-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FHaPYjZK+BlPz7erIOs6ZHy7tl1tRqYNc9D0c0PH7qETf5imsCQodznXSmQypl43 wDPQsGUAorWJPQ5IGLqlcA== 0000950124-96-004176.txt : 19960930 0000950124-96-004176.hdr.sgml : 19960930 ACCESSION NUMBER: 0000950124-96-004176 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960927 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: STANDARD PRODUCTS CO CENTRAL INDEX KEY: 0000093448 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 340549970 STATE OF INCORPORATION: OH FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-02917 FILM NUMBER: 96635501 BUSINESS ADDRESS: STREET 1: 2401 S GULLEY ROAD CITY: DEARBORN STATE: MI ZIP: 48124 BUSINESS PHONE: 2162818300 MAIL ADDRESS: STREET 1: 2401 S GULLEY RD CITY: DEARBORN STATE: MI ZIP: 48124 10-K 1 FORM 10-K 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the Fiscal Year Ended June 30, 1996 Commission File Number 1-2917 THE STANDARD PRODUCTS COMPANY (Exact Name of Registrant as Specified in its Charter) OHIO 34-0549970 (State or Other Jurisdiction of (IRS Employer Incorporation or Organization) Identification No.) 2401 SOUTH GULLEY ROAD DEARBORN, MICHIGAN 48124 (Address of Principal Executive Offices)(Zip Code) Registrant's telephone number, including area code: (313) 561-1100 Securities Registered Pursuant to Section 12(b) of the Act: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- ----------------------- Common Shares, $1 Par Value New York Stock Exchange Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / / The aggregate market value of voting stock held by non-affiliates of the Registrant as of August 23, 1996 (based on the closing price of the Registrant's Common Stock reported on the New York Stock Exchange Composite Tape on such date), was approximately $392.4 million. The number of shares of Common Stock outstanding as of August 23, 1996, was 16,785,667 shares. Documents incorporated by reference 1996 Annual Report to Shareholders (Parts I, II and IV) Proxy Statement for 1996 Annual Meeting of Shareholders (Part III) ================================================================================ 2 PART I ITEM I. BUSINESS General and Industry Segments The Standard Products Co. (the "Company") was incorporated in the State of Ohio in 1927 and is engaged primarily in the manufacture of rubber and plastic parts requiring a substantial degree of product engineering and high-volume production processes for automotive original equipment manufacturers in the United States, Canada, Europe and Brazil (the "Transportation Equipment Segment"). This segment also produces rubber and plastic parts for the appliance, construction and marine industries. The Company also manufactures precure and mold cure tread rubber for the truck tire retreading industry (the "Tread Rubber Segment"). Additional financial information concerning the Company's reportable business segments and geographic areas for the years ended June 30, 1996, 1995 and 1994 is included in Note 13 of the "Notes to Consolidated Financial Statements" section of the 1996 Annual Report, which section is incorporated herein by reference. The Company's presence in Brazil has recently been expanded. In May 1995, the Company increased its ownership in Itatiaia Standard from 20% to 100%. This was done in connection with its intent to build a new production facility in Brazil. As part of the new construction, the Company formed a new Company, Standard Products Brazil. Currently, the Company operates both subsidiaries in Brazil. Itatiaia Standard has a production facility in Itaquaquecetuba while Standard Products Brazil operates a plant in Varginha. In conjunction with the purchase, Itatiaia Standard closed its Sao Paulo facility and moved that production to Varginha. In 1995, the Company formed Standard Products de Mexico, S.A. de C.V. (SPM). In 1996, the Company sold a 30% interest in this entity to Nishikawa Rubber Company, of Hiroshima, Japan (Nishikawa). Construction of a new plant in Mexico will commence in the first half of fiscal 1997. When completed in September 1997, this facility is expected to manufacture automotive parts for the Mexican automotive original equipment market. The Company also has a 50% ownership in its North American joint venture, Nishikawa Standard Company (NSC) with the Company's partner, Nishikawa. TRANSPORTATION EQUIPMENT SEGMENT Automotive Original Equipment Products. Rubber products supplied to the automotive manufacturing industry include flocked rubber and steel weatherstrip assemblies to seal vehicle windows; flocked rubber window channel assemblies and rubber window gaskets; and vehicle body and door dynamic sealing systems. These products form the sealing system of automotive vehicles preventing water leakage and inhibiting wind noise from entering the vehicle. Attractiveness of design is an important feature of the sealing system. An increasing number of the Company's parts are sold to automotive original equipment manufacturers as complete sealing systems. This is a departure from former practices which involved more suppliers who supplied individual parts, not complete systems. The Company also supplies molded rubber engine mounts and body cushions, which comprise a vehicle's vibration control system. Plastic products include metallized, multicolored and embossed exterior and interior vinyl trim, painted vinyl trim and flocked vinyl and steel weatherstrip assemblies. The plastic exterior products serve protective barriers preventing damage to the vehicle's sheet metal and have become an integral part of the vehicle's overall styling and appearance. Markets and Customers. The Company manufactures parts and accessories for automotive and truck original equipment manufacturers in the United States, Brazil, Canada, and Europe. Manufacturing operations for the automotive original equipment market of this segment are conducted by the Company, Standard Products Brazil, Itatiaia Standard, Standard Products (Canada) Limited, Standard Products 2 3 Limited and Standard Products Industriel. The Company's major customers include automotive original equipment manufacturers. The percentage of sales of each of these major customers to total consolidated sales for the three year periods 1996, 1995 and 1994, respectively, have been as follows: Chrysler -- 17%, 15% and 13%; Ford -- 26%, 23% and 26%; General Motors -- 14%, 18%, and 17%. Since most of the Company's rubber and plastic automotive products are used on original equipment, sales of such products are directly affected by the annual car production of original equipment manufacturers. The Company does not have a backlog of orders at any point in time. Instead, original equipment sales are based upon purchase orders issued annually by automobile manufacturers for each part which the Company manufactures. The purchase orders are for all or a percentage of the customers' estimated requirements and are binding, subject to the annual car production of original equipment manufacturers. As the year evolves, customers issue releases under those purchase orders, specifying quantities of the parts which the assembly plants require. The Company's sales and product development personnel work directly with the engineering and styling departments of the automotive original equipment manufacturers in the engineering and development of its various products. Distribution. The Company utilizes, as a distribution center for some of its automotive finished products, approximately 133,000 square feet of a 283,000 square foot public warehouse which it operates in Dearborn, Michigan. The balance of the warehouse space is allocated to commercial customers' use. The Company also distributes automotive finished products from a leased warehouse in Charlotte, North Carolina, central to the Company's southern plants. Most of the Company's nondomestic customers are supplied directly by foreign manufacturing plants of subsidiaries of the Company. Competition. Each aspect of the Company's business in automotive products is highly competitive. No single firm competes with the Company in all aspects of this business, however, major competitors would include Gencorp, Inc., the Schlegel group of BTR, Harvard Industries' Kingston-Warren subsidiary and Cooper Tire and Rubber. In addition to the competitors noted above, the continued globalization of the automotive industry has brought new competition to North America. In particular, Draftex GmbH, a subsidiary of London-based Laird Group P.L.C. has decided to build a new production facility in North America. While the Company competes with Draftex in Europe this will add another supplier to the field in North America at a time when customers are trying to reduce their supply base. Although reliable industry statistics are not available, the Company believes that it is one of the leading manufacturers of rubber window and door weather sealing products and plastic trim for the worldwide automotive industry. Although each customer may emphasize a different component as its primary criteria, the automotive industry has historically competed in three areas: quality, cost and time. Time in this sense relates to on-time delivery, time to bring new products to market, manufacturing cycle time, etc. The Company also believes that engineering capabilities and design capabilities now play a greater role in the competitive process. Management believes the Company's investment in engineering and design capabilities is a requirement to achieving future business. The Company has historically met the customers' requirements regarding quality, delivery and price. Other The Company, through its subsidiary, Holm Industries, Inc., manufactures rubber and plastic trim seals for the automotive replacement, construction and marine industries and a variety of plastic and magnetic parts sold as original equipment to appliance manufacturers and residential and commercial exterior door and window manufacturers. These products are manufactured with some of the raw materials similar to those used in the products manufactured by the Transportation Equipment and Tread Rubber Segments. See "Raw Materials" for a discussion of suppliers and available supplies. Distribution of these products are through both internal sales personnel and manufacturing representatives. These products are sold to many customers, and market share information is not available for all of the products which Holm manufactures. For plastic and magnetic seals, Holm is the largest supplier to the United States refrigeration and freezer appliance market. 3 4 Working Capital The Transportation Equipment Segment typically maintains a strong working capital position which provides adequate cash flow. Accounts receivable are promptly paid and inventories turn over rapidly. Seasonality becomes a factor during new model conversions and vacation and holiday periods. Joint Ventures The Company also manufactures vehicle body and door sealing systems for sale to North American automotive original equipment manufacturers and Japanese transplants, including Honda, Ford Motor Company and Automotive Alliance International (formerly Mazda), through its North American joint venture, NSC, a general partnership owned 50% by the Company and 50% by Nishikawa. Manufacturing operations are conducted at plants located in Bremen, New Haven, and Topeka, Indiana. Currently, the chief operating officer of The Standard Products Company is the chief executive officer of NSC and chairman of its Policy Committee. In 1996, the Company sold 30% of its ownership interest in SPM to Nishikawa. This Company retained a 70% interest. The venture will manufacture automotive parts for the Mexican automotive original equipment market once construction of a new facility is completed in September 1997. TREAD RUBBER SEGMENT Products. The Company's wholly owned subsidiary, Oliver Rubber Company ("Oliver"), manufactures and markets precure and mold cure tread rubber, bonding gum, cement, repair materials and equipment for the tire retreading industry. Oliver also supplies custom mixed rubber to the Company for use in automotive original equipment products and to NISCO for the manufacture of door seals for automotive original equipment. Oliver also custom mixes rubber compounds for selected customers throughout the United States. Oliver supplies both precure and mold cure tread rubber. Precure tread rubber is shipped to a retreader partially cured and with a specially designed tread imprinted. The retreader cements the precure tread to a tire casing using heat and pressure to complete a permanent bond. Mold cure tread rubber is applied by a retread dealer to the tire casing in a pressure mold which cures the rubber and at the same time imprints into it the tread design. Markets. Oliver serves the trucking industry in North America through its licensed dealer network for precure retreading and through dealers who sell mold cure rubber. Oliver also serves markets in other areas of the world, such as India, through license arrangements and export sales. Truck mileage, and therefore demand for tread rubber, correlate with general economic conditions of the market served. Oliver also supplies mold cure tread rubber for off-the-road (OTR) construction equipment. Distribution. In North America, tread rubber products are marketed by Oliver's sales force to retread dealers, some of which are licensed by Oliver. Licensed dealers use Oliver's patented precure system and market tread rubber under the name of Tuff-Cure. Competition. The tread rubber industry is very competitive with more than ten suppliers, of which three are significant. Competition is based upon the price and quality of the products supplied. While exact market share information is not available, it is estimated that based on pounds shipped, the largest supplier of precure tread rubber is Bandag, Incorporated ("Bandag"). Oliver, unlike Bandag, sells in North America both precure and mold cure tread rubber, and management believes it is the largest supplier of mold cure rubber and it is the second largest supplier of tread rubber in 1996. Working Capital The Tread Rubber Segment sells to many small independent customers. Accounts receivable and the extension of credit must be monitored closely to reduce the risk of losses in collection. Inventories include a 4 5 supply of finished goods on hand to fill customer orders from stock. Working capital requires careful management but has generally been sufficient to fund operating needs. RAW MATERIALS The principal materials used by the Company and its subsidiaries in its Transportation Equipment and Tread Rubber Segments are synthetic rubber and rubber chemicals. In addition, other significant materials used by the Company in its Transportation Equipment Segment are plastic resins, woven fabrics, flock fibers, coil steel, aluminum and adhesives. The majority of these materials are purchased on the open market from domestic suppliers. The Company believes that it has adequate supplies of raw materials available from reliable sources for the levels of production presently anticipated. ENGINEERING AND DEVELOPMENT Although the Company operates in mature industries, it continues to spend significant amounts for engineering and development of new products, processes and applications. Product development is an essential part of the market strength of the Company and its automotive subsidiaries. The Company's sales and product development personnel work directly with the engineering and styling departments of its major customers in the engineering and development of new products. In recent years, the Company's involvement with its automotive customers has begun at the earlier model design stage with the Company assuming an increasing share of engineering and design capability and responsibility. The Company's main sales and product development group is located in Dearborn, Michigan, close to the purchasing and engineering groups of its customers. The Company also has significant product development facilities at Stratford, Ontario, Huntingdon, England and Courbevoie, France. PATENTS AND LICENSES The Company holds numerous patents covering various manufacturing processes and products of the Transportation Equipment Segment and several patents relating to application processes used by its tread rubber customers. The Company has licensed certain of the patents. The Company has a license agreement with Nishikawa for sales, marketing and engineering services on certain products sold by the Company. While the Company considers some of its patents and licenses to be important in certain aspects of its business, the Company does not believe that the loss or expiration of any particular patent or license would have an adverse effect on either segment of its business. The Company actively pursues the application for patents on new products and processes. EMPLOYEES As of June 30, 1996, the Company employed approximately 10,177 persons, of whom approximately 8,122 were hourly employees. Employee relations at the Company's plants generally have been good. Approximately 48% of the Company's employees were represented by labor unions as of June 30, 1996. ENVIRONMENTAL MATTERS The Company believes that it is in substantial compliance with federal, state and local provisions regulating the discharge of materials into the environment or otherwise relating to the protection of the environment. The Company maintains personnel whose function is to monitor compliance with environmental protection regulations. At the Company's Gaylord, Michigan plant, the Company is correcting a previously defined condition of groundwater located under its plant by injecting such water to underground depths well below and separate from the drinking water aquifer. All corrective activities are permitted as necessary by the Michigan Department of Environmental Quality and the United States Environmental Protection Agency. Chemicals, in addition to those previously defined, have also been identified in the groundwater. Site investigations are 5 6 being conducted to determine whether the source of the additional chemicals is on-site or off-site. Until the source is identified, the Company will continue to meet its obligations under applicable state statute. The Company has been previously designated as a potentially responsible party in connection with several disposal sites. Settlements with payment of an immaterial amount or no amount at all have been obtained for all sites, except two sites, one located in Jamestown, North Carolina and the other in Zionsville, Indiana. The Company believes that it was an insignificant contributor at these sites and believes that these matters will be resolved without material adverse affect to the Company's financial position. The Company has been notified by the State of New York that the property occupied by its Schenectady, New York plant is being investigated due to allegations concerning possible contamination resulting from the operations of the previous property owner. The State has reclassified the site based on the presence of several contaminants and has requested the Company to perform certain actions. The Company voluntarily completed interim actions and is continuing site investigations to define the extent and source of the contaminants. Where appropriate, the Company has accrued for the above mentioned items in accordance with its accounting policies. See Note 1, "Environmental Compliance and Remediation" of the "Notes to Consolidated Financial Statements" section of the 1996 Annual Report to Shareholders, which section is incorporated herein by reference. FOREIGN OPERATIONS The Company owns all of the outstanding shares of Standard Products (Canada) Limited, a Canadian corporation which is engaged primarily in the manufacture of parts and accessories for United States and Canadian automotive original equipment manufacturers and for the automotive replacement parts market and the distribution of tread rubber for the tire retreading industry. The Company owns all of the outstanding shares (except for qualifying shares held by nominees) of Standard Products Limited, an English corporation which is engaged primarily in the manufacture of parts and accessories for the North American, United Kingdom and European automotive original equipment manufacturers and for the automotive replacement parts market. The Company owns all of the outstanding shares (except for qualifying shares held by nominees) of Oliver Europa, an English corporation which had been engaged primarily in the manufacture and distribution of tread rubber and rubber and related products in Europe. This subsidiary has been liquidated and is no longer engaged in business. The Company owns all of the issued and outstanding shares of capital stock of Standard Products Industriel (SPI Group), a corporation organized under French law. The SPI Group is engaged in the business of designing, developing, manufacturing and distributing automotive window weatherstrips, glass weatherstrips, vehicle body and door seals and glass encapsulation products to French, other European and North American auto manufacturers. The SPI Group's customers include, among others, PSA (Peugeot/Citroen), Renault, Fiat, Volvo, Chrysler Corporation, General Motors Corporation, Volkswagen and Saab. SPI's European customer base complements the customer base of the Company's operations in the United Kingdom. The SPI Group has an experienced management team and expertise in the technical design and engineering of automotive sealing products and systems. Similar to the Company, SPI's design personnel work closely with the engineering and styling departments of its customers. In March 1996, the Company began shipments from its new Brazilian plant. This 236,000 square foot facility located in Varginha, Brazil, will manufacture plastic and rubber sealing components for Fiat's Palio world car. During 1995, the Company had increased its presence in Brazil by incorporating Standard Products Brazil (SPB) and by purchasing the 80% of Itatiaia Standard not then owned by it. During 1996 the Company consolidated Itatiaia Standard's Sao Paulo manufacturing facility into the new facility in Varginha. Itatiaia Standard also supplies some Brazilian automotive original equipment manufacturers with rubber sealing products from a plant located in Itaquaquecetuba. Major customers of SPB and Itatiaia include Fiat, Ford, General Motors and Volkswagon. Itatiaia and SPB have an experienced management team and expertise in 6 7 technical design and engineering of automotive sealing products and systems. Company personnel work closely with their customers' engineering and styling departments. In 1995, the Company formed Standard Products de Mexico, S.A. de C.V. During 1996, the Company sold a 30% interest in this entity to Nishikawa. Construction of a new plant will commence in the first half of fiscal 1997. When complete, the 78,000 square foot plant is expected to manufacture automotive parts for the Mexican automotive original equipment manufacturers. The Company also has minority equity interests in and licensing arrangements with firms in Japan, Korea, India, Mexico and other countries throughout the world. The Company's United States export sales in the aggregate for the three fiscal years ended June 30, 1996, 1995 and 1994, were $95,793,000, $71,749,000 and $41,472,000, respectively, of which a substantial portion is represented by sales to automotive original equipment manufacturers in Canada. The Company's experience has been that its significant foreign businesses in Canada and Western Europe do not present materially different risks or problems from those encountered in its United States markets. The risks of the Company, Standard Products (Canada) Limited, Standard Products Limited, Standard Products Brazil, Itatiaia Standard and Standard Products Industriel involve meeting the customers' expectations as to the timely delivery of parts which meet their specifications. The automotive business is directly affected by the annual car production of original equipment manufacturers. Standard Products (Canada) Limited, Standard Products Limited, Standard Products Brazil and Standard Products Industriel participate in the risk of varying car builds similar to any of the Company's other automotive plants which supply domestic assembly plants. With respect to Brazil, the Company expects that the risks of conducting business in the Brazilian automotive original equipment market will be greater than the North American and European automotive markets. The Company must deal with several new issues including, but not limited, to governmental regulation, and a potentially highly inflationary economy. With the assistance of Itatiaia Standard's local management, the Company believes that it can successfully conduct business in Brazil. 7 8 ITEM 2. PROPERTIES The Company operates the properties described as follows:
LAND PLANT LOCATION (ACREAGE) (SQUARE FEET) - ---------------------------------------------------------------------- --------- ------------- Aquascalientes, Mexico (4)............................................ 15.9 -- Asheboro, North Carolina (1).......................................... 16.4 161,000 Athens, Georgia (1)................................................... 32.0 109,000 Athens, Georgia (1)(3)................................................ 3.3 37,000 Bezons, France (4).................................................... 4.3 140,000 Bolbec, France (3)(4)................................................. 24.3 276,000 Cleveland, Ohio (4)................................................... 12.0 157,000 Courbevoie, France (3)(4)............................................. .5 23,000 Dallas, Texas (1)(3).................................................. 6.0 96,000 Dearborn, Michigan (Warehouse and Offices) (4)........................ 13.9 358,000 Etobicoke, Ontario, Canada (3)(4)..................................... .8 33,000 Export, Pennsylvania (1)(3)........................................... 2.0 40,500 Gaylord, Michigan (4)................................................. 96.2 92,000 Georgetown, Ontario, Canada (4)....................................... 5.7 89,000 Goldsboro, North Carolina (4)......................................... 6.6 140,000 Greenville, Michigan (4).............................................. 1.0 10,000 Griffin, Georgia (4).................................................. 17.5 190,000 Hartselle, Alabama (3)(4)............................................. 11.1 72,000 Huntingdon, England (4)............................................... 11.1 175,000 Itaquaquecetuba, Brazil (4)........................................... 11.9 54,000 Kittanning, Pennsylvania (4).......................................... 6.1 80,000 Lexington, Kentucky (4)............................................... 5.9 115,000 Lillebonne, France (4)................................................ 9.1 100,000 Maesteg, Wales (4).................................................... 8.4 102,000 Mississauga, Ontario, Canada (3)(4)................................... 5.0 97,000 Mitchell, Ontario, Canada (4)......................................... 10.5 88,000 New Ulm, Minnesota (4)................................................ 3.5 46,000 Oakland, California (1)............................................... 4.2 112,000 Paris, Texas (1)...................................................... 28.5 31,000 Plymouth, England (3)(4).............................................. 9.0 127,000 Port Clinton, Ohio (5)................................................ 20.0 -- Rocky Mount, North Carolina (4)....................................... 24.2 222,000 St. Charles, Illinois (4)............................................. 2.3 47,000 San Diego, California (3)(4).......................................... -- 10,000 Salisbury, NC (1)..................................................... 2.7 37,200 Schenectady, New York (4)............................................. 22.5 224,000 Scottsburg, Indiana (2)(4)............................................ 8.5 192,000 Spartanburg, South Carolina (4)....................................... 30.1 85,000
8 9
LAND PLANT LOCATION (ACREAGE) (SQUARE FEET) - ---------------------------------------------------------------------- --------- ------------- Stratford, Ontario, Canada (4)........................................ 20.0 80,000 Stratford, Ontario, Canada (1)(4)..................................... 5.4 94,000 Stratford, Ontario, Canada (4)........................................ 26.8 107,000 Varginha, Brazil (4).................................................. 38.3 236,000 Vitre, France (3)(4).................................................. 16.6 207,000 Wadsworth, Ohio (1)................................................... 2.0 28,000 Winnsboro, South Carolina (4)......................................... 26.4 175,000
- --------------- (1) Facilities used in the Tread Rubber Segment. (2) This facility is encumbered by a mortgage agreement which provides for payments sufficient to pay principal of and interest on first mortgage industrial revenue bonds issued for the purchase of the plant and equipment. This agreement has been capitalized for financial statement purposes. (3) Leased from others. The leases are short to medium term operating leases, some of which have options to renew for additional periods. Rental rates are competitive for the market in which the property is located. The Company believes that all of these leased facilities could be replaced for comparable terms. (4) Facilities used in the Transportation Equipment Segment. (5) The plant has been demolished and the land is held for sale. The Company operates a 283,000 square foot public warehouse in Dearborn, Michigan of which the Company utilizes approximately 133,000 square feet for its own products. The Company has its corporate headquarters (including engineering and product development) at this location. These functions utilize approximately 44,000 square feet of space. The Company believes that all of its properties, machinery and equipment are in good operating condition and suitable and adequate for the business of the Company as presently conducted. The utilization of the Company's Transportation Equipment facilities varies with the production of passenger cars and light trucks in various countries. The utilization of the Tread Rubber facilities varies with demand for tread rubber product. Capacities of each facility are adequate to meet current demands. Management believes capacity is adequate to meet the demands of each segment's business, however, it continues to evaluate its position in each geographic area of the world and will expand or reduce capacity accordingly. ITEM 3. LEGAL PROCEEDINGS The Company was not a party to any pending legal proceedings other than ordinary routine litigation incidental to its business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report. 9 10 EXECUTIVE OFFICERS OF THE REGISTRANT The information below is included in this report pursuant to instruction 3 to Item 401(b) of Regulation S-K. The Executive Officers of the Company are elected annually to serve for one-year terms or until their successors are elected and qualified. The offices listed below were elected on October 16, 1995. The business experience, principal occupations and employment during the last five years of the individuals holding the office are indicated in the table below.
SERVED IN PRESENT OFFICE NAME AGE POSITION WITH REGISTRANT SINCE - ---------------------------- --- ---------------------------------------------------- --------- James S. Reid, Jr. ......... 70 Chairman and Chief Executive Officer 1962 In addition to his position as Chief Executive Officer, Mr. Reid served as President from 1962 to 1988 and in 1991. Theodore K. Zampetis........ 51 President and Chief Operating Officer 1991 Formerly, Mr. Zampetis was Vice President -- Manufacturing, North American Automotive Operations from 1989 to 1990 and Executive Vice President -- President Standard Products Automotive Operations from 1990. Donald R. Sheley, Jr. ...... 54 Vice President -- Finance and Chief Financial 1995 Officer Formerly, Mr. Sheley was Vice President, Corporate Controller, Cooper Industries, Inc. from 1988 until April, 1995. He joined the Company in July 1995. Larry J. Enders............. 54 Vice President of the Company and President and 1993 Chief Executive Officer, Oliver Rubber Company Formerly, Mr. Enders was Vice President -- Sales from 1988 to 1991 and Vice President -- Purchasing and Worldwide Supply from 1991. James F. Keys............... 42 Executive Vice President -- International Operations 1996 Formerly, Mr. Keys was Vice President of the Company and Managing Director of Standard Products Limited from 1991 to 1996. Steve Levitt................ 42 Managing Director, Standard Products Limited 1995 Formerly, Mr. Levitt was Finance Director and Company Secretary of Standard Products Limited from 1991 to 1995. Stephan J. Mack............. 59 President, Holm Industries, Inc. 1986 Ted M. McQuade.............. 42 Executive Vice President, North American Automotive 1995 Operations Formerly, Mr. McQuade was Manager of Product Support and Global Integration, Appliance Business, General Electric from 1990. Gerard Mesnel............... 57 President and Director General, Standard Products 1996 Industriel and Executive Vice President -- Advanced Technology World Wide Formerly, Mr. Mesnel was Executive Vice President -- Advanced Technology World Wide from 1995 and President/Consultant, GSF Cie. since 1990. Bernard J. Theisen.......... 37 Corporate Controller and Assistant Secretary 1995 Formerly, Mr. Theisen was Corporate Controller for Hayes Wheels International, Inc. from 1993 and Business Unit Controller of its Fabricated Wheel Group from 1991.
10 11 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS The information required by Item 5 is incorporated herein by reference to Note 6 of "Notes to Consolidated Financial Statements" on page 19 and "Common Shares" on page 24 of the 1996 Annual Report to Shareholders. ITEM 6. SELECTED FINANCIAL DATA The information required by Item 6 is incorporated herein by reference to "Selected Financial Data" on pages 10 and 11 of the 1996 Annual Report to Shareholders. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by Item 7 is incorporated herein by reference to pages 9 through 12 of the 1996 Annual Report to Shareholders. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial statements and statements required by Item 8 are incorporated herein by reference to pages 13 through 23 of the 1996 Annual Report to Shareholders. ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None 11 12 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT As to Executive Officers, the information required is included in Part I of this report on Form 10-K. The information required by Item 10 as to directors of the Registrant is incorporated herein by reference to the information set forth under the caption "Election of Directors" on pages 3 through 5 of the definitive Proxy Statement for the Annual Meeting of Shareholders to be held October 22, 1996 ("1996 Proxy Statement"). The information required concerning Section 16 compliance is incorporated herein by reference to the information set forth under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" on page 16 of the 1996 Proxy Statement. ITEM 11. EXECUTIVE COMPENSATION The information required by Item 11 is incorporated herein by reference to the material under the caption "Executive Compensation" on pages 6 through 12 of the 1996 Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Item 12 is incorporated herein by reference to the information set forth under the captions "Security Ownership of Certain Beneficial Owners" on pages 1 through 3 of the 1996 Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by Item 13 is incorporated herein by reference to the information set forth under the caption "Compensation Committee Interlocks and Insider Participation" on page 10 of the 1996 Proxy Statement. 12 13 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) Financial Statements: The following consolidated financial statements and related notes of the Registrant and its subsidiaries are incorporated herein by reference to the 1996 Annual Report to Shareholders (pages 13 through 23): Consolidated Balance Sheets -- June 30, 1996 and 1995 Consolidated Statements of Income for the Years Ended June 30, 1996, 1995 and 1994 Consolidated Statements of Shareholders' Equity for the Years Ended June 30, 1996, 1995 and 1994 Consolidated Statements of Cash Flows for the Years Ended June 30, 1996, 1995 and 1994 Notes to Consolidated Financial Statements Auditors' Report (a) (2) Financial Statement Schedule: Report of Independent Public Accountants on the Financial Statement Schedule Schedule II -- Valuation and Qualifying Accounts and Reserves for the Years Ended June 30, 1996, 1995 and 1994 All schedules, other than Schedule II, are omitted since the information is not required or is otherwise furnished. Separate financial statements of the Registrant have been omitted since restricted net assets of consolidated subsidiaries and unconsolidated investees and the Company's share of the unconsolidated subsidiaries' equity is less than 25% of the Company's net assets at June 30, 1996. 13 14 (a) (3) Exhibits:
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 - -------------- ----------- ----------- --------------------------- 2 2a Stock Sale Agreement, Dated December 19, Form 8-K, Dated January 26, 1992 with respect to the acquisition of 1993 the Standard Products Industriel Group. (Filed with the SEC on February 8, 1993; see Exhibit 2 therein) 3 3a Second Amended and Restated Articles of Quarterly Report Form 10-Q Incorporation (Filed with the SEC on November 1, 1993; see Exhibit 3a therein) 3 3b Amended and Restated Code of Regulations Form S-3 Registration No. 33-62054 (Filed with the SEC on May 5, 1993; see Exhibit 3.2 therein) 4 4a Senior Notes Agreement -- $75,000,000 Quarterly Report Form 10-Q 6.55% Senior Notes due December 16, (Filed with the SEC on 2003, by and among The Standard Products February 11, 1994; see Company and Metropolitan Life Insurance Exhibit 4 therein) Company and certain of its Affiliates 4 4b Senior Notes Agreement -- $25,000,000 Annual Report Form 10-K aggregate principal amount Dated as of (Filed with the SEC on June 30, 1989, between the Company and September 25, 1989; see Nationwide Life Insurance Company, Aid Exhibit 4b therein) Association for Lutherans and Employers Life Insurance Company of Wausau 4 4c Amendments to the Senior Notes Annual Report Form 10-K Agreement -- $25,000,000 aggregate (Filed with the SEC on principal amount (4e), dated February September 15, 1992; see 22, 1991 and, June 30, 1991, between the Exhibit 4f therein) Company and Nationwide Life Insurance Company, Aid Association for Lutherans and Employers Life Insurance Company of Wausau 4 4d Credit Agreement, Dated as of January Annual Report Form 10-K 19, 1993, Among The Standard Products (Filed with the SEC on Company, as Borrower, and National City September 13, 1993; see Bank, Society National Bank, Comerica Exhibit 4c therein) Bank and NBD Bank, N.A. and National City, as Agent. 4 4e Agreement of Amendment, Dated as of Annual Report Form 10-K April 30, 1994, Among The Standard (Filed with the SEC on Products Company, as Borrower, and September 14, 1995) National City Bank, Society National Bank, Comerica Bank and NBD Bank, N.A. and National City, as Agent.
14 15
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 - -------------- ----------- ----------- --------------------------- 4 4f Amendments to Senior Notes Agreement -- Annual Report Form 10-K $25,000,000 aggregate principal amount (Filed with the SEC on (4e), dated January 19, 1993 and, September 14, 1995) January 31, 1995, between the Company and Nationwide Life Insurance Company, Aid Association for Lutherans and Employers Life Insurance Company of Wausau 4 4g Interest Rate and Currency Exchange Annual Report Form 10-K Agreement, dated November 12, 1993, (Filed with the SEC on between the Company and National City September 14, 1995) Bank 4 4h Interest Rate and Currency Exchange Annual Report Form 10-K Agreement, Termination of $7 million in (Filed with the SEC on principal amount, dated June 16, 1995 September 14, 1995) between the Company and National City Bank 10 10a Supplemental Salaried Pension Plan Annual Report Form 10-K (Filed with the SEC on September 23, 1986; see Exhibit 10a therein) 10 10b The Standard Products Company 1985 Form S-8 Registration Employee Incentive Stock Option Plan No. 33-01558 (Filed with the SEC on November 15, 1985; see Exhibit 4a therein) 10 10c The Standard Products Company 1989 Form S-8 Registration Employee Incentive Stock Option Plan No. 33-33612 (Filed with the SEC on February 28, 1990; see Exhibit 4a therein) 10 10d The Standard Products Company 1991 Form S-8 Registration Employee Stock Option Plan No. 33-51556 (Filed with the SEC on September 2, 1992; see Exhibit 4c therein) 10 10e The Standard Products Company 1991 Form S-8 Registration Restricted Stock Plan No. 33-51554 (Filed with the SEC on September 2, 1992; see Exhibit 4c therein) 10 10f The Standard Products Company Restricted Annual Report Form 10-K Stock Agreement between the Company and (Filed with the SEC on the Chairman and Chief Executive Officer September 15, 1992; see Exhibit 10h therein) 10 10g The Standard Products Company Restricted Annual Report Form 10-K Stock Agreement between the Company and (Filed with the SEC on the President and Chief Operating September 15, 1992; see Officer Exhibit 10i therein)
15 16
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 - -------------- ----------- ----------- --------------------------- 10 10h The Standard Products Company Restricted Stock Agreement between the Company and the Executive Vice President-- International Operations 10 10i The Standard Products Company 1993 Form S-8 Registration Employee Stock Option Plan No. 33-53989 (Filed with the SEC on June 6, 1994; see Exhibit 4 therein) 10 10j Receivables Purchase Agreement Dated as Quarterly Report Form 10-Q of September 22, 1995 among The Standard (Filed with the SEC on Products Funding Corporation as seller February 13, 1996; see and The Standard Products Company as exhibit 10 therein) initial Master Servicer and Clipper Receivables Corporation as Purchaser and State Street Boston Capital Corporation as Administrator and National City Bank as Relationship Bank 10 10k Purchase and Sale Agreement dated as of Quarterly Report Form 10-Q September 22, 1995 among The Standard (Filed with the SEC on Products Company, as Originator and February 13, 1996; see Master Servicer, 5 Rubber Corporation, exhibit 10 therein) Oliver Rubber Company, and Holm Industries, Inc., as Originators and Servicers, and The Standard Products Funding Corporation, as the Initial Purchaser 10 10l Standard Products Individual Retirement Form S-8 Registration and Investment Trust Plan No. 333-01923 (Filed with SEC on March 26, 1996; see exhibit 4a therein) 10 10m The Standard Products Company Form S-8 Registration Collectively Bargained Savings and No. 333-01921 Retirement Plan (Filed with SEC on March 22, 1996; see exhibit 4a therein) 13 13 Annual Report to Shareholders for the Year Ended June 30, 1996 21 21 Subsidiaries of Registrant 23 23 Consent of Independent Public Accountants 27 27 Financial Data Schedule
(b) Reports on Form 8-K: No reports have been filed during the last quarter of the fiscal year covered by this report on Form 10-K. 16 17 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this the 27th day of September 1996. THE STANDARD PRODUCTS COMPANY By: /s/ DONALD R. SHELEY, JR. --------------------------------- Donald R. Sheley, Jr. Vice President, Finance and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ JAMES S. REID, JR. Chairman and Chief Executive Officer; September 27, 1996 - ----------------------------------- Director James S. Reid, Jr. /s/ THEODORE K. ZAMPETIS President and Chief Operating September 27, 1996 - ----------------------------------- Officer; Director Theodore K. Zampetis /s/ DONALD R. SHELEY, JR. Vice President, Finance and September 27, 1996 - ----------------------------------- Chief Financial Officer Donald R. Sheley, Jr. Principal Financial Officer /s/ BERNARD J. THEISEN Corporate Controller September 27, 1996 - ----------------------------------- Principal Accounting Officer Bernard J. Theisen /s/ JAMES C. BAILLIE Director September 27, 1996 - ----------------------------------- James C. Baillie /s/ EDWARD B. BRANDON Director September 27, 1996 - ----------------------------------- Edward B. Brandon /s/ JOHN DODDRIDGE Director September 27, 1996 - ----------------------------------- John Doddridge /s/ JOHN D. DRINKO Director September 27, 1996 - ----------------------------------- John D. Drinko /s/ CURTIS E. MOLL Director September 27, 1996 - ----------------------------------- Curtis E. Moll /s/ MALCOLM R. MYERS Director September 27, 1996 - ----------------------------------- Malcolm R. Myers /s/ LEIGH H. PERKINS, SR. Director September 27, 1996 - ----------------------------------- Leigh H. Perkins, Sr. /s/ ALFRED M. RANKIN, JR. Director September 27, 1996 - ----------------------------------- Alfred M. Rankin, Jr. /s/ ALAN E. RIEDEL Director September 27, 1996 - ----------------------------------- Alan E. Riedel /s/ JOHN D. SIGEL Director September 27, 1996 - ----------------------------------- John D. Sigel /s/ W. HAYDEN THOMPSON Director September 27, 1996 - ----------------------------------- W. Hayden Thompson
17 18 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON THE FINANCIAL STATEMENT SCHEDULE To: The Standard Products Company We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements included in The Standard Products Company and Subsidiary Companies 1996 Annual Report to Shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated July 23, 1996. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in Item 14(a)(2) of this Form 10-K is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. ARTHUR ANDERSEN LLP Cleveland, Ohio July 23, 1996. 18 19 VALUATION AND QUALIFYING ACCOUNTS SCHEDULE II FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(THOUSANDS OF DOLLARS) COLUMN C COLUMN F COLUMN B ---------- -------- ---------- ADDITIONS BALANCE COLUMN A BALANCE AT CHARGED TO COLUMN D COLUMN E AT END - ------------------------------------------ BEGINNING COSTS AND -------- ---------- OF DESCRIPTION OF PERIOD EXPENSES RECOVERIES DEDUCTIONS PERIOD - ------------------------------------------ ---------- ---------- -------- ---------- -------- Year Ended June 30, 1996 Reserve for Plant Closing................. $6,235 $-- $-- $6,235 $-- (2) ====== ====== ==== ====== ====== Allowance for doubtful accounts........... $4,978 $ 8 $113 $2,141 $2,958 ====== ====== ==== ====== ====== Year Ended June 30, 1995 Reserve for Plant Closing................. $3,975 $3,485 $-- $1,225 $6,235(1) ====== ====== ==== ====== ====== Allowance for doubtful accounts........... $3,627 $4,074 $230 $2,953 $4,978 ====== ====== ==== ====== ====== Year Ended June 30, 1994 Reserve for Plant Closing................. $9,111 $-- $-- $5,136 $3,975(1) ====== ====== ==== ====== ====== Allowance for doubtful accounts........... $2,293 $ 459 $605 $ (270) $3,627 ====== ====== ==== ====== ======
- --------------- (1) The balances of $3,975 and $6,235 have been classified as a current liability in the accompanying consolidated balance sheet as of June 30, 1994 and 1995, respectively. (2) The plant closures were completed during 1996. Remaining balances have been reclassified to the appropriate reserve accounts such as environmental and legal on the balance sheet at June 30, 1996. 19 20 Exhibit Index
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 - -------------- ----------- ----------- --------------------------- 2 2a Stock Sale Agreement, Dated December 19, Form 8-K, Dated January 26, 1992 with respect to the acquisition of 1993 the Standard Products Industriel Group. (Filed with the SEC on February 8, 1993; see Exhibit 2 therein) 3 3a Second Amended and Restated Articles of Quarterly Report Form 10-Q Incorporation (Filed with the SEC on November 1, 1993; see Exhibit 3a therein) 3 3b Amended and Restated Code of Regulations Form S-3 Registration No. 33-62054 (Filed with the SEC on May 5, 1993; see Exhibit 3.2 therein) 4 4a Senior Notes Agreement -- $75,000,000 Quarterly Report Form 10-Q 6.55% Senior Notes due December 16, (Filed with the SEC on 2003, by and among The Standard Products February 11, 1994; see Company and Metropolitan Life Insurance Exhibit 4 therein) Company and certain of its Affiliates 4 4b Senior Notes Agreement -- $25,000,000 Annual Report Form 10-K aggregate principal amount Dated as of (Filed with the SEC on June 30, 1989, between the Company and September 25, 1989; see Nationwide Life Insurance Company, Aid Exhibit 4b therein) Association for Lutherans and Employers Life Insurance Company of Wausau 4 4c Amendments to the Senior Notes Annual Report Form 10-K Agreement -- $25,000,000 aggregate (Filed with the SEC on principal amount (4e), dated February September 15, 1992; see 22, 1991 and, June 30, 1991, between the Exhibit 4f therein) Company and Nationwide Life Insurance Company, Aid Association for Lutherans and Employers Life Insurance Company of Wausau 4 4d Credit Agreement, Dated as of January Annual Report Form 10-K 19, 1993, Among The Standard Products (Filed with the SEC on Company, as Borrower, and National City September 13, 1993; see Bank, Society National Bank, Comerica Exhibit 4c therein) Bank and NBD Bank, N.A. and National City, as Agent. 4 4e Agreement of Amendment, Dated as of Annual Report Form 10-K April 30, 1994, Among The Standard (Filed with the SEC on Products Company, as Borrower, and September 14, 1995) National City Bank, Society National Bank, Comerica Bank and NBD Bank, N.A. and National City, as Agent.
21
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 - -------------- ----------- ----------- --------------------------- 4 4f Amendments to Senior Notes Agreement -- Annual Report Form 10-K $25,000,000 aggregate principal amount (Filed with the SEC on (4e), dated January 19, 1993 and, September 14, 1995) January 31, 1995, between the Company and Nationwide Life Insurance Company, Aid Association for Lutherans and Employers Life Insurance Company of Wausau 4 4g Interest Rate and Currency Exchange Annual Report Form 10-K Agreement, dated November 12, 1993, (Filed with the SEC on between the Company and National City September 14, 1995) Bank 4 4h Interest Rate and Currency Exchange Annual Report Form 10-K Agreement, Termination of $7 million in (Filed with the SEC on principal amount, dated June 16, 1995 September 14, 1995) between the Company and National City Bank 10 10a Supplemental Salaried Pension Plan Annual Report Form 10-K (Filed with the SEC on September 23, 1986; see Exhibit 10a therein) 10 10b The Standard Products Company 1985 Form S-8 Registration Employee Incentive Stock Option Plan No. 33-01558 (Filed with the SEC on November 15, 1985; see Exhibit 4a therein) 10 10c The Standard Products Company 1989 Form S-8 Registration Employee Incentive Stock Option Plan No. 33-33612 (Filed with the SEC on February 28, 1990; see Exhibit 4a therein) 10 10d The Standard Products Company 1991 Form S-8 Registration Employee Stock Option Plan No. 33-51556 (Filed with the SEC on September 2, 1992; see Exhibit 4c therein) 10 10e The Standard Products Company 1991 Form S-8 Registration Restricted Stock Plan No. 33-51554 (Filed with the SEC on September 2, 1992; see Exhibit 4c therein) 10 10f The Standard Products Company Restricted Annual Report Form 10-K Stock Agreement between the Company and (Filed with the SEC on the Chairman and Chief Executive Officer September 15, 1992; see Exhibit 10h therein) 10 10g The Standard Products Company Restricted Annual Report Form 10-K Stock Agreement between the Company and (Filed with the SEC on the President and Chief Operating September 15, 1992; see Officer Exhibit 10i therein)
22
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 - -------------- ----------- ----------- --------------------------- 10 10h The Standard Products Company Restricted Stock Agreement between the Company and the Executive Vice President-- International Operations 10 10i The Standard Products Company 1993 Form S-8 Registration Employee Stock Option Plan No. 33-53989 (Filed with the SEC on June 6, 1994; see Exhibit 4 therein) 10 10j Receivables Purchase Agreement Dated as Quarterly Report Form 10-Q of September 22, 1995 among The Standard (Filed with the SEC on Products Funding Corporation as seller February 13, 1996; see and The Standard Products Company as exhibit 10 therein) initial Master Servicer and Clipper Receivables Corporation as Purchaser and State Street Boston Capital Corporation as Administrator and National City Bank as Relationship Bank 10 10k Purchase and Sale Agreement dated as of Quarterly Report Form 10-Q September 22, 1995 among The Standard (Filed with the SEC on Products Company, as Originator and February 13, 1996; see Master Servicer, 5 Rubber Corporation, exhibit 10 therein) Oliver Rubber Company, and Holm Industries, Inc., as Originators and Servicers, and The Standard Products Funding Corporation, as the Initial Purchaser 10 10l Standard Products Individual Retirement Form S-8 Registration and Investment Trust Plan No. 333-01923 (Filed with SEC on March 26, 1996; see exhibit 4a therein) 10 10m The Standard Products Company Form S-8 Registration Collectively Bargained Savings and No. 333-01921 Retirement Plan (Filed with SEC on March 22, 1996; see exhibit 4a therein) 13 13 Annual Report to Shareholders for the Year Ended June 30, 1996 21 21 Subsidiaries of Registrant 23 23 Consent of Independent Public Accountants 27 27 Financial Data Schedule
EX-10.H 2 EX-10.H 1 EXHIBIT 10H THE STANDARD PRODUCTS COMPANY RESTRICTED STOCK AGREEMENT This Restricted Stock Agreement (this "Agreement"), is made as of this 29th day of August, 1995, by and between The Standard Products Company, an Ohio corporation (the "Company"), and James F. Keys ("Executive") under The Standard Products Company 1991 Restricted Plan (the "Plan"); 1. The Company hereby awards to Executive up to Fifty Thousand (50,000) Common Shares, $1.00 par value, of the Company ("Common Shares"), which may be earned at a rate of up to 5,000 Shares per year in the current fiscal year and each of the nine succeeding fiscal years, in all respects subject to the terms, conditions and provisions of this Agreement and the Plan, a copy of which is attached to this Agreement and incorporated herein by reference. 2. Common Shares awarded to Executive hereunder are subject to restriction and may not be sold, transferred or otherwise assigned until such shares are earned in accordance with paragraph 3 hereof and have vested in accordance with paragraph 4 hereof. Notwithstanding the foregoing, however, Common Shares awarded to Executive hereunder which are earned but non-vested or awarded Common Shares that remain available to Executive but are unearned shall immediately vest in Executive upon a Change in Control of the Company (as defined in the Plan). In the event of Executive's death, all earned but non-vested Common Shares and one-half of awarded Common Shares that remain available to Executive but are unearned shall vest in Executive's designated beneficiary. 3. The number of awarded Common Shares which may be earned with respect to each fiscal year at a rate of up to 5,000 shares per year in the current fiscal year and each of the succeeding nine fiscal years equals the product of 5,000 multiplied by the ratio of the cash bonus earned by Executive under the Company's Officers' Bonus Plan over the maximum possible cash bonus which Executive could have earned under such Plan with respect to each such fiscal year. No more than 5,000 Common Shares may be earned in any one fiscal year and no Common Shares may be earned with respect to any fiscal year after the fiscal year ending June 30, 2004. 4. Common Shares awarded hereunder and earned by Executive in accordance with paragraph 3 above shall become vested in Executive at the end of the third fiscal year following the end of the fiscal year with respect to which such Common Shares are earned. 5. Common Shares awarded hereunder and earned in accordance with paragraph 3 above shall be issued in the name of Executive, and the Company's transfer agent will show Executive as the owner of record of such Common Shares. Executive will have all rights of a shareholder with respect to awarded and earned Common Shares, including the right to vote such shares, subject to the limitations imposed by this Agreement and the Plan. The certificates representing awarded and 2 earned Common Shares shall not be delivered to Executive until such Common Shares become vested. If Executive shall voluntarily cease to be an employee of the Company prior to vesting of Common Shares (whether such Common Shares are earned or unearned), Executive shall forfeit to the Company all Common Shares not then vested in Executive; provided, that if Executive desires to retire as an active employee of the Company, the Compensation Committee shall have the authority to waive such forfeiture under such terms and conditions as said Committee deems appropriate. In this regard, simultaneously with the issuance of certificates representing awarded and earned Common Shares, Executive shall execute and deliver stock powers forfeiting to the Company Common Shares awarded and earned hereunder but not vested in the event Executive voluntarily ceases to be an employee of the Company prior to any vesting date. Executive acknowledges that Common Shares awarded hereunder shall be subject to the restrictions and risks of forfeiture contained herein and in Section 8 of the Plan. 6. Executive hereby agrees that he shall pay to the Company, in cash, any foreign, United States federal, state or local taxes of any kind required by law to be withheld with respect to the Common Shares awarded to him hereunder. If Executive does not make such payment to the Company, the Company shall have the right to deduct from any payment of any kind otherwise due to Executive from the Company (or from any subsidiary of the Company), any federal, state or local taxes of any kind required by law to be withheld with respect to Common Shares awarded to Executive under this Agreement. 7. Executive represents that Common Shares awarded hereunder are being acquired by Executive not with a view toward resale or distribution and Executive will not sell or otherwise transfer such Common Shares except in compliance with the Securities Act of 1933 and the rules and regulations promulgated thereunder. Executive hereby acknowledges that Common Shares awarded hereunder shall bear legends and statements evidencing such restrictions and other restrictions contained in Section 8 of the Plan. THE STANDARD PRODUCTS COMPANY By /s/ John C. Brandmahl Title Vice President Human Resources Date 8/29, 1995 -2- 3 Executive acknowledges receipt of the Plan, a copy of which is attached hereto, and represents that he is familiar with the terms and provisions thereof, and hereby agrees that Common Shares granted under this Agreement are subject to all terms and provisions of this Agreement. Executive hereby agrees to accept as binding, conclusive and firm all decisions and interpretations of the Compensation Committee of the Board of Directors of the Company. EXECUTIVE \s\ James F. Keys Date August 16, 1995 -3- EX-13 3 EX-13 1 EXHIBIT 13 THE STANDARD PRODUCTS CO. ANNUAL REPORT 1996 WORLDWIDE MANUFACTURING FOR THE WORLDWIDE AUTO INDUSTRY 2 ABOUT THE COMPANY The Standard Products Co. has pursued a strategic focus to grow related businesses in rubber and plastic laminated extrusion technology into leadership positions in their industries and to build value for shareholders. The Company is one of the world's leading suppliers of sealing, trim and vibration-control systems for the worldwide automotive original equipment industry. We are also the major North American supplier of seals for home and commercial refrigerators and freezers, and residential doors and windows. Through our Oliver Rubber subsidiary, we are a leading manufacturer of tread rubber and equipment for the truck retread industry. The Company has production facilities and technical centers in five countries around the world. [MAP] Plants and Technical Centers; Automotive Markets i 3 SEALING AND TRIM SYSTEMS FOR THE WORLDWIDE AUTO INDUSTRY Our products and systems protect, decorate and improve the performance of more than 180 different car and light truck models produced around the world. Today, as fit and finish, ride quality, noise, and durability become increasingly critical differentiators, more attention is being focused on the products we design and manufacture. [DIAGRAM] - - Plastic Bright Trim with Tape for Soft Bumpers - - Engine Mounts - - Hood Seals - - Windshield Molding - - Inner and Outer Belt Weatherstrip Assembly - - Sunroof Sealing and Trim - - Body Cushions - - Bodyside Trim ii 4 [DIAGRAM] - - Encapsulated Glass Quarter Window - - Trunk Lid Seal - - Back Light Trim - - Glass Run Channel Assembly - - Door Seals - - Quarter Window Trim Molding [STANDARD PRODUCTS LOGO] A COMMITMENT TO QUALITY Standard Products is committed to manufacturing products that meet or exceed customer quality expectations. We reduced defective parts per million (PPM) by 30% in fiscal 1995 and by another 50% in fiscal 1996. Now we are driving toward an extremely competitive level of quality -- less than 100 PPM. Last year, nine of our North American automotive plants earned QS 9000 status, the U.S. auto industry's rigorous quality certification process. Our goal is for all our North American automotive plants to be certified QS 9000 by December 31, 1996. In addition, all of our plants in the United Kingdom have achieved ISO 9002 status. iii 5 FISCAL YEAR HIGHLIGHTS
(THOUSANDS OF DOLLARS EXCEPT SHARE DATA) 1996 1995 1994 Net Sales................................. $1,083,920 $995,926 $872,367 Net Income................................ 14,577 20,066 33,032 Earnings Per Common Share.......................... $ .87 $ 1.20 $ 1.99 Cash Dividends Declared Per Common Share ..................... $ .68 $ .68 $ .65 Shareholders' Equity ..................... $ 258,765 $260,495 $242,677 Book Value Per Common Share ..................... $ 15.42 $ 15.56 $ 14.55 Shares Outstanding at Year End .......................... 16,785 16,736 16,674
FISCAL 1996 IN REVIEW Sales reached a record $1,083,920, putting us over the billion-dollar mark for the first time. Earnings improved steadily throughout the year, culminating in fourth quarter profit of $.93 per share, the best quarter in our history. We completed construction of our 236,000-sq.-ft. plant in Varginha, Brazil, and are now supplying 1,000 sealing systems per day for Fiat's new Palio world car. We successfully completed the Ford Taurus/Sable launch, our largest ever, involving nine of our plants. NET SALES [GRAPH] TOTAL COMPANY R, E & D [GRAPH] CAPITAL ADDITIONS, NET [GRAPH] EARNINGS PER SHARE [GRAPH] 1 6 Standard Products stepped up its position in the rapidly expanding Brazilian auto industry with the opening of a new 236,000-sq.-ft. plant in Varginha. The facility is located near many of the automotive plants supplying the Brazilian and Argentine markets. [PHOTO] 2 7 CANADA Standard Products first expanded beyond the United States in the 1930s, setting up production in Canada. Today our Canadian production facilities, including a rubber-mixing plant, supply sealing and trim systems to automotive assembly plants throughout Canada and the United States. - --------------------- TO OUR SHAREHOLDERS: What a difference a year makes. Twelve months ago, we were at the apex of the most intensive three-year schedule of new programs and capital investments in Standard Products' history. These programs had stretched our resources and squeezed profits, but we were confident in our strategy. These investments were the price of admission to the future. That future began to emerge in the third quarter of fiscal 1996 and became apparent in the fourth quarter of the year. For the three months ended June 30, we reported record-breaking quarterly sales of $303.1 million and the highest quarterly earnings in the Company's history - -- $15.5 million, equal to $.93 per share. This strong performance brought our annual sales to $1,083.9 million, putting us over the billion-dollar annual sales mark for the first time. Net income for the year was $14.6 million, or $.87 per share, compared with $20.1 million, or $1.20 per share, a year ago. The quarter-to-quarter improvement was due primarily to three factors: higher volumes, stable material prices, and our ability to cut costs quickly and begin to move up the profit curve on new programs and new ventures. Fiscal 1996 sales from Transportation Equipment, our largest business segment, were $958.1 million, up 10.3% over fiscal 1995. Most of the gain came from the North American market, largely due to our participation on the Ford Taurus/Sable, Chevrolet Lumina/Monte Carlo and Chrysler minivan programs. Our automotive sales in Europe were $241.6 million, essentially flat - --------------------- BRAZIL Our world-class rubber and plastic extrusion plant in Varginha, Brazil, began production in January 1996. The facility supplies 100% of the automotive sealing systems for Fiat's new Palio world car. In addition to launching the Palio, we integrated the operations of Itatiaia Standard into Varginha and now serve other Brazilian automakers. 3 8 [PHOTO] Our newest North American plant is located in Griffin, Georgia. Opened in 1994, the plant produces window channels, weatherstrips and doorseals for Chrysler's popular minivans and Neon subcompact. These are among our biggest current programs. 4 9 with the prior year. Transportation Equipment volume also benefited from $29.5 million in sales from Brazil, compared with just $2.6 million a year ago. For most of the prior year, we had only a 20% interest in Itatiaia Standard, our Brazilian subsidiary, and its sales were not consolidated. Oliver Rubber, our tread rubber subsidiary, was profitable on a slight increase in sales for the year. Oliver's decision to shut down its European operations affected the year-over-year sales comparison, but this was offset by initial revenues from a major new contract signed during the year. Treadco, the nation's largest independent truck-tire retreader, agreed to convert 22 of its truck tire precure retread facilities to Oliver licensees. Oliver will supply precured tread rubber, retread equipment and related items to the Treadco shops. The conversion is expected to be completed later this fall, and has grown to 25 shops. Our Holm Industries subsidiary reported flat sales for the year in the refrigerator and freezer market. NISCO, our U.S.-based joint venture with Nishikawa Rubber Company of Hiroshima, Japan, which manufactures sponge automotive door seals, was profitable for the year on higher sales. Our share of NISCO's profits is 50% of the total. NISCO's sales are not consolidated in our income statement. Looking back at fiscal 1996, we began the year with the launch of the Ford Taurus/Sable. Although launch costs on the Taurus/Sable were high, this was one of our most successful launches ever. Meanwhile, in Brazil, government credit tightening dramatically reduced demand for new cars. The resulting slowdown exacerbated losses at Itatiaia Standard just as we were starting up our new plant. By the end of the fiscal year, however, market conditions had improved, Itatiaia - --------------------- UNITED STATES From our base in the U.S., we have built Standard Products into a global company with a manufacturing presence on three continents. Through investments in engineering and design, combined with kaizen process simplification, we are targeting to become the low-cost producer, bringing innovative products to our customers. 5 10 [PHOTO] An employee checks an extrusion oven at our plant in Huntingdon, England. Standard Products' long experience in international operations represents an important advantage as automakers increasingly demand a globally competitive level of quality for their new generation of world vehicles. 6 11 FRANCE We established a presence in continental Europe with our 1993 acquisition of SPI. In addition to SPI's production facilities, the acquisition brought us valuable technology that has been shared throughout the Company. SPI's relationship with Fiat led to our Brazilian investment. - --------------------- Standard's plant in Sao Paulo had been integrated into the new plant in Varginha, and we had started launching our first Brazilian program, for the new Fiat Palio. The 236,000-sq.-ft. plant in Varginha, Brazil, was built to supply 100% of the sealing systems for the Palio, designed by Fiat to be a world car. We are currently supplying 1,000 sealing systems per day for the Palio, and we expect to reach full production of 2,200 per day a year from now when Fiat ramps up production at a second assembly plant in Argentina. Our facility is also supplying other auto manufacturers in the rapidly expanding Brazilian and Argentine markets. The new plant in Brazil and the successful North American and European launches over the past two years exemplify our aggressive growth strategy: We will sustain our strong base of business in North America and Europe by investing heavily in research, development and engineering, and through kaizen and continuous improvement efforts. A key element here is our two-year-old Worldwide Technology Organization, whose mission is to develop new products and processes, share our technological expertise across the Company, and ensure worldwide consistency of equipment and technology. For our customers' new plants in Latin America, Southeast Asia and elsewhere, the world's automakers are demanding a globally competitive level of quality and design engineering capabilities. Standard Products has been supplying these customers throughout the world for many, many years. We - --------------------- UNITED KINGDOM In addition to several production plants, the U.K. is also home to one of our worldwide rubber mixing centers and one of our major product development centers. The ability to interchange engineering and manufacturing technology around the globe is a key advantage Standard Products brings to its niche in the automotive marketplace. 7 12 are excited about these opportunities in South America, as well as in other countries with major automotive markets. We have made significant strides in the last several years, substantially strengthening our engineering and design capabilities. We continue to strengthen our partnership with Nishikawa Rubber Company of Hiroshima, Japan, which has become an important source of strength to both Nishikawa and Standard Products. As we improve our plant efficiency and bring costs down, we can do more with less and will continually reassess the most efficient use of our assets. That said, we must reiterate that this remains an intensely competitive business. We see significant overcapacity in the North American auto industry among both suppliers and customers. As a result, we are feeling heavy pressure from our customers for price reductions. Although our upcoming launch schedule is lighter than last year, we still expect to bring on about $100 million in new business in fiscal 1997, replacing some $60 million in existing volume. Major launches include the Buick Century and Park Avenue, the Ford Escort coupe, the Jeep Cherokee, and the Fiat Palio 3-door in Brazil. Barring a severe auto industry strike this fall, we look to improved results for fiscal 1997. Assuming reasonable economic conditions over the next several years, we see a highly competitive and slow growth world auto industry, with pockets of opportunity for us. On behalf of the Board of Directors, we thank our employees for their pride and commitment and our shareholders, customers and suppliers for their ongoing support. [PHOTOS] James S. Reid, Jr. Chairman and Chief Executive Officer Theodore K. Zampetis President and Chief Operating Officer August 28, 1996 8 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (ALL AMOUNTS IN THOUSANDS OF DOLLARS) Standard Products is recognized as one of the world's leading suppliers of sealing, trim and vibration-control systems to original equipment manufacturers (OEMs) of passenger cars and light trucks. The Company also maintains leading positions in the sealing industry for the refrigeration and home building products businesses. These operations comprise the Company's Transportation Equipment Segment. The Company reports the results of its truck tire retreading business as the Tread Rubber Segment. This business also has a market-leading position in its industry. TRANSPORTATION EQUIPMENT SEGMENT GENERAL Sealing and vibration control systems are usually made of extruded and molded rubber. These products are engineered to provide the driver of an automobile a smooth, quiet ride. The systems accomplish this by preventing moisture, wind and other forces from penetrating the openings in a vehicle and by reducing the impact of vibrations from poor road conditions or normal engine and powertrain operation. As such, these systems can be extremely important to the retail customer's satisfaction with a particular vehicle. Trim systems are generally made from plastic. The Company typically produces these components using the extrusion process rather than injection molding. The Company believes that its superior extrusion technology provides it with a competitive advantage. This segment is highly dependent on the success of the OEMs worldwide and on three customers in particular (Ford, General Motors and Chrysler), the loss of one or more of which would have a material adverse effect on this segment. (See Note 13 to the financial statements for details on sales by customer.) The market for new automobiles in any country is highly dependent on the general economic conditions in that country. As the Company continues to expand its global reach, it also spreads that risk over more areas. Currently, the areas in which the Company produces and ships parts appear relatively stable. The Brazilian economy continues to merit close attention, especially as we increase production. Revenues from the Company's operations in Brazil are expected to double next year from fiscal 1996 levels. The North American and European economies remain in low growth patterns that are typical of mature markets. In addition to the factors noted above, the globalization of the economy continues to bring new competition for customers in North America. Management views the Company's extensive global experience as a major asset in the battle for new business. Continued globalization, however, will only increase the pressure from our customers to reduce prices. While the Company's business is not seasonal in the traditional sense, July, August and December are usually lower volume months. OEMs typically perform model changeovers during July, European operations are closed for vacations in August and assembly plants are usually closed for a period from shortly before Christmas until after New Year's Day. SALES PERFORMANCE -- 1996 VERSUS 1995 Fiscal 1996 sales for the Transportation Equipment Segment were $958,105, an increase of $89,213, or 10.3%, over the prior year. The following table details the sales of this segment by geographic location:
1996 1995 North America....................... $687,009 $626,152 Europe.............................. 241,617 240,100 South America....................... 29,479 2,640 -------- -------- Total.......................... $958,105 $868,892
The sales increase in North America was entirely related to our automotive group, despite flat production of passenger cars and light trucks year-over-year in the North American auto market. Strong performance by individual platforms within the industry accounted for the increased sales volume. The Chrysler minivan and Jeep Grand Cherokee showed strong sales gains. This was also our first full year of production on the Chrysler minivan. The Ford Taurus/Sable, while slipping slightly in sales, has shown stronger volumes as the year progressed. This helped support our strong fourth quarter performance. The new Ford F-150 truck also helped to boost sales. North America also includes the results of our appliance sealing business which was essentially flat year-over-year, although fourth quarter production was strong, helping to offset previous quarterly declines in year-over-year sales. In Europe, volumes were up in the United Kingdom, principally on Ford platforms, while in France volumes declined primarily with Renault and Fiat. Foreign currency translations in France acted to almost entirely offset the volume declines, while in the United Kingdom they reduced the volume gains by over 40%. In South America, results for fiscal 1995 reflect one month's revenue, while fiscal 1996 reflects a full twelve months of sales. Our new plant in Varginha came on line in the last month of the third quarter of this year, adding solidly to the revenue base. The Fiat Palio will be the source of most of this region's revenue next year. SALES PERFORMANCE -- 1995 VERSUS 1994 Fiscal 1995 sales for the Transportation Equipment Segment were $868,892, an increase of $115,128, or 15%, over the prior year. In North America, automotive sales were $531,086, an increase of 15%. The 1995 results reflect a full year of sales of parts for the General Motors Lumina/Monte Carlo models. Production of these models began late in fiscal 1994 at slow rates of production. During 1995, production levels increased to normal rates and, as a result, sales of the Company's parts to General Motors increased $45,000 compared to 1994. Similarly, Chrysler began production of the Neon models in mid-fiscal 1994 with rates of production gradually increasing. Fiscal 1995 includes a full year of sales of the Company's products for the Neon. The increase in sales over 1994 was $26,038. These sales gains were partially offset by lower production volumes of certain models and the conclusion of production of models for which the Company does not continue to supply parts. In Europe, sales increased by $35,504 to $240,100, an increase of 17%. During fiscal 1995, the U.S. dollar weakened in relation to the currencies of the countries where the Company's European subsidiaries do business. For the year, the effect of the varying currency exchange rates contributed 56% of the increased sales in Europe, measured in U.S. funds. The remainder of the increase in sales is due to the sales of parts on new models and strong builds for the year compared to fiscal 1994. In May, the Company completed its acquisition of Itatiaia Standard of Brazil. Its sales for June 1995 were $2,640. Holm Industries, the Company's subsidiary which serves the appliance and building products industries, recorded sales of $94,217, an increase of $7,173, or 8.2% over the prior year. The increase in sales was due to strong refrigeration appliance sales during fiscal 1995, sales of new products and sales to new customers. In addition, Holm partially recovered raw material cost increases through increased selling prices. OPERATING PERFORMANCE -- 1996 VERSUS 1995 Fiscal 1996 began poorly but finished on a high note. First quarter gross margins were affected by high start-up costs on several new launches. In addition, raw material costs that had steadily escalated during fiscal year 1995 remained high. Beginning in the second 9 14 quarter of fiscal 1996, costs related to our largest launches in history began to subside at most locations and raw material prices started to decline. Continuous improvement programs also generated significant margin improvements as programs went from launch status to a more stable, repetitive environment. Selling, general and administrative expenses increased substantially in this segment over the prior year. This increase was the result of start-up costs in Brazil, as well as the expenses related to the sale of receivables explained further in Note 4 to the financial statements. The Company completed the reduction of its Canadian plastics plant previously accrued for in 1995. Additional costs were incurred of approximately $1,000 and were charged to normal operations in fiscal 1996. OPERATING PERFORMANCE -- 1995 VERSUS 1994 Automotive production volume increased significantly during 1995 compared to the prior year. Volume increases were led by the production of parts for the Lumina/Monte Carlo and Neon models as well as volume gains for the year in Europe, contributing 1.7% of fiscal 1995 sales. These gains were offset, however, by lower margins on new product programs compared with those which were replaced. This decline represented 1.6% of fiscal 1995 sales. The Company experienced significant raw material price increases during fiscal 1995 throughout its operating units with rubber, plastics and chemicals increasing significantly. The effect of increases in raw material costs was .9% of fiscal 1995 sales. The Company encountered manufacturing and production problems at its Spartanburg, South Carolina plant throughout 1995. The resulting excessive manufacturing costs and tooling expenses were .7% of fiscal 1995 sales. The increase in research, engineering and development expenses represented .5% of 1995 sales. These expenses were incurred for current year programs as well as future programs. The Company recorded $3,485 to provide for the reduction of its plastics plant in Canada. Charges included severance, idle assets and remaining lease commitments. TREAD RUBBER SEGMENT GENERAL Oliver Rubber Company (Oliver) manufactures and markets precure and mold cure tread rubber, bonding gum, cement, repair materials and equipment for use in the tire retreading industry. In addition, Oliver supplies custom mixed rubber to The Standard Products Company and certain affiliates for use in the automotive original equipment business. SALES PERFORMANCE -- 1996 VERSUS 1995 Sales for fiscal 1996 were $135,869, including intersegment sales of $10,054. This was an increase of 1.7%, or $2,213 over fiscal 1995. In fiscal 1995, the Company closed its European operations related to this segment. Accordingly, there were no sales in Europe in fiscal 1996. During fiscal 1995, sales in Europe were $5,239. Sales in North America increased by $7,452 in fiscal 1996. Roughly 46% of this increase came from additional intercompany sales to the Transportation Equipment Segment. During fiscal 1996, the Company made a significant investment in its mixing plant in Asheboro, North Carolina, resulting in improved quality and increased sales to the Transportation Equipment Segment's automotive parts plants. The remainder of the increase in sales is primarily attributable to the new agreement Oliver signed in fiscal 1996 to supply Treadco, Inc. with precure tread rubber, retread equipment and related items at all of its truck tire precure retreading locations. Treadco, Inc. is the largest independent truck tire retreader in the United States. SALES PERFORMANCE -- 1995 VERSUS 1994 For fiscal 1995, sales of the Tread Rubber Segment were $133,656, including intersegment sales of $6,622. Sales increased by 7.6%, or $9,487 over fiscal 1994. In North America, sales increased $13,150. Sales volume increased over 1994 in both precure and mold cure rubber. In addition, the Company increased selling prices, primarily in the second half of fiscal 1995, to partially offset raw material cost increases which occurred during the year. Increased sales in North America were offset by a decrease in sales in Europe of $3,663. This was the result of the Company concluding operations in Europe in this segment. 10 15
SELECTED FINANCIAL DATA (THOUSANDS OF DOLLARS EXCEPT SHARE DATA) 1996 1995 1994 1993 1992 INCOME STATEMENT Net Sales $1,083,920 $995,926 $872,367 $763,796 $657,036 Gross Income 108,482 99,455 119,427 108,607 94,253 Selling, General & Administrative Expenses 69,616 60,121 57,787 49,768 41,760 Rationalization of Business Units -- 8,832 4,424 -- -- Interest (Income) Expense, net 12,779 13,010 9,093 8,214 13,659 Other (Income) Expense, net (2,437) 233 (2,092) 399 54 Provision for Taxes on Income 13,947 (2,807) 17,183 16,803 15,475 Income (Loss) from Continuing Operations and Before Extraordinary Item and Cumulative Effect on Prior Years of Change in Accounting Principle 14,577 20,066 33,032 33,423 23,305 Income (Loss) from Operations and Disposal of Discontinued Division, Net of Tax -- -- -- -- -- Income (Loss) Before Extraordinary Item and Cumulative Effect on Prior Years of Change in Accounting Principle 14,577 20,066 33,032 33,423 23,305 Extraordinary Item, Net of Tax -- -- -- (2,559) -- Cumulative Effect on Prior Years of Change in Accounting Principle, Net of Tax -- -- -- (8,301) -- Net Income (Loss) $ 14,577 $ 20,066 $ 33,032 $ 22,563 $ 23,305 Percent Net Income to Sales 1.3 2.0 3.8 3.0 3.5 Percent Net Income to Average Shareholders' Equity 5.6 8.0 14.5 12.1 19.5 PER SHARE Income (Loss) from Continuing Operations and Before Extraordinary Item and Cumulative Effect on Prior Years of Change in Accounting Principle $ .87 $ 1.20 $ 1.99 $ 2.21 $ 1.79 Income (Loss) from Discontinued Operations -- -- -- -- -- Extraordinary Item, Net of Tax -- -- -- $ (.17) -- Cumulative Effect on Prior Years of Change in Accounting Principle, Net of Tax -- -- -- $ (.55) -- Net Income (Loss) $ .87 $ 1.20 $ 1.99 $ 1.49 $ 1.79 Cash Dividends Declared $ .68 $ .68 $ .65 $ .54 $ .38 Book Value $ 15.42 $ 15.56 $ 14.55 $ 13.56 $ 11.82 BALANCE SHEET Property, Plant & Equipment $ 548,816 $489,534 $422,576 $377,564 $279,830 Accumulated Depreciation 250,278 220,095 180,567 153,137 130,410 Total Assets 684,695 701,889 624,314 564,850 398,793 Working Capital 54,034 127,498 87,922 79,396 97,303 Long-term Debt 143,041 190,522 135,381 115,607 69,289 Shareholders' Equity 258,765 260,495 242,677 224,436 177,753 Cash Dividends Declared $ 11,400 $ 11,445 $ 10,821 $ 8,450 $ 5,103 OTHER Additions to Property, Plant & Equipment, net $ 79,684 $ 54,671 $ 59,120 $ 38,000 $ 18,367 Depreciation & Amortization $ 52,545 $ 46,839 $ 40,495 $ 29,887 $ 26,228 Shares Outstanding 16,785 16,736 16,674 16,552 15,044 Average Shares Outstanding 16,758 16,711 16,627 15,114 13,010 (THOUSANDS OF DOLLARS EXCEPT SHARE DATA) 1991 1990 1989 1988 1987 INCOME STATEMENT Net Sales $ 592,090 $590,699 $527,896 $473,035 $412,507 Gross Income 38,946 65,316 81,452 83,878 81,911 Selling, General & Administrative Expenses 40,073 35,011 27,111 23,694 21,388 Rationalization of Business Units -- -- -- -- -- Interest (Income) Expense, net 11,663 8,608 3,125 1,430 (86) Other (Income) Expense, net 285 1,846 2,062 1,612 (1,720) Provision for Taxes on Income 7,879 8,060 18,333 20,373 29,165 Income (Loss) from Continuing Operations and Before Extraordinary Item and Cumulative Effect on Prior Years of Change in Accounting Principle (20,954) 11,791 30,821 36,769 33,164 Income (Loss) from Operations and Disposal of Discontinued Division, Net of Tax (24,655) -- (2,132) (2,712) (1,639) Income (Loss) Before Extraordinary Item and Cumulative Effect on Prior Years of Change in Accounting Principle (45,609) 11,791 28,689 34,057 31,525 Extraordinary Item, Net of Tax -- -- -- -- -- Cumulative Effect on Prior Years of Change in Accounting Principle, Net of Tax -- -- -- -- -- Net Income (Loss) $ (45,609) $ 11,791 $ 28,689 $ 34,057 $ 31,525 Percent Net Income to Sales -- 2.0 5.4 7.2 7.6 Percent Net Income to Average Shareholders' Equity -- 7.7 18.8 25.5 25.5 PER SHARE Income (Loss) from Continuing Operations and Before Extraordinary Item and Cumulative Effect on Prior Years of Change in Accounting Principle $ (1.65) $ .93 $ 2.33 $ 2.71 $ 2.33 Income (Loss) from Discontinued Operations $ (1.94) -- $ (.16) $ (.20) $ (.11) Extraordinary Item, Net of Tax -- -- -- -- -- Cumulative Effect on Prior Years of Change in Accounting Principle, Net of Tax -- -- -- -- -- Net Income (Loss) $ (3.59) $ .93 $ 2.17 $ 2.51 $ 2.22 Cash Dividends Declared $ .47 $ .74 $ .69 $ .61 $ .46 Book Value $ 8.06 $ 12.05 $ 12.05 $ 10.96 $ 9.14 BALANCE SHEET Property, Plant & Equipment $ 251,151 $239,773 $ 200,801 $ 154,623 $131,036 Accumulated Depreciation 102,553 91,739 76,591 65,922 55,878 Total Assets 369,272 362,399 333,741 255,211 226,009 Working Capital 61,594 90,014 88,937 74,759 74,572 Long-term Debt 113,298 99,480 75,213 16,577 18,180 Shareholders' Equity 102,366 152,829 156,348 145,800 127,359 Cash Dividends Declared $ 5,992 $ 9,365 $ 9,084 $ 8,194 $ 6,516 OTHER Additions to Property, Plant & Equipment, net $ 21,179 $ 39,230 $ 32,506 $ 21,345 $ 23,741 Depreciation & Amortization $ 24,747 $ 19,975 $ 14,196 $ 11,078 $ 9,437 Shares Outstanding 12,695 12,689 12,975 13,293 13,928 Average Shares Outstanding 12,694 12,753 13,250 13,571 14,241
OPERATING PERFORMANCE -- 1996 VERSUS 1995 Operating income for the Tread Rubber Segment increased from $1,727 in fiscal 1995 to $4,078 in fiscal 1996. While this segment has made several improvements in its operating performance, particularly the quality of its mixing capabilities, the primary source of its improved profitability came from supply chain management. This resulted in savings on raw material costs that translated to improved operating income. OPERATING PERFORMANCE -- 1995 VERSUS 1994 The effect of volume increases exceeded profitability decreases, representing .1% of fiscal 1995 sales. The effect of foreign currency variations on gross margins was minor. In 1995, the Company concluded its European tread rubber operations with the closure of the Oliver Rubber subsidiary in the United Kingdom. The Company reduced assets to their net realizable value, accrued costs for severance, liquidation and other expenses, and recognized deferred currency losses 11 16 formerly included in the foreign currency translation account in the balance sheet. Total losses recorded amounted to $5,347, with $2,309 recorded in the first quarter and the balance recorded in the fourth quarter of fiscal 1995. The Company attempted to realize as much value as possible on remaining assets before beginning formal liquidation. OTHER (INCOME) EXPENSE Interest expense, net in fiscal 1996 was $12,779, a decrease of $231 from 1995 levels. This was primarily the result of two factors. Proceeds from the sale of accounts receivable (see Note 4 to the financial statements) were used to reduce outstanding debt. During the year the Company increased its borrowings to fund investments in Brazil and other capital programs. Therefore, average debt levels were only slightly lower in fiscal 1996 as compared to fiscal 1995. By year end, however, debt levels were substantially lower than June 30, 1995. Interest expense, net in fiscal 1995 was $13,010 compared to $9,093 in 1994. Interest expense increased as rates and the level of borrowings both increased from 1994 levels. This was partially offset by higher interest income earned by more funds being invested by the Company's United Kingdom subsidiary. Royalty and dividend income were comparable for each of the last three years. Other, net was income in fiscal 1996 of $1,764, an improvement of $2,811 over the 1995 expense of $1,047. As explained in Note 1 of the financial statements, the operating income of the Company's joint venture, Nishikawa Standard Company, increased by $2,073. Fiscal 1995 expense also included $942 of losses incurred in disposing of fixed assets. Results of operations for fiscal 1996 include an effective tax rate of 48.9%. This high effective tax rate is the result of the Company's inability to utilize net operating losses generated in its Brazilian operations. The recognition of tax benefits related to the losses will be reported in future periods as opportunities to utilize these carryforwards become more certain. The fiscal 1995 tax provision reflected the recognition of the benefit of the remaining net operating loss carryforward of $3,181 from the Company's subsidiary in the United Kingdom. The Company also recognized a tax benefit of $4,441 related to the write-off for tax purposes of Oliver Rubber's investment in the United Kingdom. Absent these two transactions, the Company's effective tax rate would have been 28%. LIQUIDITY AND CAPITAL RESOURCES The Company generated $122,740 from operating activities in fiscal 1996. This was a $69,631 increase over fiscal 1995. The large increase was primarily the result of the sale of $50,000 of receivables described in Note 4 of the financial statements. The Company also had several large tooling programs outstanding at year end that had the impact of increasing accounts receivable and accrued expenses. In addition, the Company reduced its inventories by over $9,000 through continuous improvement efforts at various locations. During fiscal 1996, the Company continued its investment in new technology and equipment. Capital spending of $79,684 includes approximately $43,000 in Brazil. In addition, the Company has nearly completed a worldwide upgrade of its mixing facilities. New mixers in Brazil, the United States and Canada, will be joined in 1997 by new equipment in the United Kingdom. Fiscal 1997 capital additions are expected to be $65,000, including investment in a new facility in Mexico. During the three-year period ended June 30, 1996, inflation has been relatively moderate and operating costs reflect current costs for raw materials and inventory, operating expenses and depreciation. It is important to understand that inflation, as reported on a consumer price index basis, may not bear a direct relationship to the Company's costs. Although inflation on the whole was stable during the period, as mentioned above, fiscal 1995 saw significant price increases in the raw materials used in operations. This was the result of increased costs of petroleum, polymers and chemicals used in our business that rose at a rate higher than general inflation. The Company does not expect inflation to have any near-term material effect on the costs of its products, although there can be no assurance that such an effect will not occur in the future. Except for Brazil, the value of the Company's consolidated assets and liabilities located outside the United States (which are translated at period-end exchange rates) and income and expenses (which are translated using rates prevailing during the fiscal year) have been affected by the translation values of the Canadian dollar, French franc and British pound. Such translation adjustments are reported as a separate component of shareholders' equity. While exchange rate fluctuations have historically not had a significant impact on the Company's reported operating results, changes in the values of the currencies noted above will impact the translation adjustments in the future. The Company's operations in Brazil use the U.S. dollar as their functional currency. Translation adjustments for these operations are included in the determination of income. At June 30, 1996, the Company was in compliance with the various covenants under the agreements pursuant to which it may borrow money. Management expects that it will remain in compliance with these covenants through the year ending June 30, 1997. During the next year, the Company believes that its cash requirements for working capital, capital expenditures, dividends, interest and debt repayments will be met through internally generated funds and utilization of available borrowing sources. PROSPECTIVE INFORMATION During fiscal 1997, the Company anticipates that passenger car and light truck production in North America will remain flat compared to fiscal 1996. In addition, while the Company will launch several new programs in 1997, new volume will not approach the record levels of last year. With this in mind, fiscal 1997 should show improvement over last year's results. Operations in Brazil will be a key determinant in the success of next year. CAUTIONARY STATEMENTS FOR PURPOSES OF "SAFE HARBOR" UNDER THE PRIVATE SECURITIES REFORM ACT OF 1995 Certain statements in this Annual Report, in the Company's press releases and in oral statements made by or with the approval of an authorized executive officer of the Company constitute "forward-looking statements" as that term is defined under the Private Securities Litigation Reform Act of 1995. These may include statements projecting, forecasting or estimating Company performance and industry trends. The achievement of the projections, forecasts or estimates is subject to certain risks and uncertainties. Actual results and events may differ materially from those projected, forecasted or estimated. The applicable risks and uncertainties include general economic and industry conditions that affect all international businesses, as well as matters that are specific to the Company and the markets it serves. General risks that may impact the achievement of such forecasts include: compliance with new laws and regulations, significant raw material price fluctuations, currency exchange rate fluctuations, limits on repatriation of funds and political uncertainties. Specific risks to the Company include: risk of recession in the economies in which its products are sold, the concentration of a substantial percentage of the Company's sales with a few major OEM customers, labor relations at the Company, its customers and its suppliers; competition in pricing and new product development from larger companies with substantial resources; and continued globalization of the automotive supply base resulting in new competition in certain locations. 12 17 CONSOLIDATED STATEMENTS OF INCOME The Standard Products Company and Subsidiary Companies for the Years Ended June 30, 1996, 1995 and 1994
(THOUSANDS OF DOLLARS EXCEPT SHARE DATA) 1996 1995 1994 Net Sales $ 1,083,920 $ 995,926 $ 872,367 Cost of Goods Sold: Materials, wages and other manufacturing costs 934,504 863,260 724,090 Research, engineering and development expenses 40,934 33,211 28,850 ----------- ----------- ----------- 975,438 896,471 752,940 ----------- ----------- ----------- Gross Income 108,482 99,455 119,427 Selling, General and Administrative Expenses 69,616 60,121 57,787 Rationalization of Business Unit -- 8,832 4,424 ----------- ----------- ----------- 38,866 30,502 57,216 ----------- ----------- ----------- Other (Income) Expense: Royalty and dividend income (673) (814) (770) Net interest expense 12,779 13,010 9,093 Other, net (1,764) 1,047 (1,322) ----------- ----------- ----------- 10,342 13,243 7,001 ----------- ----------- ----------- Income before Taxes on Income 28,524 17,259 50,215 Provision for Taxes on Income 13,947 (2,807) 17,183 ----------- ----------- ----------- Net Income $ 14,577 $ 20,066 $ 33,032 ----------- ----------- ----------- Earnings Per Common Share: Primary $ 0.87 $ 1.20 $ 1.99 ----------- ----------- ----------- Fully Diluted $ 0.87 $ 1.20 $ 1.99 ----------- ----------- ----------- Weighted average shares outstanding 16,757,767 16,711,451 16,626,927
The accompanying notes are an integral part of these statements. 13 18 CONSOLIDATED BALANCE SHEETS The Standard Products Company and Subsidiary Companies, June 30, 1996 and 1995
(THOUSANDS OF DOLLARS) 1996 1995 ASSETS Current Assets: Cash and cash equivalents $ -- $ 19,546 Receivables, less allowances of $2,958 in 1996 and $4,978 in 1995 180,787 196,613 Inventories 60,377 69,458 Prepaid insurance, taxes, etc. 19,680 21,820 ---------- ------------ Total current assets 260,844 307,437 ---------- ------------ Property, Plant and Equipment, at cost: Land 9,668 7,553 Buildings and improvements 106,039 92,907 Machinery and equipment 368,697 332,729 Furniture and fixtures 43,103 37,407 Capital projects in process 21,309 18,938 ---------- ------------ 548,816 489,534 Less - Accumulated depreciation (250,278) (220,095) ---------- ------------ 298,538 269,439 Goodwill, net 71,653 64,976 Other Assets, net 53,660 60,037 ---------- ------------ $ 684,695 $ 701,889 - -------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Short-term notes payable $ 1,198 $ 4,609 Current maturities of long-term debt 2,450 2,176 Accounts payable Accrued payrolls 99,093 102,066 Accrued expenses 26,651 26,360 Dividend payable 74,565 41,883 Total current liabilities 2,853 2,845 ---------- ------------ Long-term Debt, net of current maturities 206,810 179,939 ---------- ------------ Other Postretirement Benefits 143,041 190,522 ---------- ------------ Deferred Income Taxes and Other Credits 26,023 25,907 ---------- ------------ 50,056 45,026 ---------- ------------ Commitments and Contingent Liabilities Shareholders' Equity: Serial preferred shares, without par value, authorized 6,000,000 voting shares and 6,000,000 non-voting shares, none issued -- -- Common shares, par value $1 per share; authorized 50,000,000 shares, issued and outstanding 16,784,867 in 1996 and 16,736,155 in 1995 16,785 16,736 Paid-in capital 96,906 96,237 Retained earnings 154,669 151,492 Foreign currency translation adjustments (6,318) (496) Minimum pension liability (3,277) (3,474) ---------- ------------ Total shareholders' equity 258,765 260,495 ---------- ------------ $ 684,695 $ 701,889 - --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. 14 19 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY The Standard Products Company and Subsidiary Companies for the Years Ended June 30, 1996, 1995 and 1994
FOREIGN TOTAL CURRENCY MINIMUM SHARE- COMMON PAID-IN RETAINED TRANSLATION PENSION HOLDERS' (THOUSANDS OF DOLLARS EXCEPT SHARE DATA) SHARES CAPITAL EARNINGS ADJUSTMENTS LIABILITY EQUITY BALANCE, JUNE 30, 1993 $16,552 $94,083 $120,660 $ (6,650) $ (209) $ 24,436 Net income -- -- 33,032 -- -- 33,032 Cash dividends ($.65 per share) -- -- (10,821) -- -- (10,821) Foreign currency translation adjustments -- -- -- (3,709) -- (3,709) Restricted stock awards -- 585 -- -- -- 585 Sale of 122,042 shares to option holders 122 946 -- -- -- 1,068 Minimum pension liability -- -- -- -- (1,914) (1,914) ------- -------- -------- -------- ------- -------- BALANCE, JUNE 30, 1994 $16,674 $95,614 142,871 $(10,359) $(2,123) $242,677 Net income -- -- 20,066 -- -- 20,066 Cash dividends ($.68 per share) -- -- (11,445) -- -- (11,445) Foreign currency translation adjustments -- -- -- 9,863 -- 9,863 Restricted stock awards -- 208 -- -- -- 208 Sale of 61,894 shares to option holders 62 415 -- -- -- 477 Minimum pension liability -- -- -- -- (1,351) (1,351) ------- -------- -------- -------- ------- -------- BALANCE, JUNE 30, 1995 $16,736 $96,237 $151,492 $ (496) $(3,474) $260,495 Net income -- -- 14,577 -- -- 14,577 Cash dividends ($.68 per share) -- -- (11,400) -- -- (11,400) Foreign currency translation adjustments -- -- -- (5,822) -- (5,822) Restricted stock awards -- 419 -- -- -- 419 Sale of 48,712 shares to option holders 49 250 -- -- -- 299 Minimum pension liability -- -- -- -- 197 197 ------- -------- -------- -------- ------- -------- BALANCE, JUNE 30, 1996 $16,785 $96,906 $154,669 $ (6,318) $(3,277) $258,765 - -------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. 15 20 CONSOLIDATED STATEMENTS OF CASH FLOWS The Standard Products Company and Subsidiary Companies for the Years Ended June 30, 1996, 1995 and 1994
(THOUSANDS OF DOLLARS) 1996 1995 1994 Net cash provided by (used for) operating activities: Net income $ 14,577 $ 20,066 $ 33,032 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 52,545 46,839 40,495 Deferred taxes and other credits 265 (2,631) (7,839) Equity in income of non-consolidated affiliates (2,436) (786) (1,603) Effect of changes in foreign currency 192 (2,834) (627) Other operating items 1,216 (2,151) (6,464) --------- --------- --------- Net cash provided by operations 66,359 58,503 56,994 --------- --------- --------- Net cash provided by (used for) changes in operating assets and liabilities: Receivables 18,160 9,436 (34,419) Inventories 9,081 (14,790) (6,304) Accounts payable and accrued expenses 27,000 6,465 31,047 Other, net 2,140 (6,505) (981) Net cash provided by (used for) changes in operating assets and liabilities 56,381 (5,394) (10,657) --------- --------- --------- Net cash provided by operating activities 122,740 53,109 46,337 --------- --------- --------- Net cash provided by (used for) investments: Purchase of property, plant and equipment, net (79,684) (54,671) (59,120) Investments in affiliates and non-consolidated entities (199) (8,679) (1,500) Assets acquired by purchase of businesses (1,581) (840) -- --------- --------- --------- Net cash (used for) investments (81,464) (64,190) (60,620) --------- --------- --------- Net cash provided by (used for) financing: Proceeds from exercise of stock options 299 477 1,068 Proceeds of long-term borrowings 37,791 55,929 140,343 Net increase (decrease) in short-term borrowings (3,561) (11,740) 2,247 Repayment of long-term borrowings (84,659) (1,914) (124,031) Cash dividends (11,400) (11,445) (10,821) --------- --------- --------- Net cash provided by (used for) financing (61,530) 31,307 8,806 --------- --------- --------- Effect of exchange rate changes on cash and cash equivalents 708 (680) (71) --------- --------- --------- Increase (decrease) in cash and cash equivalents (19,546) 19,546 (5,548) Cash and cash equivalents at the beginning of the year 19,546 -- 5,548 --------- --------- --------- Cash and cash equivalents at the end of the year $ -- $ 19,546 $ -- - --------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. 16 21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (THOUSANDS OF DOLLARS EXCEPT SHARE DATA) The Standard Products Company and Subsidiary Companies for the Years Ended June 30, 1996, 1995 and 1994 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Major intercompany items have been eliminated. The Company's investments in affiliate operations are accounted for by both the equity and cost methods of accounting. The cost method is followed in those situations where the Company's ownership is less than 20% and operations are conducted by management of the affiliate. Income is recorded as received. The equity method of accounting is followed in those situations of larger ownership interests but less than 51%, and the Company's results of operations include those of the affiliate to the extent of its ownership interest. The Company's investment in Nishikawa Standard Company (NSC), a 50% owned joint venture in the United States, is accounted for under the equity method. The Company's investment in NSC at June 30, 1996 and 1995 was $18,644 and $16,140, respectively and is included in Other Assets in the accompanying consolidated balance sheet. The Company's share of NSC's operating income was $2,504, $431 and $1,603 in fiscal 1996, 1995 and 1994, respectively. Under the terms of NSC's revolving credit and term loan facility, the joint venture partners are required to guarantee 50% of NSC's borrowings. The Company's share of the guarantee at June 30, 1996 was $6,000. CASH AND CASH EQUIVALENTS Cash and cash equivalents include bank deposits and repurchase agreements at varying rates of interest and with original maturities less than thirty days. These investments are carried at cost which approximates market value. The following is additional information related to the accompanying consolidated statements of cash flows:
1996 1995 1994 Cash paid for interest .............. $14,962 $13,935 $ 9,655 Cash paid for income taxes .......... $ 6,206 $ 3,600 $20,338 - -----------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION The financial statements of the Company's foreign subsidiaries have been translated in accordance with Statement of Financial Accounting Standards (SFAS) No. 52. Except for the Brazilian subsidiaries, current rates of exchange are used to translate the balance sheets of these entities, while the average exchange rate of each fiscal year is used for the translation of income and expense accounts. The resulting unrealized gains and losses are recorded as a component of shareholders' equity. As the Company's Brazilian subsidiaries operate in a highly inflationary economy, the U.S. dollar has been used as the functional currency in the translation of the Brazilian financial statements. Accordingly, foreign currency gains or losses of the Brazilian subsidiaries have been reflected in income currently. PROPERTY, PLANT AND EQUIPMENT For financial reporting purposes, the Company provides for depreciation of plant and equipment using the straight-line and sum-of-years' digits methods at annual rates based on the estimated service lives of the property. Maintenance and repair expenditures are charged to income as incurred. Expenditures for improvements and major renewals are capitalized. When assets are retired, the related cost and accumulated depreciation are removed from the accounts, and any gain or loss on the disposition is credited or charged to income. INVENTORIES Inventories are stated at the lower of cost or market. The majority of domestic inventories are valued using the last-in, first-out (LIFO) method, and the remaining inventories are valued using the first-in, first-out (FIFO) method. EXCESS OF COST OVER NET ASSETS OF ACQUIRED COMPANIES The excess cost over the fair value of acquired net assets is amortized on the straight-line method over the estimated useful life but not in excess of 40 years. The Company periodically evaluates its accounting for goodwill, considering historical and future profitability and business opportunities. At June 30, 1996, the Company believes that the goodwill is realizable and that the period of amortization is proper. INCOME TAXES Income tax expense includes United States, foreign and state income taxes, exclusive of taxes on the undistributed income of foreign subsidiaries where it is the intention of the Company to have those subsidiaries reinvest the income locally. The Company has determined tax expense and other deferred tax information using the liability method, which recognizes the differences in financial reporting bases and tax bases of assets and liabilities at tax rates currently in effect. RETIREMENT PLANS The Company's policy is to fund the pension costs of defined benefit plans in accordance with Internal Revenue Service regulations. Defined contribution and multi-employer plans are funded as accrued, and the accrual is based upon hourly rates, or a percentage of the unit's performance. POSTRETIREMENT MEDICAL BENEFITS The Company provides postretirement health and life insurance benefits for retired salaried and certain retired hourly employees. Benefits provided under various plans, individually arranged by business unit, include health and life insurance. The plans generally provide for a means to limit the cost of the plans to the Company through cost sharing or spending limitations. FINANCIAL INSTRUMENTS The Company's financial instruments recorded on the balance sheet include cash and cash equivalents, trade receivables and payables and debt obligations. The book value of cash and cash equivalents, trade receivables and payables and short-term debt are considered to be representative of fair value because of the short maturity of these instruments. The Company's trade accounts receivable are heavily concentrated in automotive original equipment manufacturers. The Company does not view such a concentration in the automotive market as an unusual credit risk. The fair value of long-term debt is based on rates available to the Company for debt with comparable terms and maturities. Off balance sheet derivative financial instruments include a currency and interest rate swap transaction, an interest rate swap contract and foreign exchange contracts. The currency and interest rate swap transaction protects the Company from fluctuations in the value of the U.S. dollar in relation to the French franc and establishes a fixed U.S. dollar rate of return on a loan from the Company to its French subsidiary. 17 22 The interest rate swap transaction converts floating rate debt under its Revolving Credit Agreement to fixed rate debt. The Company and its subsidiaries enter into foreign exchange contracts to manage exposure to foreign exchange fluctuations related to sales to foreign customers or purchases of equipment or inventory from foreign suppliers. These contracts hedge firm commitments to pay or receive European or Canadian foreign currency within a one-year period and the maturity coincides with the receipt or payment of the foreign funds. The Company does not engage in speculation and does not hedge foreign currency positions which are not related to specific transactions. Recognition of gains and losses on the foreign exchange contracts are generally deferred until settlement of the transaction being hedged. The gains and losses on the contracts offset losses and gains of the transactions being hedged, resulting in protection from the risks of foreign exchange movement for those transactions and avoiding losses affecting results of operations. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. ENVIRONMENTAL COMPLIANCE AND REMEDIATION Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations and do not contribute to current or future revenue generation, are expensed. Liabilities are recorded when environmental assessments and/or remedial efforts are probable and the costs can be reasonably estimated. Estimated costs are based upon enacted laws and regulations, existing technology and the most probable method of remediation. The costs determined are not discounted and exclude the effects of inflation and other societal and economic factors. Where the cost estimates result in a range of equally probable amounts, the lower end of the range is accrued. REVENUE RECOGNITION The Company recognizes revenues as products are shipped to its customers. ACCOUNTING STANDARDS In 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets," and No. 123, "Accounting for Stock-Based Compensation." These statements are effective for fiscal years beginning after December 15, 1995. The Company expects the adoption of these accounting standards will not materially impact its results of operations or financial position. RECLASSIFICATIONS Certain prior year amounts have been reclassified to conform to their 1996 presentation in the financial statements. 2. ACQUISITIONS In May 1995, the Company acquired the 80% of Itatiaia Standard not previously owned by it for total consideration of $4,040. The acquisition was accounted for under the purchase method of accounting and the financial statements of the Company include the acquired assets, assumed liabilities and results of operations for June 1995. Pro forma sales and operating results are not material. Valuation of the assets acquired and liabilities assumed in accordance with Accounting Principles Board Opinion No. 16 was finalized during fiscal 1996 and resulted in recording goodwill of approximately $10,800. 3. RATIONALIZATION OF BUSINESS UNITS In 1995, the Company provided $8,832 to rationalize two business units. The Company has submitted the remaining assets of Oliver Rubber's European subsidiary for formal liquidation proceedings in the United Kingdom. As a result, a provision of $5,347 was recorded to reduce asset values to net realizable amounts, to accrue expenses of liquidation including severance for several employees, and to recognize foreign currency losses which were formerly deferred in the Company's foreign currency translation account. Of the amount provided, $2,309 was recorded in the first quarter of fiscal 1995 with the balance recorded in the fourth quarter. The Company attempted to realize as much asset value as possible before beginning formal liquidation. The liquidation was substantially completed in fiscal 1996. The second business unit involves the Company's plastic plant in Canada. As part of its formal plan, in fiscal 1995, the Company recorded $3,485 to provide for a work force reduction of 328 employees at this plant. Costs included in this provision in the fourth quarter were pension curtailment, severance as required by Canadian law, lease obligations for the idled portion of the leased facility, removal costs of the Company-owned equipment and reduction of idled assets to net realizable value. Work force reductions began in the first quarter of fiscal 1996. At June 30, 1996 the business was closed and all production was moved to other locations. Additional costs incurred to close this business were charged to normal operations as incurred. 4. ACCOUNTS RECEIVABLE SECURITIZATION In September 1995, the Company and certain of its U.S. subsidiaries entered into an agreement to sell, on an ongoing basis, all of their accounts receivable to The Standard Products Funding Corporation (Funding Co.), a wholly owned subsidiary of the Company. Accordingly, the Company and those subsidiaries, irrevocably and without recourse, transfer all of their U.S. dollar denominated trade accounts receivable (principally representing amounts owed by original equipment customers in the U.S. automotive and related industries) to the Funding Co. The Funding Co. has sold and, subject to certain conditions, may from time to time sell an undivided interest in those receivables to the Clipper Receivables Corporation. The Funding Co. is permitted to receive advances of up to $50,000 for the sale of such undivided interest. At June 30, 1996, $50,000 has been advanced. Unless extended by amendment, the agreement expires in September 1998. Proceeds from the sale were used to reduce outstanding borrowings under the Company's Revolving Credit Agreement and are reflected as operating cash flows in the accompanying consolidated statement of cash flows. Costs of the program, which primarily consist of the purchasers' financing and administrative costs, totaled $2,603 in fiscal 1996 and have been classified as Selling, General and Administrative Expenses in the accompanying consolidated statement of income. 18 23 The Company maintains an allowance for doubtful accounts receivable ($2,958 and $4,978 at June 30, 1996 and 1995, respectively) based on the expected collectibility of all trade accounts receivable, including receivables sold. 5. INVENTORY The major components of inventory are as follows:
(THOUSANDS OF DOLLARS) 1996 1995 Raw materials . . . . . . . . . . $27,186 $25,726 Work-in-process and finished goods . . . . . . . 33,191 43,732 Total, at both FIFO ------- ------- and LIFO cost . . . . . . $60,377 $69,458 Excess of FIFO cost ------- ------- over LIFO cost . . . . . . . . . $13,719 $14,427 - -------------------------------------------------------
Approximately 50% of the Company's inventories are valued at LIFO cost. 6. FINANCING ARRANGEMENTS Long-term debt at June 30, 1996 and 1995 consisted of the following:
(THOUSANDS OF DOLLARS) 1996 1995 Senior notes . . . . . . . . . . . . $100,000 $100,000 Revolving credit agreement . . . . . 40,000 85,000 Other debt . . . . . . . . . . . . . 5,491 7,698 -------- -------- Total . . . . . . . . . . . . . . . 145,491 192,698 Less -- current maturities . . . . . 2,450 2,176 -------- -------- $143,041 $190,522 - --------------------------------------------------------------
At June 30, 1996, Senior Notes outstanding of $100,000 include two issues, $75,000 and $25,000. The $75,000 Senior Notes, placed directly with three affiliated insurance companies, are unsecured and accrue interest at 6.55%. Interest payments are payable semiannually, and annual principal payments of $12,500 begin in December 1998 through December 2002, with the balance due on maturity in December 2003. The $25,000 Senior Notes are also unsecured notes placed directly with the holders. The interest rate is 9.81%, interest is paid semiannually and the notes are payable July 1, 1999. Each of the Senior Note agreements require the Company to maintain certain financial covenants as to net worth, leverage and working capital. The Revolving Credit Agreement (Credit Agreement) represents unsecured borrowings from a group of banks that have committed to make available for borrowing up to $125,000 until January 1998 with provisions for extending the agreement beyond that date upon satisfaction of certain requirements. The loans may be denominated in either U.S. dollars or certain other currencies based upon Eurodollar interest rates or the agent bank's base rate. At June 30, 1996, borrowings under the Credit Agreement bear interest at 6.19%. A commitment fee of .25% is due on the unused portion of the agreement. The Company has the right to convert up to $50,000 of revolving loans into a five-year term loan with quarterly repayments thereafter. The terms of the Credit Agreement also require the Company to maintain certain financial covenants as to net worth, leverage and working capital. Under the most restrictive covenants of the Company's various loan agreements, $58,627 of retained earnings were not restricted at June 30, 1996 for the payment of dividends, and the ratio of current assets to current liabilities was 1.26 to 1, in excess of the minimum requirement of 1.25 to 1. The maturities of long-term debt for the five years subsequent to June 30, 1996 are: (THOUSANDS OF DOLLARS) 1997 . . . . . . . . . . . . . . . . . . . . $ 2,450 1998 . . . . . . . . . . . . . . . . . . . . 41,706 1999 . . . . . . . . . . . . . . . . . . . . 13,825 2000 . . . . . . . . . . . . . . . . . . . . 37,510 2001 . . . . . . . . . . . . . . . . . . . . 12,500 Thereafter . . . . . . . . . . . . . . . . . 37,500 - --------------------------------------------------------
The Company and its subsidiaries also have, from various banking sources, approximately $52,400 of unused short-term lines of credit at rates of interest approximating Eurodollar interest rates. These funds are available subject to satisfying covenant restrictions as to funded debt limitations. In 1996, the average month-end borrowings on these lines were $9,000, and the highest month-end balance was $17,400. Comparable amounts for 1995 were $17,800 and $23,000 and $8,400 and $13,400 for 1994. The effective annual borrowing rate was 6.8% in 1996, 6.8% in 1995 and 4.2% in 1994. At year end, the weighted average interest rate was 6.2%. 7. FAIR VALUES OF FINANCIAL INSTRUMENTS The carrying amounts and fair values of the Company's significant balance sheet financial instruments at June 30, 1996 and 1995, are as follows:
1996 (THOUSANDS OF DOLLARS) CARRYING AMOUNT FAIR VALUES Cash and cash equivalents . . . . . . . $ -- $ -- Short-term bank debt . . . . . . . . . . 1,198 1,198 Long-term bank debt (including current portion) . . . . . 145,491 143,889 - ---------------------------------------------------------------- 1995 (THOUSANDS OF DOLLARS) Cash and cash equivalents $ 19,546 $ 19,546 Short-term bank debt . . . . . . . . . . 4,609 4,609 Long-term bank debt (including current portion) . . . . . 192,698 192,198 - ----------------------------------------------------------------
Off balance sheet derivative financial instruments at June 30, 1996 and 1995, held for purposes other than trading, were as follows:
1996 1995 ----------------- --------------- CONTRACT/ CONTRACT/ NOTIONAL FAIR NOTIONAL FAIR (THOUSANDS OF DOLLARS) AMOUNT VALUES AMOUNT VALUES Currency and interest rate swaps . . . . . $38,350 $(431) $18,350 $ 402 Foreign currency exchange agreements . . . . . 35,673 505 8,982 (186) - --------------------------------------------------------------------
19 24 With regard to the combined currency and interest rate swap agreement, the nominal amount of 108,580 French francs is payable by the Company to a bank, while the amount due from the bank to the Company is $18,350. Periodic payments are made by the Company and the bank until maturity in November 2000. Interest rates are fixed with a rate of 6.5% on payments to the bank and 5.8% on payments from the bank. Exchange rate fluctuations of the French franc payable to the bank are offset by the French franc receivable from the French subsidiary. The interest rate swap contract matures in March 1999. The Company pays a fixed interest rate of 5.18% to the bank and receives a floating rate LIBOR payment from the bank on the $20,000 notional amount of the swap contract. Foreign exchange contracts hedging trade transactions mature over the next twelve months. Exchange contracts hedging foreign denominated intercompany loans mature no later than the maturity of the loan. The counterparties to each of these agreements are major commercial banks. Management believes that losses related to credit risk are remote. 8. RETIREMENT PLANS The Company and its subsidiary companies have a number of plans providing pension, retirement or profit sharing benefits for substantially all employees. These plans include defined benefit, defined contribution and multi-employer plans. For defined benefit plans, those covering salaried employees provide pension benefits based upon the individual employee's average compensation over the last five years, while hourly plans provide benefits of stated amounts for each year of service. The assets of the plans consist of listed bonds, stocks, mutual investment funds and cash securities. Pension expense is determined using assumptions at the beginning of the year. The projected benefit obligation (PBO) is determined using the assumptions at the end of the year. Assumptions used to deter-mine pension expense and the PBO were:
1996 1995 1994 Discount rate 7.75% 8.50% 8.00% Long-term rate of return on plan assets 9.50% 10.00% 9.00% Rate of increase in future compensation levels 5.00% 5.00% 5.00% - ---------------------------------------------------------------------
The cost of providing pension, retirement and profit sharing benefits charged to operations amounted to $6,999 in 1996, $5,444 in 1995, and $4,932 in 1994. For 1996, the expense of defined contribution plans was $4,102 and multi-employer plan expense was $449. Comparable figures for 1995 were $3,683 and $508, and for 1994, $3,859 and $540. The expense of defined benefit plans increased during 1995 as a result of including employees of subsidiary companies in the Company's salaried pension plan. Components of pension expense for defined benefit plans included the following items:
(THOUSANDS OF DOLLARS) 1996 1995 1994 Service cost $ 2,737 $ 2,753 $ 2,113 Interest cost on PBO 6,265 5,868 4,750 Actual loss (gain) on plan assets (12,654) 457 (1,391) Net amortization and deferral 6,100 (7,871) (4,939) --------- --------- --------- Net pension expense $ 2,448 $ 1,207 $ 533 - --------------------------------------------------------------
The funded status of the foreign and domestic defined benefit plans is displayed below and is based on information supplied by the Company's actuary as of March 31 of each year. In connection with the recognition of the minimum liability as required by SFAS No. 87, as of June 30, 1996, the Company has recorded an intangible asset of $1,085 included in Other Assets in the accompanying consolidated balance sheet, and an equity reduction of $3,277.
(THOUSANDS OF DOLLARS) 1996 1995 ------------------- ------------------ LESS GREATER LESS GREATER THAN THAN THAN THAN PLAN PLAN PLAN PLAN Accumulated benefits are: ASSETS ASSETS ASSETS ASSETS Vested benefits $ 46,166 $ 25,278 $ 41,143 $ 22,930 Non-vested benefits 2,230 530 1,373 639 Accumulated benefit --------- --------- --------- --------- obligation 48,396 25,808 42,516 23,569 Projected future compensation increases 5,719 642 7,196 840 --------- --------- --------- --------- PBO 54,115 26,450 49,712 24,409 Plan assets at fair market value 60,413 21,056 52,870 19,145 --------- --------- --------- --------- PBO (in excess of) or less than plan assets 6,298 (5,394) 3,158 (5,264) Unrecognized transition asset (5,634) (256) (6,268) (248) Unrecognized loss 2,054 3,696 7,136 3,741 Adjustment required to recognize minimum liability -- (4,362) -- (4,569) Unrecognized prior service cost 2,247 1,526 2,320 1,611 --------- --------- --------- ---------- Prepaid pension cost, (liability) $ 4,965 $ (4,790) $ 6,346 $ (4,729) - ------------------------------------------------------------------------------------------
The Company has accrued $13,289 and $11,175 for Workers' Compensation claims as of June 30, 1996 and 1995, respectively. 9. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS The cost of providing health and life insurance benefits for certain retired employees has been accrued based on the employees' active service lives. The expense for postretirement benefits other than pensions is detailed below. All plans under which these benefits are provided are unfunded. The Company continues to fund these benefits as claims are incurred. Spending limitations per annum are in effect for several plans and future retirees of other plans will pay a portion of these costs. 20 25 A summary of plan information is as follows:
(THOUSANDS OF DOLLARS) 1996 1995 1994 Accumulated postretirement benefit obligation (APBO): Retirees $20,989 $19,874 $21,782 Active participants eligible to receive benefits 2,177 1,872 1,978 Other active plan participants 2,516 2,558 2,519 ------- ------- ------- 25,682 24,304 26,279 Unrecognized gain (loss) 2,048 3,689 1,522 ------- ------- ------- $27,730 $27,993 $27,801 ------- ------- ------- Periodic postretirement benefit cost: Current service cost $ 286 $ 248 $ 243 Interest on postretirement benefit obligation 1,990 2,033 2,201 Net amortization (74) -- -- ------- ------- ------- $ 2,202 $ 2,281 $ 2,444 ------- ------- ------- Actuarial assumptions: Discount rate 7.75% 8.50% 8.00% 1996 to 2004 -- health care cost trend rate 11.5%-5.5% 13.9%-5.5% 15%-5.5% Effect of a 1% increase in health care cost trend rate: Increase year end APBO 6.6% 6.3% 7.3% Increase expense 9.5% 7.3% 6.8% - ----------------------------------------------------------------------------------------------
10. LEASES The Company and its subsidiaries have operating leases covering manufacturing facilities, transportation and material handling equipment, and computer hardware and software expiring at various dates through 2006. The following is a schedule of future minimum rental payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of June 30, 1996: 1997 $ 8,660 1998 6,500 1999 3,720 2000 1,710 2001 and later years 4,440 -------- Total minimum payments required $ 25,030 - -------------------------------------------- Rent expense was $14,627, $14,209 and $11,844 for the years ended June 30, 1996, 1995 and 1994, respectively. 11. COMMITMENTS AND CONTINGENT LIABILITIES The Company and its subsidiaries are involved in certain legal actions and claims. In the opinion of management, any liability which may ultimately be incurred would not materially affect the financial position or results of operations of the Company. 12. COMMON SHARES Options to purchase common shares have been granted under various employee stock option plans adopted by shareholders. For each plan, options are exercisable over periods of five or ten years. The option price is either the fair market value at the time the option is granted or 110% of the fair market value at the time the option is granted for those individuals owning more than ten percent of the common shares of the Company. Generally, options become exercisable one year from the date of grant and annually thereafter. No more than 40% of the grant can be exercised in any one plan year. Summarized below is stock option activity for 1995 and 1996.
SHARES RANGE OF OPTION PRICES Stock options outstanding at June 30, 1994 389,358 $13.50 - $36.99 Options granted 58,600 21.63 Options exercised (59,807) 13.50 - $17.70 Options cancelled (54,580) 13.50 - $33.63 ------- Stock options outstanding at June 30, 1995 333,571 $13.50 - $36.99 Options granted 156,000 17.88 - $23.50 Options exercised (44,056) 13.50 - $15.84 Options cancelled (57,875) 21.63 - $33.63 ------- Stock options outstanding at June 30, 1996 387,640 $17.88 - $36.99 - --------------------------------------------------------------
At June 30, 1996, options for 104,016 shares were exercisable at an average exercise price of $29.66 a share. Shares reserved for the future granting of options were 245,193 at year end; 369,978 were reserved a year ago. Under The Standard Products Company 1991 Restricted Stock Plan, 375,000 common shares were reserved for restricted stock awards. Shares awarded are earned ratably over the term of the restricted stock agreement, based upon achieving specified performance goals. Generally, transferability of shares earned is restricted for a specified number of years following the year in which they were earned. Until the restrictions lapse, the recipient of earned restricted shares is entitled to all of the rights of a shareholder, including the right to vote the shares, but the shares are restricted as to transferability and subject to forfeiture to the Company during the restricted period. Shares awarded were 75,000 in 1995 and 187,500 in 1992. Of the shares awarded, 18,400 shares were earned in 1996, 16,800 shares in 1995 and 20,800 shares in 1994. In 1996, $419 was charged to operations as compensation expense based upon the market value of the earned shares. The similar charge to operations in 1995 and 1994 was $208 and $585, respectively. At year end, 112,500 shares remain available for future awards. 13. SEGMENT INFORMATION The Company's operations are in two industry segments. The Transportation Equipment Segment includes extruded and molded rubber and plastic products for automotive, building and marine industries and plastic and magnetic door seals for home appliances. The Tread Rubber Segment produces tread rubber for the truck tire retreading industry. Net sales by segment include both sales to unaffiliated customers, as reported in the Company's consolidated statements of income, and intersegment sales. Operating income consists of net sales less applicable operating costs and expenses related to those sales. In computing operating income, general corporate expenses are excluded. Identifiable assets by segment are those assets that are used in the operations of each segment. General corporate assets are those not identifiable with the operations of a segment. 21 26 The Company's major customers include automotive original equipment manufacturers. The percentage of sales of each of these major customers to total consolidated sales for the three-year periods 1996, 1995 and 1994, respectively, has been as follows: Chrysler -- 17%, 15% and 13%; Ford -- 26%, 23% and 26%; General Motors -- 14%, 18% and 17%. Sales to the automotive original equipment customers include a number of different products and types of the same product, the sales of which are not interdependent.
BUSINESS SEGMENT INFORMATION (THOUSANDS OF DOLLARS) 1996 1995 1994 Net Sales: Transportation equipment $ 958,105 $ 868,892 $ 753,764 Tread rubber 135,869 133,656 124,169 Less -- intersegment sales (10,054) (6,622) (5,566) ------------ ------------ ------------- Net sales $ 1,083,920 $ 995,926 $ 872,367 - -------------------------------------------------------------------------------------------- Operating Income: Transportation equipment $ 39,836 $ 41,882 $ 59,676 Tread rubber 4,078 1,727 6,114 Rationalization of business units -- (8,832) (4,424) General corporate expenses (5,048) (4,275) (4,150) ------------ ------------ ------------- Total operating income $ 38,866 $ 30,502 $ 57,216 ------------ ------------ ------------- Other expense, net (10,342) (13,243) (7,001) ------------ ------------ ------------- Income from operations before taxes $ 28,524 $ 17,259 $ 50,215 - -------------------------------------------------------------------------------------------- Identifiable Assets: Transportation equipment $ 585,274 $ 595,109 $ 519,088 Tread rubber 70,788 74,229 81,365 General corporate assets 28,633 32,551 23,861 ------------ ------------ ------------- Total identifiable assets $ 684,695 $ 701,889 $ 624,314 - -------------------------------------------------------------------------------------------- Capital Additions, net:(1) Transportation equipment $ 74,456 $ 48,904 $ 55,305 Tread rubber 5,228 5,767 3,815 ------------ ------------ ------------- Total capital additions $ 79,684 $ 54,671 $ 59,120 - -------------------------------------------------------------------------------------------- Depreciation and Amortization: Transportation equipment $ 48,328 $ 42,951 $ 37,340 Tread rubber 4,217 3,888 3,155 ------------ ------------ ------------- Total depreciation and amortization $ 52,545 $ 46,839 $ 40,495 - --------------------------------------------------------------------------------------------
(1) Includes assets acquired by purchase of businesses in 1995.
GEOGRAPHIC AREA (THOUSANDS OF DOLLARS) 1996 1995 1994 Net Sales: United States $ 618,491 $ 574,064 $ 532,546 Canada 212,046 203,265 153,484 Europe 242,977 245,362 213,961 Brazil 29,479 2,640 -- Less -- inter-area sales (19,073) (29,405) (27,624) ------------ ------------ ------------- Net sales $ 1,083,920 $ 995,926 $ 872,367 - -------------------------------------------------------------------------------------------- Net Income: United States $ 5,423 $ 12,821 $ 19,691 Canada 8,785 1,946 7,114 Europe 10,732 7,915 8,796 Brazil (10,345) (51) -- General corporate expenses, net of tax (2,843) (2,565) (2,569) ------------ ------------ ------------- Net income $ 14,577 $ 20,066 $ 33,032 - -------------------------------------------------------------------------------------------- Identifiable Assets: United States $ 297,744 $ 340,235 $ 311,947 Canada 79,845 81,979 62,193 Europe 210,215 234,918 226,313 Brazil 68,258 12,206 -- General corporate assets 28,633 32,551 23,861 ------------ ------------ ------------- Total identifiable assets $ 684,695 $ 701,889 $ 624,314 - -------------------------------------------------------------------------------------------- 14. INCOME TAXES (THOUSANDS OF DOLLARS) 1996 1995 1994 Income before taxes: United States $ 10,626 $ 1,265 $ 36,097 Foreign 17,898 15,994 14,118 ------------ ------------ ------------- $ 28,524 $ 17,259 $ 50,215 - -------------------------------------------------------------------------------------------- Amounts currently payable: Federal $ 3,822 $ (3,174) $ 8,591 Foreign 3,585 5,779 4,139 State and local 1,304 1,038 1,262 ------------ ------------ ------------- $ 8,711 $ 3,643 $ 13,992 - -------------------------------------------------------------------------------------------- Deferred taxes: Federal $ 2,656 $ (233) $ 4,485 Foreign 2,536 (6,101) (1,317) State and local 44 (116) 23 ------------ ------------ ------------- 5,236 (6,450) 3,191 ------------ ------------ ------------- Total provision $ 13,947 $ (2,807) $ 17,183 - --------------------------------------------------------------------------------------------
22 27 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS A reconciliation of income tax expense to the U.S. statutory rate is as follows:
1996 1995 1994 Tax at U.S. statutory rate 35.0% 35.0% 35.0% Difference in effective rate of international operations 10.6 (34.3) (2.1) Write-off of investment -- (25.7) -- State and local income tax 3.1 3.4 1.7 Permanent book to tax differences not deductible 2.9 6.0 -- Other, net (2.7) (.7) (.4) ---- ---- ---- Effective tax rate 48.9% (16.3)% 34.2% - --------------------------------------------------------
In accordance with the Company's policy, as of June 30, 1996, federal income taxes have not been provided on the undistributed earnings of foreign subsidiaries. If these earnings were distributed, approximately $8,000 of tax would be payable. In fiscal 1995, the Company recognized the benefit of tax loss carryforwards at Standard Products Limited (SPL) in the United Kingdom by reducing its valuation allowance to zero on these amounts. During fiscal 1996, SPL generated sufficient taxable income to fully utilize those net operating loss carryforwards. As of June 30, 1996, the Company has recorded a valuation allowance to reflect the estimated amount of deferred tax assets which may not be realized principally due to the inability of its Brazilian subsidiaries to fully utilize available net operating loss carryforwards. The subsequent recognition of tax benefits relating to the valuation allowance will be reported in the consolidated statement of income as opportunities to utilize these carryforwards become more certain. At June 30, 1996, deferred tax liabilities were $34,300 and deferred tax assets, included in prepaids and other assets, were $23,900. The major component of deferred tax liabilities is $28,300 for excess depreciation and amortization. Deferred tax assets include $1,400 for discontinued operations and rationalization of business units and $16,600 related to employee benefits. 15. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following table sets forth a summary of the quarterly results of operations for the years ended June 30, 1996 and 1995:
(THOUSANDS OF DOLLARS 1996 EXCEPT PER SHARE DATA) THREE MONTHS ENDED SEPT. 30 DEC. 31 MARCH 31 JUNE 30 Net sales $238,760 $264,747 $277,274 $303,139 Gross income 9,405 21,769 33,879 43,429 Net income (9,784) 1,545 7,283 15,533 Earnings per common share $ (0.58) $ 0.09 $ 0.43 $ 0.93 - ------------------------------------------------------------------- (THOUSANDS OF DOLLARS 1995 EXCEPT PER SHARE DATA) THREE MONTHS ENDED SEPT. 30 DEC. 31 MARCH 31 JUNE 30 Net sales $220,927 $243,808 $265,013 $266,178 Gross income 21,598 26,385 26,015 25,457 Net income 2,898 5,331 6,851 4,986 Earnings per common share $ 0.17 $ 0.32 $ 0.41 $ 0.30 - -------------------------------------------------------------------
TO THE SHAREHOLDERS AND THE BOARD OF DIRECTORS, THE STANDARD PRODUCTS COMPANY: We have audited the accompanying consolidated balance sheets of The Standard Products Company (an Ohio corporation) and Subsidiary Companies as of June 30, 1996 and 1995, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three fiscal years in the period ended June 30, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Standard Products Company and Subsidiary Companies as of June 30, 1996 and 1995, and the results of their operations and their cash flows for each of the three fiscal years in the period ended June 30, 1996 in conformity with generally accepted accounting principles. Arthur Andersen LLP July 23, 1996 Cleveland, Ohio 23 28 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS The accompanying financial statements were prepared under management's direction, which has responsibility for their integrity and objectivity. These statements have been prepared in conformity with generally accepted accounting principles consistently applied and, where appropriate, reflect estimates based upon management's best judgment. Management is further responsible for maintaining a system of internal accounting controls, designed to provide reasonable assurance that the books and records reflect the transactions of the companies and that its established policies and procedures are carefully followed. The system is continually reviewed for its effectiveness and is augmented by segregation of responsibilities, written policies and guidelines, the careful selection and training of qualified personnel and an internal audit program. Management believes that the Company's accounting controls provide reasonable assurance that errors or irregularities that could be material to the financial statements do not occur or would be detected within a timely period by employees performing their assigned functions. However, inherent limitations exist in any system of internal controls and, of course, the cost of controls should not exceed their benefits. Management believes that the Company's balance between the costs and benefits of controls reasonably assures the reliability of its financial reporting at reasonable costs. Arthur Andersen LLP, independent public accountants, are engaged to audit the financial statements of the Company and issue reports thereon. Their audit is conducted in accordance with generally accepted auditing standards and, accordingly, includes tests of accounting records and such other auditing procedures as they consider necessary in the circumstances. The accountants' report appears elsewhere. The Board of Directors, through the Audit Committee of the Board, is responsible for: (1) assuring that management fulfills its responsibilities in the preparation of the financial statements; and (2) engaging the independent public accountants, with whom the Committee reviews the scope of the audit and the accounting principles to be applied in financial reporting. The Audit Committee, which is comprised entirely of outside Directors, meets regularly (separately and jointly) with the independent public accountants, representatives of management, and the internal auditors to review the activities of each and to ensure that each is properly discharging its responsibilities. To ensure complete independence, Arthur Andersen LLP has full and free access to meet with the Audit Committee, without management representatives present, to discuss the results of their audit, accounting and financial reporting matters and internal accounting controls. J.S. Reid, Jr. James S. Reid, Jr. Chairman and Chief Executive Officer D.R. Sheley, Jr. Donald R. Sheley, Jr. Vice President, Finance and Chief Financial Officer 29 The Company's common shares are listed on the New York Stock Exchange. Quarterly market and dividend data are shown in the following table.
Cash Dividends Price Range Declared 1996 1995 1996 1995 Quarter High Low High Low 1st $24.00 $17.00 $31.13 $24.88 $0.17 $0.17 2nd $18.75 $13.50 $25.25 $21.38 $0.17 $0.17 3rd $25.00 $16.38 $24.13 $18.50 $0.17 $0.17 4th $28.25 $23.00 $22.63 $19.13 $0.17 $0.17 $0.68 $0.68
There were approximately 1,005 shareholders as of August 1, 1996. 24 30 THE STANDARD PRODUCTS COMPANY Directors JAMES C. BAILLIE * Senior Partner and Chairman Tory Tory DesLauriers & Binnington Barristers & Solicitors EDWARD B. BRANDON *+ Retired Chairman National City Corporation (Bank holding company) JOHN DODDRIDGE o Chairman and Chief Executive Officer Intermet Corporation (Manufacturer of precision ductile and gray iron castings for the automotive and truck industries) JOHN D. DRINKO o Attorney - Baker & Hostetler Attorneys at Law CURTIS E. MOLL *o Chairman and Chief Executive Officer MTD Products, Inc. (Manufacturer of outdoor power equipment, and tools, dies and stampings for the automotive industry) MALCOLM R. MYERS *+ Chairman Cloyes Gear & Products, Inc. (Manufacturer of automotive timing components) LEIGH H. PERKINS +o Chairman The Orvis Company, Inc. (Manufacturer and distributor of fishing tackle and sporting goods) ALFRED M. RANKIN, JR. * Chairman, President and Chief Executive Officer NACCO Industries, Inc. (Holding company with operations in mining, manufacturing of small electrical appliances and fork lift trucks and service parts) JAMES S. REID, JR. Chairman and Chief Executive Officer ALAN E. RIEDEL +O Retired Vice Chairman Cooper Industries, Inc. (A worldwide diversified manufacturer of electrical products, electric power equipment, tools and hardware and automotive products) JOHN D. SIGEL * Senior Partner - Hale and Dorr Attorneys at Law W. HAYDEN THOMPSON *o Chairman and Chief Executive Officer Solarflo Corporation (Manufacturer of gas and electric heating equipment) THEODORE K. ZAMPETIS President and Chief Operating Officer DIRECTOR EMERITUS RICHARD J. BOLAND Consultant; Retired Senior Partner Arthur Andersen LLP OFFICERS JAMES S. REID, JR. Chairman and Chief Executive Officer THEODORE K. ZAMPETIS President and Chief Operating Officer JAMES F. KEYS Executive Vice President International Operations TED M. MCQUADE Executive Vice President North American Automotive Operations GERARD MESNEL Executive Vice President, Worldwide Technology and President and Directeur General, Standard Products Industriel DONALD R. SHELEY, JR. Vice President, Finance and Chief Financial Officer JOHN C. BRANDMAHL Vice President, Human Resources LARRY J. ENDERS Vice President and President and Chief Executive Officer Oliver Rubber Company STEPHAN J. MACK President, Holm Industries, Inc. STEPHEN J. LEVITT Managing Director Standard Products Limited DAVID P. GREENEISEN Vice President, Engineering WAYNE E. HODGES Vice President, Sales and Marketing GEORGE E. KRANZ Vice President, Purchasing and Supply Worldwide J. RICHARD HAMILTON Secretary CHARLES F. NAGY Treasurer BERNARD J. THEISEN Corporate Controller and Assistant Secretary FACILITIES CORPORATE HEADQUARTERS AND WESTBORN SERVICE CENTER 2401 South Gulley Road Dearborn, Michigan 48124 (313) 561-1100 PLANTS UNITED STATES: Hartselle, Alabama; Oakland and San Diego, California; Athens and Griffin, Georgia; St. Charles, Illinois; Scottsburg, Indiana; Lexington, Kentucky; Gaylord, Michigan; New Ulm, Minnesota; Schenectady, New York; Asheboro, Goldsboro, Rocky Mount and Salisbury, North Carolina; Cleveland and Wadsworth, Ohio; Export and Kittanning, Pennsylvania; Spartanburg and Winnsboro, South Carolina; Dallas and Paris, Texas BRAZIL: Itaquaquecetuba and Varginha, Brazil CANADA: Etobicoke, Georgetown, Mississauga, Mitchell and Stratford, Ontario FRANCE: Bezons, Bolbec, Lillebonne and Vitre, France UNITED KINGDOM: Huntingdon and Plymouth, England; Maesteg, Wales WAREHOUSE OPERATIONS: Dearborn and Greenville, Michigan; Charlotte, North Carolina SHAREHOLDER INFORMATION COMMON SHARES New York Stock Exchange (Symbol SPD) REGISTRAR AND TRANSFER AGENT National City Bank Cleveland, Ohio ANNUAL MEETING The Annual Meeting of Shareholders will be held at 9 a.m., Tuesday, October 22, 1996 at the Company's Reid Division, 2130 West 110th Street, Cleveland, Ohio. FORM 10-K Copies of the Company's Annual Report on Form 10-K as submitted to the Securities and Exchange Commission are available to shareholders without charge upon written request. Please address your request to Mr. Donald R. Sheley, Jr., Vice President, Finance, at the Company's Corporate Headquarters, 2401 South Gulley Road, Dearborn, Michigan 48124. COUNSEL Baker & Hostetler Cleveland, Ohio AUDITORS Arthur Andersen LLP Cleveland, Ohio INVESTOR RELATIONS COUNSEL Edward Howard & Co. Cleveland, Ohio * Audit Committee o Finance Committee + Compensation Committee 31 [STANDARD PRODUCTS COMPANY LOGO] THE STANDARD PRODUCTS CO. Corporate Headquarters 2401 South Gulley Road Dearborn, Michigan 48124 (313) 561-1100 EX-21 4 EX-21 1 EXHIBIT NO. 21 SUBSIDIARIES OF THE STANDARD PRODUCTS COMPANY The following is a list of all subsidiaries of the Registrant as of June 30, 1996. Jurisdiction In Which Name Incorporated ----------------------------------------- ------------------ Admiral Retread Equipment, Inc. Ohio 5 Rubber Corporation Pennsylvania Holm Industries, Inc. Indiana Itatiaia Standard Brazil Nisco Holding Company Delaware Oliver Rubber Company California Standard Products Brazil Brazil Standard Products Funding Corporation Delaware Standard Products Industriel France Standard Products Limited United Kingdom Standard Products (Canada) Limited Dominion of Canada Standard Products International, Inc. Delaware Standard Products de Mexico, S.A. de C.V. Mexico Stantech, Inc. Delaware Westborn Service Center, Inc. Michigan Union Trucking Company Michigan EX-23 5 EX-23 1 EXHIBIT NO. 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated July 23, 1996, included and incorporated by reference in this Form 10-K, into the Company's previously filed Registration Statements on Form S-8 File Numbers 333-01923, 333-01921, 33-53989, 33-51554, 33-51556, 33-34437, 33-33612, 33-38348, 33-01558, 2-63498, 2-91928 and 2-86957. ARTHUR ANDERSEN LLP Cleveland, Ohio September 27, 1996. EX-27 6 EX-27
5 1,000 YEAR JUN-30-1996 JUL-01-1995 JUN-30-1996 0 0 183,745 2,958 60,377 260,844 548,816 250,278 684,695 206,810 143,041 0 0 16,785 241,980 684,695 1,083,920 1,083,920 975,438 1,045,054 (2437) 0 12,779 28,524 13,947 14,577 0 0 0 14,577 0.87 0.87
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