgrade of manufacturing facilities, and an emphasis on
improving product mix contributed to increased operating income. These increases
were partially offset by increased administrative costs related to enhancing the
information systems and selling capabilities of this segment.
OTHER (INCOME) EXPENSE
Interest expense was $12,389 for 1998, compared to $12,914 for 1997, a
decrease of $525. The decrease was primarily attributable to lower borrowings
under revolving credit agreements in the United States and France during 1998,
lower short-term interest rates in the United States and decreased interest from
hedging transactions. The lower borrowing levels are a direct result of
increased cash generated by operations. These improvements were substantially
offset by interest costs from increased short-term borrowings in Brazil and the
United Kingdom. Interest expense in
F-4
<PAGE> 25
Brazil was also impacted by its government's actions to substantially increase
short-term interest rates.
Interest expense was $12,914 for 1997, compared to $14,944 for 1996, a
decrease of $2,030. The decrease was primarily attributable to lower borrowings
under the Company's revolving credit agreement during 1997. This resulted from
reduced capital expenditures due to the completion of the Brazilian plant and
favorable cash flow from improved operations. The improvement was partially
offset by increased interest from short-term borrowings, primarily in Brazil.
Royalty and dividend income have been comparable for each of the last three
years. "Other, net" was an expense in fiscal 1998 of $7,459, an increase of
$6,938 over the 1997 expense amount of $521. This increase is primarily
attributable to: (i) increased royalty expenditures ($1,168), (ii) exchange
losses ($599), and (iii) operating losses at the Company's joint venture,
Nishikawa Standard Company ("NSC"). As explained in Note 1 of the consolidated
financial statements, the Company's share of NSC's earnings decreased by $4,702.
Other, net in fiscal 1997 declined from the prior year level by $4,450,
principally due to reduced earnings at NSC.
The Company's effective tax rate for fiscal 1998 was 36.6% as compared to
40.7% in fiscal 1997. This reduction is attributable primarily to the reversal
of prior tax adjustments and differences in the overall effective tax rate of
foreign operations. In addition, the impact from the utilization of tax credits
was reduced as a result of an overall improvement in earnings.
The Company's effective tax rate for fiscal 1997 was 40.7% as compared to
fiscal 1996 of 48.9% with the reduction related primarily to improved operating
results in Brazil. While SPB lost money in both 1996 and 1997, reduced losses in
1997 resulted in a lower effective tax rate. The Company did not recognize these
benefits in either year. Implementation of royalty agreements between the
Company and certain of its foreign subsidiaries also lowered the effective tax
rate.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $106,297 of net cash from operating activities in
fiscal 1998. The major sources were net income, non-cash items such as
depreciation and amortization and a reduction in accounts receivable.
Receivables decreased by $23,161 from the prior year due to reduced amounts
outstanding on tooling for OEMs and a decrease in general receivables as a
result of the General Motors work stoppage.
During fiscal 1998, the Company's net capital spending totaled $77,335, an
increase of $18,331 from the prior year. Fiscal 1998 capital spending included
significant expenditures in the United Kingdom related to a substantial number
of new product launches occurring in fiscal 1998 and 1999 and expenditures
totaling $7,510 for Oliver, related to a production agreement with Michelin
North America, Inc. Also included are expenditures of approximately $8,900 for
completion of the Company's new facilities in Baclair, France and in
Aguascalientes, Mexico. The plant in Mexico is owned by a joint venture which is
70% owned by the Company and 30% owned by Nishikawa Rubber Company of Hiroshima,
Japan. Capital spending for fiscal 1999 is planned to be approximately $65,000.
The Company used improved cash flow from operations in fiscal 1998 to
reduce long-term debt obligations under the Company's revolving credit agreement
and also reduce short-term debt in Brazil, which experienced significant
increases in short-term borrowing rates due to pressure on the Real, resulting
from economic deterioration in Asia. The Company also paid quarterly dividends
throughout fiscal 1998 of $0.17 per share. Dividends are expected to continue
throughout fiscal 1999.
During the three-year period ended June 30, 1998, 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, the potential exists for price increases in
the raw materials used in operations such as the costs of petroleum, polymers
and chemicals at a rate greater than the general inflation rate. 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 and Mexico, 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
F-5
<PAGE> 26
expenses (which are translated using rates prevailing during the fiscal year)
have been affected by the translation values of the Canadian dollar, French
franc, British pound and Polish zloty. 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 and Mexico use the U.S. dollar as their functional currency.
Translation adjustments for these operations are included in the determination
of income.
At June 30, 1998, 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, 1999.
On June 23, 1998, the Company's Board of Directors authorized the
repurchase of up to 5% of the Company's outstanding common shares over a three
year period should market conditions warrant. During the next year, the Company
believes that its cash requirements for the share repurchase, working capital,
capital expenditures, certain acquisitions, dividends, interest and debt
repayments will be met through internally generated funds and utilization of
available borrowing sources. For a description of the Company's financing
arrangements at June 30, 1998, see Note 7 to the Consolidated Financial
Statements.
YEAR 2000
The "Year 2000" problem relates to computer systems that have time and
date-sensitive programs that were designed to read years beginning with "19,"
but may not properly recognize the year 2000. If a computer system or software
application used by the Company or a third party dealing with the Company fails
because of the inability of the system or application to properly read the year
"2000," the results could conceivably have a material adverse effect on the
Company.
As a key supplier to the automotive, appliance and retreading industries,
the Company's major exposure for Year 2000 problems is the effect of shutting
down production at one of its customer's factories. While lost revenues from
such an event are a concern for the Company, the greater risks are the
consequential damages for which the Company could be liable if it in fact is
found responsible for the shutdown of one of its customer's facilities. Such a
finding could have a material adverse impact on the Company's results of
operations.
The most likely way in which the Company would shut down production at a
customer's facility is by being unable to supply parts to that customer. The
parts supplied by the Company, in most instances, are integral components of the
end products produced by the customer, and the inability to provide them may
render the customer unable to manufacture and sell its products. Breakdowns in
any number of the Company's computer systems and applications could prevent the
Company from being able to manufacture and ship its products. Examples are
failures in the Company's manufacturing application software, barcoding systems,
computer chips embedded in plant floor equipment, lack of supply of materials
from its suppliers, or lack of power, heat or water from utilities servicing its
facilities. The Company's products do not contain computer devices that require
remediation to meet Year 2000 requirements. A review of the Company's status
with respect to remediating its computer systems for Year 2000 compliance is
presented below.
For its information technology, the Company currently utilizes an IBM
AS400-based computing environment which is complemented by a series of
local-area networks ("LANs") that are connected worldwide via a wide-area
network ("WAN"). Substantially all operating systems related to the AS400s, LANs
and WAN have been updated to comply with Year 2000 requirements. In addition,
upgraded and modified versions of the Company's financial, manufacturing
(including bar coding), human resource, and other software applications which
are Year 2000 ready are available, and are now in the process of being
integrated into the Company's systems. The Company presently expects that this
integration will be substantially completed by the end of calendar year 1998.
The Company utilizes non-mainframe computers and software in its various
production processes throughout the world. In several locations it has retained
consulting firms to assist it in identifying potential Year 2000 problems in
those processes, and evaluating the readiness of the computer systems used in
those processes. General findings to date have identified only a few changes
F-6
<PAGE> 27
that need to be made to these systems. Problems have generally related to old
personal computers or memory chips which must be replaced. Although there can be
no assurance that the Company will identify and correct every Year 2000 problem
found in the computer applications used in its production processes, the Company
believes that it has in place a comprehensive program to identify and correct
any such problems, and expects to have substantially completed the remediation
of its production systems by the end of calendar year 1998. At the present time,
the Company does not believe that it requires a contingency plan with respect to
its information technology and production processes, and has therefore not
developed one.
The Company is also reviewing its building and utility systems (heat,
light, phones, etc.) for the impact of Year 2000. Many of the systems in this
area are Year 2000 ready. While the Company is working diligently with all of
its utility suppliers and has no reason to expect that they will not meet their
required Year 2000 compliance targets, there can be no assurance that these
suppliers will in fact meet the Company's requirements. The failure of any such
supplier to fully remediate its systems for Year 2000 compliance could cause a
shutdown of one or more of the Company's plants, which could impact the
Company's ability to meet its obligations to supply products to its customers.
The Company has also commenced a program to determine the Year 2000
compliance efforts of its equipment and material suppliers. The Company has sent
comprehensive questionnaires to all of its significant suppliers regarding their
Year 2000 compliance and is attempting to identify any problem areas with
respect to them. This program will be ongoing and the Company's efforts with
respect to specific problems identified will depend in part upon its assessment
of the risk that any such problems may cause the shutdown of a customer's plant
or other problem which the Company believes would have a material adverse impact
on its operations. Unfortunately, the Company cannot fully control the conduct
of its suppliers, and there can be no guarantee that Year 2000 problems
originating with a supplier will not occur. The Company has not yet developed
contingency plans in the event of a Year 2000 failure caused by a supplier or
third party, but would intend to do so if a specific problem is identified
through the programs described above. In some cases, especially with respect to
its utility vendors, alternative suppliers may not be available.
As a Tier 1 supplier in the auto industry, the Company takes an active role
in many industry-sponsored organizations, including the Automotive Industry
Action Group ("AIAG"). The AIAG has been proactive in working with OEMs and Tier
1, 2 and 3 suppliers to ensure that the industry as a whole addresses the Year
2000 problem. Tools to assist in achieving compliance include standardized
questionnaires, regular meetings of members, follow-up by AIAG personnel
regarding answers to questionnaires, etc. The Company continues to work with
such industry groups to ensure compliance.
The information presented above sets forth the key steps taken by the
Company to address the Year 2000 problem. There can be no absolute assurance
that third parties will convert their systems in a timely manner and in a way
that is compatible with the Company's systems. The Company believes that its
actions with suppliers will minimize these risks and that the cost of Year 2000
compliance for its information and production systems will not be material to
its consolidated results of operations and financial position.
NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income." This standard establishes guidelines for the display of comprehensive
income for financial statement purposes. The objective of the statement is to
report a measure of all changes in equity of an enterprise that result from
transactions and other economic events of the period other than transactions
with owners.
The FASB has issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This standard requires extensive disclosure
of operating segments based on the "management approach." This approach
organizes segments within a company for making operating decisions and assessing
performance. Reportable segments can be based on products and services,
geography, legal structure or any other manner in which management disaggregates
the company. This Statement requires reporting segment profit or loss, certain
specific revenue and expense items and segment assets. It also requires
reconciliations of total segment revenues, total segment profit or loss, total
segment assets and other amounts disclosed for
F-7
<PAGE> 28
segments to corresponding amounts reported in the Consolidated Financial
Statements. Restatement of comparative information for earlier periods presented
is required in the initial year of application. Interim information is not
required until the second year of application, at which time comparative
information is required.
The FASB has issued SFAS No. 132, "Employer's Disclosures about Pensions
and Other Post-retirement Benefits." This standard revises employers'
disclosures on pension and other postretirement benefit plans. The objective of
the statement is to standardize the disclosure requirements and report
additional information on changes in the benefit obligations and fair value of
plan assets.
SFAS Nos. 130, 131 and 132 are effective for fiscal years beginning after
December 15, 1997.
The FASB also issued SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This standard provides a comprehensive and consistent
standard for the recognition and measurement of derivatives and hedging
activities. This standard is effective for fiscal years beginning after June 15,
1999.
The Company has not determined the impact that the adoption of these new
standards will have on its Consolidated Financial Statements or disclosures.
PROSPECTIVE INFORMATION
In August 1998 the Company's Holm Industries, Inc. subsidiary purchased
certain assets and assumed certain liabilities of OEM/Miller Corporation of
Aurora, Ohio, a privately owned manufacturer of specialty corrugated plastic
tubing and molded parts for the appliance, automotive and construction
industries.
Late in fiscal 1998, the United Auto Workers called a strike against
General Motors that lasted until late July 1998. The Company has previously
reported that the impact on fiscal 1998 results was estimated at $0.10 diluted
earnings per share. The strike will also impact earnings in fiscal 1999. The
following comments do not however take into account any such impact.
The Company expects that its worldwide sales for fiscal 1999 will be down
slightly from fiscal 1998 levels. Despite the lack of revenue growth, the
Company has targeted to deliver a ten to fifteen percent improvement in diluted
earnings per share from fiscal 1998's $2.56. This improvement is partly
dependent on improved operating results by the Company's subsidiary in the
United Kingdom and at Nisco, the Company's U.S.-based joint venture with
Nishikawa Rubber. Both of these operations experienced significant losses in
fiscal 1998 related to the introduction of numerous new programs. While more new
product introductions are expected in fiscal 1999, the Company believes that the
most intense period for these operations is behind them. The targeted earnings
improvement is also significantly dependent upon continued results from the
Company's Low Cost Producer strategy. This strategy has four components: Six
Sigma quality in all operations of the Company; 100% on time delivery; use of
breakthrough technologies; and developing synergy worldwide. Further successful
initiatives as a part of this strategy are necessary to fund customer givebacks
and economic increases planned for fiscal 1999, as well as provide for true
productivity gains. The Company has achieved its goals in each of the past two
years in part through the success of its Low Cost Producer strategy.
A closer look at the sales line shows that North American automotive sales
are expected to decline by over 10% in fiscal 1999. This decline is related
primarily to the loss of some programs, principally the Jeep(R) Grand Cherokee,
and expected lower volumes on certain models for which the Company supplies
systems, such as the Ford Taurus and Escort. Customer price concessions are also
a significant factor in the anticipated sales decline. As mentioned above, this
projected sales decline does not include the impact of the UAW strike against
General Motors. The sales decline in North America is expected to be offset by
increased sales in the Tread Rubber segment as well as continued launches of new
programs in the United Kingdom.
The Company's primary market risks in fiscal 1999 are those shared by its
global customers and include, among other things, fluctuations in interest rates
and currency exchange rates, particularly in emerging markets. To the extent
these fluctuations lead to changes in consumer demand for vehicles in general or
give one automaker or group of automakers a competitive advantage over another,
the Company's sales volumes may go up or down.
A specific concern of the Company in this regard is Brazil. During fiscal
1998, the government in Brazil acted to raise interest rates to protect its
F-8
<PAGE> 29
currency from further devaluation. This had the effect of lowering demand for
"big ticket" consumer goods such as automobiles. While some automakers reduced
production significantly during this period, others made smaller adjustments or
waited to determine what, if any, adjustments they would make to their
production schedules. Now, with inventory building in their systems as
automobile sales have remained sluggish, they are lowering production, thereby
reducing demand for the Company's products. Any prolonged reduction of this
nature would have a significant impact on the Company's ability to meet its
targeted earnings performance. While a similar exposure exists in other emerging
markets in which the Company competes, especially Mexico and Poland, the impact
on financial results is unlikely to be material due to the start-up status of
these operations.
In addition to the economic impact of currency exposure, the Company is
also exposed to translation losses related to currency changes. The recent slide
in the value of the Canadian dollar will reduce the U.S. dollar reported value
of both sales and earnings generated in that country.
Price pressures in the Company's automotive businesses are due in part to
the overcapacity that exists in the global automotive industry. This
overcapacity has forced OEMs to keep prices low or offer larger incentives to
lure buyers into the showroom. OEMs have then turned to their suppliers seeking
continued price reductions. However, if current economic problems in Asia and
other emerging markets continue to spread globally, the overcapacity in the
industry could further intensify the Company's competition and lead to even
greater demands for price reductions from its customers at a time when demand
may be reduced as well. In such a scenario, the Company's financial performance
could be adversely impacted. It is important to note, however, that the Company
has successfully managed the impact of these pricing pressures in the past.
CAUTIONARY STATEMENTS FOR PURPOSES OF "SAFE HARBOR" UNDER THE PRIVATE SECURITIES
REFORM ACT OF 1995
Certain statements in this Management's Discussion and Analysis, the
attached Consolidated Financial Statements, in the Company's press releases and
in oral statements made by or with the approval of an authorized executive
officer of the Company, and in particular certain statements set forth in the
preceding section entitled "Prospective Information," 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, especially in
emerging markets where recent currency weakness may lead to recessionary
conditions; 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.
F-9
<PAGE> 30
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The Standard Products Company
and Consolidated Subsidiaries
Management is responsible for the preparation, integrity and objectivity of
the consolidated financial statements and other financial information presented
in this report. The accompanying consolidated financial statements were prepared
in accordance with generally accepted accounting principles, applying certain
estimates and judgments as required.
Standard Products' internal controls are designed to provide reasonable
assurance as to the integrity and reliability of the financial statements and to
adequately safeguard, verify and maintain accountability of assets. Such
controls are based on established written policies and procedures, are
implemented by trained, skilled personnel with an appropriate segregation of
duties and are monitored through a comprehensive internal audit program. These
policies and procedures prescribe that the Company and all its employees are to
maintain the highest ethical standards and that its business practices
throughout the world are to be conducted in a manner which is above reproach.
Arthur Andersen LLP, independent auditors, are retained to audit the
Company's financial statements. Their accompanying report is based on audits
conducted in accordance with generally accepted auditing standards, which
include the consideration of the Company's internal controls to establish a
basis for reliance thereon in determining the nature, timing and extent of
audits tests to be applied.
The Board of Directors exercises its responsibility for these financial
statements through its Audit Committee, which consists entirely of independent
non-management Board members. The audit committee meets periodically with the
independent auditors and with the Company's internal auditors, both privately
and with management present, to review accounting, auditing, internal controls
and financial reporting matters.
<TABLE>
<S> <C>
RONALD L. ROUDEBUSH DONALD R. SHELEY, JR.
Ronald L. Roudebush Donald R. Sheley, Jr.
Vice Chairman and Chief Vice President, Finance
Executive Officer and Chief Financial
Officer
</TABLE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
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 Consolidated Subsidiaries as
of June 30, 1998 and 1997, 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, 1998. 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 Consolidated Subsidiaries as of June 30, 1998 and 1997, and
the results of their operations and their cash flows for each of the three
fiscal years in the period ended June 30, 1998 in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
July 23, 1998
Detroit, Michigan
F-10
<PAGE> 31
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THE STANDARD PRODUCTS COMPANY
AND CONSOLIDATED SUBSIDIARIES
FOR THE YEARS ENDED JUNE 30,
-----------------------------------------
1998 1997 1996
---- ---- ----
(THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
<S> <C> <C> <C>
Net Sales................................................ $1,101,309 $1,108,268 $1,083,920
Cost of Goods Sold:
Materials, wages and other manufacturing costs......... 888,385 916,821 934,504
Research, engineering and development expenses......... 46,955 45,991 40,934
---------- ---------- ----------
935,340 962,812 975,438
---------- ---------- ----------
Gross Income............................................. 165,969 145,456 108,482
Selling, General and Administrative Expenses............. 78,025 68,559 69,616
Non-recurring Charge (Note 2)............................ -- 17,661 --
---------- ---------- ----------
87,944 59,236 38,866
---------- ---------- ----------
Other (Income) Expense:
Royalty and dividend income............................ (426) (658) (673)
Interest expense....................................... 12,389 12,914 14,944
Other, net............................................. 7,459 521 (3,929)
---------- ---------- ----------
19,422 12,777 10,342
---------- ---------- ----------
Income before Taxes on Income............................ 68,522 46,459 28,524
Provision for Taxes on Income............................ 25,078 18,929 13,947
---------- ---------- ----------
Net Income.......................................... $ 43,444 $ 27,530 $ 14,577
========== ========== ==========
Earnings Per Common Share:
Basic.................................................. $ 2.58 $ 1.64 $ 0.87
---------- ---------- ----------
Diluted................................................ $ 2.56 $ 1.63 $ 0.87
---------- ---------- ----------
Weighted average shares outstanding:
Basic.................................................. 16,848,967 16,803,849 16,757,767
Diluted................................................ 16,975,321 16,855,624 16,779,828
</TABLE>
The accompanying notes are an integral part of these statements.
F-11
<PAGE> 32
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
THE STANDARD PRODUCTS
COMPANY AND CONSOLIDATED
SUBSIDIARIES, JUNE 30,
-------------------------
1998 1997
---- ----
(THOUSANDS OF DOLLARS
EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 1,625 $ 6,972
Receivables, less allowances of $3,949 in 1998 and $2,863
in 1997................................................ 151,535 174,696
Inventories (Note 4)...................................... 61,139 66,633
Prepaid expenses.......................................... 25,319 23,685
--------- ---------
Total current assets................................. 239,618 271,986
--------- ---------
Property, Plant and Equipment, at cost:
Land and buildings........................................ 125,906 123,103
Machinery and equipment................................... 498,282 460,511
--------- ---------
624,188 583,614
Less -- Accumulated depreciation.......................... (293,836) (280,608)
--------- ---------
Net property, plant and equipment.................... 330,352 303,006
Goodwill, net............................................... 63,617 66,169
Other Assets, net (Note 5).................................. 50,659 50,698
--------- ---------
$ 684,246 $ 691,859
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term notes payable.................................. $ 14,994 $ 19,645
Current maturities of long-term debt...................... 14,031 1,289
Accounts payable and accrued expenses (Note 6)............ 183,646 201,629
Dividend payable.......................................... 2,869 2,858
--------- ---------
Total current liabilities............................ 215,540 225,421
Long-term Debt, net of current maturities................... 92,457 121,804
Other Postretirement Benefits............................... 24,362 24,953
Deferred Income Taxes and Other Credits..................... 51,715 51,324
Commitments and Contingent Liabilities (Note 12)
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 16,877,693 in
1998 and 16,809,723 in 1997............................ 16,878 16,810
Paid-in capital........................................... 99,462 98,066
Retained earnings......................................... 202,599 170,620
Foreign currency translation adjustments.................. (16,991) (12,870)
Minimum pension liability................................. (1,776) (4,269)
--------- ---------
Total shareholders' equity........................... 300,172 268,357
--------- ---------
$ 684,246 $ 691,859
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-12
<PAGE> 33
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THE STANDARD PRODUCTS COMPANY
AND CONSOLIDATED SUBSIDIARIES
FOR THE YEARS ENDED JUNE 30,
------------------------------------
1998 1997 1996
---- ---- ----
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income................................................ $ 43,444 $ 27,530 $ 14,577
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 55,131 53,130 52,545
Deferred taxes and other credits....................... 1,005 (974) 265
Equity in income of non-consolidated affiliates........ 3,478 (1,103) (2,436)
Effect of changes in foreign currency.................. 1,163 929 192
Other.................................................. (2,528) 2,763 1,216
Net changes in assets and liabilities:
Receivables (Note 3)................................. 23,161 5,877 18,160
Inventories.......................................... 5,025 (6,079) 9,081
Accounts payable and accrued expenses................ (23,582) (2,028) 29,140
-------- -------- --------
Net cash provided by operating activities......... 106,297 80,045 122,740
-------- -------- --------
Cash Flows from Investing Activities:
Purchase of property, plant and equipment, net............ (77,335) (59,004) (79,684)
Investments in affiliates and non-consolidated entities... (1,307) (264) (199)
Assets acquired by purchase of businesses................. -- -- (1,581)
-------- -------- --------
Net cash used by investing activities............. (78,642) (59,268) (81,464)
-------- -------- --------
Cash Flows from Financing Activities:
Proceeds of long-term borrowings.......................... 27,144 18,076 37,791
Net increase (decrease) in short-term borrowings.......... (4,651) 18,447 (3,561)
Repayment of long-term borrowings......................... (43,666) (39,586) (84,659)
Cash dividends............................................ (11,465) (11,579) (11,400)
Proceeds from exercise of stock options................... 533 134 299
-------- -------- --------
Net cash used by financing activities............. (32,105) (14,508) (61,530)
-------- -------- --------
Effect of exchange rate changes on cash and cash
equivalents............................................... (897) 703 708
-------- -------- --------
Increase (decrease) in cash and cash equivalents............ (5,347) 6,972 (19,546)
Cash and cash equivalents at the beginning of the year...... 6,972 -- 19,546
-------- -------- --------
Cash and cash equivalents at the end of the year............ $ 1,625 $ 6,972 $ --
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-13
<PAGE> 34
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
THE STANDARD PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
----------------------------------------------------------------------
FOREIGN
CURRENCY MINIMUM TOTAL
COMMON PAID-IN RETAINED TRANSLATION PENSION SHAREHOLDERS'
SHARES CAPITAL EARNINGS ADJUSTMENTS LIABILITY EQUITY
------ ------- -------- ----------- --------- -------------
(THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
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) $258,765
Net income........................ -- -- 27,530 -- -- 27,530
Cash dividends ($.68 per share)... -- -- (11,579) -- -- (11,579)
Foreign currency translation
adjustments.................... -- -- -- (6,552) -- (6,552)
Restricted stock awards........... -- 1,051 -- -- -- 1,051
Sale of 24,856 shares to option
holders........................ 25 109 -- -- -- 134
Minimum pension liability......... -- -- -- -- (992) (992)
------- ------- -------- -------- ------- --------
BALANCE, JUNE 30, 1997.............. $16,810 $98,066 $170,620 $(12,870) $(4,269) $268,357
Net income........................ -- -- 43,444 -- -- 43,444
Cash dividends ($.68 per share)... -- -- (11,465) -- -- (11,465)
Foreign currency translation
adjustments.................... -- -- -- (4,121) -- (4,121)
Restricted stock awards........... -- 931 -- -- -- 931
Sale of 67,950 shares to option
holders........................ 68 465 -- -- -- 533
Minimum pension liability........... -- -- -- -- 2,493 2,493
------- ------- -------- -------- ------- --------
BALANCE, JUNE 30, 1998.............. $16,878 $99,462 $202,599 $(16,991) $(1,776) $300,172
======= ======= ======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-14
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
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, 1998 and 1997 was $17,076 and
$19,609, respectively, and is included in Other Assets in the accompanying
consolidated balance sheets. In 1998, the Company made a $1,200 contribution in
capital to the partnership to be used for general operating purposes. The
Company's share of NSC's operating income (loss) was ($3,733), $969 and $2,504
in fiscal 1998, 1997 and 1996, respectively.
Under the terms of NSC's revolving credit and term loan facility, the joint
venture partners are required to guarantee a portion of NSC's borrowings. The
Company's share of these guarantees at June 30, 1998 was $8,050.
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>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash paid for
interest........... $13,054 $12,314 $14,962
Cash paid for income
taxes.............. $20,087 $18,819 $ 6,206
</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 and Mexican 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. Because the Company's Mexican subsidiary
operates in a highly inflationary economy, the U.S. dollar has been used as the
functional currency in the translation of the Mexican financial statements. The
Brazilian economy ceased to be high inflationary during fiscal 1998, however
SFAS 52 prescribes criteria which, if met, allows for the translation of its
results using the remeasurement process. The Company will continue to use the
U.S. dollar as the functional currency until the criteria specified in SFAS 52
are no longer met. Accordingly, foreign currency gains or losses of the
Brazilian and Mexican subsidiaries have been reflected in income currently.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. 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 following estimated
service lives of the property:
<TABLE>
<S> <C>
Buildings.................... 15 to 25 years
Machinery and Equipment...... 10 to 14 years
Furniture and Fixtures....... 7 to 10 years
</TABLE>
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. A substantial
portion of domestic invento-
F-15
<PAGE> 36
ries are valued using the last-in, first-out (LIFO) method, and the remaining
inventories are valued using the first-in, first-out (FIFO) method. Cost
includes the cost of materials, direct labor and the applicable share of
manufacturing overhead.
GOODWILL
Goodwill, which represents the excess of purchase price over the fair value
of assets acquired, is amortized on a straight-line basis over the estimated
useful life but not in excess of 40 years. Recoverability is reviewed annually
or sooner if events or changes in circumstances indicate that the carrying
amount may exceed fair value. Recoverability is then determined by comparing the
undiscounted net cash flows of the net assets on which the goodwill applies to
the net book value, including goodwill, of those assets.
TAXES ON INCOME
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. 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.
RETIREMENT PLANS
The Company's policy is to fund the pension costs of defined benefit plans
in accordance with the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"). 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 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 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.
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 foreign currency within a
one-year period. The Company does not engage in speculation and does not hedge
foreign currency positions which are not related to specific transactions. 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.
F-16
<PAGE> 37
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.
CONCENTRATION OF CREDIT RISK
The Company designs and manufactures rubber and plastic components for
automotive original equipment manufacturers. Financial instruments which
potentially subject the Company to concentrations of credit risk are primarily
accounts receivable. The Company performs ongoing credit evaluations of its
customers' financial condition. The allowance for non-collection of accounts
receivable is based on the expected collectibility of all accounts receivable.
IMPAIRMENT OF ASSETS
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of " on July 1, 1996. This Statement
requires that long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The adoption of SFAS No. 121
did not have a material effect on the Company's consolidated financial
statements.
STOCK-BASED COMPENSATION
Prior to July 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees," and related interpretations.
As such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
July 1, 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," which allows entities to continue to apply the provisions of APB
Opinion No. 25, and provide pro forma net income and pro forma earnings per
share disclosures for employee stock option grants made in fiscal 1997 and
future years as if the fair-value based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to their 1998
presentation in the financial statements.
2. NON-RECURRING CHARGE
In 1997, the Company announced it would permanently close two automotive
parts plants in Schenectady, New York and Lexington, Kentucky, and recorded a
non-recurring charge of $17,661 or $0.63 per share of common stock, after tax.
The closures were undertaken to reduce overcapacity, which management feels will
allow the Company to improve customer service, reduce operating costs, and
improve productivity and asset utilization. The closures were completed by
December 1997, resulting in the reduction of 470 employees.
The Company's provision consisted of $12,485 to recognize severance and
benefits for terminated employees and $5,176 for asset writedowns and building
razing costs. Additional costs will be charged to normal operations as incurred.
During fiscal 1997, the Company also incurred $1,665 in expenses related to
the transfer of business from the closed facilities to those that will remain in
operations. Since these costs are expected to benefit future operations they
were not included in the non-recurring charge. Examples include costs to move
F-17
<PAGE> 38
machinery, equipment and inventory, equipment set-up and relocation of employees
retained by the Company.
3. 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, 1998, $50,000
has been advanced. The agreement, which was to expire in September 1998, was
extended to November 2000.
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 $3,158 and $3,104 in fiscal 1998 and 1997 and have been classified as
Selling, General and Administrative Expenses in the accompanying consolidated
statement of income. The Company maintains an allowance for doubtful accounts
receivable ($3,949 and $2,863 at June 30, 1998 and 1997, respectively) based on
the expected collectibility of all trade accounts receivable, including
receivables sold.
4. INVENTORY
The major components of inventory are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
Raw materials............. $24,898 $29,069
Work-in-process and
finished goods.......... 36,241 37,564
------- -------
Total, at both FIFO and
LIFO cost............... $61,139 $66,633
Excess of FIFO cost over
LIFO cost............... $13,119 $14,019
</TABLE>
Approximately 46% of the Company's inventories are valued at LIFO cost.
5. OTHER ASSETS, NET
Other assets consist of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
Investments................... $18,976 $22,508
Tooling....................... 9,312 3,450
Patents and license
agreements.................. 3,299 2,448
Other intangibles............. 1,967 3,386
Deferred taxes................ 8,810 9,401
Other......................... 8,295 9,505
------- -------
Total..................... $50,659 $50,698
</TABLE>
Where applicable, amounts are presented net of accumulated amortization.
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Accounts payable........... $ 92,965 $ 81,214
Accrued payrolls........... 30,675 34,451
Accrued other taxes........ 4,108 5,035
Federal income tax......... 1,996 3,681
Other accrued expenses..... 53,902 77,248
-------- --------
Total.................. $183,646 $201,629
</TABLE>
F-18
<PAGE> 39
7. FINANCING ARRANGEMENTS
<TABLE>
<CAPTION>
1998 1997
---- ----
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Senior notes............. $100,000 $100,000
Revolving credit
agreement.............. -- 20,000
Other debt............... 6,488 3,093
-------- --------
Total............... 106,488 123,093
Less -- current
maturities............. 14,031 1,289
-------- --------
$ 92,457 $121,804
</TABLE>
At June 30, 1998, 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 of 9.81% is paid
semiannually and the notes are payable July 1, 1999.
Each of the Senior Note agreements requires the Company to maintain certain
financial covenants as to net worth and leverage.
The Revolving Credit Agreement (Credit Agreement) represents unsecured
borrowings from a group of banks that have committed to make available for
borrowing up to $225,000 until September 2002 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. An annual facility fee
of 0.125% is due on the total commitment. The terms of the Credit Agreement also
require the Company to maintain certain financial covenants as to net worth and
leverage.
Under the most restrictive covenants of the Company's various loan
agreements, $66,558 of retained earnings were not restricted at June 30, 1998
for the payment of dividends.
The maturities of long-term debt for the five years subsequent to June 30,
1998 are:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS)
<S> <C>
1999..................... $14,031
2000..................... 38,070
2001..................... 13,089
2002..................... 12,907
2003..................... 12,905
Thereafter............... 15,486
</TABLE>
The Company and its subsidiaries also have, from various banking sources,
approximately $56,400 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 1998, the
average borrowings under these sources was $24,800, and the highest month-end
balance was $37,800. Comparable amounts for 1997 were $20,200 and $38,000 and
$9,000 and $17,400 for 1996. The effective annual borrowing rate was 8.3% in
1998, 7.3% in 1997 and 6.8% in 1996. At June 30, 1998, the weighted interest
rate was 7.9%.
8. FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts and fair values of the Company's significant balance
sheet financial instruments at June 30, 1998 and 1997, are as follows:
<TABLE>
<CAPTION>
1998 CARRYING FAIR
(THOUSANDS OF DOLLARS) AMOUNT VALUES
---------------------- -------- ------
<S> <C> <C>
Cash and cash
equivalents........... $ 1,625 $ 1,625
Short-term bank debt.... 14,994 14,994
Long-term bank debt
(including current
portion).............. 106,488 106,988
</TABLE>
<TABLE>
<CAPTION>
1997
(THOUSANDS OF DOLLARS)
----------------------
<S> <C> <C>
Cash and cash
equivalents........... $ 6,972 $ 6,972
Short-term bank debt.... 19,645 19,645
Long-term bank debt
(including current
portion).............. 123,093 121,793
</TABLE>
F-19
<PAGE> 40
Off balance sheet derivative financial instruments at June 30, 1998 and
1997, held for purposes other than trading, were as follows:
<TABLE>
<CAPTION>
1998 1997
------------------- -------------------
CONTRACT/ CONTRACT/
NOTIONAL FAIR NOTIONAL FAIR
AMOUNT VALUES AMOUNT VALUES
--------- ------ --------- ------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Currency and interest
rate swaps......... $31,010 $(219) $34,680 $ (509)
Foreign currency
exchange
agreements......... 14,000 148 41,388 1,844
</TABLE>
With regard to the combined currency and interest rate swap agreement, the
nominal amount of 65,148 French francs is payable by the Company to a bank,
while the amount due from the bank to the Company is $11,010. 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.
The Company actively monitors its exposure to risk from changes in foreign
exchange rates and interest rates. Derivative financial instruments are used to
reduce the impact of these risks. The Company does not use these instruments for
trading purposes and does not use instruments where there are no underlying
exposures. Management believes that its use of these instruments to reduce risk
is in the Company's best interest.
The Company has estimated its market risk exposures using sensitivity
analyses. Market risk exposure has been defined as the change in fair value of a
derivative financial instrument and related balance sheet position assuming a
10% adverse change in market prices or rates. Fair value was determined using
quoted market prices.
A 63 basis point increase in interest rates (10% of the Company's weighted
average worldwide interest rate) affecting the company's floating financial
instruments, including debt obligations, interest rate swap contract and
accounts receivable securitization, would result in an increase in annual
interest expense of approximately $283.
The Company has financial and related balance sheet positions that are
sensitive to foreign currency exchange rates, including foreign currency forward
exchange contracts and non-functional currency denominated receivables and
payables. The net amount that is exposed to changes in foreign currency rates is
then subjected to a 10% change in the value of the foreign currency versus the
U.S. dollar. A 10% adverse change in foreign exchange rates would result in a
pre-tax expense of approximately $248.
9. RETIREMENT PLANS
The Company and its consolidated subsidiaries 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 determine pension expense and the
PBO were:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Discount rate............ 7.25% 7.75% 7.75%
Long-term rate of return
on plan assets......... 9.50% 9.50% 9.50%
Rate of increase in
future compensation
levels................. 4.50% 5.00% 5.00%
</TABLE>
F-20
<PAGE> 41
The cost of providing pension, retirement and profit-sharing benefits
charged to operations amounted to $7,634 in 1998, $7,295 in 1997 and $6,999 in
1996. For 1998, the expense of defined contribution plans was $5,550 and
multi-employer plan expense was $232. Comparable figures for 1997 were $5,033
and $486, and for 1996, $4,102 and $449. Components of pension expense for
defined benefit plans included the following items:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Service cost......... $ 2,470 $ 2,435 $ 2,737
Interest cost on
PBO................ 6,648 6,262 6,265
Actual gain on plan
assets............. (23,887) (6,163) (12,654)
Net amortization and
deferral........... 16,225 (1,361) 6,100
Loss due to
curtailment........ 396 602 --
-------- ------- --------
Net pension
expense............ $ 1,852 $ 1,775 $ 2,448
</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, 1998, the Company has
recorded an intangible asset of $1,229 included in Other Assets, net in the
accompanying consolidated balance sheet, and an equity reduction of $1,776.
<TABLE>
<CAPTION>
1998 1997
----------------- -----------------
LESS GREATER LESS GREATER
THAN THAN THAN THAN
PLAN PLAN PLAN PLAN
ASSETS ASSETS ASSETS ASSETS
------ ------- ------ -------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
ACCUMULATED BENEFITS
ARE:
Vested benefits........ $60,894 $22,937 $49,540 $27,046
Non-vested benefits.... 3,550 479 2,576 423
------- ------- ------- -------
Accumulated benefit
obligation........... 64,444 23,416 52,116 27,469
Projected future
compensation
increases............ 7,306 824 6,166 735
------- ------- ------- -------
PBO.................... 71,750 24,240 58,282 28,204
Plan assets at fair
market value......... 83,430 18,769 62,772 20,702
------- ------- ------- -------
PBO (in excess of) or
less than plan
assets............... 11,680 (5,471) 4,490 (7,502)
Unrecognized transition
asset................ (4,566) (67) (4,998) (263)
Unrecognized net (gain)
loss................. (4,036) 2,668 3,416 5,061
Adjustment required to
recognize minimum
liability............ -- (3,005) -- (5,304)
Unrecognized prior
service cost......... 2,291 1,228 2,443 1,241
------- ------- ------- -------
Prepaid pension cost,
(liability).......... $ 5,369 (4,647) $ 5,351 $(6,767)
</TABLE>
The Company has accrued $9,791 and $11,434 for Workers' Compensation claims
as of June 30, 1998 and 1997, respectively.
10. 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.
F-21
<PAGE> 42
A summary of plan information is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Accumulated
postretirement
benefit obligation
(APBO):
Retirees........... $ 21,854 $ 22,196 $ 20,989
Active participants
eligible to
receive
benefits......... 2,157 2,442 2,177
Other active plan
participants..... 3,385 3,174 2,516
---------- ----------- ----------
27,396 27,812 25,682
Unrecognized gain
(loss)........... (636) (438) 2,048
Unrecognized prior
service cost..... (42) -- --
---------- ----------- ----------
$ 26,718 $ 27,374 $ 27,730
---------- ----------- ----------
Periodic
postretirement
benefit cost:
Current service
cost............. $ 356 $ 271 $ 286
Interest on
postretirement
benefit
obligation....... 2,087 1,922 1,990
Net amortization... 84 (11) (74)
---------- ----------- ----------
$ 2,527 $ 2,182 $ 2,202
---------- ----------- ----------
Actuarial
assumptions:
Discount rate...... 7.25% 7.75% 7.75%
1998 to 2005 --
health care cost
trend rate....... 10.0%-5.5% 10.75%-5.5% 11.5%-5.5%
Effect of a 1%
increase in health
care cost trend
rate:
Increase year end
APBO............. 7.4% 7.0% 6.6%
Increase expense... 8.7% 9.2% 9.5%
</TABLE>
11. 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 2036.
The following is a schedule of future minimum rental payments required
under operating leases that have initial or remaining noncancelable lease terms
in excess of one year as of June 30, 1998:
<TABLE>
<S> <C>
1999............................... $ 7,186
2000............................... 4,978
2001............................... 2,765
2002............................... 1,433
2003 and later years............... 2,387
-------
Total minimum payments required.... $18,749
</TABLE>
Rent expense was $13,445, $14,372 and $14,627 for the years ended June 30,
1998, 1997 and 1996, respectively.
12. 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.
The Company retains the risk with respect to certain employee medical and
workers' compensation benefits. Medical coverage is capped at $1,000 over the
lifetime of the employee. The Company has insurance to cover catastrophic claims
for workers' compensation benefits in excess of $500 per claim and $15,100 in
the aggregate. Reserves are included in accrued liabilities in the accompanying
consolidated balance sheets.
13. 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. Under the plan, 40% of the
options become exercisable one year from the date of grant, an additional 40%
after the second year, and the remainder after the third year. The options have
a maximum life of ten years
F-22
<PAGE> 43
from the date of the grant. Summarized below is
stock option activity for 1997 and 1998.
<TABLE>
<CAPTION>
RANGE OF
SHARES OPTION PRICES
------ -------------
<S> <C> <C>
Stock options
outstanding at June
30, 1996.............. 387,640 $17.88 - $36.99
Options granted......... 233,450 25.25 - 26.25
Options exercised....... (6,400) 19.25 - 21.63
Options cancelled....... (65,986) 29.13 - 36.99
-------
Stock options
outstanding at June
30, 1997.............. 548,704 $17.88 - $36.99
Options granted......... 342,550 25.25 - 29.00
Options exercised....... (53,070) 17.88 - 29.13
Options cancelled....... (56,024) 19.25 - 36.99
-------
Stock options
outstanding at June
30, 1998.............. 782,160
</TABLE>
The Company adopted the disclosure requirements of Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation," effective with the 1997 financial statements, but elected to
continue to measure compensation cost using the intrinsic value method, in
accordance with APB Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to
Employees." Accordingly, no compensation cost for stock options has been
recognized. If compensation cost had been determined based on the estimated fair
value of options previously granted, consistent with the methodology in SFAS
123, the pro forma effects on the Company's net income and income per share
would have been:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net Earnings
As reported............. $43,444 $27,530
Pro forma............... 42,017 26,836
Diluted
Earnings per Share
As reported............. $2.56 $1.63
Pro forma............... 2.48 1.59
</TABLE>
The estimated fair value as of date of grant of options granted in 1998 and
1997, using the Black-Scholes option-pricing model, was as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Estimated fair value per share
of options granted during the
year......................... $9.05 $8.38
Assumptions:
Annualized dividend yield.... 2.3% 2.7%
Common Stock price
volatility................ 28.1% 30.5%
Risk-free rate of return..... 5.5% 6.5%
Expected option term (in
years).................... 7 7
</TABLE>
At June 30, 1998, options for 260,240 shares were exercisable at an average
exercise price of $23.63 a share. Shares reserved for the future granting of
options were 456,895 at year end; 410,629 were reserved a year ago.
Under The Standard Products Company's 1997 and 1991 Restricted Stock Plans,
525,000 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 62,500 in 1998, 75,000 in 1995 and 187,500 in 1992.
Of the shares awarded, 32,600 shares were earned in 1998, 35,000 shares in 1997
and 18,400 shares in 1996. In 1998, $931 was charged to operations as
compensation expense based upon the market value of the earned shares. The
similar charge to operations in 1997 and 1996 was $1,051 and $419, respectively.
At year end, 200,000 shares remain available for future awards.
14. EARNINGS PER SHARE
The Company has adopted the provisions of SFAS No. 128, "Earnings per
Share." The information required by this pronouncement is presented on the face
of the Company's "Consolidated Statements of Operations." A reconciliation of
the numerators and denominators of the basic and diluted earnings per share are
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net Income........... $43,444 $27,530 $14,577
------- ------- -------
Basic:
Basic Shares....... 16,849 16,804 16,758
------- ------- -------
Basic EPS.......... $2.58 $1.64 $0.87
------- ------- -------
Diluted:
Basic Shares....... 16,849 16,804 16,758
Stock Options...... 126 52 22
------- ------- -------
16,975 16,856 16,780
------- ------- -------
Diluted EPS.......... $2.56 $1.63 $0.87
------- ------- -------
</TABLE>
F-23
<PAGE> 44
15. 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.
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 1998, 1997 and 1996, respectively,
has been as follows: Chrysler -- 18%, 18% and 17%; Ford -- 22%, 24% and 26%;
General Motors -- 13%, 13% and 14%. 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.
BUSINESS SEGMENT INFORMATION
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Net Sales:
Transportation
equipment......... $ 969,428 $ 976,001 $ 958,105
Tread rubber........ 150,256 145,497 135,869
Less -- intersegment
sales............. (18,375) (13,230) (10,054)
---------- ---------- ----------
Net sales......... $1,101,309 $1,108,268 $1,083,920
Operating Income:
Transportation
equipment......... $ 79,705 $ 73,100 $ 39,836
Tread rubber........ 14,040 9,128 4,078
Non-recurring
charge............ -- (17,661) --
General corporate
expenses.......... (5,801) (5,331) (5,048)
---------- ---------- ----------
Total operating
income........ $ 87,944 $ 59,236 $ 38,866
---------- ---------- ----------
Other expense,
net............... (19,422) (12,777) (10,342)
---------- ---------- ----------
Income from
operations
before taxes.... $ 68,522 $ 46,459 $ 28,524
Identifiable Assets:
Transportation
equipment......... $ 573,902 $ 590,579 $ 585,274
Tread rubber........ 82,464 72,483 70,788
General corporate
assets............ 27,880 28,797 28,633
---------- ---------- ----------
Total
identifiable
assets........ $ 684,246 $ 691,859 $ 684,695
Capital Additions,
net:
Transportation
equipment......... $ 66,099 $ 53,683 $ 74,456
Tread rubber........ 11,236 5,321 5,228
---------- ---------- ----------
Total capital
additions..... $ 77,335 $ 59,004 $ 79,684
Depreciation and
Amortization:
Transportation
equipment......... $ 50,492 $ 48,571 $ 48,328
Tread rubber........ 4,639 4,559 4,217
---------- ---------- ----------
Total
depreciation
and
amortization... $ 55,131 $ 53,130 $ 52,545
</TABLE>
F-24
<PAGE> 45
GEOGRAPHIC AREA
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Net Sales:
United States....... $ 593,747 $ 619,068 $ 618,491
Canada.............. 224,515 218,427 212,046
Europe.............. 229,593 234,504 242,977
Brazil.............. 76,913 58,680 29,479
Mexico.............. 833 -- --
Less -- inter-area
sales............. (24,292) (22,411) (19,073)
---------- ---------- ----------
Net sales......... $1,101,309 $1,108,268 $1,083,920
Net Income:
United States....... $ 30,288 $ 16,415 $ 8,248
Canada.............. 18,628 10,928 8,785
Europe.............. (2,719) 9,180 10,732
Brazil.............. 1,943 (5,642) (10,345)
Mexico.............. (1,018) -- --
General corporate
expenses, net of
tax............... (3,678) (3,351) (2,843)
---------- ---------- ----------
Net income........ $ 43,444 $ 27,530 $ 14,577
Identifiable Assets:
United States....... $ 265,302 $ 270,036 $ 297,744
Canada.............. 85,009 95,362 79,845
Europe.............. 212,130 202,358 210,215
Brazil.............. 84,512 90,114 68,258
Mexico.............. 9,413 5,192 --
General corporate
assets............ 27,880 28,797 28,633
---------- ---------- ----------
Total identifiable
assets.......... $ 684,246 $ 691,859 $ 684,695
</TABLE>
16. INCOME TAXES
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Income before taxes:
United States....... $43,570 $17,016 $10,626
Foreign............. 24,952 29,443 17,898
------- ------- -------
Total........... $68,522 $46,459 $28,524
Provision for income
taxes:
Current taxes:
Federal............. $ 7,760 $ 8,887 $ 3,822
Foreign............. 8,994 11,030 3,585
State and local..... 2,217 1,882 1,304
------- ------- -------
Total........... $18,971 $21,799 $ 8,711
Deferred taxes:
Federal............. $ 6,881 $(3,111) $ 2,656
Foreign............. (875) 321 2,536
State and local..... 101 (80) 44
------- ------- -------
Total........... 6,107 (2,870) 5,236
------- ------- -------
Total
provision..... $25,078 $18,929 $13,947
</TABLE>
A reconciliation of income tax expense to the U.S. statutory rate is as
follows:
<TABLE>
<S> <C> <C> <C>
Tax at U.S. statutory rate......... 35.0% 35.0% 35.0%
Difference in effective rate of
international operations......... (.9) 2.2 10.6
State and local income tax......... 2.2 2.5 3.1
Permanent book to tax differences
not deductible................... .5 2.7 2.9
Tax credits........................ (.2) (1.4) --
Other, net......................... -- (0.3) (2.7)
---- ---- ----
Effective tax rate................. 36.6% 40.7% 48.9%
</TABLE>
Deferred tax assets (liabilities) result from differences in the basis of
assets and liabilities for tax and financial statement purposes. The cumulative
effect of the major items follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Deferred tax assets:
Nondeductible accrued
expenses.............. $ 5,500 $ 8,200
Employee benefits....... 15,100 16,000
Net operating loss and
tax credit
carryforwards......... 11,200 11,100
All other items......... 800 1,700
-------- --------
Total deferred tax
assets........... $ 32,600 $ 37,000
Valuation allowance..... (11,200) (11,100)
-------- --------
Net deferred tax
assets........... $ 21,400 $ 25,900
Deferred tax liabilities:
Depreciation and
amortization.......... $(28,800) $(24,600)
All other items......... (3,900) (5,400)
-------- --------
Total deferred tax
liabilities...... $(32,700) $(30,000)
-------- --------
Net deferred tax
liabilities......... $(11,300) $ (4,100)
</TABLE>
In accordance with the Company's policy, as of June 30, 1998, federal
income taxes have not been provided on the undistributed earnings of foreign
subsidiaries. If these earnings were distributed, approximately $5,800 of
additional tax would be payable.
F-25
<PAGE> 46
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
tax loss carryforwards in addition to unutilized tax credits and state net
operating tax 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.
Deferred tax assets are included in Prepaid expenses and Other Assets, net
in the accompanying consolidated balance sheets.
17. QUARTERLY AND OTHER FINANCIAL DATA (UNAUDITED)
The following tables set forth a summary of the quarterly results of
operations for the years ended June 30, 1998 and 1997;
<TABLE>
<CAPTION>
1998
THREE MONTHS ENDED
-----------------------------------------
SEPT. 30 DEC. 31 MARCH 31 JUNE 30
-------- ------- -------- -------
(THOUSANDS OF DOLLARS
EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales............ $246,173 $282,544 $277,942 $294,650
Gross income......... 27,237 39,304 46,088 53,340
Net income........... 2,811 8,761 13,559 18,313
Earnings per common
share -- Diluted... $ 0.16 $ 0.52 $ 0.80 $ 1.08
</TABLE>
<TABLE>
<CAPTION>
1997
THREE MONTHS ENDED
-----------------------------------------
SEPT. 30 DEC. 31 MARCH 31 JUNE 30
-------- ------- -------- -------
(THOUSANDS OF DOLLARS
EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net Sales............ $265,611 $266,620 $281,774 $294,263
Gross income......... 25,292 31,696 38,761 49,708
Net income........... 1,397 6,344 515 19,275
Earnings per common
share -- Diluted... $ 0.08 $ 0.38 $ 0.03 $ 1.14
</TABLE>
The Company's common shares are listed on the New York Stock Exchange.
Quarterly market and dividend data are shown in the following tables.
<TABLE>
<CAPTION>
PRICE RANGE
------------------------------------
1998 1997
---------------- ----------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
Quarter
1st................ $27.50 $25.13 $25.75 $18.50
2nd................ $31.00 $24.44 $26.25 $22.75
3rd................ $33.56 $25.56 $26.50 $22.00
4th................ $35.88 $27.75 $26.88 $21.38
</TABLE>
<TABLE>
<CAPTION>
CASH DIVIDENDS
DECLARED
--------------
1998 1997
---- ----
<S> <C> <C>
Quarter
1st.................................. $0.17 $0.17
2nd.................................. $0.17 $0.17
3rd.................................. $0.17 $0.17
4th.................................. $0.17 $0.17
----- -----
$0.68 $0.68
</TABLE>
There were approximately 921 shareholders as of September 1, 1998.
18. NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income."
This standard establishes guidelines for the display of comprehensive income for
financial statement purposes. The objective of the statement is to report a
measure of all changes in equity of an enterprise that result from transactions
and other economic events of the period other than transactions with owners.
The FASB also issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This standard requires extensive disclosure
of operating segments based on the "management approach." This approach
organizes segments within a company for making operating decisions and assessing
performance. Reportable segments can be based on products and services,
geography, legal structure or any other manner in which management disaggregates
the company. This Statement requires reporting segment profit or loss, certain
specific revenue and expense items and segment assets. It also requires
reconciliations of total segment revenues, total segment profit or loss, total
segment assets and other amounts disclosed for segments to corresponding amounts
reported in the Consolidated Financial Statements. Restatement of comparative
information for earlier periods
F-26
<PAGE> 47
presented is required in the initial year of application. Interim information is
not required until the second year of application, at which time comparative
information is required.
The FASB has issued SFAS No. 132, "Employer's Disclosures about Pensions
and Other Postretirement Benefits." This standard revises employers' disclosures
on pension and other postretirement benefit plans. The objective of the
statement is to standardize the disclosure requirements and report additional
information on changes in the benefit obligations and fair value of plan assets.
SFAS Nos. 130, 131 and 132 are effective for fiscal years beginning after
December 15, 1997.
The FASB also issued SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This standard provides a comprehensive and consistent
standard for the recognition and measurement of derivatives and hedging
activities. This standard is effective for fiscal years beginning after June 15,
1999.
The Company has not determined the impact that the adoption of these new
standards will have on its Consolidated Financial Statements or disclosures.
F-27
<PAGE> 48
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE STANDARD PRODUCTS COMPANY
PROXY
------------------------------
The undersigned hereby appoints RONALD L. ROUDEBUSH, DONALD R. SHELEY, JR.
and RICHARD N. JACOBSON, and each of them, attorneys and proxies of the
undersigned, with full power of substitution, to attend the annual meeting of
shareholders of The Standard Products Company to be held at the Company's Reid
Division offices located at 2130 West 110th Street, Cleveland, Ohio, on Tuesday,
October 20, 1998 at 9:00 a.m., Eastern Daylight Time, or any adjournment
thereof, and to vote the number of shares of said Company which the undersigned
would be entitled to vote, and with all the power the undersigned would possess,
if personally present, as follows:
1. [ ] FOR, or [ ] WITHHOLD AUTHORITY to vote for, the following nominees
for election as directors of the class the term of which will expire in
2001: John Doddridge, Leigh H. Perkins, Alfred M. Rankin, Jr., John D.
Sigel, and W. Hayden Thompson.
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
WRITE THAT NOMINEE'S NAME ON THE LINE PROVIDED BELOW.)
-----------------------------------------------------------
2. On such other business as may properly come before the meeting.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE PROXIES WILL VOTE AS SPECIFIED ABOVE, OR IF A CHOICE IS NOT SPECIFIED,
THEY WILL VOTE FOR THE NOMINEES LISTED IN ITEM 1.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY.
Receipt of the Notice of Annual
Meeting of Shareholders and Proxy
Statement dated September 15, 1998
is hereby acknowledged.
Dated: 1998
---------------------,
----------------------------------
----------------------------------
----------------------------------
Signature(s)
(Please sign exactly as your name
or names appear hereon,
indicating, where proper, official
position or representative
capacity.)
<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,
1998.
<TABLE>
<CAPTION>
JURISDICTION
IN WHICH
NAME INCORPORATED
----------------------------------------------- -----------------
<S> <C>
Admiral Retread Equipment, Inc................. Ohio
Holm Industries, Inc........................... Indiana
Itatiaia Standard LTDA......................... Brazil
Nisco Holding Company.......................... Delaware
Nishikawa Standard Company..................... (1)
Oliver Rubber Company.......................... California
Standard Products Brasil Industria E Comercio
LTDA........................................... Brazil
SPB Comercio E Participoes LTDA................ 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(2)
Standard Products Polska SP. z o.o. ........... Poland
Stantech, Inc.................................. Delaware
Westborn Service Center, Inc................... Michigan
Union Trucking Company......................... Michigan
</TABLE>
- ----------
(1) A Delaware General Partnership of which the Registrant is a 50%
partner. This entity is not a consolidated subsidiary.
(2) 70% owned by the Registrant.
<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, 1998, included and incorporated by reference in this
Form 10-K, into the Company's previously filed Registration Statements on Form
S-8 File Numbers 333-59105, 333-42565, 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
Detroit, Michigan
September 16, 1998.
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
The undersigned directors of The Standard Products Company, an Ohio
corporation (the "Company"), for purposes of fulfilling the annual reporting
requirements of the Securities and Exchange Act, as amended, and the rules and
regulations promulgated thereunder, hereby constitute and appoint Donald R.
Sheley, Jr., and Richard N. Jacobson, and each of them, severally, as their
attorney-in-fact and agent, with full power of substitution and
resubstitution, in their names and on their behalf, to sign in their capacities
as such attorney-in-fact the Company's Annual Report on Form 10-K, for the
fiscal year ended June 30, 1998, and any and all amendments, attachments, and
addendums thereto, with full power and authority to perform and do any and all
acts and things whatsoever which any such attorney or substitute may deem
necessary or advisable to be performed or done in connection with any or all of
the above-described matters, as fully as each of the undersigned could do if
personally present and acting, hereby ratifying and approving all acts of any
such attorney or substitute.
IN WITNESS WHEREOF, the undersigned have executed this Power of
attorney as the 1st day of September, 1998.
/s/ James S. Reid, Jr. /s/ Malcolm R. Myers
- --------------------------------- -------------------------------
James S. Reid, Jr. Chairman Malcolm R. Myers
/s/ James C. Baillie /s/ Leigh H. Perkins
- --------------------------------- -------------------------------
James C. Baillie Leigh H. Perkins
/s/ Edward B. Brandon /s/ Alfred M. Rankin, Jr.
- --------------------------------- -------------------------------
Edward B. Brandon Alfred M. Rankin, Jr.
/s/ John Doddridge /s/ Alan E. Riedel
- --------------------------------- -------------------------------
John Doddridge Alan E. Riedel
/s/ John D. Drinko /s/ John D. Sigel
- --------------------------------- -------------------------------
John D. Drinko John D. Sigel
/s/ Curtis E. Moll /s/ W. Hayden Thompson
- --------------------------------- -------------------------------
Curtis E. Moll W. Hayden Thompson
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 1,625
<SECURITIES> 0
<RECEIVABLES> 155,484
<ALLOWANCES> 3,949
<INVENTORY> 61,139
<CURRENT-ASSETS> 239,618
<PP&E> 624,188
<DEPRECIATION> 293,836
<TOTAL-ASSETS> 684,246
<CURRENT-LIABILITIES> 215,540
<BONDS> 92,457
0
0
<COMMON> 16,878
<OTHER-SE> 283,294
<TOTAL-LIABILITY-AND-EQUITY> 684,246
<SALES> 1,101,309
<TOTAL-REVENUES> 1,101,309
<CGS> 935,340
<TOTAL-COSTS> 1,013,365
<OTHER-EXPENSES> 7,033
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,389
<INCOME-PRETAX> 68,522
<INCOME-TAX> 25,078
<INCOME-CONTINUING> 43,444
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43,444
<EPS-PRIMARY> 2.58
<EPS-DILUTED> 2.56
</TABLE>
<PAGE> 1
EXHIBIT 99a
ARTHUR ANDERSEN LLP
STANDARD PRODUCTS
INDIVIDUAL RETIREMENT AND INVESTMENT TRUST PLAN
FINANCIAL STATEMENTS AS OF JUNE 30, 1998 AND 1997
TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
<PAGE> 2
STANDARD PRODUCTS
INDIVIDUAL RETIREMENT AND INVESTMENT TRUST PLAN
INDEX TO FINANCIAL STATEMENTS
Report of Independent Public Accountants
Financial Statements-
Statement of Net Assets Available for Plan Benefits as of June 30, 1998
Statement of Net Assets Available for Plan Benefits as of June 30, 1997
Statement of Changes in Net Assets Available for Plan Benefits for the Year
Ended June 30, 1998
Notes to Financial Statements
Schedule I - Item 27a - Schedule of Assets Held for Investment Purposes as of
June 30, 1998
Schedule II - Item 27d - Schedule of Reportable Transactions for the Year Ended
June 30, 1998
Schedule III - Item 27e - Schedule of Non-Exempt Transactions for the Year Ended
June 30, 1998
<PAGE> 3
[ARTHUR ANDERSEN LLP LETTERHEAD]
Report of Independent Public Accountants
To The Standard Products Company:
We have audited the accompanying statements of net assets available for plan
benefits of the STANDARD PRODUCTS INDIVIDUAL RETIREMENT AND INVESTMENT TRUST
PLAN (the Plan) as of June 30, 1998 and 1997, and the related statement of
changes in net assets available for plan benefits for the year ended June 30,
1998. These financial statements and the schedules referred to below are the
responsibility of the Plan's management. Our responsibility is to express an
opinion on these financial statements and schedules 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 financial statements referred to above present fairly, in
all material respects, the net assets available for plan benefits of the Plan as
of June 30, 1998 and June 30, 1997, and the changes in net assets available for
plan benefits for the year ended June 30, 1998 in conformity with generally
accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of assets held
for investment purposes, reportable transactions, and non-exempt transactions
are presented for the purpose of additional analysis and are not a required part
of the basic financial statements but are supplementary information required by
the Department of Labor's Rules and Regulations for Reporting and Disclosure
under the Employee Retirement Income Security Act of 1974. The supplemental
schedules have been subjected to the auditing procedures applied in the audits
of the basic financial statements and, in our opinion, are fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Detroit, Michigan
September 11, 1998.
<PAGE> 4
STANDARD PRODUCTS
INDIVIDUAL RETIREMENT AND INVESTMENT TRUST PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Participant Directed
-----------------------------------------------------------------------
Common Short
Stock Equity Index Term Balanced
Fund Fund Fund Fund Fund
---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
INVESTMENTS, at fair value (Note 2):
Standard Products Company Stock Fund $ 5,600,886 $ -- $ -- $ -- $ --
Standard Products PAYSOP Fund -- -- -- -- --
Vanguard/Windsor II -- 16,192,091 -- -- --
Vanguard Index Trust-500 Portfolio -- -- 2,946,405 -- --
Vanguard Money Market Reserves-Prime
Portfolio -- -- -- 4,435,732 --
Vanguard STAR Portfolio -- -- -- -- 8,576,386
Vanguard Retirement Savings Trust -- -- -- -- --
Participant Notes Receivable -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Total investments 5,600,886 16,192,091 2,946,405 4,435,732 8,576,386
----------- ----------- ----------- ----------- -----------
RECEIVABLES
Employer's contributions -- -- -- -- --
Employees' contributions 52,911 183,766 50,949 55,348 89,933
Interest and dividends 35,286 -- -- -- --
Loan repayments 8,863 31,865 7,342 8,843 15,783
----------- ----------- ----------- ----------- -----------
Total receivables 97,060 215,631 58,291 64,191 105,716
----------- ----------- ----------- ----------- -----------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $ 5,697,946 $16,407,722 $ 3,004,696 $ 4,499,923 $ 8,682,102
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Participant Directed Non-Participant Directed
------------------------------- ----------------------------------------
Investment Common
Contract Participant Stock PAYSOP Equity
Fund Loans Fund Fund Fund
---------- ----------- ----------- -------- -------
<S> <C> <C> <C> <C> <C>
INVESTMENTS, at fair value (Note 2):
Standard Products Company Stock Fund $ -- $ -- $12,097,150 $ -- $ --
Standard Products PAYSOP Fund -- -- -- 353,917 --
Vanguard/Windsor II -- -- -- -- 28,267
Vanguard Index Trust-500 Portfolio -- -- -- -- --
Vanguard Money Market Reserves-Prime
Portfolio -- -- -- -- --
Vanguard STAR Portfolio -- -- -- -- --
Vanguard Retirement Savings Trust 4,661,794 -- -- -- --
Participant Notes Receivable -- 2,380,580 -- -- --
----------- ----------- ----------- ----------- -----------
Total investments 4,661,794 2,380,580 12,097,150 353,917 28,267
----------- ----------- ----------- ----------- -----------
RECEIVABLES
Employer's contributions -- -- 163,422 -- --
Employees' contributions 59,751 -- -- -- --
Interest and dividends -- -- 76,212 2,230 --
Loan repayments 13,960 -- -- -- --
----------- ----------- ----------- ----------- -----------
Total receivables 73,711 0 239,634 2,230 0
----------- ----------- ----------- ----------- -----------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $ 4,735,505 $ 2,380,580 $12,336,784 $ 356,147 $ 28,267
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Non-Participant Directed
----------------------------------------------------
Short Investment
Index Term Balanced Contract
Fund Fund Fund Fund Total
------ ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
INVESTMENTS, at fair value (Note 2):
Standard Products Company Stock Fund $ -- $ -- $ -- $ -- $17,698,036
Standard Products PAYSOP Fund -- -- -- -- 353,917
Vanguard/Windsor II -- -- -- -- 16,220,358
Vanguard Index Trust-500 Portfolio 2,241 -- -- -- 2,948,646
Vanguard Money Market Reserves-Prime
Portfolio -- 1,507,364 -- -- 5,943,096
Vanguard STAR Portfolio -- -- 13,224 -- 8,589,610
Vanguard Retirement Savings Trust -- -- -- 5,385 4,667,179
Participant Notes Receivable -- -- -- -- 2,380,580
----------- ----------- ----------- ----------- -----------
Total investments 2,241 1,507,364 13,224 5,385 58,801,422
----------- ----------- ----------- ----------- -----------
RECEIVABLES
Employer's contributions -- 237,259 -- -- 400,681
Employees' contributions -- -- -- -- 492,658
Interest and dividends -- -- -- -- 113,728
Loan repayments -- -- -- -- 86,656
----------- ----------- ----------- ----------- -----------
Total receivables 0 237,259 0 0 1,093,723
----------- ----------- ----------- ----------- -----------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $ 2,241 $ 1,744,623 $ 13,224 $ 5,385 $59,895,145
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-2-
<PAGE> 5
STANDARD PRODUCTS
INDIVIDUAL RETIREMENT AND INVESTMENT TRUST PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
AS OF JUNE 30, 1997
<TABLE>
<CAPTION>
Participant Directed
------------------------------------------------------------------------
Common Short
Stock Equity Index Term Balanced
Fund Fund Fund Fund Fund
---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
INVESTMENTS, at fair value (Note 2):
Standard Products Company Stock Fund $ 6,187,641 $ -- $ -- $ -- $ --
Standard Products PAYSOP Fund -- -- -- -- --
Vanguard/Windsor II -- 11,770,694 -- -- --
Vanguard Index Trust-500 Portfolio -- -- 1,167,337 -- --
Vanguard Money Market Reserves-Prime Portfolio -- -- -- 3,542,502 --
Vanguard STAR Portfolio -- -- -- -- 7,204,072
Vanguard Retirement Savings Trust -- -- -- -- --
Participant Notes Receivable -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Total investments 6,187,641 11,770,694 1,167,337 3,542,502 7,204,072
----------- ----------- ----------- ----------- -----------
RECEIVABLES:
Employer's contributions -- -- -- -- --
Employees' contributions 44,770 140,734 26,156 45,600 75,209
Interest and dividends 37,205 -- -- -- --
Loan repayments 5,512 14,559 2,021 4,204 8,243
----------- ----------- ----------- ----------- -----------
Total receivables 87,487 155,293 28,177 49,804 83,452
----------- ----------- ----------- ----------- -----------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $ 6,275,128 $11,925,987 $ 1,195,514 $ 3,592,306 $ 7,287,524
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Participant Directed Non-Participant Directed
-------------------------- ------------------------------------
Investment Common
Contract Participant Stock PAYSOP Equity
Fund Loans Fund Fund Fund
---------- ----------- ----------- -------- -------
<S> <C> <C> <C> <C>
INVESTMENTS, at fair value (Note 2):
Standard Products Company Stock Fund $ -- $ -- $ 9,906,628 $ -- $ --
Standard Products PAYSOP Fund -- -- -- 345,288 --
Vanguard/Windsor II -- -- -- -- 24,254
Vanguard Index Trust-500 Portfolio -- -- -- -- --
Vanguard Money Market Reserves-Prime Portfolio -- -- -- -- --
Vanguard STAR Portfolio -- -- -- -- --
Vanguard Retirement Savings Trust 4,233,875 -- -- -- --
Participant Notes Receivable -- 1,641,376 -- -- --
----------- ----------- ----------- ----------- -----------
Total investments 4,233,875 1,641,376 9,906,628 345,288 24,254
----------- ----------- ----------- ----------- -----------
RECEIVABLES:
Employer's contributions -- -- 137,019 -- --
Employees' contributions 62,771 -- -- -- --
Interest and dividends -- -- 63,578 2,338 --
Loan repayments 7,634 -- -- -- --
----------- ----------- ----------- ----------- -----------
Total receivables 70,405 0 200,597 2,338 0
----------- ----------- ----------- ----------- -----------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $ 4,304,280 $ 1,641,376 $10,107,225 $ 347,626 $ 24,254
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Non-Participant Directed
------------------------------------------------------
Short Investment
Index Term Balanced Contract
Fund Fund Fund Fund Total
------ ---------- -------- ---------- --------
<S> <C> <C> <C> <C>
INVESTMENTS, at fair value (Note 2):
Standard Products Company Stock Fund $ -- $ -- $ -- $ -- $16,094,269
Standard Products PAYSOP Fund -- -- -- -- 345,288
Vanguard/Windsor II -- -- -- -- 11,794,948
Vanguard Index Trust-500 Portfolio 2,021 -- -- -- 1,169,358
Vanguard Money Market Reserves-Prime Portfolio -- 1,354,669 -- -- 4,897,171
Vanguard STAR Portfolio -- -- 11,892 -- 7,215,964
Vanguard Retirement Savings Trust -- -- -- 5,651 4,239,526
Participant Notes Receivable -- -- -- -- 1,641,376
----------- ----------- ----------- ----------- -----------
Total investments 2,021 1,354,669 11,892 5,651 47,397,900
----------- ----------- ----------- ----------- -----------
RECEIVABLES:
Employer's contributions -- 258,774 -- -- 395,793
Employees' contributions -- -- -- -- 395,240
Interest and dividends -- -- -- -- 103,121
Loan repayments -- -- -- -- 42,173
----------- ----------- ----------- ----------- -----------
Total receivables 0 258,774 0 0 936,327
----------- ----------- ----------- ----------- -----------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $ 2,021 $ 1,613,443 $ 11,892 $ 5,651 $48,334,227
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-3-
<PAGE> 6
STANDARD PRODUCTS
INDIVIDUAL RETIREMENT AND INVESTMENT TRUST PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
FOR THE YEAR ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
Participant Directed
-----------------------------------------------------------------------
Common Short
Stock Equity Index Term Balanced
Fund Fund Fund Fund Fund
----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
ADDITIONS:
Contributions-
Employer's $ -- $ -- $ -- $ -- $ --
Employees' 666,720 2,179,421 548,382 700,302 1,112,281
------------ ------------ ------------ ------------ ------------
Total contributions 666,720 2,179,421 548,382 700,302 1,112,281
------------ ------------ ------------ ------------ ------------
Net unrealized appreciation
in fair value of investments 509,548 2,175,820 411,707 -- 580,440
Realized gains 166,656 240,325 52,371 -- 93,851
Interest and dividends 142,242 1,264,137 43,237 216,334 751,201
------------ ------------ ------------ ------------ ------------
Total additions 1,485,166 5,859,703 1,055,697 916,636 2,537,773
------------ ------------ ------------ ------------ ------------
DEDUCTIONS:
Benefit payments 491,241 1,309,615 253,082 384,049 818,243
Administrative expenses 8,727 25,671 3,818 8,824 14,434
------------ ------------ ------------ ------------ ------------
Total deductions 499,968 1,335,286 256,900 392,873 832,677
------------ ------------ ------------ ------------ ------------
INTERFUND TRANSFERS (1,562,380) (42,682) 1,010,385 383,854 (310,518)
NET INCREASE (DECREASE) (577,182) 4,481,735 1,809,182 907,617 1,394,578
NET ASSETS AT BEGINNING OF YEAR 6,275,128 11,925,987 1,195,514 3,592,306 7,287,524
------------ ------------ ------------ ------------ ------------
NET ASSETS AT END OF YEAR $ 5,697,946 $ 16,407,722 $ 3,004,696 $ 4,499,923 $ 8,682,102
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Participant Directed Non-Participant Directed
------------------------------ ------------------------------------
Investment Common
Contract Participant Stock PAYSOP Equity
Fund Loans Fund Fund Fund
---------- ----------- ----------- -------- -------
<S> <C> <C> <C> <C>
ADDITIONS:
Contributions-
Employer's $ -- $ -- $ 1,878,132 $ -- $ --
Employees' 689,025 -- -- -- --
------------ ------------ ------------ ------------ ------------
Total contributions 689,025 0 1,878,132 0 0
------------ ------------ ------------ ------------ ------------
Net unrealized appreciation
in fair value of investments -- -- 946,303 34,983 21,978
Realized gains -- -- 309,505 5,511 2,428
Interest and dividends 264,070 115,267 277,562 9,032 2,353
------------ ------------ ------------ ------------ ------------
Total additions 953,095 115,267 3,411,502 49,526 26,759
------------ ------------ ------------ ------------ ------------
DEDUCTIONS:
Benefit payments 445,739 122,254 1,013,298 39,294 2,623
Administrative expenses 11,855 -- 37,736 1,711 374
------------ ------------ ------------ ------------ ------------
Total deductions 457,594 122,254 1,051,034 41,005 2,997
------------ ------------ ------------ ------------ ------------
INTERFUND TRANSFERS (64,276) 746,191 (130,909) -- (19,749)
NET INCREASE (DECREASE) 431,225 739,204 2,229,559 8,521 4,013
NET ASSETS AT BEGINNING OF YEAR 4,304,280 1,641,376 10,107,225 347,626 24,254
------------ ------------ ------------ ------------ ------------
NET ASSETS AT END OF YEAR $ 4,735,505 $ 2,380,580 $ 12,336,784 $ 356,147 $ 28,267
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Non-Participant Directed
------------------------------------------------------------------------
Short Investment
Index Term Balanced Contract
Fund Fund Fund Fund Total
------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C>
ADDITIONS:
Contributions-
Employer's $ -- $ 237,259 $ -- $ -- $ 2,115,391
Employees' -- -- -- -- 5,896,131
------------ ------------ ------------ ------------ ------------
Total contributions 0 237,259 0 0 8,011,522
------------ ------------ ------------ ------------ ------------
Net unrealized appreciation
in fair value of investments 4,159 -- 5,863 -- 4,690,801
Realized gains 529 -- 948 -- 872,124
Interest and dividends 46 80,981 1,185 323 3,167,970
------------ ------------ ------------ ------------ ------------
Total additions 4,734 318,240 7,996 323 16,742,417
------------ ------------ ------------ ------------ ------------
DEDUCTIONS:
Benefit payments 300 126,371 685 471 5,007,265
Administrative expenses 38 60,689 239 118 174,234
------------ ------------ ------------ ------------ ------------
Total deductions 338 187,060 924 589 5,181,499
------------ ------------ ------------ ------------ ------------
INTERFUND TRANSFERS (4,176) -- (5,740) -- 0
NET INCREASE (DECREASE) 220 131,180 1,332 (266) 11,560,918
NET ASSETS AT BEGINNING OF YEAR 2,021 1,613,443 11,892 5,651 48,334,227
------------ ------------ ------------ ------------ ------------
NET ASSETS AT END OF YEAR $ 2,241 $ 1,744,623 $ 13,224 $ 5,385 $ 59,895,145
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
-4-
<PAGE> 7
STANDARD PRODUCTS
INDIVIDUAL RETIREMENT AND INVESTMENT TRUST PLAN
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF PLAN
General
-------
The Standard Products Individual Retirement and Investment Trust
(the Plan) is a defined contribution plan covering all salaried
and non-union hourly employees of The Standard Products Company
(the Company) and its wholly-owned subsidiaries Oliver Rubber
Company, Holm Industries, Inc., "5" Rubber Corporation, and
Westborn Warehouse, Inc. The Plan is subject to the provisions
of the Employee Retirement Income Security Act of 1974 (ERISA).
Administration
---------------
The Plan is administered by the Standard Products Individual
Retirement and Investment Trust Plan Committee. The Plan has a
trust agreement with the Vanguard Fiduciary Trust Company to
act as trustee and recordkeeper of the Plan's assets.
Contributions
-------------
Each year, participants may contribute up to 15 percent of their
pretax compensation. The Company contributes 75 percent of the
first 2 percent and 25 percent of the next 3 percent (up to 5
percent) of base compensation that the participant contributes
to the Plan. All employer matching contributions shall be
invested in the Company Common Stock Fund.
The Company may make a special employer contribution on behalf of
each eligible non-union hourly employee, whether or not they
are depositing participants. For the Plan years ended June 30,
1998 and 1997, respectively, the special employer contributions
were $237,259 and $258,774.
Participant Accounts
---------------------
Each participant's account is credited with the participant's
contributions, their allocation of the Company's contributions
and the earnings of their investment funds.
Vesting
-------
The participants are immediately vested in both their
contributions and the Company's contributions plus actual
earnings thereon.
-5-
<PAGE> 8
STANDARD PRODUCTS
INDIVIDUAL RETIREMENT AND INVESTMENT TRUST PLAN
NOTES TO FINANCIAL STATEMENTS
(Continued)
Investment Options
-------------------
Upon enrollment in the Plan, a participant may direct employee
contributions in 10 percent increments to any of six investment
options
Company Common Stock Fund - This fund invests in the Standard
Products Company Stock Fund.
Equity Fund - This fund invests in the Vanguard/Windsor II Fund
which consists of investments in a diversified group of
out-of-favor stocks of large-capitalization companies.
Index Fund - This fund invests in the Vanguard Index Trust-500
Portfolio which consists of investments in all of the 500
stocks that make up the Standard & Poor's 500 Composite
Stock Price Index.
Short Term Investment Fund - This fund invests in the Vanguard
Money Market Reserves-Prime Portfolio which consists of
investments in short-term, high-quality money market
instruments.
Balanced Fund - This fund invests in the Vanguard STAR
Portfolio which consists of investments in nine Vanguard
funds: six stock funds, two bond funds, and one money market
fund.
Investment Contract Fund - This fund invests in the Vanguard
Retirement Savings Trust which consists of investment
contracts backed by financial institutions or by
high-quality bonds and bond mutual funds owned by the Trust.
Some investments are held in a Payroll Stock Ownership Plan
(PAYSOP) which consists of employer contributions in the form
of the Company common stock or cash. Contributions are no
longer made to the PAYSOP by the Company due to changes in tax
legislation.
Participant Notes Receivable
-----------------------------
Participants may borrow the lesser of 100 percent of their
participant elected contributions account or 50 percent of the
vested value of their entire account. In no event should the
maximum loan exceed $50,000. The interest rate is established
based on the prime rate. Interest rates as of June 30, 1998
range from 8.25 percent to 9.25 percent. The loan repayment
schedule can be no longer than 54 months. Principal and
interest is paid ratably through payroll deductions.
-6-
<PAGE> 9
STANDARD PRODUCTS
INDIVIDUAL RETIREMENT AND INVESTMENT TRUST PLAN
NOTES TO FINANCIAL STATEMENTS
(Continued)
Payment of Benefits
--------------------
In the event of retirement, death, termination, permanent
disability or other separation from service, participants shall
be entitled to receive an amount equal to the value of the
vested interest in their accounts. Payment of benefits may be
taken in a lump sum cash distribution or in various annuity
options.
Termination of the Plan
-----------------------
Although it has not expressed any intent to do so, the Company has
the right, under the Plan, to terminate the Plan subject to the
provisions of ERISA.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
-------------------
The accompanying financial statements are prepared on the accrual
basis of accounting.
Investments
-----------
The accompanying statements of net assets available for plan
benefits reflect the Plan's investments at their fair market
values as of June 30, 1998 and 1997. Net change in realized and
unrealized appreciation and depreciation of investments is
reflected as an adjustment of the Plan's equity balance in the
accompanying statement of changes in net assets available for
plan benefits. A summary of the Plan's investments at June 30,
1998, is presented in Schedule I.
Purchases and sales of securities are recorded on a trade-date
basis. Interest income is recognized when earned. Dividends are
recorded on the ex-dividend date.
Administrative Expenses
-----------------------
All costs and expenses incurred in administering the Plan are
charged to the Plan, unless otherwise paid by the Company.
-7-
<PAGE> 10
STANDARD PRODUCTS
INDIVIDUAL RETIREMENT AND INVESTMENT TRUST PLAN
NOTES TO FINANCIAL STATEMENTS
(Continued)
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.
(3) FEDERAL INCOME TAXES
The Internal Revenue Service has determined and informed the Company
by a letter dated February 7, 1997, that the Plan and related
trust are designed in accordance with applicable sections of the
Internal Revenue Code (IRC). The Plan has been amended since
receiving the determination letter. However, the Plan
administrator believes that the Plan is designed and is currently
being operated in compliance with the applicable requirements of
the IRC.
(4) RELATED-PARTY TRANSACTIONS
Certain Plan investments are shares of mutual funds managed by the
trustee. There have been no known prohibited transactions with a
party-in-interest.
(5) RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500
The following is a reconciliation of net assets available for benefits
according to the financial statements to Form 5500:
<TABLE>
<CAPTION>
June 30,
-------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Net assets available for benefits per the
financial statements $59,895,145 $48,334,227
Amounts allocated to withdrawing participants 381,036 393,028
----------- -----------
Net assets available for benefits per Form 5500 $59,514,109 $47,941,199
=========== ===========
</TABLE>
-8-
<PAGE> 11
STANDARD PRODUCTS
INDIVIDUAL RETIREMENT AND INVESTMENT TRUST PLAN
NOTES TO FINANCIAL STATEMENTS
(Continued)
The following is a reconciliation of benefits paid to participants
according to the financial statements to Form 5500:
<TABLE>
<CAPTION>
Year Ended
June 30, 1998
-------------
<S> <C>
Benefits paid to participants per the financial
statements $5,007,265
Add- Amounts allocated to withdrawing participants
at June 30, 1998 381,036
Less- Amounts allocated to withdrawing participants
at June 30, 1997 393,028
----------
Benefits paid to participants per Form 5500 $4,995,273
==========
</TABLE>
Amounts allocated to withdrawing participants are recorded on Form
5500 for benefit claims that have been processed and approved for
payment prior to June 30 but not yet paid as of that date.
-9-
<PAGE> 12
SCHEDULE I
STANDARD PRODUCTS
INDIVIDUAL RETIREMENT AND INVESTMENT TRUST PLAN
EIN: 34-0549970 - PLAN: 011
ITEM 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Shares/
Par Value Description Cost Market
- --------- ----------- ---- ------
<S> <C> <C>
1,172,832 *Standard Products Company Stock Fund $14,397,151 $17,698,036
23,284 *Standard Products PAYSOP Fund 200,204 353,917
496,643 *Vanguard/Windsor II 10,969,465 16,220,358
28,002 *Vanguard Index Trust-500 Portfolio 2,445,852 2,948,646
5,943,096 *Vanguard Money Market Reserves-Prime Portfolio 5,943,096 5,943,096
456,409 *Vanguard STAR Portfolio 6,897,508 8,589,610
4,667,179 *Vanguard Retirement Savings Trust 4,667,179 4,667,179
N/A *Participant Loans, interest rates ranging from
8.25% to 9.25% 2,380,580 2,380,580
----------- -----------
Total $47,901,035 $58,801,422
=========== ===========
</TABLE>
*Represents a party-in-interest
The accompanying notes are an integral part of this schedule.
-10-
<PAGE> 13
SCHEDULE II
STANDARD PRODUCTS
INDIVIDUAL RETIREMENT AND INVESTMENT TRUST PLAN
EIN: 34-0549970 - PLAN: 011
Item 27d - SCHEDULE OF REPORTABLE TRANSACTIONS
FOR THE YEAR ENDED JUNE 30, 1998
During the year ended June 30, 1998, the Plan had the following "reportable
transactions", as defined, involving an amount in excess of 5% of the net
assets available for plan benefits at the beginning of the year, July 1,
1997:
<TABLE>
<CAPTION>
Shares/ Purchase Cost/ Historical Gain
Par Value Description Sale Proceeds Cost (Loss)
- --------- ----------- ------------- ---- ------
<S> <C> <C> <C> <C>
*Standard Products Company Stock Fund-
222,478 Sales $3,526,914 $2,774,888 $752,026
211,037 Purchases 3,198,669 3,198,669 N/A
*Vanguard/Windsor II-
80,421 Sales 2,477,298 1,677,564 799,734
149,245 Purchases 4,462,158 4,462,158 N/A
*Vanguard Money Market Reserves-Prime
Portfolio-
1,157,031 Sales 1,157,031 1,157,031 -
2,202,956 Purchases 2,202,956 2,202,956 N/A
*Vanguard STAR Portfolio-
87,778 Sales 1,620,795 1,270,891 349,904
127,801 Purchases 2,313,338 2,313,338 N/A
*Vanguard Retirement Savings Trust-
1,170,003 Sales 1,170,003 1,170,003 -
1,597,656 Purchases 1,597,656 1,597,656 N/A
*Vanguard Index Trust - 500 Portfolio-
6,970 Sales 647,396 553,511 93,885
20,838 Purchases 1,957,918 1,957,918 N/A
</TABLE>
*Represents a party-in-interest
The accompanying notes are an integral part of this schedule.
-11-
<PAGE> 14
SCHEDULE III
STANDARD PRODUCTS
INDIVIDUAL RETIREMENT AND INVESTMENT TRUST PLAN
EIN: 34-0549970 - PLAN: 011
Item 27e - SCHEDULE OF NON-EXEMPT TRANSACTIONS
FOR THE YEAR ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
Number of
Relationship Units
Identity of Party Involved to the Plan Description of Asset Purchased
- -------------------------- ------------ -------------------- ---------
<S> <C> <C> <C>
The Standard Products Company Plan Sponsor Standard Products Company Stock Fund 211,037
The Standard Products Company Plan Sponsor Standard Products PAYSOP Fund 602
</TABLE>
<TABLE>
<CAPTION>
Number of Current
Units Realized Market Value
Cost Sold Proceeds Gain of Assets Held
---------- --------- ---------- -------- --------------
<S> <C> <C> <C> <C> <C>
The Standard Products Company $ 3,198,669 222,478 $ 3,526,914 $ 752,026 $17,698,036
The Standard Products Company 9,140 2,595 41,005 17,877 353,917
</TABLE>
The accompanying notes are an integral part of this schedule.
-12-
<PAGE> 1
EXHIBIT 99b
THE STANDARD PRODUCTS COMPANY
(GAYLORD, MICHIGAN PLANT) UAW LOCAL 388
COLLECTIVELY BARGAINED SAVINGS AND RETIREMENT PLAN
FINANCIAL STATEMENTS AS OF JUNE 30, 1998 AND 1997
TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
<PAGE> 2
THE STANDARD PRODUCTS COMPANY
(GAYLORD, MICHIGAN PLANT) UAW LOCAL 388
COLLECTIVELY BARGAINED SAVINGS AND RETIREMENT PLAN
INDEX TO FINANCIAL STATEMENTS
Report of Independent Public Accountants
Financial Statements-
Statement of Net Assets Available for Plan Benefits as of June 30, 1998
Statement of Net Assets Available for Plan Benefits as of June 30, 1997
Statement of Changes in Net Assets Available for Plan Benefits for the Year
Ended June 30, 1998
Notes to Financial Statements
Schedule I - Item 27a - Schedule of Assets Held for Investment Purposes as of
June 30, 1998
Schedule II - Item 27d - Schedule of Reportable Transactions for the Year Ended
June 30, 1998
<PAGE> 3
[ARTHUR ANDERSEN LETTERHEAD]
Report of Independent Public Accountants
To The Standard Products Company:
We have audited the accompanying statements of net assets available for plan
benefits of THE STANDARD PRODUCTS COMPANY (GAYLORD, MICHIGAN PLANT) UAW LOCAL
388 COLLECTIVELY BARGAINED SAVINGS AND RETIREMENT PLAN (the Plan) as of June 30,
1998 and 1997, and the related statement of changes in net assets available for
plan benefits for the year ended June 30, 1998. These financial statements and
the schedules referred to below are the responsibility of the Plan's management.
Our responsibility is to express an opinion on these financial statements and
schedules 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 financial statements referred to above present fairly, in
all material respects, the net assets available for plan benefits of the Plan as
of June 30, 1998 and June 30, 1997, and the changes in net assets available for
plan benefits for the year ended June 30, 1998 in conformity with generally
accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of assets held
for investment purposes and reportable transactions are presented for the
purpose of additional analysis and are not a required part of the basic
financial statements but are supplementary information required by the
Department of Labor's Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974. The supplemental schedules
have been subjected to the auditing procedures applied in the audits of the
basic financial statements and, in our opinion, are fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Detroit, Michigan
September 11, 1998.
<PAGE> 4
THE STANDARD PRODUCTS COMPANY
(GAYLORD, MICHIGAN PLANT) UAW LOCAL 388
COLLECTIVELY BARGAINED SAVINGS AND RETIREMENT PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Participant Directed
-----------------------------------------------------------------------------
Common Short Investment
Stock Equity Index Term Balanced Contract
Fund Fund Fund Fund Fund Fund
-------- -------- ------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENTS, at fair value (Note 2):
Standard Products Company Stock Fund $ 202,457 $ -- $ -- $ -- $ -- $ --
Vanguard/Windsor II -- 574,516 -- -- -- --
Vanguard Index Trust-500 Portfolio -- -- 11,248 -- -- --
Vanguard Money Market Reserves-Prime Portfolio -- -- -- 41,580 -- --
Vanguard STAR Portfolio -- -- -- -- 171,616 --
Vanguard Retirement Savings Trust -- -- -- -- -- 80,921
Participant Notes Receivable -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Total investments 202,457 574,516 11,248 41,580 171,616 80,921
---------- ---------- ---------- ---------- ---------- ----------
RECEIVABLES
Employer's contributions -- -- -- -- -- --
Employees' contributions 3,733 15,049 1,239 657 4,626 1,560
Interest and dividends 1,275 -- -- -- -- --
Participant Notes Receivable -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Total receivables 5,008 15,049 1,239 657 4,626 1,560
---------- ---------- ---------- ---------- ---------- ----------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $ 207,465 $ 589,565 $ 12,487 $ 42,237 $ 176,242 $ 82,481
========== ========== ========== ========== ========== ==========
<CAPTION>
Non-
Participant Participant
Directed Directed
------------ -----------
Participant Common
Loans Stock Fund Total
----------- ----------- --------
<S> <C> <C> <C>
INVESTMENTS, at fair value (Note 2):
Standard Products Company Stock Fund $ -- $ 181,987 $ 384,444
Vanguard/Windsor II -- -- 574,516
Vanguard Index Trust-500 Portfolio -- -- 11,248
Vanguard Money Market Reserves-Prime Portfolio -- -- 41,580
Vanguard STAR Portfolio -- -- 171,616
Vanguard Retirement Savings Trust -- -- 80,921
Participant Notes Receivable 47,930 -- 47,930
---------- ---------- ----------
Total investments 47,930 181,987 1,312,255
---------- ---------- ----------
RECEIVABLES
Employer's contributions -- 6,369 6,369
Employees' contributions -- -- 26,864
Interest and dividends -- 1,147 2,422
Participant Notes Receivable 2,050 -- 2,050
---------- ---------- ----------
Total receivables 2,050 7,516 37,705
---------- ---------- ----------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $ 49,980 $ 189,503 $1,349,960
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-2-
<PAGE> 5
THE STANDARD PRODUCTS COMPANY
(GAYLORD, MICHIGAN PLANT) UAW LOCAL 388
COLLECTIVELY BARGAINED SAVINGS AND RETIREMENT PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
AS OF JUNE 30, 1997
<TABLE>
<CAPTION>
Participant Directed
------------------------------------------------------------------------------
Common Short Investment
Stock Equity Index Term Balanced Contract Participant
Fund Fund Fund Fund Fund Fund Loans
-------- -------- ----- ------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENTS, at fair value (Note 2):
Standard Products Company Stock Fund $205,011 $ -- $ -- $ -- $ -- $ -- $ --
Vanguard/Windsor II -- 312,609 -- -- -- -- --
Vanguard Index Trust-500 Portfolio -- -- 270 -- -- -- --
Vanguard Money Market Reserves-Prime Portfolio -- -- -- 34,081 -- -- --
Vanguard STAR Portfolio -- -- -- -- 133,953 -- --
Vanguard Retirement Savings Trust -- -- -- -- -- 61,789 --
Participant Notes Receivable -- -- -- -- -- -- 19,868
-------- -------- -------- -------- -------- -------- --------
Total investments 205,011 312,609 270 34,081 133,953 61,789 19,868
-------- -------- -------- -------- -------- -------- --------
RECEIVABLES
Employer's contributions -- -- -- -- -- -- --
Employees' contributions 5,046 12,457 702 989 6,091 1,872 --
Interest and dividends 1,332 -- -- -- -- -- --
Participant Notes Receivable -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total receivables 6,378 12,457 702 989 6,091 1,872 0
-------- -------- -------- -------- -------- -------- --------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $211,389 $325,066 $ 972 $ 35,070 $140,044 $ 63,661 $ 19,868
======== ======== ======== ======== ======== ======== ========
<CAPTION>
Non-
Participant
Directed
-----------
Common
Stock Fund Total
----------- ------
INVESTMENTS, at fair value (Note 2):
Standard Products Company Stock Fund $108,690 $313,701
Vanguard/Windsor II -- 312,609
Vanguard Index Trust-500 Portfolio -- 270
Vanguard Money Market Reserves-Prime Portfolio -- 34,081
Vanguard STAR Portfolio -- 133,953
Vanguard Retirement Savings Trust -- 61,789
Participant Notes Receivable -- 19,868
-------- --------
Total investments 108,690 876,271
-------- --------
RECEIVABLES
Employer's contributions 6,464 6,464
Employees' contributions -- 27,157
Interest and dividends 731 2,063
Participant Notes Receivable -- 0
-------- --------
Total receivables 7,195 35,684
-------- --------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $115,885 $911,955
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-3-
<PAGE> 6
THE STANDARD PRODUCTS COMPANY
(GAYLORD, MICHIGAN PLANT) UAW LOCAL 388
COLLECTIVELY BARGAINED SAVINGS AND RETIREMENT PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
FOR THE YEAR ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
Participant Directed
--------------------------------------------------------------------------------
Common Short Investment
Stock Equity Index Term Balanced Contract
Fund Fund Fund Fund Fund Fund
-------- -------- ------- ------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
ADDITIONS:
Contributions-
Employer's $ -- $ -- $ -- $ -- $ -- $ --
Employees' 45,933 150,896 9,817 10,669 51,086 18,568
---------- ---------- ---------- ---------- ---------- ----------
Total contributions 45,933 150,896 9,817 10,669 51,086 18,568
---------- ---------- ---------- ---------- ---------- ----------
Net unrealized appreciation in fair value
of investments 13,203 70,938 1,125 -- 10,549 --
Realized gains 7,908 6,919 54 -- 2,119 --
Interest and dividends 5,025 39,695 102 2,062 14,340 4,307
---------- ---------- ---------- ---------- ---------- ----------
Total additions 72,069 268,448 11,098 12,731 78,094 22,875
---------- ---------- ---------- ---------- ---------- ----------
DEDUCTIONS -
Benefit payments 1,359 55,196 -- 3,567 34,994 3,880
---------- ---------- ---------- ---------- ---------- ----------
Total deductions 1,359 55,196 0 3,567 34,994 3,880
---------- ---------- ---------- ---------- ---------- ----------
INTERFUND TRANSFERS (74,634) 51,247 417 (1,997) (6,902) (175)
NET INCREASE (DECREASE) (3,924) 264,499 11,515 7,167 36,198 18,820
NET ASSETS AT BEGINNING OF YEAR 211,389 325,066 972 35,070 140,044 63,661
---------- ---------- ---------- ---------- ---------- ----------
NET ASSETS AT END OF YEAR $ 207,465 $ 589,565 $ 12,487 $ 42,237 $ 176,242 $ 82,481
========== ========== ========== ========== ========== ==========
<CAPTION>
Non-
Participant Participant
Directed Directed
----------- -----------
Participant Common
Loans Stock Fund Total
----------- ----------- -------
<S> <C> <C> <C>
ADDITIONS:
Contributions-
Employer's $ -- $ 68,240 $ 68,240
Employees' -- -- 286,969
---------- ---------- ----------
Total contributions 0 68,240 355,209
---------- ---------- ----------
Net unrealized appreciation in fair value
of investments -- 11,709 107,524
Realized gains -- 7,013 24,013
Interest and dividends 1,632 3,906 71,069
---------- ---------- ----------
Total additions 1,632 90,868 557,815
---------- ---------- ----------
DEDUCTIONS -
Benefit payments 10,890 9,924 119,810
---------- ---------- ----------
Total deductions 10,890 9,924 119,810
---------- ---------- ----------
INTERFUND TRANSFERS 39,370 (7,326) 0
NET INCREASE (DECREASE) 30,112 73,618 438,005
NET ASSETS AT BEGINNING OF YEAR 19,868 115,885 911,955
---------- ---------- ----------
NET ASSETS AT END OF YEAR $ 49,980 $ 189,503 $1,349,960
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-4-
<PAGE> 7
THE STANDARD PRODUCTS COMPANY
(GAYLORD, MICHIGAN PLANT) UAW LOCAL 388
COLLECTIVELY BARGAINED SAVINGS AND RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF PLAN
General
The Standard Products Company (Gaylord, Michigan Plant) UAW Local
388 Company Collectively Bargained Savings and Retirement Plan
(the Plan) is a defined contribution plan covering all
employees who have completed the 90 day probationary period and
are covered by the collective bargaining agreement between UAW
Local 388 and The Standard Products Company (the Company). The
Plan is subject to the provisions of the Employee Retirement
Income Security Act of 1974 (ERISA).
Administration
The Plan is administered by The Standard Products Collectively
Bargained Savings and Retirement Plan Committee. The Plan has a
trust agreement with the Vanguard Fiduciary Trust Company (the
Trustee) to act as trustee and recordkeeper of the Plan's
assets.
Contributions
Each year, participants may contribute up to 15 percent of their
pretax compensation. The Company contributes 40 percent of the
first 5 percent of base compensation that the participant
contributes to the Plan. All employer matching contributions
are invested in the Company Common Stock Fund.
Participant Accounts
Each participant's account is credited with the participant's
contributions, their allocation of the Company's contributions
and the earnings of their investment funds.
Vesting
The participants are immediately vested in their contributions and
the Company's contributions plus actual earnings thereon.
-5-
<PAGE> 8
THE STANDARD PRODUCTS COMPANY
(GAYLORD, MICHIGAN PLANT) UAW LOCAL 388
COLLECTIVELY BARGAINED SAVINGS AND RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
(Continued)
Investment Options
Upon enrollment in the Plan, a participant may direct employee
contributions in 10 percent increments to any of six investment
options.
Company Common Stock Fund - This fund invests in the Standard
Products Company Stock Fund.
Equity Fund - This fund invests in the Vanguard/Windsor II Fund
which consists of investments in a diversified group of
out-of-favor stocks of large-capitalization companies.
Index Fund - This fund invests in the Vanguard Index Trust-500
Portfolio which consists of investments in all of the 500
stocks that make up the Standard & Poor's 500 Composite Stock
Price Index.
Short Term Investment Fund - This fund invests in the Vanguard
Money Market Reserves-Prime Portfolio which consists of
investments in short-term, high-quality money market
instruments.
Balanced Fund - This fund invests in the Vanguard STAR
Portfolio which consists of investments in nine Vanguard
funds: six stock funds, two bond funds, and one money market
fund.
Investment Contract Fund - This fund invests in the Vanguard
Retirement Savings Trust which consists of investment contracts
backed by financial institutions or by high-quality bonds and
bond mutual funds owned by the Trust.
Participant Notes Receivable
Participants may borrow the lesser of 100 percent of their
participant elected contributions account or 50 percent of the
vested value of their entire account. In no event should the
maximum loan exceed $50,000. The interest rate is established
based on the prime rate and was 8.50 percent for all loans
initiated during the Plan year. The loan repayment schedule can
be no longer than 54 months. Principal and interest is paid
ratably through payroll deductions.
Payment of Benefits
In the event of retirement, death, termination, permanent
disability or other separation from service, participants shall
be entitled to receive an amount equal to the value of the
vested interest in their accounts. Payment of benefits may be
taken in a lump sum cash distribution or in various annuity
options.
-6-
<PAGE> 9
THE STANDARD PRODUCTS COMPANY
(GAYLORD, MICHIGAN PLANT) UAW LOCAL 388
COLLECTIVELY BARGAINED SAVINGS AND RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
(Continued)
Termination of the Plan
Although it has not expressed any intent to do so, the Company has
the right, under the Plan, to terminate the Plan subject to the
provisions of ERISA.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The accompanying financial statements are prepared on the accrual
basis of accounting.
Investments
The accompanying statements of net assets available for plan
benefits reflect the Plan's investments at their fair market
values as of June 30, 1998 and 1997. Net change in realized and
unrealized appreciation and depreciation of investments is
reflected as an adjustment of the Plan's equity balance in the
accompanying statement of changes in net assets available for
plan benefits. A summary of the Plan's investments at June 30,
1998, is presented in Schedule I.
Purchases and sales of securities are recorded on a trade-date
basis. Interest income is recognized when earned. Dividends are
recorded on the ex-dividend date.
Administrative Expenses
The Company pays the administrative expenses of the Plan,
including any expenses and fees of the Trustee.
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.
-7-
<PAGE> 10
THE STANDARD PRODUCTS COMPANY
(GAYLORD, MICHIGAN PLANT) UAW LOCAL 388
COLLECTIVELY BARGAINED SAVINGS AND RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
(Continued)
(3) FEDERAL INCOME TAXES
The Internal Revenue Service has determined and informed the
Company by a letter dated February 7, 1997, that the Plan and
related trust are designed in accordance with applicable
sections of the Internal Revenue Code (IRC). The Plan has been
amended since receiving the determination letter. However, the
Plan administrator believes that the Plan is designed and is
currently being operated in compliance with the applicable
requirements of the IRC.
(4) RELATED-PARTY TRANSACTIONS
Certain Plan investments are shares of mutual funds managed by the
trustee. There have been no known prohibited transactions with
a party-in-interest.
(5) RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500
The following is a reconciliation of net assets available for
benefits according to the financial statements to Form 5500:
<TABLE>
<CAPTION>
June 30,
---------------------------
1998 1997
---------- ---------
<S> <C> <C>
Net assets available for benefits per the
financial statements $1,349,960 $911,955
Amounts allocated to withdrawing participants 6,011 10,682
---------- --------
Net assets available for benefits per Form 5500 $1,343,949 $901,273
========== ========
</TABLE>
-8-
<PAGE> 11
THE STANDARD PRODUCTS COMPANY
(GAYLORD, MICHIGAN PLANT) UAW LOCAL 388
COLLECTIVELY BARGAINED SAVINGS AND RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
(Continued)
The following is a reconciliation of benefits paid to participants according to
the financial statements to Form 5500:
<TABLE>
<CAPTION>
Year Ended
June 30, 1998
-------------
<S> <C>
Benefits paid to participants per the financial
statements $119,810
Add- Amounts allocated to withdrawing participants
at June 30, 1998 6,011
Less- Amounts allocated to withdrawing participants
at June 30, 1997 10,682
--------
Benefits paid to participants per Form 5500 $115,139
========
</TABLE>
Amounts allocated to withdrawing participants are recorded on Form 5500 for
benefit claims that have been processed and approved for payment prior to
June 30 but not yet paid as of that date.
-9-
<PAGE> 12
SCHEDULE I
THE STANDARD PRODUCTS COMPANY
(GAYLORD, MICHIGAN PLANT) UAW LOCAL 388
COLLECTIVELY BARGAINED SAVINGS AND RETIREMENT PLAN
EIN: 34-0549970 - PLAN: 014
ITEM 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Shares/
Par Value Description Cost Market
--------- ----------- ---- ------
<S> <C> <C> <C>
25,477 *Standard Products Company Stock Fund $ 314,559 $ 384,444
17,591 *Vanguard/Windsor II 454,911 574,516
107 *Vanguard Index Trust-500 Portfolio 10,116 11,248
41,580 *Vanguard Money Market Reserves-Prime Portfolio 41,580 41,580
9,119 *Vanguard STAR Portfolio 152,295 171,616
80,921 *Vanguard Retirement Savings Trust 80,921 80,921
N/A *Participant Loans, interest rate 8.50% 47,930 47,930
---------- ----------
Total $1,102,312 $1,312,255
========== ==========
</TABLE>
*Represents a party-in-interest
The accompanying notes are an integral part of this schedule.
-10-
<PAGE> 13
SCHEDULE II
THE STANDARD PRODUCTS COMPANY
(GAYLORD, MICHIGAN PLANT) UAW LOCAL 388
COLLECTIVELY BARGAINED SAVINGS AND RETIREMENT PLAN
EIN: 34-0549970 - PLAN: 014
ITEM 27d - SCHEDULE OF REPORTABLE TRANSACTIONS
FOR THE YEAR ENDED JUNE 30, 1998
During the year ended June 30, 1998, the Plan had the following "reportable
transactions", as defined, involving an amount in excess of 5% of the net
assets available for plan benefits at the beginning of the year, July 1,
1997:
<TABLE>
<CAPTION>
Shares/ Purchase Cost/ Historical Gain
Par Value Description Sale Proceeds Cost (Loss)
--------- ----------- -------------- ---------- ------
<S> <C> <C> <C> <C>
*Standard Products Company Stock Fund-
6,083 Sales $ 98,198 $ 68,082 $30,116
8,476 Purchases 129,109 129,109 N/A
*Vanguard/Windsor II-
2,608 Sales 82,872 71,569 11,303
8,860 Purchases 266,923 266,923 N/A
*Vanguard STAR Portfolio-
2,453 Sales 44,862 39,804 5,058
3,842 Purchases 69,858 69,858 N/A
</TABLE>
* Represents a party-in-interest
The accompanying notes are an integral part of this schedule.
-11-
<PAGE> 1
EXHIBIT 99c
THE STANDARD PRODUCTS COMPANY
COLLECTIVELY BARGAINED SAVINGS AND RETIREMENT PLAN
(LEXINGTON DIVISION) UAW LOCAL 1681 LEXINGTON, KY
FINANCIAL STATEMENTS AS OF JUNE 30, 1998 AND 1997
TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
<PAGE> 2
THE STANDARD PRODUCTS COMPANY
COLLECTIVELY BARGAINED SAVINGS AND RETIREMENT PLAN
(LEXINGTON DIVISION) UAW LOCAL 1681 LEXINGTON, KY
INDEX TO FINANCIAL STATEMENTS
Report of Independent Public Accountants
Financial Statements-
Statement of Net Assets Available for Plan Benefits as of June 30, 1998
Statement of Net Assets Available for Plan Benefits as of June 30, 1997
Statement of Changes in Net Assets Available for Plan Benefits for the Year
Ended June 30, 1998
Notes to Financial Statements
Schedule I - Item 27a - Schedule of Assets Held for Investment Purposes as of
June 30, 1998
Schedule II - Item 27d - Schedule of Reportable Transactions for the Year Ended
June 30, 1998
<PAGE> 3
[ARTHUR ANDERSEN LETTERHEAD]
Report of Independent Public Accountants
To The Standard Products Company:
We have audited the accompanying statements of net assets available for plan
benefits of THE STANDARD PRODUCTS COMPANY COLLECTIVELY BARGAINED SAVINGS AND
RETIREMENT PLAN (LEXINGTON DIVISION) UAW LOCAL 1681 LEXINGTON, KY (the Plan) as
of June 30, 1998 and 1997, and the related statement of changes in net assets
available for plan benefits for the year ended June 30, 1998. These financial
statements and the schedules referred to below are the responsibility of the
Plan's management. Our responsibility is to express an opinion on these
financial statements and schedules 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 financial statements referred to above present fairly, in
all material respects, the net assets available for plan benefits of the Plan as
of June 30, 1998 and June 30, 1997, and the changes in net assets available for
plan benefits for the year ended June 30, 1998 in conformity with generally
accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of assets held
for investment purposes and reportable transactions are presented for the
purpose of additional analysis and are not a required part of the basic
financial statements but are supplementary information required by the
Department of Labor's Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974. The supplemental schedules
have been subjected to the auditing procedures applied in the audits of the
basic financial statements and, in our opinion, are fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Detroit, Michigan
September 11, 1998.
<PAGE> 4
THE STANDARD PRODUCTS COMPANY
COLLECTIVELY BARGAINED SAVINGS AND RETIREMENT PLAN
(LEXINGTON DIVISION) UAW LOCAL 1681 LEXINGTON, KY
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Non-
Participant Directed Participant
------------------------------------------------ Directed
Common Short Investment ----------
Stock Equity Term Balanced Contract Common
Fund Fund Fund Fund Fund Stock Fund Total
------ ------- ------ ------ --------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENTS, at fair value (Note 2):
Standard Products Company Stock Fund $ 67 $ -- $ -- $ -- $ -- $ 4,228 $ 4,295
Vanguard/Windsor II -- 44,792 -- -- -- -- 44,792
Vanguard Money Market Reserves-Prime Portfolio -- -- 1,860 -- -- -- 1,860
Vanguard STAR Portfolio -- -- -- 2,494 -- -- 2,494
Vanguard Retirement Savings Trust -- -- -- -- 7,452 -- 7,452
------- ------- ------- ------- ------- ------- -------
Total investments 67 44,792 1,860 2,494 7,452 4,228 60,893
------- ------- ------- ------- ------- ------- -------
RECEIVABLES:
Employer's contributions
Employees' contributions
Interest and dividends -- -- -- -- -- 27 27
------- ------- ------- ------- ------- ------- -------
Total receivables 0 0 0 0 0 27 27
------- ------- ------- ------- ------- ------- -------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $ 67 $44,792 $ 1,860 $ 2,494 $ 7,452 $ 4,255 $60,920
======= ======= ======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
-2-
<PAGE> 5
THE STANDARD PRODUCTS COMPANY
COLLECTIVELY BARGAINED SAVINGS AND RETIREMENT PLAN
(LEXINGTON DIVISION) UAW LOCAL 1681 LEXINGTON, KY
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
AS OF JUNE 30, 1997
<TABLE>
<CAPTION>
Non-
Participant Directed Participant
---------------------------------------------------- Directed
Common Short Investment -----------
Stock Equity Term Balanced Contract Common
Fund Fund Fund Fund Fund Stock Fund Total
------- -------- ------- -------- --------- ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENTS, at fair value (Note 2):
Standard Products Company Stock Fund $ 57,470 $ -- $ -- $ -- $ -- $ 84,918 $142,388
Vanguard/Windsor II -- 180,641 -- -- -- -- 180,641
Vanguard Money Market Reserves-Prime Portfolio -- -- 50,774 -- -- -- 50,774
Vanguard STAR Portfolio -- -- -- 132,819 -- -- 132,819
Vanguard Retirement Savings Trust -- -- -- -- 318,715 -- 318,715
-------- -------- -------- -------- -------- -------- --------
Total investments 57,470 180,641 50,774 132,819 318,715 84,918 825,337
-------- -------- -------- -------- -------- -------- --------
RECEIVABLES:
Employer's contributions -- -- -- -- -- 480 480
Employees' contributions 501 1,009 232 466 1,532 -- 3,740
Interest and dividends 265 -- -- -- -- 387 652
-------- -------- -------- -------- -------- -------- --------
Total receivables 766 1,009 232 466 1,532 867 4,872
-------- -------- -------- -------- -------- -------- --------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $ 58,236 $181,650 $ 51,006 $133,285 $320,247 $ 85,785 $830,209
======== ======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-3-
<PAGE> 6
THE STANDARD PRODUCTS COMPANY
COLLECTIVELY BARGAINED SAVINGS AND RETIREMENT PLAN
(LEXINGTON DIVISION) UAW LOCAL 1681 LEXINGTON, KY
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
FOR THE YEAR ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
Participant Directed
--------------------------------------------------------------------
Common Short Investment
Stock Equity Term Balanced Contract
Fund Fund Fund Fund Fund
--------- --------- -------- --------- ------------
<S> <C> <C> <C> <C> <C>
ADDITIONS:
Contributions-
Employer's $ -- $ -- $ -- $ -- $ --
Employees' 144 2,353 777 521 1,094
--------- --------- --------- --------- ---------
Total contributions 144 2,353 777 521 1,094
--------- --------- --------- --------- ---------
Net unrealized appreciation in fair value of investments 165 6,822 -- 197 --
Realized gains 2,942 10,665 -- 7,204 --
Interest and dividends 53 6,381 686 1,541 4,747
--------- --------- --------- --------- ---------
Total additions 3,304 26,221 1,463 9,463 5,841
--------- --------- --------- --------- ---------
DEDUCTIONS -
Benefit payments 61,473 163,079 50,609 140,254 318,636
--------- --------- --------- --------- ---------
Total deductions 61,473 163,079 50,609 140,254 318,636
--------- --------- --------- --------- ---------
NET DECREASE (58,169) (136,858) (49,146) (130,791) (312,795)
NET ASSETS AT BEGINNING OF YEAR 58,236 181,650 51,006 133,285 320,247
--------- --------- --------- --------- ---------
NET ASSETS AT END OF YEAR $ 67 $ 44,792 $ 1,860 $ 2,494 $ 7,452
========= ========= ========= ========= =========
<CAPTION>
Non-
Participant
Directed
----------
Common
Stock Fund Total
--------- -------
<S> <C> <C>
ADDITIONS:
Contributions-
Employer's $ 647 $ 647
Employees' -- 4,889
--------- ---------
Total contributions 647 5,536
--------- ---------
Net unrealized appreciation in fair value of investments 247 7,431
Realized gains 7,412 28,223
Interest and dividends 273 13,681
--------- ---------
Total additions 8,579 54,871
--------- ---------
DEDUCTIONS -
Benefit payments 90,109 824,160
--------- ---------
Total deductions 90,109 824,160
--------- ---------
NET DECREASE (81,530) (769,289)
NET ASSETS AT BEGINNING OF YEAR 85,785 830,209
--------- ---------
NET ASSETS AT END OF YEAR $ 4,255 $ 60,920
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-4-
<PAGE> 7
THE STANDARD PRODUCTS COMPANY
COLLECTIVELY BARGAINED SAVINGS AND RETIREMENT PLAN
(LEXINGTON DIVISION) UAW LOCAL 1681 LEXINGTON, KY
NOTES TO FINANCIAL STATEMENTS
(Continued)
(1) SUMMARY OF PLAN
General
The Standard Products Company Collectively Bargained Savings and
Retirement Plan (Lexington Division) UAW Local 1681 Lexington,
KY (the Plan) is a defined contribution plan covering all
employees who have one year of service and are covered by the
collective bargaining agreement between UAW Local 1681 (the
Union) and The Standard Products Company (the Company). The
Plan is subject to the provisions of the Employee Retirement
Income Security Act of 1974.
Administration
The Plan is administered by The Standard Products Collectively
Bargained Savings and Retirement Plan Committee. The Plan has a
trust agreement with the Vanguard Fiduciary Trust Company (the
Trustee) to act as trustee and recordkeeper of the Plan's
assets.
Contributions
Each year, participants may contribute up to 10 percent of their
pretax compensation. The Company contributes 20 percent of the
first 4 percent of base compensation that the participant
contributes to the Plan. All employer matching contributions
are invested in the Company Common Stock Fund.
Participant Accounts
Each participant's account is credited with the participant's
contributions, their allocation of the Company's contributions
and the earnings of their investment funds.
Vesting
The participants are immediately vested in their contributions and
the Company's contributions plus actual earnings thereon.
Investment Options
Upon enrollment in the Plan, a participant may direct employee
contributions in 10 percent increments to any of six investment
options.
Company Common Stock Fund - This fund invests in the Standard
Products Company Stock Fund.
Equity Fund - This fund invests in the Vanguard/Windsor II Fund
which consists of investments in a diversified group of
out-of-favor stocks of large-capitalization companies.
-5-
<PAGE> 8
THE STANDARD PRODUCTS COMPANY
COLLECTIVELY BARGAINED SAVINGS AND RETIREMENT PLAN
(LEXINGTON DIVISION) UAW LOCAL 1681 LEXINGTON, KY
NOTES TO FINANCIAL STATEMENTS
(Continued)
Index Fund - This fund invests in the Vanguard Index Trust-500
Portfolio which consists of investments in all of the 500 stocks
that make up the Standard & Poor's 500 Composite Stock Price
Index.
Short Term Investment Fund - This fund invests in the Vanguard
Money Market Reserves-Prime Portfolio which consists of
investments in short-term, high-quality money market
instruments.
Balanced Fund - This fund invests in the Vanguard STAR Portfolio
which consists of investments in nine Vanguard funds: six stock
funds, two bond funds, and one money market fund.
Investment Contract Fund - This fund invests in the Vanguard
Retirement Savings Trust which consists of investment contracts
backed by financial institutions or by high-quality bonds and
bond mutual funds owned by the Trust. Prior to April 30, 1997,
this fund was known as the Vanguard Investment Contract Trust.
Payment of Benefits
In the event of retirement, death, termination, permanent
disability or other separation from service, participants shall
be entitled to receive an amount equal to the value of the
vested interest in their accounts. Payment of benefits may be
taken in a lump sum cash distribution or in various annuity
options.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The accompanying financial statements are prepared on the accrual
basis of accounting.
Investments
The accompanying statements of net assets available for plan
benefits reflect the Plan's investments at their fair market
values as of June 30, 1998 and 1997. Net change in realized and
unrealized appreciation and depreciation of investments is
reflected as an adjustment of the Plan's equity balance in the
accompanying statement of changes in net assets available for
plan benefits. A summary of the Plan's investments at June 30,
1998, is presented in Schedule I.
Purchases and sales of securities are recorded on a trade-date
basis. Interest income is recognized when earned. Dividends are
recorded on the ex-dividend date.
-6-
<PAGE> 9
THE STANDARD PRODUCTS COMPANY
COLLECTIVELY BARGAINED SAVINGS AND RETIREMENT PLAN
(LEXINGTON DIVISION) UAW LOCAL 1681 LEXINGTON, KY
NOTES TO FINANCIAL STATEMENTS
(Continued)
Administrative Expenses
The Company pays the administrative expenses of the Plan,
including any expenses and fees of the Trustee.
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.
(3) FEDERAL INCOME TAXES
The Internal Revenue Service (IRS) has determined and informed the
Company by a letter dated February 7, 1997, that the Plan and
related trust are designed in accordance with applicable
sections of the Internal Revenue Code (IRC). The Plan has been
amended since receiving the determination letter. However, the
Plan administrator believes that the Plan is designed and is
currently being operated in compliance with the applicable
requirements of the IRC.
(4) RELATED-PARTY TRANSACTIONS
Certain Plan investments are shares of mutual funds managed by the
trustee. There have been no known prohibited transactions with a
party-in-interest.
(5) PLAN TERMINATION
Effective February 15, 1997 the Company entered into a termination
agreement with the Union to cease operations at the Lexington
division. The plant was closed in August, 1997. Following the
plant closing, the Company intends to terminate the Plan, and
upon receipt of the IRS' determination that the Plan remains
qualified upon termination, the Company will distribute all
remaining account balances to those participants who have not
previously received distribution of their account balances.
-7-
<PAGE> 10
SCHEDULE I
THE STANDARD PRODUCTS COMPANY
COLLECTIVELY BARGAINED SAVINGS AND RETIREMENT PLAN
(LEXINGTON DIVISION) UAW LOCAL 1681 LEXINGTON, KY
EIN: 34-0549970 - PLAN: 015
ITEM 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Shares/
Par Value Description Cost Market
--------- ----------- ---- ------
<S> <C> <C> <C>
285 *Standard Products Company Stock Fund $ 3,151 $ 4,295
1,371 *Vanguard/Windsor II 30,228 44,792
1,860 *Vanguard Money Market Reserves-Prime Portfolio 1,860 1,860
133 *Vanguard STAR Portfolio 2,089 2,494
7,452 *Vanguard Retirement Savings Trust 7,452 7,452
------- -------
Total $44,780 $60,893
======= =======
</TABLE>
*Represents a party-in-interest
The accompanying notes are an integral part of this schedule.
-8-
<PAGE> 11
SCHEDULE II
THE STANDARD PRODUCTS COMPANY
COLLECTIVELY BARGAINED SAVINGS AND RETIREMENT PLAN
(LEXINGTON DIVISION) UAW LOCAL 1681 LEXINGTON, KY
EIN: 34-0549970 - PLAN: 015
ITEM 27d - SCHEDULE OF REPORTABLE TRANSACTIONS
FOR THE YEAR ENDED JUNE 30, 1998
During the year ended June 30, 1998, the Plan had the following "reportable
transactions", as defined, involving an amount in excess of 5% of the net
assets available for plan benefits at the beginning of the year, July 1,
1997:
<TABLE>
<CAPTION>
Shares/ Purchase Cost/ Historical Gain
Par Value Description Sale Proceeds Cost (Loss)
--------- ----------- -------------- ---------- ------
<S> <C> <C> <C> <C>
*Standard Products Company Stock Fund-
10,384 Sales $151,582 $109,113 $42,469
192 Purchases 2,723 2,723 N/A
*Vanguard/Windsor II-
5,522 Sales 163,079 122,165 40,914
341 Purchases 9,744 9,744 N/A
*Vanguard STAR Portfolio-
7,676 Sales 140,254 119,118 21,136
144 Purchases 2,527 2,527 N/A
*Vanguard Retirement Savings Trust-
318,636 Sales 318,636 318,636 -
7,373 Purchases 7,373 7,373 N/A
*Vanguard Money Market Reserves Prime
Portfolio-
50,609 Sales 50,609 50,609 -
1,695 Purchases 1,695 1,695 N/A
Individual Transactions
-----------------------
*Standard Products Company Stock
Fund 8/18/97 -
3,455 Sales 48,442 35,656 12,786
*Vanguard Retirement Savings
Trust 7/14/97 -
61,588 Sales 61,588 61,588 -
*Vanguard Retirement Savings
Trust 8/18/97 -
94,320 Sales 94,320 94,320 -
</TABLE>
*Represents a party-in-interest
The accompanying notes are an integral part of this schedule.
-9-
<PAGE> 1
EXHIBIT 99d
THE STANDARD PRODUCTS COMPANY
(CAMPBELL PLASTICS DIVISION) IUE-AFL-CIO, LOCAL #318
COLLECTIVELY BARGAINED SAVINGS AND RETIREMENT PLAN
FINANCIAL STATEMENTS AS OF JUNE 30, 1998 (UNAUDITED) AND 1997 (UNAUDITED)
<PAGE> 2
THE STANDARD PRODUCTS COMPANY
(CAMPBELL PLASTICS DIVISION) IUE-AFL-CIO, LOCAL #318
COLLECTIVELY BARGAINED SAVINGS AND RETIREMENT PLAN
INDEX TO FINANCIAL STATEMENTS
Financial Statements-
Statement of Net Assets Available for Plan Benefits as of June 30, 1998
(unaudited)
Statement of Net Assets Available for Plan Benefits as of June 30, 1997
(unaudited)
Statement of Changes in Net Assets Available for Plan Benefits for the Year
Ended June 30, 1998 (unaudited)
Notes to Financial Statements
Schedule I - Item 15f - Schedule of Assets Held for Investment Purposes as of
June 30, 1998 (unaudited)
Schedule II - Item 15l - Schedule of Reportable Transactions for the Year Ended
June 30, 1998 (unaudited)
<PAGE> 3
THE STANDARD PRODUCTS COMPANY
(CAMPBELL PLASTICS DIVISION) IUE-AFL-CIO, LOCAL #318
COLLECTIVELY BARGAINED SAVINGS AND RETIREMENT PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
AS OF JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Participant Directed
------------------------------------------------------------------
Common Short Investment
Stock Equity Term Balanced Contract
Fund Fund Fund Fund Fund Total
---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
INVESTMENTS, at fair value (Note 2):
Standard Products Company Stock Fund $ 834 $ -- $ -- $ -- $ -- $ 834
Vanguard/Windsor II -- 8,759 -- -- -- 8,759
Vanguard Money Market Reserves-Prime Portfolio -- -- 878 -- -- 878
Vanguard STAR Portfolio -- -- -- 6,732 -- 6,732
Vanguard Retirement Savings Trust -- -- -- -- 891 891
------- ------- ------- ------- ------- -------
Total investments 834 8,759 878 6,732 891 18,094
------- ------- ------- ------- ------- -------
RECEIVABLES
Interest and dividends -- -- -- -- -- 0
------- ------- ------- ------- ------- -------
Total receivables 0 0 0 0 0 0
------- ------- ------- ------- ------- -------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $ 834 $ 8,759 $ 878 $ 6,732 $ 891 $18,094
======= ======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
-1-
<PAGE> 4
THE STANDARD PRODUCTS COMPANY
(CAMPBELL PLASTICS DIVISION) IUE-AFL-CIO, LOCAL #318
COLLECTIVELY BARGAINED SAVINGS AND RETIREMENT PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
AS OF JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Participant Directed
------------------------------------------------------------------
Common Short Investment
Stock Equity Term Balanced Contract
Fund Fund Fund Fund Fund Total
---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
INVESTMENTS, at fair value (Note 2):
Standard Products Company Stock Fund $ 1,750 $ -- $ -- $ -- $ -- $ 1,750
Vanguard/Windsor II -- 44,457 -- -- -- 44,457
Vanguard Money Market Reserves-Prime Portfolio -- -- 6,047 -- -- 6,047
Vanguard STAR Portfolio -- -- -- 17,282 -- 17,282
Vanguard Retirement Savings Trust -- -- -- -- 4,525 4,525
------- ------- ------- ------- ------- -------
Total investments 1,750 44,457 6,047 17,282 4,525 74,061
------- ------- ------- ------- ------- -------
RECEIVABLES
Interest and dividends 5 -- -- -- -- 5
------- ------- ------- ------- ------- -------
Total receivables 5 0 0 0 0 5
------- ------- ------- ------- ------- -------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $ 1,755 $44,457 $ 6,047 $17,282 $ 4,525 $74,066
======= ======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
-2-
<PAGE> 5
THE STANDARD PRODUCTS COMPANY
(CAMPBELL PLASTICS DIVISION) IUE-AFL-CIO, LOCAL #318
COLLECTIVELY BARGAINED SAVINGS AND RETIREMENT PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
FOR THE YEAR ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Participant Directed
------------------------------------------------------------------
Common Short Investment
Stock Equity Term Balanced Contract
Fund Fund Fund Fund Fund Total
---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
ADDITIONS:
Net unrealized appreciation in fair
value of investments $ 81 $ 1,345 $ -- $ 532 $ -- $ 1,958
Realized gains 76 3,490 -- 596 -- 4,162
Interest and dividends 15 2,947 102 925 202 4,191
-------- -------- -------- -------- -------- --------
Total additions 172 7,782 102 2,053 202 10,311
-------- -------- -------- -------- -------- --------
DEDUCTIONS:
Benefit payments 1,093 45,932 5,271 12,603 1,384 66,283
-------- -------- -------- -------- -------- --------
Total deductions 1,093 45,932 5,271 12,603 1,384 66,283
-------- -------- -------- -------- -------- --------
INTERFUND TRANSFERS -- 2,452 -- -- (2,452) 0
NET DECREASE (921) (35,698) (5,169) (10,550) (3,634) (55,972)
NET ASSETS AT BEGINNING OF YEAR 1,755 44,457 6,047 17,282 4,525 74,066
-------- -------- -------- -------- -------- --------
NET ASSETS AT END OF YEAR $ 834 $ 8,759 $ 878 $ 6,732 $ 891 $ 18,094
======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-3-
<PAGE> 6
THE STANDARD PRODUCTS COMPANY
(CAMPBELL PLASTICS DIVISION) IUE-AFL-CIO, LOCAL #318
COLLECTIVELY BARGAINED SAVINGS AND RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF PLAN
General
The Standard Products Company (Campbell Plastics Division)
IUE-AFL-CIO Local #318 Collectively Bargained Savings and
Retirement Plan (the Plan) is a defined contribution plan covering
all employees who have one year of service and are covered by the
collective bargaining agreement between IUE-AFL-CIO Local #318
(the Union) and The Standard Products Company (the Company). The
Plan is subject to the provisions of the Employee Retirement
Income Security Act of 1974.
Administration
The Plan is administered by The Standard Products Collectively
Bargained Savings and Retirement Plan Committee. The Plan has a
trust agreement with the Vanguard Fiduciary Trust Company (the
Trustee) to act as trustee and recordkeeper of the Plan's assets.
Contributions
Each year, participants may contribute up to 10 percent of their
pretax compensation. There is no employer matching provision in
the Plan.
Participant Accounts
Each participant's account is credited with the participant's
contributions and the earnings of their investment funds.
Vesting
The participants are immediately vested in their contributions
plus actual earnings thereon.
Investment Options
Upon enrollment in the Plan, a participant may direct employee
contributions in 10 percent increments to any of six investment
options.
Company Common Stock Fund - This fund invests in the Standard
Products Company Stock Fund.
Equity Fund - This fund invests in the Vanguard/Windsor II Fund
which consists of investments in a diversified group of
out-of-favor stocks of large-capitalization companies.
Index Fund - This fund invests in the Vanguard Index Trust-500
Portfolio which consists of investments in all of the 500
stocks that make up the Standard & Poor's 500 Composite Stock
Price Index.
Short Term Investment Fund - This fund invests in the Vanguard
Money Market Reserves-Prime Portfolio which consists of
investments in short-term, high-quality money market
instruments.
-4-
<PAGE> 7
THE STANDARD PRODUCTS COMPANY
(CAMPBELL PLASTICS DIVISION) IUE-AFL-CIO, LOCAL #318
COLLECTIVELY BARGAINED SAVINGS AND RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
(Continued)
Balanced Fund - This fund invests in the Vanguard STAR
Portfolio which consists of investments in nine Vanguard funds:
six stock funds, two bond funds, and one money market fund.
Investment Contract Fund - This fund invests in the Vanguard
Retirement Savings Trust which consists of investment contracts
backed by financial institutions or by high-quality bonds and
bond mutual funds owned by the Trust.
Payment of Benefits
In the event of retirement, death, termination, permanent
disability or other separation from service, participants shall be
entitled to receive an amount equal to the value of the vested
interest in their accounts. Payment of benefits may be taken in a
lump sum cash distribution or in various annuity options.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The accompanying financial statements are prepared on the accrual
basis of accounting.
Investments
The accompanying statements of net assets available for plan
benefits reflect the Plan's investments at their fair market
values as of June 30, 1998 and 1997. Net change in realized and
unrealized appreciation and depreciation of investments is
reflected as an adjustment of the Plan's equity balance in the
accompanying statement of changes in net assets available for plan
benefits. A summary of the Plan's investments at June 30, 1998, is
presented in Schedule I.
Purchases and sales of securities are recorded on a trade-date
basis. Interest income is recognized when earned. Dividends are
recorded on the ex-dividend date.
Administrative Expenses
The Company pays the administrative expenses of the Plan,
including any expenses and fees of the Trustee.
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.
(3) FEDERAL INCOME TAXES
The Internal Revenue Service (IRS) has determined and informed the
Company by a letter dated February 7, 1997, that the Plan and related
trust are designed in accordance with applicable sections of the
Internal Revenue Code (IRC). The Plan has been amended since receiving
the determination letter. However, the Plan administrator believes
that the Plan is designed and is currently being operated in
compliance with the applicable requirements of the IRC.
-5-
<PAGE> 8
(4) RELATED-PARTY TRANSACTIONS
Certain Plan investments are shares of mutual funds managed by the
trustee. There have been no known prohibited transactions with a
party-in-interest.
(5) PLAN TERMINATION
Effective February 15, 1997 the Company entered into a termination
agreement with the Union to cease operations at the Campbell Plastics
division. The plant was closed in December, 1997. Following the plant
closing, the Company intends to terminate the Plan, and upon receipt
of the IRS' determination that the Plan remains qualified upon
termination, the Company will distribute all remaining account
balances to those participants who have not previously received
distribution of their account balances.
(6) RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500
The following is a reconciliation of net assets available for
benefits according to the financial statements to Form 5500:
<TABLE>
<CAPTION>
June 30,
-------------------
1998 1997
---- ----
<S> <C> <C>
Net assets available for benefits per the
Financial statements $18,094 $74,066
Amounts allocated to withdrawing participants 4,462 0
------- -------
Net assets available for benefits per Form 5500 $13,632 $74,066
======= =======
</TABLE>
The following is a reconciliation of benefits paid to participants
according to the financial statements to Form 5500:
<TABLE>
<CAPTION>
Year Ended
June 30, 1998
-------------
<S> <C>
Benefits paid to participants per the financial
Statements $66,283
Add- Amounts allocated to withdrawing participants
at June 30, 1998 4,462
Less- Amounts allocated to withdrawing participants
at June 30, 1997 0
-------
Benefits paid to participants per Form 5500 $70,745
=======
</TABLE>
Amounts allocated to withdrawing participants are recorded on Form
5500 for benefit claims that have been processed and approved for
payment prior to June 30 but not yet paid as of that date.
-6-
<PAGE> 9
SCHEDULE I
THE STANDARD PRODUCTS COMPANY
(CAMPBELL PLASTICS DIVISION) IUE-AFL-CIO, LOCAL #318
COLLECTIVELY BARGAINED SAVINGS AND RETIREMENT PLAN
EIN: 34-0549970 - PLAN: 016
ITEM 15f - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
AS OF JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Shares/
Par Value Description Cost Market
- --------- ----------- ---- ------
<S> <C> <C> <C>
55 *Standard Products Company Stock Fund $ 646 $ 834
268 *Vanguard/Windsor II 6,375 8,759
878 *Vanguard Money Market Reserves-Prime Portfolio 878 878
358 *Vanguard STAR Portfolio 5,741 6,732
891 *Vanguard Retirement Savings Trust 891 891
------- -------
Total $14,531 $18,094
======= =======
</TABLE>
*Represents a party-in-interest
The accompanying notes are an integral part of this schedule.
-7-
<PAGE> 10
SCHEDULE II
THE STANDARD PRODUCTS COMPANY
(CAMPBELL PLASTICS DIVISION) IUE-AFL-CIO, LOCAL #318
COLLECTIVELY BARGAINED SAVINGS AND RETIREMENT PLAN
EIN: 34-0549970 - PLAN: 016
Item 15l - SCHEDULE OF REPORTABLE TRANSACTIONS
FOR THE YEAR ENDED JUNE 30, 1998
(UNAUDITED)
During the year ended June 30, 1998, the Plan had the following "reportable
transactions", as defined, involving an amount in excess of 5% of the net
assets available for plan benefits at the beginning of the year, July 1,
1997:
<TABLE>
<CAPTION>
Shares/ Purchase Cost/ Historical Gain
Par Value Description Sale Proceeds Cost (Loss)
--------- ----------- ------------- ---- ------
<S> <C> <C> <C> <C>
*Vanguard/Windsor II-
1,530 Sales 45,932 36,371 9,561
185 Purchases 5,398 5,398 N/A
*Vanguard STAR Portfolio-
693 Sales 12,604 11,068 1,536
54 Purchases 927 927 N/A
*Vanguard Retirement Savings
Trust-
3,837 Sales 3,837 3,837 -
203 Purchases 203 203 N/A
*Vanguard Money Market Reserves-
Prime Portfolio-
5,271 Sales 5,271 5,271 -
103 Purchases 103 103 N/A
Individual Transactions:
*Vanguard Money Market Reserves-
Prime Portfolio-
3,972 Sales 7/14/97 3,972 3,972 -
*Vanguard STAR Portfolio-
292 Sales 7/14/97 5,189 4,635 554
*Vanguard/Windsor II-
377 Sales 9/15/97 11,028 8,970 2,058
452 Sales 12/15/97 12,818 10,463 2,355
280 Sales 5/15/98 9,190 7,056 2,134
235 Sales 6/12/98 7,602 5,480 2,122
</TABLE>
*Represents a party-in-interest
The accompanying notes are an integral part of this schedule.
-8-
<PAGE> 1
EXHIBIT 99e
THE STANDARD PRODUCTS COMPANY
COLLECTIVELY BARGAINED SAVINGS AND RETIREMENT PLAN
FOR THE EMPLOYEES OF THE REID DIVISION COVERED BY THE
COLLECTIVE BARGAINING AGREEMENT WITH UNITED
STEELWORKERS OF AMERICA LOCAL NO. 3586
FINANCIAL STATEMENTS AS OF JUNE 30, 1998 (UNAUDITED) AND 1997 (UNAUDITED)
<PAGE> 2
THE STANDARD PRODUCTS COMPANY
COLLECTIVELY BARGAINED SAVINGS AND RETIREMENT PLAN
FOR THE EMPLOYEES OF THE REID DIVISION COVERED BY THE
COLLECTIVE BARGAINING AGREEMENT WITH UNITED
STEELWORKERS OF AMERICA LOCAL NO. 3586
INDEX TO FINANCIAL STATEMENTS
Financial Statements-
Statement of Net Assets Available for Plan Benefits as of June 30, 1998
(unaudited)
Statement of Net Assets Available for Plan Benefits as of June 30, 1997
(unaudited)
Statement of Changes in Net Assets Available for Plan Benefits for the Year
Ended June 30, 1998 (unaudited)
Notes to Financial Statements
Schedule I - Items 15f - Schedule of Assets Held for Investment Purposes as of
June 30, 1998 (unaudited)
Schedule II - Item 15l - Schedule of Reportable Transactions for the Year Ended
June 30, 1998 (unaudited)
<PAGE> 3
THE STANDARD PRODUCTS COMPANY
COLLECTIVELY BARGAINED SAVINGS AND RETIREMENT PLAN
FOR THE EMPLOYEES OF THE REID DIVISION COVERED BY THE
COLLECTIVE BARGAINING AGREEMENT WITH UNITED
STEELWORKERS OF AMERICA LOCAL NO. 3586
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
AS OF JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Participant Directed
------------------------------------------------------------------------------
Common Short Investment
Stock Equity Index Term Balanced Contract
Fund Fund Fund Fund Fund Fund Total
---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENTS, at fair value (Note 2):
Standard Products Company Stock Fund $ 5,165 $ -- $ -- $ -- $ -- $ -- $ 5,165
Vanguard/Windsor II -- 31,522 -- -- -- -- 31,522
Vanguard Index Trust-500 Portfolio -- -- 25,956 -- -- -- 25,956
Vanguard Money Market Reserves-Prime Portfolio -- -- -- 4,170 -- -- 4,170
Vanguard STAR Portfolio -- -- -- -- 9,177 -- 9,177
Vanguard Retirement Savings Trust -- -- -- -- -- 878 878
------- ------- ------- ------- ------- ------- -------
Total investments 5,165 31,522 25,956 4,170 9,177 878 76,868
------- ------- ------- ------- ------- ------- -------
RECEIVABLES
Employees' contributions 521 1,671 1,444 342 540 73 4,591
Interest and dividends 41 -- -- -- -- -- 41
------- ------- ------- ------- ------- ------- -------
Total receivables 562 1,671 1,444 342 540 73 4,632
------- ------- ------- ------- ------- ------- -------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $ 5,727 $33,193 $27,400 $ 4,512 $ 9,717 $ 951 $81,500
======= ======= ======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
-1-
<PAGE> 4
THE STANDARD PRODUCTS COMPANY
COLLECTIVELY BARGAINED SAVINGS AND RETIREMENT PLAN
FOR THE EMPLOYEES OF THE REID DIVISION COVERED BY THE
COLLECTIVE BARGAINING AGREEMENT WITH UNITED
STEELWORKERS OF AMERICA LOCAL NO. 3586
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
AS OF JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Participant Directed
------------------------------------------------------------------------------
Common Short Investment
Stock Equity Index Term Balanced Contract
Fund Fund Fund Fund Fund Fund Total
---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENTS, at fair value (Note 2):
Standard Products Company Stock Fund $ 1,129 $ -- $ -- $ -- $ -- $ -- $ 1,129
Vanguard/Windsor II -- 6,962 -- -- -- -- 6,962
Vanguard Index Trust-500 Portfolio -- -- 5,600 -- -- -- 5,600
Vanguard Money Market Reserves-Prime Portfolio -- -- -- 874 -- -- 874
Vanguard STAR Portfolio -- -- -- -- 2,183 -- 2,183
Vanguard Retirement Savings Trust -- -- -- -- -- 187 187
------- ------- ------- ------- ------- ------- -------
Total investments 1,129 6,962 5,600 874 2,183 187 16,935
------- ------- ------- ------- ------- ------- -------
RECEIVABLES
Employees' contributions 233 1,615 1,268 214 467 45 3,842
Interest and dividends 9 -- -- -- -- -- 9
------- ------- ------- ------- ------- ------- -------
Total receivables 242 1,615 1,268 214 467 45 3,851
------- ------- ------- ------- ------- ------- -------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $ 1,371 $ 8,577 $ 6,868 $ 1,088 $ 2,650 $ 232 $20,786
======= ======= ======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
-2-
<PAGE> 5
THE STANDARD PRODUCTS COMPANY
COLLECTIVELY BARGAINED SAVINGS AND RETIREMENT PLAN
FOR THE EMPLOYEES OF THE REID DIVISION COVERED BY THE
COLLECTIVE BARGAINING AGREEMENT WITH UNITED
STEELWORKERS OF AMERICA LOCAL NO. 3586
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
FOR THE YEAR ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Participant Directed
------------------------------------------------------------------------------
Common Short Investment
Stock Equity Index Term Balanced Contract
Fund Fund Fund Fund Fund Fund Total
---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
ADDITIONS:
Employees' contributions $ 4,584 $19,985 $16,622 $ 4,126 $ 6,159 $ 690 $52,166
Net unrealized appreciation in fair value of
investments 15 2,951 3,577 -- 355 -- 6,898
Realized gains 58 -- -- -- -- -- 58
Interest and dividends 100 1,680 333 140 553 29 2,835
------- ------- ------- ------- ------- ------- -------
Total additions 4,757 24,616 20,532 4,266 7,067 719 61,957
------- ------- ------- ------- ------- ------- -------
DEDUCTIONS:
Benefit payments 401 -- -- 842 -- -- 1,243
------- ------- ------- ------- ------- ------- -------
Total deductions 401 0 0 842 -- -- 1,243
------- ------- ------- ------- ------- ------- -------
NET INCREASE 4,356 24,616 20,532 3,424 7,067 719 60,714
NET ASSETS AT BEGINNING OF YEAR 1,371 8,577 6,868 1,088 2,650 232 20,786
------- ------- ------- ------- ------- ------- -------
NET ASSETS AT END OF YEAR $ 5,727 $33,193 $27,400 $ 4,512 $ 9,717 $ 951 $81,500
======= ======= ======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
-3-
<PAGE> 6
THE STANDARD PRODUCTS COMPANY
COLLECTIVELY BARGAINED SAVINGS AND RETIREMENT PLAN
FOR THE EMPLOYEES OF THE REID DIVISION COVERED BY THE
COLLECTIVE BARGAINING AGREEMENT WITH UNITED
STEELWORKERS OF AMERICA LOCAL NO. 3586
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF PLAN
General
The Standard Products Company Collectively Bargained Savings and
Retirement Plan for the Employees of the Reid Division Covered by
the Collective Bargaining Agreement with United Steelworkers of
America Local No. 3586 (the Plan) was established on January 1,
1997. The Plan is a defined contribution plan covering all
employees who have completed the 60 day union probationary period
and are covered by the collective bargaining agreement between the
United Steelworkers of America Local No. 3586 and The Standard
Products Company (the Company). The Plan is subject to the
provisions of the Employee Retirement Income Security Act of 1974
(ERISA).
Administration
The Plan is administered by The Standard Products Collectively
Bargained Savings and Retirement Plan Committee. The Plan has a
trust agreement with the Vanguard Fiduciary Trust Company (the
Trustee) to act as trustee and recordkeeper of the Plan's assets.
Contributions
Each year, participants may contribute up to 10 percent of their
pretax compensation. There is no employer matching provision in
the Plan.
Participant Accounts
Each participant's account is credited with the participant's
contributions and the earnings of their investment funds.
Vesting
The participants are immediately vested in their contributions
plus actual earnings thereon.
Investment Options
Upon enrollment in the Plan, a participant may direct employee
contributions in 10 percent increments to any of six investment
options.
Company Common Stock Fund - This fund invests in the Standard
Products Company Stock Fund.
Equity Fund - This fund invests in the Vanguard/Windsor II Fund
which consists of investments in a diversified group of
out-of-favor stocks of large-capitalization companies.
Index Fund - This fund invests in the Vanguard Index Trust-500
Portfolio which consists of investments in all of the 500
stocks that make up the Standard & Poor's 500 Composite Stock
Price Index.
-4-
<PAGE> 7
THE STANDARD PRODUCTS COMPANY
COLLECTIVELY BARGAINED SAVINGS AND RETIREMENT PLAN
FOR THE EMPLOYEES OF THE REID DIVISION COVERED BY THE
COLLECTIVE BARGAINING AGREEMENT WITH UNITED
STEELWORKERS OF AMERICA LOCAL NO. 3586
NOTES TO FINANCIAL STATEMENTS
(Continued)
Short Term Investment Fund - This fund invests in the Vanguard
Money Market Reserves-Prime Portfolio which consists of
investments in short-term, high-quality money market
instruments.
Balanced Fund - This fund invests in the Vanguard STAR
Portfolio which consists of investments in nine Vanguard funds:
six stock funds, two bond funds, and one money market fund.
Investment Contract Fund - This fund invests in the Vanguard
Retirement Savings Trust which consists of investment contracts
backed by financial institutions or by high-quality bonds and
bond mutual funds owned by the Trust.
Payment of Benefits
In the event of retirement, death, termination, permanent
disability or other separation from service, participants shall be
entitled to receive an amount equal to the value of the vested
interest in their accounts. Payment of benefits may be taken in a
lump sum cash distribution or in various annuity options.
Termination of the Plan
Although it has not expressed any intent to do so, the Company has
the right, under the Plan, to terminate the Plan subject to the
provisions of ERISA.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The accompanying financial statements are prepared on the accrual
basis of accounting.
Investments
The accompanying statements of net assets available for plan
benefits reflect the Plan's investments at their fair market
values as of June 30, 1998 and 1997. Net change in realized and
unrealized appreciation and depreciation of investments is
reflected as an adjustment of the Plan's equity balance in the
accompanying statement of changes in net assets available for plan
benefits. A summary of the Plan's investments at June 30, 1998, is
presented in Schedule I.
Purchases and sales of securities are recorded on a trade-date
basis. Interest income is recognized when earned. Dividends are
recorded on the ex-dividend date.
Administrative Expenses
The Company pays the administrative expenses of the Plan,
including any expenses and fees of the Trustee.
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.
-5-
<PAGE> 8
THE STANDARD PRODUCTS COMPANY
COLLECTIVELY BARGAINED SAVINGS AND RETIREMENT PLAN
FOR THE EMPLOYEES OF THE REID DIVISION COVERED BY THE
COLLECTIVE BARGAINING AGREEMENT WITH UNITED
STEELWORKERS OF AMERICA LOCAL NO. 3586
NOTES TO FINANCIAL STATEMENTS
(Continued)
(3) FEDERAL INCOME TAXES
The Plan intends to apply for a favorable determination from the
Internal Revenue Service on the qualification of the Plan under the
Internal Revenue Code (IRC). The Plan administrator believes that the
Plan is designed and is currently being operated in compliance with
the applicable requirements of the IRC.
(4) RELATED-PARTY TRANSACTIONS
Certain Plan investments are shares of mutual funds managed by the
trustee. There have been no known prohibited transactions with a
party-in-interest.
(5) RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500
The following is a reconciliation of net assets available for
benefits according to the financial statements to Form 5500:
<TABLE>
<CAPTION>
June 30,
---------------------
1998 1997
---- ----
<S> <C> <C>
Net assets available for benefits per the
Financial statements $81,500 $20,786
Amounts allocated to withdrawing participants 4,729 0
------- -------
Net assets available for benefits per Form 5500 $76,771 $20,786
======= =======
</TABLE>
The following is a reconciliation of benefits paid to participants
according to the financial statements to Form 5500:
<TABLE>
<CAPTION>
Year Ended
June 30, 1998
-------------
<S> <C>
Benefits paid to participants per the financial
Statements $1,243
Add- Amounts allocated to withdrawing participants
at June 30, 1998 4,729
Less- Amounts allocated to withdrawing participants
at June 30, 1997 0
------
Benefits paid to participants per Form 5500 $5,972
======
</TABLE>
Amounts allocated to withdrawing participants are recorded on Form
5500 for benefit claims that have been processed and approved for
payment prior to June 30 but not yet paid as of that date.
-6-
<PAGE> 9
SCHEDULE I
THE STANDARD PRODUCTS COMPANY
COLLECTIVELY BARGAINED SAVINGS AND RETIREMENT PLAN
FOR THE EMPLOYEES OF THE REID DIVISION COVERED BY THE
COLLECTIVE BARGAINING AGREEMENT WITH UNITED
STEELWORKERS OF AMERICA LOCAL NO. 3586
EIN: 34-0549970 - PLAN: 017
ITEMS 15f - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
AS OF JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Shares/
Par Value Description Cost Market
--------- ----------- ---- ------
<S> <C> <C> <C>
342 *Standard Products Company Stock Fund $ 5,111 $ 5,165
965 *Vanguard/Windsor II 28,148 31,522
246 *Vanguard Index Trust-500 Portfolio 21,973 25,956
4,170 *Vanguard Money Market Reserves-Prime Portfolio 4,170 4,170
488 *Vanguard STAR Portfolio 8,748 9,177
878 *Vanguard Retirement Savings Trust 878 878
------- -------
Total $69,028 $76,868
======= =======
</TABLE>
*Represents a party-in-interest
The accompanying notes are an integral part of this schedule.
-7-
<PAGE> 10
SCHEDULE II
THE STANDARD PRODUCTS COMPANY
COLLECTIVELY BARGAINED SAVINGS AND RETIREMENT PLAN
FOR THE EMPLOYEES OF THE REID DIVISION COVERED BY THE
COLLECTIVE BARGAINING AGREEMENT WITH UNITED
STEELWORKERS OF AMERICA LOCAL NO. 3586
EIN: 34-0549970 - PLAN: 017
Item 15l - SCHEDULE OF REPORTABLE TRANSACTIONS
FOR THE YEAR ENDED JUNE 30, 1998
(UNAUDITED)
During the year ended June 30, 1998, the Plan had the following "reportable
transactions", as defined, involving an amount in excess of 5% of the net
assets available for plan benefits at the beginning of the year, July 1,
1997:
<TABLE>
<CAPTION>
Shares/ Purchase Cost/ Historical Gain
Par Value Description Sale Proceeds Cost (Loss)
--------- ----------- ------------- ---- ------
<S> <C> <C> <C> <C>
*Standard Products Company Stock
Fund-
23 Sales 402 332 70
283 Purchases 4,364 4,364 N/A
*Vanguard/Windsor II-
713 Purchases 21,609 21,609 N/A
*Vanguard STAR Portfolio-
362 Purchases 6,639 6,639 N/A
*Vanguard Index Trust-500 Portfolio-
179 Purchases 16,779 16,779 N/A
*Vanguard Money Market Reserves-
Prime Portfolio-
842 Sales 842 842 -
4,138 Purchases 4,138 4,138 N/A
Individual Transactions:
*Vanguard Index Trust-500 Portfolio-
15 Purchases 7/11/97 1,268 1,268 -
13 Purchases 9/12/97 1,123 1,123 -
14 Purchases 10/7/97 1,319 1,319 -
15 Purchases 11/14/97 1,310 1,310 -
15 Purchases 12/8/97 1,365 1,365 -
18 Purchases 1/15/98 1,590 1,590 -
14 Purchases 2/18/98 1,306 1,306 -
13 Purchases 3/12/98 1,326 1,326 -
15 Purchases 4/17/98 1,543 1,543 -
10 Purchases 5/14/98 1,070 1,070 -
22 Purchases 6/4/98 2,209 2,209 -
*Vanguard/Windsor II-
57 Purchases 7/11/97 1,615 1,615 -
45 Purchases 8/11/97 1,299 1,299 -
46 Purchases 9/12/97 1,356 1,356 -
57 Purchases 10/7/97 1,768 1,768 -
53 Purchases 11/14/97 1,565 1,565 -
52 Purchases 12/8/97 1,627 1,627 -
53 Purchases 12/12/97 1,489 1,489 -
72 Purchases 1/15/98 1,981 1,981 -
56 Purchases 2/18/98 1,676 1,676 -
48 Purchases 3/12/98 1,488 1,488 -
54 Purchases 4/17/98 1,789 1,789 -
39 Purchases 5/14/98 1,274 1,274 -
77 Purchases 6/4/98 2,492 2,492 -
</TABLE>
*Represents a party-in-interest
The accompanying notes are an integral part of this schedule.
-8-
<PAGE> 1
EXHIBIT 99f
THE STANDARD PRODUCTS COMPANY
COLLECTIVELY BARGAINED SAVINGS AND RETIREMENT PLAN
FOR MEMBERS OF THE BARGAINING UNIT CERTIFIED BY NLRB CASE NO. 10-RC-7481
AT OLIVER RUBBER COMPANY
FINANCIAL STATEMENTS AS OF JUNE 30, 1998 (UNAUDITED)
<PAGE> 2
THE STANDARD PRODUCTS COMPANY
COLLECTIVELY BARGAINED SAVINGS AND RETIREMENT PLAN
FOR MEMBERS OF THE BARGAINING UNIT CERTIFIED BY NLRB CASE NO. 10-RC-7481
AT OLIVER RUBBER COMPANY
INDEX TO FINANCIAL STATEMENTS
Financial Statements-
Statement of Net Assets Available for Plan Benefits as of June 30, 1998
(unaudited)
Statement of Changes in Net Assets Available for Plan Benefits for the Ten
Months Ended June 30, 1998 (unaudited)
Notes to Financial Statements
Schedule I - Items 26f and 26k - Schedule of Assets Held for Investment Purposes
as of June 30, 1998 (unaudited)
Schedule II - Item 26l - Schedule of Reportable Transactions for the Ten Months
Ended June 30, 1998 (unaudited)
<PAGE> 3
THE STANDARD PRODUCTS COMPANY
COLLECTIVELY BARGAINED SAVINGS AND RETIREMENT PLAN
FOR MEMBERS OF THE BARGAINING UNIT CERTIFIED BY NLRB CASE NO. 10-RC-7481
AT OLIVER RUBBER COMPANY
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
AS OF JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Participant Directed
-----------------------------------------------------------------------
Common Short Investment
Stock Equity Index Term Balanced Contract
Fund Fund Fund Fund Fund Fund Total
---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENTS, at fair value (Note 2):
Standard Products Company Stock Fund $ 497 $ -- $ -- $ -- $ -- $ -- $ 497
Vanguard/Windsor II -- 2,500 -- -- -- -- 2,500
Vanguard Index Trust-500 Portfolio -- -- 2,224 -- -- -- 2,224
Vanguard Money Market Reserves-Prime Portfolio -- -- -- 104 -- -- 104
Vanguard STAR Portfolio -- -- -- -- 386 -- 386
Vanguard Retirement Savings Trust -- -- -- -- -- 105 105
------ ------ ------ ------ ------ ------ ------
Total investments 497 2,500 2,224 104 386 105 5,816
------ ------ ------ ------ ------ ------ ------
RECEIVABLES
Employees' contributions 104 550 443 21 151 21 1,290
Interest and dividends 4 -- -- -- -- -- 4
------ ------ ------ ------ ------ ------ ------
Total receivables 108 550 443 21 151 21 1,294
------ ------ ------ ------ ------ ------ ------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $ 605 $3,050 $2,667 $ 125 $ 537 $ 126 $7,110
====== ====== ====== ====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
-1-
<PAGE> 4
THE STANDARD PRODUCTS COMPANY
COLLECTIVELY BARGAINED SAVINGS AND RETIREMENT PLAN
FOR MEMBERS OF THE BARGAINING UNIT CERTIFIED BY NLRB CASE NO. 10-RC-7481
AT OLIVER RUBBER COMPANY
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
FOR THE TEN MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Participant Directed
-----------------------------------------------------------------------
Common Short Investment
Stock Equity Index Term Balanced Contract
Fund Fund Fund Fund Fund Fund Total
---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
ADDITIONS:
Employees' contributions $ 618 $2,892 $2,475 $ 123 $ 531 $ 124 $6,763
Net unrealized appreciation in fair value of
investments (20) 107 177 -- (1) -- 263
Interest and dividends 7 51 15 2 7 2 84
------ ------ ------ ------ ------ ------ ------
Total additions 605 3,050 2,667 125 537 126 7,110
------ ------ ------ ------ ------ ------ ------
DEDUCTIONS:
Benefit payments -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------
Total deductions 0 0 0 0 0 0 0
------ ------ ------ ------ ------ ------ ------
NET INCREASE 605 3,050 2,667 125 537 126 7,110
NET ASSETS AT BEGINNING OF YEAR 0 0 0 0 0 0 0
------ ------ ------ ------ ------ ------ ------
NET ASSETS AT END OF YEAR $ 605 $3,050 $2,667 $ 125 $ 537 $ 126 $7,110
====== ====== ====== ====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
-2-
<PAGE> 5
THE STANDARD PRODUCTS COMPANY
COLLECTIVELY BARGAINED SAVINGS AND RETIREMENT PLAN
FOR MEMBERS OF THE BARGAINING UNIT CERTIFIED BY NLRB CASE NO. 10-RC-7481
AT OLIVER RUBBER COMPANY
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF PLAN
General
The Standard Products Company Collectively Bargained Savings and
Retirement Plan for Members of the Bargaining Unit Certified by
NLRB Case No. 10-RC-7481 at Oliver Rubber Company (the Plan) was
established on September 1, 1997. The Plan is a defined
contribution plan covering all employees who have completed the 45
day union probationary period and are covered by the collective
bargainging agreement between the Oliver Rubber Company and
members of the bargaining unit certified by the NLRB case no.
10-RC-7481. The Plan is subject to the provisions of the Employee
Retirement Income Security Act of 1974 (ERISA).
Administration
The Plan is administered by The Standard Products Collectively
Bargained Savings and Retirement Plan Committee. The Plan has a
trust agreement with the Vanguard Fiduciary Trust Company (the
Trustee) to act as trustee and recordkeeper of the Plan's assets.
Contributions
Each year, participants may contribute up to 10 percent of their
pretax compensation. There is no employer matching provision in
the Plan.
Participant Accounts
Each participant's account is credited with the participant's
contributions and the earnings of their investment funds.
Vesting
The participants are immediately vested in their contributions
plus actual earnings thereon.
Investment Options
Upon enrollment in the Plan, a participant may direct employee
contributions in 10 percent increments to any of six investment
options.
Company Common Stock Fund - This fund invests in the Standard
Products Company Stock Fund.
Equity Fund - This fund invests in the Vanguard/Windsor II Fund
which consists of investments in a diversified group of
out-of-favor stocks of large-capitalization companies.
Index Fund - This fund invests in the Vanguard Index Trust-500
Portfolio which consists of investments in all of the 500
stocks that make up the Standard & Poor's 500 Composite Stock
Price Index.
-3-
<PAGE> 6
THE STANDARD PRODUCTS COMPANY
COLLECTIVELY BARGAINED SAVINGS AND RETIREMENT PLAN
FOR MEMBERS OF THE BARGAINING UNIT CERTIFIED BY NLRB CASE NO. 10-RC-7481
AT OLIVER RUBBER COMPANY
NOTES TO FINANCIAL STATEMENTS
(Continued)
Short Term Investment Fund - This fund invests in the Vanguard
Money Market Reserves-Prime Portfolio which consists of
investments in short-term, high-quality money market
instruments.
Balanced Fund - This fund invests in the Vanguard STAR
Portfolio which consists of investments in nine Vanguard funds:
six stock funds, two bond funds, and one money market fund.
Investment Contract Fund - This fund invests in the Vanguard
Retirement Savings Trust which consists of investment contracts
backed by financial institutions or by high-quality bonds and
bond mutual funds owned by the Trust.
Payment of Benefits
In the event of retirement, death, termination, permanent
disability or other separation from service, participants shall be
entitled to receive an amount equal to the value of the vested
interest in their accounts. Payment of benefits may be taken in a
lump sum cash distribution or in various annuity options.
Termination of the Plan
Although it has not expressed any intent to do so, the Company has
the right, under the Plan, to terminate the Plan subject to the
provisions of ERISA.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The accompanying financial statements are prepared on the accrual
basis of accounting.
Investments
The accompanying statements of net assets available for plan
benefits reflect the Plan's investments at their fair market
values as of June 30, 1998. Net change in realized and unrealized
appreciation and depreciation of investments is reflected as an
adjustment of the Plan's equity balance in the accompanying
statement of changes in net assets available for plan benefits. A
summary of the Plan's investments at June 30, 1998, is presented
in Schedule I.
Purchases and sales of securities are recorded on a trade-date
basis. Interest income is recognized when earned. Dividends are
recorded on the ex-dividend date.
Administrative Expenses
The Company pays the administrative expenses of the Plan,
including any expenses and fees of the Trustee.
-4-
<PAGE> 7
THE STANDARD PRODUCTS COMPANY
COLLECTIVELY BARGAINED SAVINGS AND RETIREMENT PLAN
FOR MEMBERS OF THE BARGAINING UNIT CERTIFIED BY NLRB CASE NO. 10-RC-7481
AT OLIVER RUBBER COMPANY
NOTES TO FINANCIAL STATEMENTS
(Continued)
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.
(3) FEDERAL INCOME TAXES
The Plan intends to apply for a favorable determination from the
Internal Revenue Service on the qualification of the Plan under the
Internal Revenue Code (IRC). The Plan administrator believes that the
Plan is designed and is currently being operated in compliance with
the applicable requirements of the IRC.
(4) RELATED-PARTY TRANSACTIONS
Certain Plan investments are shares of mutual funds managed by the
trustee. There have been no known prohibited transactions with a
party-in-interest.
-5-
<PAGE> 8
SCHEDULE I
THE STANDARD PRODUCTS COMPANY
COLLECTIVELY BARGAINED SAVINGS AND RETIREMENT PLAN
FOR MEMBERS OF THE BARGAINING UNIT CERTIFIED BY NLRB CASE NO. 10-RC-7481
AT OLIVER RUBBER COMPANY
EIN: 34-0549970 - PLAN: 006
ITEMS 26f and 26k - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
AS OF JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Shares/
Par Value Description Cost Market
--------- ----------- ---- ------
<S> <C> <C> <C>
33 *Standard Products Company Stock Fund $ 517 $ 497
77 *Vanguard/Windsor II 2,392 2,500
21 *Vanguard Index Trust-500 Portfolio 2,047 2,224
104 *Vanguard Money Market Reserves-Prime Portfolio 104 104
21 *Vanguard STAR Portfolio 386 386
105 *Vanguard Retirement Savings Trust 105 105
------ ------
Total $5,551 $5,816
====== ======
</TABLE>
*Represents a party-in-interest
The accompanying notes are an integral part of this schedule.
-6-
<PAGE> 9
SCHEDULE II
THE STANDARD PRODUCTS COMPANY
COLLECTIVELY BARGAINED SAVINGS AND RETIREMENT PLAN
FOR MEMBERS OF THE BARGAINING UNIT CERTIFIED BY NLRB CASE NO. 10-RC-7481
AT OLIVER RUBBER COMPANY
EIN: 34-0549970 - PLAN: 006
Item 26l - SCHEDULE OF REPORTABLE TRANSACTIONS
FOR THE TEN MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
During the year ended June 30, 1998, the Plan had the following "reportable
transactions", as defined, involving an amount in excess of 5% of the net
assets available for plan benefits at the beginning of the ten months,
September 1, 1997:
<TABLE>
<CAPTION>
Shares/ Purchase Cost/ Historical Gain
Par Value Description Sale Proceeds Cost (Loss)
--------- ----------- ------------- ---- ------
<S> <C> <C> <C> <C>
*Standard Products Company Stock
Fund-
33 Purchases 517 517 N/A
*Vanguard/Windsor II-
77 Purchases 2,392 2,392 N/A
*Vanguard Index Trust-500 Portfolio-
21 Purchases 2,047 2,047 N/A
*Vanguard Money Market Reserves-
Prime Portfolio-
104 Purchases 104 104 N/A
*Vanguard STAR Portfolio-
21 Purchases 386 386 N/A
*Vanguard Retirement Savings
Trust-
105 Purchases 105 105 N/A
</TABLE>
*Represents a party-in-interest
The accompanying notes are an integral part of this schedule.
-7-
