0000950152-95-002067.txt : 19950920 0000950152-95-002067.hdr.sgml : 19950920 ACCESSION NUMBER: 0000950152-95-002067 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950913 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: STANDARD PRODUCTS CO CENTRAL INDEX KEY: 0000093448 STANDARD INDUSTRIAL CLASSIFICATION: 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: 95573520 BUSINESS ADDRESS: STREET 1: 2130 W 110TH ST CITY: CLEVELAND STATE: OH ZIP: 44102 BUSINESS PHONE: 2162818300 MAIL ADDRESS: STREET 1: 2130 W 110TH ST CITY: CLEVELAND STATE: OH ZIP: 44102 10-K 1 STANDARD PRODUCTS 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (MARK ONE) FORM 10-K X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND ------- EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended June 30, 1995 ------------------------------------------------------ OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE ------- SECURITIES AND EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from ______________________ to________________________ Commission file number 1-2917 ---------------------------------------------------------- THE STANDARD PRODUCTS COMPANY -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Ohio 34-0549970 --------------------------------------------- ----------------------- (State or other jurisdiction of incorporation (IRS Employer 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: Title of each class Name of each exchange on which registered --------------------------- ------------------------------------------- COMMON SHARES, $1 PAR VALUE New York Stock Exchange --------------------------- ------------------------------------------- --------------------------- ------------------------------------------- Securities registered pursuant to Section 12(g) of the Act: ________________________________________________________________________________ (Title of class) ________________________________________________________________________________ (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 12 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 required for the past 90 days. Yes X No ------ ------. State the aggregate market value of the voting stock held by nonaffiliates of the registrant. The aggregate market value shall be computed by reference to the price at which the stock was sold, or the average bid and asked prices for such stock, as of a specified date within 60 days prior to the date of filing. (See definition of affiliate in Rule 405). $277,562,617 at August 21, 1995 ------------------------------- (APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS) Indicate by check mark whether the registrant has filed all documents and reports required to be filed by sections 12, 13 or 15(D) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ______ No ______. (APPLICABLE ONLY TO CORPORATE REGISTRANTS) Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. 16,749,255 at August 21, 1995 ------------------------ ---- (DOCUMENTS INCORPORATED BY REFERENCE) List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933. The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1980). 1995 ANNUAL REPORT TO SHAREHOLDERS (PARTS I, II AND IV) -------------------------------------------------------------------------------- PROXY STATEMENT FOR 1995 ANNUAL MEETING OF SHAREHOLDERS (PART III) -------------------------------------------------------------------------------- 2 PART I ITEM I. BUSINESS ------ General and Industry Segments ----------------------------- The Company 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, France, the United Kingdom and other European countries (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"). Reference is made to "Notes to Consolidated Financial Statements" included on page 21 and 22 of the Company's 1995 Annual Report to Shareholders, incorporated herein by reference, for additional financial information concerning the Company's reportable business segments and geographic areas. The Company formerly owned 20% of the shares of Itatiaia Standard of Sao Paulo, Brazil, and in May, 1995 the Company acquired the remaining 80% of the shares. Also, during 1995, the Company incorporated Standard Products Brazil which is in the process of building a new plant for the manufacture and supply of automotive products for the Brazilian automotive original equipment market. Also, during 1995, the Company incorporated Standard Products Mexico. This Company is in the early stages of plant construction and when completed, this facility will manufacture automotive parts for the Mexican automotive original equipment market. In January 1993, the Company acquired all of the issued and outstanding shares of capital stock of Standard Products Industriel (SPI), a corporation organized under French law. See "Foreign Operations" for a discussion of the foreign operations of the Company. In December 1992, the Company increased its ownership in its North American joint venture, Nishikawa Standard Company (NSC) to 50% from 40% by making additional capital contributions and by purchasing partnership units from the Company's partner, Nishikawa Rubber Company, of Hiroshima, Japan. In July 1992, the Company's subsidiary, Holm Industries, Inc., acquired the assets of Jarrow Products, a manufacturer of plastic extrusion products for commercial appliances and building door sealing systems. In fiscal 1991, the Company discontinued the manufacture of rubberized track for military vehicles. See the section "Discontinued Operations" for a discussion of developments which have occurred regarding these operations during the past year. The Company was incorporated in Ohio in 1927 and was consolidated in 1936 with the Reid Products Company. 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 -2- 3 complete systems. The Company also supplies molded rubber engine mounts and body cushions, which comprise a vehicle's vibration control system, to the automotive manufacturing industry. 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 as protective barriers preventing damage to the vehicle's sheet metal and have become an integral part of the vehicle's overall styling and appearance. Although reliable industry statistics are not available, the Company believes that it is one of the leading independent manufacturers of rubber window and door weather sealing products and plastic trim for the automotive industry. MARKETS AND CUSTOMERS. The Company manufactures parts and accessories for automotive and truck original equipment manufacturers in the United States, Brazil, Canada, France and the United Kingdom and other European countries. Manufacturing operations for the automotive original equipment market of this segment are conducted by the Company, Itatiaia Standard, Standard Products (Canada) Limited, Standard Products 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 1995, 1994 and 1993, respectively, have been as follows: Chrysler - 15%, 13% and 11%; Ford - 23%, 26% and 31%; General Motors - 18%, 17%, and 23%. 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 and suppliers 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. The Company's competitive position depends upon its ability to offer engineering and design capabilities and to manufacture products which meet its customers' pricing, quality and delivery requirements. The Company has historically met the customers' requirements. 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 for original equipment 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, -3- 4 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. In July 1992, Holm acquired the assets of Jarrow Products, a small manufacturer of commercial refrigeration gaskets and exterior door weatherstrip. Working Capital --------------- The Transportation Equipment Segment typically results in 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 summer vacation periods. Joint Venture ------------- 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, Nishikawa Standard Company (NSC), a general partnership owned 50% by the Company and 50% by Nishikawa Rubber Company (Nishikawa) of Hiroshima, Japan. Manufacturing operations are conducted at plants located in Bremen, New Haven, and Topeka, Indiana. In December 1992, the Company increased its ownership in NISCO to 50% from 40% by making additional capital contributions and by purchasing partnership units from Nishikawa. The chief operating officer of the Company is the chief executive officer of NISCO and chairman of its Policy Committee. 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. 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. Based on industry statistics in 1995, precure tread rubber represents approximately 78% of the tread rubber used by the retreading industry and mold cure represents approximately 22%. Oliver supplies both precure and mold cure tread rubber. MARKETS. Oliver serves the trucking industry in North America and Europe 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. -4- 5 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 1995. Working Capital --------------- The Tread Rubber Segment sells to many small independent customers. Accounts receivable and the extension of credit must be monitored closely to reduce the risk of losses in collection. Inventories include a supply of finished goods on hand to fill customer orders from stock. Working capital requires careful management but has generally been sufficient to fund operating needs. Other ----- In 1992, Oliver acquired the assets of Salisbury Machine, a manufacturer of equipment used in retreading tires. DISCONTINUED OPERATIONS In fiscal 1991, the Company discontinued the manufacture of rubberized track for military vehicles. As a result, the Company significantly curtailed operations at its Port Clinton Division and recorded a provision of $30,000,000 for estimated ongoing losses and estimated costs associated with closure and/or sale of the division. During fiscal 1992, the Company completed or subcontracted its contractual commitments, and losses incurred were charged to the reserve. In 1993, the Company announced the complete closure of the Port Clinton Division, which had been involved in rubber mixing for other Company facilities following its termination of the military business. Assets related to the military operations have been sold, transferred to other Company facilities or disposed. The accumulated postretirement benefits of the Port Clinton employees had been recognized in the provision for discontinued operations of $30,000,000 and has now been reclassified to accrued postretirement benefits. The remaining balance of the reserve represents reserves for building and site work and closure costs. 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 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 -5- 6 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. As of August 15, 1995, 225 engineers and technicians were engaged in development and engineering activities. The Company spent approximately $37,959,000 in 1995, $31,538,000 in 1994 and $22,003,000 in 1993 on product engineering and development, of which $4,748,000 in 1995, $2,688,000 in 1994 and $1,032,000 in 1993 were customer-reimbursed. In 1995, the product engineering and development expenditures, net of customer reimbursement, were 3.6% of Transportation Equipment sales. In 1994 and 1993, the comparable percentages were 3.6% and 3%, respectively. The percentage of product engineering and development expenditures to Tread Rubber Segment sales for 1995, 1994 and 1993 were 1.2%, 1.2% and 1.3%, respectively. 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 Rubber Company 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, 1995, the Company employed approximately 10,308 persons, of whom approximately 7,746 were hourly employees. Employee relations at the Company's plants generally have been good. 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 the 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 by the Michigan Department of Natural Resources and the United States Environmental Protection Agency. The costs of installation and operation are not material to the Company's financial position. 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 a site located in Jamestown, North Carolina. The Company believes that it was an insignificant contributor at this site and that this matter will be resolved without material adverse effect to the Company's financial position. The Company has been notified 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 -6- 7 and has requested the Company to perform certain actions. The Company voluntarily completed interim actions and has petitioned the State for a site reclassification that would not require Company actions. The Company is awaiting a response from the State of New York. No determination of liability to the Company, if any, can be made at this time. 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 begun the process of liquidation and is no longer actively engaged in business. In January 1993, the Company acquired all of the issued and outstanding shares of capital stock of Standard Products Industriel (SPI), a corporation organized under French law, and all of the issued and outstanding shares of capital stock of SPI's affiliated companies: Societe Lillebonnaise de Caoutchoucs, Standard Products Atlantic and Central Auto, each of which is a corporation organized under French law, Standard Products Industriel SA, a corporation organized under Swiss law, Rubber Industrial Holding Company, a Delaware corporation, 5 Rubber Corporation, a Pennsylvania corporation and La Riviere Corporation, a Pennsylvania corporation (SPI and such affiliated companies collectively, the "SPI Group"). 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. During 1995, the Company increased its presence in Brazil by incorporating Standard Products Brazil (SPB) and by purchasing the remaining 80% of Itatiaia Standard (the Company formerly owned 20% of Itatiaia Standard). SPB is in the process of constructing a new plant facility for the manufacture of rubber and plastic automotive sealing products for Fiat's new model, the 178, which is scheduled to begin production in January, 1996. The plant will be 260,000 square feet and will be located in Varginha, Minas Gerais. Itatiaia Standard supplies the automotive original equipment manufacturers with rubber sealing products. Plants are located in the State of Sao Paulo with one plant in Sao Paulo and a second in Itaquaquecetuba. Major customers include Fiat, Ford, General Motors and Volkswagon. Itatiaia Standard has an experienced management team and expertise in technical design and engineering of automotive sealing products and systems. Itatiaia's personnel also work closely with their customers' engineering and styling departments. The Company also formed Standard Products de Mexico, S.A. de C.V. (SPM) during 1995. Similar to SPB, SPM is in the process of constructing 106,000 square foot plant which will manufacture automotive parts for the Mexican automotive original equipment manufacturers. Construction, however, has been deferred for a minimum of six months. Operations are expected to begin in late calendar 1996. -7- 8 The Company also has minority equity interests in and licensing arrangements with firms in Australia, 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, 1995, 1994 and 1993, were $71,749,000, $41,472,000 and $42,800,000, 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 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, 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 similar to its other automotive markets. The Company must deal with several new issues including 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. ITEM 2. PROPERTIES ------- The Company operates the properties described as follows:
Land Plant Location (Acreage) (Square Feet) -------- --------- ------------- 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, Sao Paulo (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
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Land Plant Location (Acreage) (Square Feet) -------- --------- ------------- 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 Sao Paulo, Sao Paulo (3)(4) 2.2 97,000 Schenectady, New York (4) 22.5 224,000 Scottsburg, Indiana (2)(4) 8.5 192,000 Spartanburg, South Carolina (4) 30.1 85,000 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 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) These facilities are encumbered by either capital lease or mortgage agreements which provide for payments sufficient to pay principal of and interest on first mortgage industrial revenue bonds issued for the purchase of the plants and equipment. These agreements have 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 automotive sales office and product development and engineering division at this location, and these facilities utilize approximately 61,000 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 car build production. The utilization of the Tread Rubber facilities varies with demand for tread rubber product. Capacities of each facility are adequate to meet current demands. During the past year, utilization of capacity was 85% for Transportation Equipment facilities and 74% for Tread Rubber facilities. -9- 10 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. 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 officers listed below were elected on October 17, 1994. Their business experience, principal occupations and employment during the last five years are indicated in the table below.
Served In Present Office Name Age Position with Registrant Since ---------------------- --- ------------------------------------------------------ --------- James S. Reid, Jr. 69 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 50 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. 53 Vice President-Finance and Chief Financial Officer 1995 Formerly, Mr. Sheley was Vice President, Corporate Controller, Cooper Industries, Inc. from 1988 until joining the Company in July, 1995. Larry J. Enders 53 Vice President of the Company and President 1993 and 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 41 Vice President of the Company and Managing 1991 Director of Standard Products Limited Formerly, Mr. Keys was Division Manager, Product Development and Engineering Division from 1987.
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Served In Present Office Name Age Position with Registrant Since ---------------------- --- ------------------------------------------------------ --------- Stephan J. Mack 58 President, Holm Industries, Inc. 1986 Ted M. McQuade 41 Executive Vice President, North American 1995 Automotive Operations Formerly, Mr. McQuade was Manager of Product Support and Global Integration, Appliance Business, General Electric from 1990. Gerard Mesnel 56 Executive Vice President-Advanced Technology 1995 World Wide Formerly, Mr. Mesnel was President/Consultant, GSF Cie. since 1990. Thomas J. Stecz 47 Corporate Controller 1995 Formerly, Mr. Stecz was Corporate Controller and Assistant Secretary.
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 4 of "Notes to Consolidated Financial Statements" on page 19 and "Common Shares" on page 24 of the Annual Report to Shareholders for the year ended June 30, 1995. ITEM 6. SELECTED FINANCIAL DATA ------ The information required by Item 6 is incorporated herein by reference to pages 10 and 11 of the Annual Report to Shareholders for the year ended June 30, 1995. 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 Annual Report to Shareholders for the year ended June 30, 1995. 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 Annual Report to Shareholders for the year ended June 30, 1995. ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ------- None -11- 12 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT -------- 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 16, 1995. As to Executive Officers, the information required is included in Part I of this report on Form 10-K. 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 9 of the definitive Proxy Statement for the Annual Meeting of Shareholders to be held October 16, 1995. 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 definitive Proxy Statement for the Annual Meeting of Shareholders to be held October 16, 1995. 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 9 of the definitive Proxy Statement for the Annual Meeting of Shareholders to be held October 16, 1995. 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 1995 Annual Report to Shareholders (pages 13 through 23): Consolidated Balance Sheets - June 30, 1995 and 1994 Consolidated Statements of Income for the Years Ended June 30, 1995, 1994 and 1993 Consolidated Statements of Shareholders' Equity for the Years Ended June 30, 1995, 1994 and 1993 Consolidated Statements of Cash Flows for the Years Ended June 30, 1995, 1994 and 1993 Notes to Consolidated Financial Statements Auditors' Report (a) (2) Financial Statement Schedule: -12- 13 Report of Independent Public Accountants on the Financial Statement Schedule Schedule II -- Valuation and Qualifying Accounts and Reserves for the Years Ended June 30, 1995, 1994 and 1993 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, 1995. (a) (3) Exhibits:
If Incorporated by Exhibit No. Reference, Documents Under Reg. S-K Form 10-K with which Exhibit Sequential Item 601 Exhibit No. Description Was Previously Filed Page -------------- ----------- ---------------------------- -------------------------- ---------- 2 2a Stock Sale Agreement, Dated Form 8-K, Dated January December 19, 1992 with respect 26, 1993 to the acquisition of the Standard (Filed with the SEC on Products Industriel Group. February 8, 1993; see Exhibit 2 therein) 3 3a Second Amended and Restated Quarterly Report Form 10-Q Articles of Incorporation (Filed with the SEC on November 1, 1993; see Exhibit 3a therein) 3 3b Amended and Restated Code of Form S-3 Registration Regulations No. 33-62054 (Filed with the SEC on May 5, 1993; see Exhibit 3.2 therein) 4 4a Senior Notes Agreement - Quarterly Report Form 10-Q $75,000,000 6.55% Senior Notes due (Filed with the SEC on December 16, 2003, by and among February 11, 1994; The Standard Products Company and see Exhibit 4 therein) Metropolitan Life Insurance Company and certain of its Affiliates
-13- 14
Exhibit No. Reference, Documents Under Reg. S-K Form 10-K with which Exhibit Sequential Item 601 Exhibit No. Description Was Previously Filed Page -------------- ----------- -------------------------------- ---------------------- ---------- 4 4b Senior Notes Agreement - Annual Report Form 10-K $25,000,000 aggregate principal (Filed with the SEC on amount Dated as of June 30, 1989, September 25, 1989; between the Company and see Exhibit 4b therein) Nationwide Life Insurance Company, Aid 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 (Filed with the SEC on aggregate principal amount (4e), September 15, 1992; dated February 22, 1991 and, see Exhibit 4f therein) June 30, 1991, between the Company and Nationwide Life Insurance Company, Aid Association for Lutherans and Employers Life Insurance Company of Wausau 4 4d Credit Agreement, Dated as of Annual Report Form 10-K January 19, 1993, Among The (Filed with the SEC on Standard Products Company, as September 13, 1993; Borrower, and National City Bank, see Exhibit 4c therein) Society National Bank, Comerica Bank and NBD Bank, N.A. and National City, as Agent. 4 4e Agreement of Amendment, Dated as Annual Report Form 10-K of April 30, 1994, Among The (Filed with the SEC on Standard Products Company, as September 14, 1995) Borrower, and National City Bank, Society National Bank, Comerica Bank and NBD Bank, N.A. and National City, as Agent. 4 4f Amendments to Senior Notes 20 Agreement - $25,000,000 aggregate principal amount (4e), dated January 19, 1993 and, 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 26 Exchange Agreement, dated November 12, 1993, between the Company and National City Bank
-14- 15
Exhibit No. Reference, Documents Under Reg. S-K Form 10-K with which Exhibit Sequential Item 601 Exhibit No. Description Was Previously Filed Page -------------- ----------- -------------------------------- ------------------------ ---------- 4 4h Interest Rate and Currency 53 Exchange Agreement, Termination of $7 million in principal amount, dated June 16, 1995 between the Company and National City Bank 10 10a Supplemental Salaried Pension Annual Report Form 10-K Plan (Filed with the SEC on September 23, 1986; see Exhibit 10a therein) 10 10b The Standard Products Company Form S-8 Registration 1985 Employee Incentive Stock No. 33-01558 Option Plan (Filed with the SEC on November 15, 1985; see Exhibit 4a therein) 10 10c The Standard Products Company Annual Report Form 10-K 1981 Employee Incentive Stock (Filed with the SEC on Option Plan September 1, 1982; see Exhibit 10 therein) 10 10d The Standard Products Company Form S-8 Registration 1989 Employee Incentive Stock No. 33-33612 Option Plan (Filed with the SEC on February 28, 1990; see Exhibit 4a therein) 10 10e The Standard Products Company Form S-8 Registration 1991 Employee Stock Option Plan No. 33-51556 (Filed with the SEC on September 2, 1992; see Exhibit 4c therein) 10 10f The Standard Products Company Form S-8 Registration 1991 Restricted Stock Plan No. 33-51554 (Filed with the SEC on September 2, 1992; see Exhibit 4c therein) 10 10g The Standard Products Company Annual Report Form 10-K Restricted Stock Agreement between (Filed with the SEC on the Company and the Chairman and September 15, 1992; Chief Executive Officer see Exhibit 10h therein)
-15- 16
Exhibit No. Reference, Documents Under Reg. S-K Form 10-K with which Exhibit Sequential Item 601 Exhibit No. Description Was Previously Filed Page -------------- ----------- -------------------------------- -------------------------- -------- 10 10h The Standard Products Company Annual Report Form 10-K Restricted Stock Agreement between (Filed with the SEC on the Company and the President and September 15, 1992; Chief Operating Officer see Exhibit 10i therein) 10 10i The Standard Products Company Form S-8 Registration 1993 Employee Stock Option Plan No. 33-53989 (Filed with the SEC on June 6, 1994; see Exhibit 4 therein) 13 13 Annual Report to Shareholders 56 for the Year Ended June 30, 1995 21 21 Subsidiaries of Registrant 84 23 23 Consent of Independent Public 85 Accountants 27 27 Financial Data Schedule 86
(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. THE STANDARD PRODUCTS COMPANY BY /s/ Donald R. Sheley, Jr. ------------------------------------ Donald R. Sheley, Jr. Vice President-Finance and Chief Financial Officer Date: September 13, 1995 Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below on SEPTEMBER 13, 1995 by the following persons on behalf of the Registrant and in the capacities indicated. /s/ James S. Reid, Jr. Chairman and Chief Executive Officer; Director ----------------------------- James S. Reid, Jr. /s/ Theodore K. Zampetis President and Chief Operating Officer; Director ------------------------- Theodore K. Zampetis /s/ Donald R. Sheley, Jr. Vice President-Finance and Chief Financial Officer --------------------------- Donald R. Sheley, Jr. Principal Financial Officer /s/ Thomas J. Stecz Corporate Controller ---------------------------- Thomas J. Stecz Principal Accounting Officer /s/ James C. Baillie ---------------------------- James C. Baillie Director /s/ Edward B. Brandon ------------------------- Edward B. Brandon Director /s/ John D. Drinko --------------------------- John D. Drinko Director /s/ Curtis E. Moll ----------------------------- Curtis E. Moll Director /s/ Malcolm R. Myers ------------------------- Malcolm R. Myers Director /s/ Leigh H. Perkins, Sr. ---------------------------- Leigh H. Perkins, Sr. Director /s/ Alfred M. Rankin, Jr. -------------------------- Alfred M. Rankin, Jr. Director /s/ Alan E. Riedel ----------------------------- Alan E. Riedel Director /s/ John D. Sigel ----------------------------- John D. Sigel Director /s/ W. Hayden Thompson ---------------------- W. Hayden Thompson Director
-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 1995 Annual Report to Shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated August 2, 1995. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in the index of financial statements 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 August 2, 1995. -18- 19 VALUATION AND QUALIFYING ACCOUNTS SCHEDULE II For the Years Ended June 30, 1995, 1994 and 1993 (Thousands of Dollars)
Column A Column B Column C Column D Column E Column -------------------------------- ---------- ---------- ---------- ---------- ------- Additions Balance At Charged To Balance Beginning Costs And At End Description Of Period Expenses Recoveries Deductions Of Period ------------------------------- ---------- ---------- ---------- ------------ --------- 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 ======== ========= ========= ========= ======== Year Ended June 30, 1993 Reserve for Plant Closing $ 22,885 $ - $ 734 $ 14,508 $ 9,111 (1) ======== ========== ========= ======== ======== Allowance for doubtful accounts $ 3,128 $ 885 $ - $ 1,720 $ 2,293 ======== ======== ========== ======== ======== (1) Of this amount, deductions of $13,717 reflect an amount reclassified to accrued postretirement benefits other than pensions. The balance of $9,111, $3,975 and $6,235 has been classified as a current liability in the accompanying consolidated balance sheet as of June 30, 1993, 1994 and 1995, respectively.
EX-4.F 2 EXHIBIT 4.F 1 Exhibit 4f FOURTH AMENDMENT TO NOTE AGREEMENT ---------------------------------- FOURTH AMENDMENT TO NOTE AGREEMENT, dated as of January 31, 1995, by and between THE STANDARD PRODUCTS COMPANY, an Ohio corporation (the "Company"), and EMPLOYERS LIFE INSURANCE COMPANY OF WAUSAU (the "Purchaser"). WITNESSETH THAT: --------------- WHEREAS, the Company and the Purchaser entered into a Note Agreement dated as of June 30, 1989, as amended by the First Amendment to Note Agreement dated as of February 22, 1991, the Second Amendment to Note Agreement dated as of June 30, 1991, and the Third Amendment to Note Agreement dated as of January 19, 1993 (collectively, the "Note Agreement"), and under and subject to the terms and provisions of the Note Agreement, the Company has issued its Senior Note payable to the Purchaser; and WHEREAS, the parties desire to amend the Note Agreement; NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein, the parties hereto agree as follows: 1. Effect of Amendment; Definitions. --------------------------------- The Note Agreement shall be and hereby is amended as provided in Section 2 hereof. Except as expressly amended in Section 2 hereof, the Note Agreement shall continue in full force and effect in accordance with the provisions thereof on the date hereof. As used therein, the terms "Note Agreement", "Agreement", "this Agreement", "herein", "hereinafter", "hereto", "hereof", and words of similar import shall, unless the context otherwise requires, mean the Note Agreement as amended and modified by this Amendment. Capitalized terms used but not defined in this Amendment (including the recitals hereto) shall have the meanings given to them in the Note Agreement. 2. Amendment. ---------- (a) Section 5.7(a)(3)(ii) of the Note Agreement is hereby deleted and the following is substituted therefor: "(ii) in the case of the issuance of any Debt of a Subsidiary or any Funded Debt of the Company secured by liens permitted by Section 5.8(i), the aggregate amount of (x) all Debt of Subsidiaries PLUS (y) the aggregate amount of all Debt of the Company secured by liens permitted by Section 5.8(i), shall not exceed 20% of Consolidated Net Stockholder's Equity;" (b) Section 8.1 of the Note Agreement is hereby amended by inserting the following definitions in alphabetical order: 2 "CONSOLIDATED NET STOCKHOLDER'S EQUITY" shall mean the excess (as determined on a consolidated basis and in accordance with generally accepted accounting principles) of the net book value of the sum of all Tangible Assets plus all assets properly classified as intangible assets, in accordance with generally accepted accounting principles (without consideration to any reappraisal or write-up of assets after December 31, 1994 and excluding all of the following that are acquired or arise after December 31, 1994: goodwill, patents, trade names, trade marks, copyrights, franchises, experimental expense, organization expense, unamortized debt discount and expense, deferred assets other than prepaid insurance and prepaid taxes, the excess of cost of shares acquired over book value of related assets and such other assets as are properly classified as "intangible assets" in accordance with generally accepted accounting principles), of the Company and its Subsidiaries on a consolidated basis over Consolidated Total Liabilities. "CONSOLIDATED TOTAL LIABILITIES" shall mean, as of the date of any determination thereof, total liabilities (including, without limitation thereof, all deferred charges and Minority Interests) of the Company and its Subsidiaries determined on a consolidated basis in accordance with generally accepted accounting principles. 3. Miscellaneous. -------------- (a) This Amendment shall be construed in accordance with and governed by the laws of the State of Ohio, without reference to principles of conflicts of law. (b) This Amendment may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument. IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed by their respective duly authorized officers as of the day and year first above written. THE STANDARD PRODUCTS COMPANY By: /s/ Aubrey E. Arndt ------------------------ Title: VP - Finance ----------------------- EMPLOYERS LIFE INSURANCE COMPANY OF WAUSAU By: /s/ Jeffrey G. Milburn ------------------------- Title: JEFFREY G. MILBURN ------------------ ATTORNEY-IN-FACT -2- 3 FOURTH AMENDMENT TO NOTE AGREEMENT ---------------------------------- FOURTH AMENDMENT TO NOTE AGREEMENT, dated as of January 31, 1995, by and between THE STANDARD PRODUCTS COMPANY, an Ohio corporation (the "Company"), and NATIONWIDE LIFE INSURANCE COMPANY (the "Purchaser"). WITNESSETH THAT: --------------- WHEREAS, the Company and the Purchaser entered into a Note Agreement dated as of June 30, 1989, as amended by the First Amendment to Note Agreement dated as of February 22, 1991, the Second Amendment to Note Agreement dated as of June 30, 1991, and the Third Amendment to Note Agreement dated as of January 19, 1993 (collectively, the "Note Agreement"), and under and subject to the terms and provisions of the Note Agreement, the Company has issued its Senior Note payable to the Purchaser; and WHEREAS, the parties desire to amend the Note Agreement; NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein, the parties hereto agree as follows: 1. Effect of Amendment; Definitions. --------------------------------- The Note Agreement shall be and hereby is amended as provided in Section 2 hereof. Except as expressly amended in Section 2 hereof, the Note Agreement shall continue in full force and effect in accordance with the provisions thereof on the date hereof. As used therein, the terms "Note Agreement", "Agreement", "this Agreement", "herein", "hereinafter", "hereto", "hereof", and words of similar import shall, unless the context otherwise requires, mean the Note Agreement as amended and modified by this Amendment. Capitalized terms used but not defined in this Amendment (including the recitals hereto) shall have the meanings given to them in the Note Agreement. 2. Amendment. ---------- (a) Section 5.7(a)(3)(ii) of the Note Agreement is hereby deleted and the following is substituted therefor: "(ii) in the case of the issuance of any Debt of a Subsidiary or any Funded Debt of the Company secured by liens permitted by Section 5.8(i), the aggregate amount of (x) all Debt of Subsidiaries PLUS (y) the aggregate amount of all Debt of the Company secured by liens permitted by Section 5.8(i), shall not exceed 20% of Consolidated Net Stockholder's Equity;" (b) Section 8.1 of the Note Agreement is hereby amended by inserting the following definitions in alphabetical order: 4 "CONSOLIDATED NET STOCKHOLDER'S EQUITY" shall mean the excess (as determined on a consolidated basis and in accordance with generally accepted accounting principles) of the net book value of the sum of all Tangible Assets plus all assets properly classified as intangible assets, in accordance with generally accepted accounting principles (without consideration to any reappraisal or write-up of assets after December 31, 1994 and excluding all of the following that are acquired or arise after December 31, 1994: goodwill, patents, trade names, trade marks, copyrights, franchises, experimental expense, organization expense, unamortized debt discount and expense, deferred assets other than prepaid insurance and prepaid taxes, the excess of cost of shares acquired over book value of related assets and such other assets as are properly classified as "intangible assets" in accordance with generally accepted accounting principles), of the Company and its Subsidiaries on a consolidated basis over Consolidated Total Liabilities. "CONSOLIDATED TOTAL LIABILITIES" shall mean, as of the date of any determination thereof, total liabilities (including, without limitation thereof, all deferred charges and Minority Interests) of the Company and its Subsidiaries determined on a consolidated basis in accordance with generally accepted accounting principles. 3. Miscellaneous. -------------- (a) This Amendment shall be construed in accordance with and governed by the laws of the State of Ohio, without reference to principles of conflicts of law. (b) This Amendment may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument. IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed by their respective duly authorized officers as of the day and year first above written. THE STANDARD PRODUCTS COMPANY By: /s/ Aubrey E. Arndt ----------------------------- Title: VP - Finance -------------------------- NATIONWIDE LIFE INSURANCE COMPANY By: /s/ Jeffrey G. Milburn ---------------------------- Title: Jeffrey G. Milburn ---------------------------- Vice President Corporate Fixed-Income Securities -2- 5 FOURTH AMENDMENT TO NOTE AGREEMENT FOURTH AMENDMENT TO NOTE AGREEMENT, dated as of January 31, 1995, by and between THE STANDARD PRODUCTS COMPANY, an Ohio corporation (the "Company"), and AID ASSOCIATION FOR LUTHERANS (the "Purchaser"). WITNESSETH THAT: --------------- WHEREAS, the Company and the Purchaser entered into a Note Agreement dated as of June 30, 1989, as amended by the First Amendment to Note Agreement dated as of February 22, 1991, the Second Amendment to Note Agreement dated as of June 30, 1991, and the Third Amendment to Note Agreement dated as of January 19, 1993 (collectively, the "Note Agreement"), and under and subject to the terms and provisions of the Note Agreement, the Company has issued its Senior Note payable to the Purchaser; and WHEREAS, the parties desire to amend the Note Agreement; NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein, the parties hereto agree as follows: 1. Effect of Amendment; Definitions. --------------------------------- The Note Agreement shall be and hereby is amended as provided in Section 2 hereof. Except as expressly amended in Section 2 hereof, the Note Agreement shall continue in full force and effect in accordance with the provisions thereof on the date hereof. As used therein, the terms "Note Agreement", "Agreement", "this Agreement", "herein", "hereinafter", "hereto", "hereof", and words of similar import shall, unless the context otherwise requires, mean the Note Agreement as amended and modified by this Amendment. Capitalized terms used but not defined in this Amendment (including the recitals hereto) shall have the meanings given to them in the Note Agreement. 2. Amendment. ---------- (a) Section 5.7(a)(3)(ii) of the Note Agreement is hereby deleted and the following is substituted therefor: "(ii) in the case of the issuance of any Debt of a Subsidiary or any Funded Debt of the Company secured by liens permitted by Section 5.8(i), the aggregate amount of (x) all Debt of Subsidiaries PLUS (y) the aggregate amount of all Debt of the Company secured by liens permitted by Section 5.8(i), shall not exceed 20% of Consolidated Net Stockholder's Equity;" (b) Section 8.1 of the Note Agreement is hereby amended by inserting the following definitions in alphabetical order: 6 "CONSOLIDATED NET STOCKHOLDER'S EQUITY" shall mean the excess (as determined on a consolidated basis and in accordance with generally accepted accounting principles) of the net book value of the sum of all Tangible Assets plus all assets properly classified as intangible assets, in accordance with generally accepted accounting principles (without consideration to any reappraisal or write-up of assets after December 31, 1994 and excluding all of the following that are acquired or arise after December 31, 1994: goodwill, patents, trade names, trade marks, copyrights, franchises, experimental expense, organization expense, unamortized debt discount and expense, deferred assets other than prepaid insurance and prepaid taxes, the excess of cost of shares acquired over book value of related assets and such other assets as are properly classified as "intangible assets" in accordance with generally accepted accounting principles), of the Company and its Subsidiaries on a consolidated basis over Consolidated Total Liabilities. "CONSOLIDATED TOTAL LIABILITIES" shall mean, as of the date of any determination thereof, total liabilities (including, without limitation thereof, all deferred charges and Minority Interests) of the Company and its Subsidiaries determined on a consolidated basis in accordance with generally accepted accounting principles. 3. Miscellaneous. -------------- (a) This Amendment shall be construed in accordance with and governed by the laws of the State of Ohio, without reference to principles of conflicts of law. (b) This Amendment may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument. IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed by their respective duly authorized officers as of the day and year first above written. THE STANDARD PRODUCTS COMPANY By: /s/ Aubrey E. Arndt ----------------------- Title: VP - Finance ----------------------- AID ASSOCIATION FOR LUTHERANS By: /s/ Alan D. Onstad By: /s/ James Abitz ----------------------- ------------------------ Title: Assistant Vice President- Title: Vice President-Securities ----------------------- ------------------------ Securities ----------------------- -2- EX-4.G 3 EXHIBIT 4.G 1 Exhibit 4g NATIONAL CITY ------------- TO: The Standard Products Co. FAX NO: (216) 281-8122 ATTN: Charles F. Nagy, Treasurer DATE: November 10, 1993 CONFIRMATION ------------ This confirmation sets out the terms and conditions of the swap entered into between us on the Trade Date specified below. This constitutes a confirmation as referred to in the Interest Rate & Currency Exchange Agreement specified below. The definitions and provisions contained in the 1991 ISDA Definitions (as published by the International Swap Dealers Association Inc.) are incorporated into this confirmation. In the event of any inconsistency between those definitions and provisions and this confirmation, this confirmation will govern. This confirmation supplements, forms part of, and is subject to, the Interest Rate and Currency Exchange Agreement to be negotiated (the Agreement) between you and us. All provisions contained in the Agreement govern this confirmation except as expressly modified below. SCHEDULE A) CURRENCY EXCHANGE TRANSACTION ----------------------------- --------------------------------------------------------------------------------------------- Fixed Rate Payer 1 Principal Amount: USD 25,350,256 (Amortizing per attached schedule) Fixed Rate Payer 2 Principal Amount: FRF 150,000,000 (Amortizing per attached schedule) Initial Exchange on Effective Date: National City to pay Standard Products FRF 150,000,000 and Standard Products to pay National City USD 25,350,256 Exchange on Amortization Dates and Maturity Date: See Attached Schedules
1 2 Trade Date: November 12, 1993 --------------------------------------------------------------------------------------------------------------------------------- Effective Date: November 22, 1993 --------------------------------------------------------------------------------------------------------------------------------- Termination Date: November 22, 2000 --------------------------------------------------------------------------------------------------------------------------------- Fixed Rate Payer 1: National City Bank Fixed Rate Payer 1 Principal Amount: USD 25,350,256 (Amortizing as per attached schedule) Fixed Rate Payer 1 Payment Dates: The 22nd of May and November of each year from (and including) May 22, 1994 to (and including) November 22, 2000. Subject to Business Day Convention. --------------------------------------------------------------------------------------------------------------------------------- Fixed Rate 1: 5.80% --------------------------------------------------------------------------------------------------------------------------------- Fixed Rate Payer 1 Day Count Fraction: 30/360 (No adjustment to period end dates) --------------------------------------------------------------------------------------------------------------------------------- Compounding: Inapplicable ---------------------------------------------------------------------------------------------------------------------------------
2 3 Fixed Rate Payer 2: Standard Products Fixed Rate payer 2 Principal Amount: FRF 150,000,000 (Amortizing as per attached schedule) --------------------------------------------------------------------------------------------------------------------------------- Fixed Rate Payer 2 Payment Dates: The 22nd of May and November of each year from (and including) May 22, 1994 to (and including) November 22, 2003. Subject to Business Day Convention. --------------------------------------------------------------------------------------------------------------------------------- Fixed Rate 2: 6,500 --------------------------------------------------------------------------------------------------------------------------------- Fixed Rate Payer 2 Day Count Fraction: 30/360 (No adjustment to period end dates) --------------------------------------------------------------------------------------------------------------------------------- Compounding: Inapplicable --------------------------------------------------------------------------------------------------------------------------------- Business Days: New York and Paris --------------------------------------------------------------------------------------------------------------------------------- Governing Law: Laws of New York
________________________________________________________________________________ Initial Exchange Settlement Instructions: National City Bank will wire transfer FRF 150,000,000 to: Credit Lyonnais Main Office, International Division Boulevard des Italiens 75002 Paris, France Account #0910000815 3 4 Standard Products Co. will wire transfer USD 25,350,256 to National City Bank Natl City/Cleve/Inv. ABA #041000124 Attention: Cindy Bracy Inv. Ops./Swap Admins. AMORTISATION SETTLEMENT INSTRUCTIONS: Payments due National City Bank will be wire transferred by Standard Products Co. to Credit Lyonnais Main Office, International Division Boulevard des Italiens 75002 Paris, France Account #0910000815 for the benefit of National City Bank, Cleveland Payments due Standard Products will be wire transferred by National City Bank to: National City Bank Cleveland, Ohio Account No. 2000215 for the benefit of Standard Products Co. Kindly confirm the above terms by signing this letter and returning it by facsimile to National City Bank (216) 575-3355 BEFORE close of business today, November 12, 1993. Regards, NATIONAL CITY BANK By: /s/ William Mahnic ------------------------------------ William Mahnic, Vice President THE STANDARD PRODUCTS, CO. By: /s/ Charles F. Nagy ------------------------------------ Charles F. Nagy, Corporate Treasurer 4 5 AMORTISATION SCHEDULE FOR USD25,350,256
(1) Payment Principal Interest Total Date Payments Payments Payments ------- --------- -------- -------- 11/22/93 Effective Date And Exchange of Currencies 05/22/94 $0 $735,157 $735,157 11/22/94 $0 $735,157 $735,157 05/22/95 $0 $735,157 $735,157 11/22/95 $0 $735,157 $735,157 05/22/96 $0 $735,157 $735,157 11/22/96 $5,070,051 $735,157 $5,805,209 05/22/97 $0 $588,126 $588,126 11/22/97 $5,070,051 $588,126 $5,658,177 05/22/98 $0 $441,094 $441,094 11/22/98 $5,070,051 $441,094 $5,511,148 05/22/99 $0 $294,063 $294,063 11/22/99 $5,070,051 $294,063 $5,364,114 05/22/00 $0 $147,031 $147,031 11/22/00 $5,070,051 $147,031 $5,217,083 TOTALS $25,350,256 $7,351,574 $32,701,830 Payments
6 AMORTISATION SCHEDULE FOR FRF150,000,000
(1) Payment Principal Interest Total Date Payments Payments Payments ------- --------- -------- -------- 11/22/93 Effective Date And Exchange of Currencies 05/22/94 0 4,875,000 4,875,000 11/22/94 0 4,875,000 4,875,000 05/22/95 0 4,875,000 4,875,000 11/22/95 0 4,875,000 4,875,000 05/22/96 0 4,875,000 4,875,000 11/22/96 30,000,000 4,875,000 34,875,000 05/22/97 0 3,900,000 3,900,000 11/22/97 30,000,000 3,900,000 33,900,000 05/22/98 0 2,925,000 2,925,000 11/22/98 30,000,000 2,925,000 32,925,000 05/22/99 0 1,950,000 1,950,000 11/22/99 30,000,000 1,950,000 31,950,000 05/22/00 0 975,000 975,000 11/22/00 30,000,000 975,000 30,975,000 TOTALS 150,000,000 48,750,000 198,750,000 Payments
7 Exhibit 4g (continued) SCHEDULE TO THE INTEREST RATE AND CURRENCY EXCHANGE AGREEMENT DATED AS OF NOVEMBER 12, 1993 Between National City Bank, Cleveland ("Party A") and The Standard Products Co. ("Party B"). PART I TERMINATION PROVISIONS In this Agreement: 1) "SPECIFIED ENTITY" means in relation to Part A for the purpose of: Section 5(a)(iii) and (iv) and Section 5(b)(i), Inapplicable Section 5(a)(v), Inapplicable Section 5(a)(vi), Inapplicable Section 5(a)(vii), Inapplicable in relation to Party B for the purpose of: Section 5(a)(iii) and (iv) and Section 5(b)(i), Inapplicable Section 5(a)(v), Inapplicable Section 5(a)(vi), Inapplicable Section 5(a)(vii), Inapplicable 2) "SPECIFIED SWAP" means, in lieu of the meaning specified in Section 14, any currency and/or rate swap, cap, floor, or collar, currency forward, currency exchange, forward rate, future rate, asset swap, or commodity or securities-linked transaction or agreement, other exchange or rate protection transaction or agreement or other similar transaction or agreement (however designated), any combination of such transactions or agreements, or any option with respect to any such transaction or agreement, now existing or hereafter entered into between Party A (or any applicable Specified Entity) and Party B (or any applicable Specified Entity). 3) The "CROSS DEFAULT" provisions of Section 5(a)(vi) will apply to Party B. If such provisions apply: "SPECIFIED INDEBTEDNESS" will have the meaning set forth in Section 14. "THRESHOLD AMOUNT" means aggregating more than $10,000,000 or its equivalent in any other currency. 4) "TERMINATION CURRENCY" means United States Dollars for Party A and French Francs for Party B. 5) The "CREDIT EVENT UPON MERGER" provisions of Section (b)(iv) will apply to Party A and Party B. 1 8 PART 2 TAX REPRESENTATIONS 1) PAYER TAX REPRESENTATION. For the purpose of Section 3(e), each party required to make any payment pursuant to this Agreement represents to the other that it is not required by any applicable law, as modified by the practice of any relevant governmental revenue authority, of any Relevant Jurisdiction to make any deduction or withholding for or on account of any Tax from any payment (other than interest under Section 2(e)) to be made by it to the other party under this Agreement. In making this representation, it may rely on: a) the accuracy of any representation made by the other party pursuant to Section 3(f); b) the satisfaction of the agreement of the other party contained in Section 4(a)(i) and the accuracy and effectiveness of any document provided by the other party pursuant to Section 4(a)(i); and c) the satisfaction of the agreement of the other party contained in Section 4(d). 2) PAYEE TAX REPRESENTATIONS. For the purpose of Section 3(f): a) Each party represents to the other that each payment received or to be received by it in connection with this Agreement relates to the regular business operations of the party (and not to an investment of the party). b) Party A represents to Party B that it is a national banking association organized under the laws of the United States of America. c) Party B represents to Party A that is a corporation organized under the laws of the United States of America. PART 3 DOCUMENTS TO BE DELIVERED For the purpose of Section 4(a): 1) Tax forms, documents or certificates to be delivered are: Each party agrees to complete, accurately and in a manner reasonable satisfactory to the other party, and to execute, arrange for any required certification of, and deliver to the other party (or to such government or taxing authority as the other party reasonably directs), any form or document that may be required or reasonably requested in order to allow the other party to make a payment under this Agreement without any deduction or withholding for or on account of any Tax or with such deduction or withholding at a reduced rate, promptly upon reasonable demand by the other party. 2 9 2) Other documents to be delivered are: a) Each party shall promptly deliver to the other party, certified evidence of the authority, incumbency and specimen signature of each authorized person executing any document on its behalf in connection with this Agreement upon execution of each document by any person. b) Each party upon request shall promptly deliver to the other party, a copy of its most recent Annual Report containing consolidated financial statements, prepared in accordance with accounting principles that are generally accepted for institutions of its type in the jurisdiction of its organization and certified by independent public accounts. c) Each party upon request shall promptly deliver to the other party, a copy of its most recent unaudited interim consolidated financial statements prepared in accordance with accounting principles that are generally accepted for institutions of its type in the jurisdiction of its organization in each case consistently applied. d) Party B shall promptly deliver to Party A an opinion of counsel substantially in the form of Annex A and such other public information respecting to its condition, or operations, financial or otherwise, as Party A may reasonably request from time to time. PART 4 MISCELLANEOUS 1) GOVERNING LAW. This Agreement will be governed by and construed in accordance with the laws of the State of New York without reference to choice of law doctrine. 2) "AFFILIATE" will have the meaning specified in Section 14. 3) MULTIBRANCH PARTY. For the purpose of Section 10: Party A is not a Multibranch Party. Party B is not a Multibranch Party. 4) ADDRESSES FOR NOTICES. For the purpose of Section 12(a): Address for notices or communications to Party A: Address: 1900 East Ninth Street, Cleveland, Ohio 44114 Attention: Swap Desk #1402 Facsimile Transmission No.: (216) 566-1887 For all purposes. 3 10 Address for notices or communications to Party B: Address: Mr. Charles F. Nagy Attention: 2130 West 110th St. Facsimile Transmission No: Cleveland, Ohio 44102 (216) 281-8122 For all purposes. 5) CREDIT SUPPORT DOCUMENT. Details of the Credit Support Document entered into with Party A, dated January 19, 1993. 6) NETTING OF PAYMENTS. "Net Payments - Corresponding Payment Dates" will apply for the purpose of Section 2(c) with effect from the date of this Agreement. 7) NOTICES. Section 12(a) is hereby amended by: (a) adding in the fourth line thereof (i) after the word "received" the words "or by facsimile or similar telecommunications device" and (ii) after the word "telex" the words "or facsimile"; and (b) adding in the first line of Clause (i) thereof after the word "courier" and before the comma the words "or by facsimile or similar telecommunications device". PART 5 OTHER PROVISIONS 1) ISDA DEFINITIONS. This Agreement and each Swap Transaction are subject to the 1991 ISDA Definitions (as published by the International Swap Dealers Association, Inc.) (the "Definitions"), and will be governed in all relevant respects by the provisions set forth in the Definitions, without regard to any amendments thereto subsequent to the date hereof. The provisions of the Definitions are incorporated by reference herein, and shall be deemed a part of, this schedule and each Confirmation, as if set forth in full in this schedule or that Confirmation. The Calculation Agent for purposes of the Definitions will be Party A. 2) INTERPRETATION. In the event of any inconsistency between the provisions of this Schedule and the Definitions, this Schedule will prevail. In the event of any inconsistency between the provisions of this Schedule and the printed Agreement of which it forms a part, this Schedule will prevail. In the event of any inconsistency between the provisions of any Confirmation and this Schedule, such Confirmation will prevail for the purpose of the relevant Swap Transaction. 3) CONFIRMATION. a Confirmation may be substantially in the form of the letter or telex attached hereto as Exhibit I (or in such other form as the parties may agree). 4) ADDITIONAL REPRESENTATIONS. Party B represents and warrants to Party A that there has been no material adverse change in its financial condition since the last day of the one year period covered by its most recently prepared year end financial statement. 4 11 5) AFFECTED PARTIES. For the purpose of Section 6(e) (Payments on Early Termination), (a) both parties shall be deemed to be Affected Parties in connection with the Termination Events described in Section 5(b)(i) and (ii), so that payments on early termination shall be calculated as provided in Section 6(e)(ii). 6) RECORD KEEPING. Each party represents and warrants to the other that it shall maintain this Agreement, this Schedule and all Confirmations issued pursuant hereto with its records of binding business transactions. 7) BANKRUPTCY PAYMENTS. For purposes of calculating payments due in respect of an Early Termination Date (including any payments under Section 6(d) and any Unpaid Amounts), an Event of Default specified in Section 5(a)(vii) of this Agreement (Bankruptcy) shall be treated as if it were a Termination Event with the Defaulting Party as the Affected Party and for such purposes the proviso to the definition of "Settlement Amount" shall be deemed to be of no force and effect. Such Event of Default treated as a Termination Event shall take precedence over any other Event of Default which is existing at the time of the designation or deemed occurrence of such Early Termination Date. NATIONAL CITY BANK By: /s/ William Mahnic --------------------- Title: Vice President --------------------- Date: December 15, 1993 --------------------- The Standard Products Co. By: /s/ Charles F. Nagy --------------------- Title: Corporate Treasurer --------------------- Date: February 18, 1994 --------------------- 5 12 Annex A to Schedule (Form of Opinion of Counsel for Party B) (DATE) National City Bank: We have acted as counsel to_________________________________________________, a_______________________corporation ("Party B") in connection with the execution and delivery of the International Swap Dealers Association, Inc. Interest Rate and Currency Exchange Agreement ("the Master Agreement") dated as of ____________________, 19___ between National City Bank ("Party A") and Party B. The Master Agreement is to be supplemented by confirmations of rate swap transactions to be entered into by Party A and Party B from time to time (each a "Confirmation") and the Master Agreement together with all such Confirmations shall constitute one agreement. In connection with this opinion, we have examined an executed copy of the Master Agreement and the form of Confirmation attached thereto and such corporate documents and records of Party B, certificates of public officials and officers of Party B and such other documents as we have deemed necessary or appropriate for the purposes of this opinion. In such opinion, we have assumed the genuineness of all the signatures, the authenticity of all documents submitted to us as originals and the conformity to authentic original documents of all documents submitted to us as certified, confirmed or photostatic copies. I have also assumed that each Confirmation will be in substantially the form of Exhibit 1 to the Master Agreement and will not contain provisions not usual in transactions of this type. Based upon the foregoing, we are of the opinion that: 1. Party B is a corporation duly organized, validly existing and in good standing under the laws of ______________________________________ .* ______________________________________________________________ * Jurisdiction of incorporation of Party B. 6 13 Page 2 2. The execution, delivery and performance of the Master Agreement and each Confirmation by Party B are within Party B's corporate power, have been duly authorized by all necessary corporate action and do not, or, in the case of each Confirmation, will not, conflict with any provisions of Party B's articles of incorporation or by-laws. 3. The Master Agreement has been duly executed and delivered by Party B and constitutes, and each Confirmation, upon due execution and delivery by Party B, will constitute, a legally valid and binding obligation of Party B enforceable against Party B in accordance with its terms (subject to applicable bankruptcy, reorganization, insolvency, moratorium or similar laws affecting creditors' rights generally and subject, as to enforceability, to equitable principles of general application (regardless of whether enforcement is sought in a proceeding in equity or at law)). 4). To the best of our knowledge, no consent, authorization, license or approval of, or registration or declaration with, any United States of America federal or ___________________________________________________ governmental authority is required in connection with the execution, delivery and performance of the Master Agreement and each Confirmation by Party B. The opinions expressed herein are limited to matters concerning the federal laws of the United States of America and the laws of the State of ______________________________. Very truly yours, 7 14 Exhibit 4g (continued) ISDA (R) International Swap Dealers Association, Inc. INTEREST RATE AND CURRENCY EXCHANGE AGREEMENT Dated as of November 12, 1993 -------------------------------- National City Bank, Cleveland and The Standard Products Co. ------------------------------------ ------------------------------- have entered and/or anticipate entering into one or more transactions (each a "Swap Transaction"). The parties agree that each Swap Transaction will be governed by the terms and conditions set forth in this document (which includes the schedule (the "Schedule")) and in the documents (each a "Confirmation") exchanged between the parties confirming such Swap Transactions. Each Confirmation constitutes a supplement to and forms part of this document and will be read and construed as one with this document, so that this document and all the Confirmations constitute a single agreement between the parties (collectively referred to as this "Agreement"). The parties acknowledge that all Swap Transactions are entered into in reliance on the fact that this document and all Confirmations will form a single agreement between the parties, it being understood that the parties would not otherwise enter into any Swap Transactions. Accordingly, the parties agree as follows:- 1. INTERPRETATION (a) Definitions. The terms defined in Section 14 and in the Schedule will have the meanings therein specified for the purpose of this Agreement. (b) Inconsistency. In the event of any inconsistency between the provisions of any Confirmation and this document, such Confirmation will prevail for the purpose of the relevant Swap Transaction. 2. PAYMENTS (a) Obligations and Conditions. (i) Each party will make each payment specified in each Confirmation as being payable by it. (ii) Payments under this Agreement will be made not later than the due date for value on that date in the place of the account specified in the relevant Confirmation or otherwise pursuant to this Agreement, in freely transferable funds and in the manner customary for payments in the required currency. (iii) Each obligation of each party to pay any amount due under Section 2(a)(i) is subject to (1) the condition precedent that no Event of Default or Potential Event of Default with respect to the other party has occurred and is continuing and (2) each other applicable condition precedent specified in this Agreement. (b) Change of Account. Either party may change its account by giving notice to the other party at least five days prior to the due date for payment for which such change applies. Copyright (C) 1987 by International Swap Dealers Association, Inc. 15 (c) Netting. If on any date amounts would otherwise be payable:- (i) in the same currency; and (ii) in respect of the same Swap Transaction, by each party to the other, then, on such date, each party's obligation to make payment of any such amount will be automatically satisfied and discharged and, if the aggregate amount that would otherwise have been payable by one party exceeds the aggregate amount that would otherwise have been payable by the other party, replaced by an obligation upon the party by whom the larger aggregate amount would have been payable to pay to the other party the excess of the larger aggregate amount over the smaller aggregate amount. If the parties specify "Net Payments--Corresponding Payment Dates" in a Confirmation or otherwise in this Agreement, sub-paragraph (ii) above will cease to apply to all Swap Transactions with effect from the date so specified (so that a net amount will be determined in respect of all amounts due on the same date in the same currency, regardless of whether such amounts are payable in respect of the same Swap Transaction); provided that, in such case, this Section 2(c) will apply separately to each Office through which a party makes and receives payments as set forth in Section 10. (d) Deduction or Withholding for Tax. (i) Gross-Up. All payments under this Agreement will be made without any deduction or withholding for or on account of any Tax unless such deduction or withholding is required by any applicable law, as modified by the practice of any relevant governmental revenue authority, then in effect. If a party is so required to deduct or withhold, then that party ("X") will:- (1)promptly notify the other party ("Y") of such requirement; (2)pay to the relevant authorities the full amount required to be deducted or withheld (including the full amount required to be deducted or withheld from any additional amount paid by X to Y under this Section 2(d)) promptly upon the earlier of determining that such deduction or withholding is required or receiving notice that such amount has been assessed against Y; (3)promptly forward to Y an official receipt (or a certified copy), or other documentation reasonably acceptable to Y, evidencing such payment to such authorities; and (4)if such Tax is an Indemnifiable Tax, pay to Y, in addition to the payment to which Y is otherwise entitled under this Agreement, such additional amount as is necessary to ensure that the net amount actually received by Y (free and clear of Indemnifiable Taxes, whether assessed against X or Y) will equal the full amount Y would have received had no such deduction or withholding been required. However, X will not be required to pay any additional amount to Y to the extent that it would not be required to be paid but for:- (A) the failure by Y to comply with or perform any agreement contained in Section 4(a)(i) or 4(d); or (B) the failure of a representation made by Y pursuant to Section 3(f) to be accurate and true unless such failure would not have occurred but for a Change in Tax Law. (ii) Liability. If:- (1)X is required by any applicable law, as modified by the practice of any relevant governmental revenue authority, to make any deduction or withholding in respect of which X would not be required to pay an additional amount to Y under Section 2(d)(i)(4); (2)X does not so deduct or withhold; and (3)a liability resulting from such Tax is assessed directly against X. then, except to the extent Y has satisfied or then satisfies the liability resulting from such Tax, Y will promptly pay to X the amount of such liability (including any related liability for interest, but including any related liability for penalties only if Y has failed to comply with or perform any agreement contained in Section 4(a)(i) or (d)). (e) Default Interest. A party that defaults in the payment of any amount due will, to the extent permitted by law, be required to pay interest (before as well as after judgment) on such amount to the other party on demand in the same currency as the overdue amount, for the period from (and including) 2 16 the original due date for payment to (but excluding) the date of actual payment, at the Default Rate. Such interest will be calculated on the basis of daily compounding and the actual number of days elapsed. 3. REPRESENTATIONS Each party represents to the other party (which representations will be deemed to be repeated by each party on each date on which a Swap Transaction is entered into and, in the case of the representations in Section 3(f), at all times until the termination of this Agreement) that:- (a) Basic Representations. (i) Status. It is duly organised and validly existing under the laws of the jurisdiction of its organisation or incorporation and, if relevant under such laws, in good standing; (ii) Powers. It has the power to execute and deliver this Agreement and any other documentation relating to this Agreement that it is required by this Agreement to deliver and to perform its obligations under this Agreement and any obligations it has under any Credit Support Document to which it is a party and has taken all necessary action to authorise such execution, delivery and performance; (iii) No Violation or Conflict. Such execution, delivery and performance do not violate or conflict with any law applicable to it, any provision of its constitutional documents, any order or judgment of any court or other agency of government applicable to it or any of its assets or any contractual restriction binding on or affecting it or any of its assets; (iv) Consents. All governmental and other consents that are required to have been obtained by it with respect to this Agreement or any Credit Support Document to which it is a party have been obtained and are in full force and effect and all conditions of any such consents have been complied with; and (v) Obligations Binding. Its obligations under this Agreement and any Credit Support Document to which it is a party constitute its legal, valid and binding obligations, enforceable in accordance with their respective terms (subject to applicable bankruptcy, reorganisation, insolvency, moratorium or similar laws affecting creditors' rights generally and subject, as to enforceability, to equitable principles of general application (regardless of whether enforcement is sought in a proceeding in equity or at law)). (b) Absence of Certain Events. No Event of Default or Potential Event of Default or, to its knowledge, Termination Event with respect to it has occurred and is continuing and no such event or circumstance would occur as a result of its entering into or performing its obligations under this Agreement or any Credit Support Document to which it is a party. (c) Absence of Litigation. There is not pending or, to its knowledge, threatened against it or any of its Affiliates any action, suit or proceeding at law or in equity or before any court, tribunal, governmental body, agency or official or any arbitrator that purports to draw into question, or is likely to affect, the legality, validity or enforceability against it of this Agreement or any Credit Support Document to which it is a party or its ability to perform its obligations under this Agreement of such Credit Support Document. (d) Accuracy of Specified Information. All applicable information that is furnished in writing by or on behalf of it to the other party and is identified for the purpose of this Section 3(d) in paragraph 2 of Part 3 of the Schedule is, as of the date of the information, true, accurate and complete in every material respect. (e) Payer Tax Representation. Each representation specified in Part 2 of the Schedule as being made by it for the purpose of this Section 3(e) is accurate and true. (f) Payer Tax Representations. Each representation specified in Part 2 of the Schedule as being made by it for the purpose of this Section 3(f) is accurate and true. 4. AGREEMENTS Each party agrees with the other that, so long as it has or may have any obligation under this Agreement or under any Credit Support Document to which it is a party:- 3 17 (a) Furnish Specified Information. It will deliver to the other party:- (i) any forms, documents or certificates relating to taxation specified in Part 3 of the Schedule or any Confirmation; and (ii) any other documents specified in Part 3 of the Schedule or any Confirmation, by the date specified in Part 3 of the Schedule or such Confirmation or, if none is specified, as soon as practicable. (b) Maintain Authorisations. It will use all reasonable efforts to maintain in full force and effect all consents of any governmental or other authority that are required to be obtained by it with respect to this Agreement or any Credit Support Document to which it is a party and will use all reasonable efforts to obtain any that may become necessary in the future. (c) Comply with Laws. It will comply in all material respects with all applicable laws and orders to which it may be subject if failure so to comply would materially impair its ability to perform its obligations under this Agreement or any Credit Support Document to which it is a party. (d) Tax Agreement. It will give notice of any failure of a representation made by it under Section 3(f) to be accurate and true promptly upon learning of such failure. (e) Payment of Stamp Tax. It will pay any Stamp Tax levied or imposed upon it or in respect of its execution or performance of this Agreement by a jurisdiction in which it is incorporated, organised, managed and controlled, or considered to have its seat, or in which a branch or office through which it is acting for the purpose of this Agreement is located ("Stamp Tax Jurisdiction") and will indemnify the other party against any Stamp Tax levied or imposed upon the other party or in respect of the other party's execution or performance of this Agreement by any such Stamp Tax Jurisdiction which is not also a Stamp Tax Jurisdiction with respect to the other party. 5. EVENTS OF DEFAULT AND TERMINATION EVENTS (a) Events of Default. The occurrence at any time with respect to a party or, if applicable, any Specified Entity of such party, of any of the following events constitutes an event of default (an "Event of Default") with respect to such party:- (i) Failure to Pay. Failure by the party to pay, when due, any amount required to be paid by it under this Agreement if such failure is not remedied on or before the third Business Day after notice of such failure to pay is given to the party; (ii) Breach of Agreement. Failure by the party to comply with or perform any agreement or obligation (other than an obligation to pay any amount required to be paid by it under this Agreement or to give notice of a Termination Event or any agreement or obligation under Section 4(a)(i) or 4(d)) to be complied with or performed by the party in accordance with this Agreement if such failure is not remedied on or before the thirtieth day after notice of such failure is given to the party; (iii) Credit Support Default. (1) Failure by the party or any applicable Specified Entity to comply with or perform any agreement or obligation to be complied with or performed by the party or such Specified Entity in accordance with any Credit Support Document if such failure is continuing after any applicable grace period has elapsed; (2) the expiration or termination of such Credit Support Document, or the ceasing of such Credit Support Document to be in full force and effect, prior to the final Scheduled Payment Date of each Swap Transaction to which such Credit Support Document relates without the written consent of the other party; or (3) the party or such Specified Entity repudiates, or challenges the validity of, such Credit Support Document; (iv) Misrepresentation. A representation (other than a representation under Section 3(e) or (f)) made or repeated or deemed to have been made or repeated by the party or any applicable Specified Entity in this Agreement or any Credit Support Document relating to this Agreement proves to have been incorrect or misleading in any material respect when made or repeated or deemed to have been made or repeated: (v) Default under Specified Swaps. The occurrence of an event of default in respect of the party or any applicable Specified Entity under a Specified Swap which, following the giving of any 4 18 applicable notice or the lapse of any applicable grace period, has resulted in the designation or occurrence of an early termination date in respect of such Specified Swap; (vi) Cross Default. If "Cross Default" is specified in Part 1 of the Schedule as applying to the party, (1) the occurrence or existence of an event or condition in respect of such party or any applicable Specified Entity under one or more agreements or instruments relating to Specified Indebtedness of such party or any such Specified Entity in an aggregate amount of not less than the Threshold Amount (as specified in Part 1 of the Schedule) which has resulted in such Specified Indebtedness becoming, or becoming capable at such time of being declared, due and payable under such agreements or instruments, before it would otherwise have been due and payable or (2) the failure by such party or any such Specified Entity to make one or more payments at maturity in an aggregate amount of not less than the Threshold Amount under such agreements or instruments (after giving effect to any applicable grace period); (vii) Bankruptcy. The party or any applicable Specified Entity:- (1) is dissolved; (2) becomes insolvent or fails or is unable to or admits in writing its inability generally to pay its debts as they become due; (3) makes a general assignment, arrangement or composition with or for the benefit of its creditors; (4) institutes or has instituted against it a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors' rights, or a petition is presented for the winding-up or liquidation of the party or any such Specified Entity, and, in the case of any such proceeding or petition instituted or presented against it, such proceeding or petition (A) results in a judgment of insolvency or bankruptcy or the entry of an order for relief or the making of an order for the winding-up or liquidation of the party or such Specified Entity or (B) is not dismissed, discharged, stayed or restrained in each case within 30 days of the institution or presentation thereof; (5) has a resolution passed for its winding-up or liquidation; (6) seeks or becomes subject to the appointment of an administrator, receiver, trustee, custodian or other similar official for it or for all or substantially all its assets (regardless of how brief such appointment may be, or whether any obligations are promptly assumed by another entity or whether any other event described in this clause (6) has occurred and is continuing); (7) any event occurs with respect to the party or any such Specified Entity which, under the applicable laws of any jurisdiction, has an analogous effect to any of the events specified in clauses (1) to (6) (inclusive); or (8) takes any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the foregoing acts; other than in the case of clause (1) or (5) or, to the extent it relates to those clauses, clause (8), for the purpose of a consolidation, amalgamation or merger which would not constitute an event described in (viii) below; or (viii) Merger Without Assumption. The party consolidates or amalgamates with, or merges into, or transfer all or substantially all its assets to, another entity and, at the time of such consolidation, amalgamation, merger or transfer:- (1) the resulting, surviving or transferee entity fails to assume all the obligations of such party under this Agreement by operation of law or pursuant to an agreement reasonably satisfactory to the other party to this Agreement; or (2) the benefits of any Credit Support Document relating to this Agreement fail to extend (without the consent of the other party) to the performance by such resulting, surviving or transferee entity of its obligations under this Agreement. (b) Termination Events. The occurrence at any time with respect to a party or, if applicable, any Specified Entity of such party of any event specified below constitutes an Illegality if the event is specified in (i) below, a Tax Event if the event is specified in (ii) below, a Tax Event Upon Merger if the event is specified in (iii) below or a Credit Event Upon Merger if the event is specified in (iv) below:- (i) Illegality. Due to the adoption of, or any change in, any applicable law after the date on which such Swap Transaction is entered into, or due to the promulgation of, or any change in, the interpretation by any court, tribunal or regulatory authority with competent jurisdiction of any applicable law after such date, it becomes unlawful (other than as a result of a breach by the party of Section 4(b)) for such party (which will be the Affected Party):- 5 19 (1) to perform any absolute or contingent obligation to make a payment or to receive a payment in respect of such Swap Transaction or to comply with any other material provision of this Agreement relating to such Swap Transaction; or (2) to perform, or for any applicable Specified Entity to perform, any contingent or other obligation which the party (or such Specified Entity) has under any Credit Support Document relating to such Swap Transaction; (ii) Tax Event. (1) The party (which will be the Affected Party) will be required on the next succeeding Schedule Payment Date to pay to the other party an additional amount in respect of an Indemnifiable Tax under Section 2(d)(i)(4) (except in respect of interest under Section 2(e)) as a result of a Change in Tax Law; or (2) there is a substantial likelihood that the party (which will be the Affected Party) will be required on the next succeeding Schedule Payment Date to pay to the other party an additional amount in respect of an Indemnifiable Tax under Section 2(d)(i)(4) (except in respect of interest under Section 2(e)) and such substantial likelihood results from an action taken by a taxing authority, or brought in a court of competent jurisdiction, on or after the date on which such Swap Transaction was entered into (regardless of whether such action was taken or brought with respect to a party to this Agreement); (iii) Tax Event Upon Merger. The party (the "Burdened Party") on the next succeeding Schedule Payment Date will either (1) be required to pay an additional amount in respect of an Indemnifiable Tax under Section 2(d)(i)(4) (except in respect of interest under Section 2(e)) or (2) receive a payment from which an amount has been deducted or withheld for or on account of any Indemnifiable Tax in respect of which the other party is not required to pay an additional amount, in either case as a result of a party consolidating or amalgamating with, or merging into, or transferring all or substantially all its assets to, another entity (which will be the Affected Party) where such action does not constitute an event described in Section 5(a)(viii); or (iv) Credit Event Upon Merger. If "Credit Event Upon Merger" is specified in Part 1 of the Schedule as applying to the party, such party ("X") consolidates or amalgamates with, or merges into, or transfers all or substantially all its assets to, another entity and such action does not constitute an event described in Section 5(a)(viii) but the creditworthiness of the resulting, surviving or transferee entity (which will be the Affected Party) is materially weaker than that of X immediately prior to such action. (c) Event of Default and Illegality. If an event or circumstance which would otherwise constitute or give rise to an Event of Default also constitutes an Illegality, it will be treated as an Illegality and will not constitute an Event of Default. 6. EARLY TERMINATION (a) Right to Terminate Following Event of Default. If at any time an Event of Default with respect to a party (the "Defaulting Party") has occurred and is then continuing, the other party may, by not more than 20 days notice to the Defaulting Party specifying the relevant Event of Default, designate a day not earlier than the day such notice is effective as an Early Termination Date in respect of all outstanding Swap Transactions. However, an Early Termination Date will be deemed to have occurred in respect of all Swap Transactions immediately upon the occurrence of any Event of Default specified in Section 5(a)(vii)(1), (2), (3), (5), (6), (7) or (8) and as of the time immediately preceding the institution of the relevant proceeding or the presentation of the relevant petition upon the occurrence of any Event of Default specified in Section 5(a)(vii)(4). (b) Right to Terminate Following Termination Event. (i) Notice. Upon the occurrence of a Termination Event, an Affected Party will, promptly upon becoming aware of the same, notify the other party thereof, specifying the nature of such Termination Event and the Affected Transactions relating thereto. The Affected Party will also give such other information to the other party with regard to such Termination Event as the other party may reasonably require. (ii) Transfer to Avoid Termination Event. If either an Illegality under Section 5(b)(i)(1) or a Tax Event occurs and there is only on Affected Party, or if a Tax Event Upon Merger occurs and the Burdened Party is the Affected Party, the Affected Party will as a condition to its right to designate an Early Termination Date under Section 6(b)(iv) use all reasonable efforts (which 6 20 will not require such party to incur a loss, excluding immaterial, incidental expenses) to transfer within 20 days after it gives notice under Section 6(b)(i) all its rights and obligations under this Agreement in respect of the Affected Transactions to another of its offices, branches or Affiliates so that such Termination Event ceases to exist. If the Affected Party is not able to make such a transfer it will give notice to the other party to that effect within such 20 day period, whereupon the other party may effect such a transfer within 30 days after the notice is given under Section 6(b)(i). Any such transfer by a party under this Section 6(b)(ii) will be subject to and conditional upon the prior written consent of the other party, which consent will not be withheld if such other party's policies in effect at such time would permit it to enter into swap transactions with the transferee on the terms proposed. (iii) Two Affected Parties. If an Illegality under Section 5(b)(i)(1) or a Tax Event occurs and there are two Affected Parties, each party will use all reasonable efforts to reach agreement within 30 days after notice thereof is given under Section 6(b)(i) on action that would cause such Termination Event to cease to exist. (iv) Right to Terminate. If:- (1) a transfer under Section 6(b)(ii) or an agreement under Section 6(b)(iii), as the case may be, has not been effected with respect to all Affected Transactions within 30 days after an Affected Party gives notice under Section 6(b((i); or (2) an Illegality under Section 5(b)(i)(2) or a Credit Event Upon Merger occurs, or a Tax Event Upon Merger occurs and the Burdened Party is not the Affected Party, either party in the case of an Illegality, the Burdened Party in the case of a Tax Event Upon Merger, any Affected Party in the case of a Tax Event, or the party which is not the Affected Party in the case of a Credit Event Upon Merger, may, by not more than 20 days notice to the other party and provided that the relevant Termination Event is then continuing, designate a day not earlier than the day such notice is effective as an Early Termination Date in respect of all Affected Transactions. (c) Effect of Designation. (i) If notice designating an Early Termination Date is given under Section 6(a) or (b), the Early Termination Date will occur on the date so designated, whether or not the relevant Event of Default or Termination Event is continuing on the relevant early Termination Date. (ii) Upon the effectiveness of notice designating an Early Termination Date (or the deemed occurrence of an Early Termination Date), the obligations of the parties to make any further payments under Section 2(a)(i) in respect of the Terminated Transactions will terminate, but without prejudice to the other provisions of this Agreement. (d) Calculations. (i) Statement. Following the occurrence of an Early Termination Date, each party will make the calculations (including calculation of applicable interest rates) on its part contemplated by Section 6(e) and will provide to the other party a statement (1) showing, in reasonable detail, such calculations (including all relevant quotations) and (2) giving details of the relevant account to which any payment due to it under Section 6(e) is to be made In the absence of written confirmation of a quotation obtained in determining a Market Quotation from the source providing such quotation, the records of the party obtaining such quotation will be conclusive evidence of the existence and accuracy of such quotation. (ii) Due Date. The amount calculated as being payable under Section 6(e) will be due on the day that notice of the amount payable is effective (in the case of an Early Termination Date which is designated or deemed to occur as a result of an Event of Default) and not later than the day which is two Business Days after the day on which notice of the amount payable is effective (in the case of an Early Termination Date which is designated as a result of a Termination Event). Such amount will be paid together with (to the extent permitted under applicable law) interest thereon in the Termination Currency from (and including) the relevant Early Termination Date to (but excluding) the relevant due date, calculated as follows:- (1) if notice is given designating an Early Termination Date or if an Early Termination Date is deemed to occur, in either case as a result of an Event of Default, at the Default Rate; or 7 21 (2) if notice is given designating an Early Termination Date as a result of a Termination Event, at the Default Rate minus 1% per annum. Such interest will be calculated on the basis of daily compounding and the actual number of days elapsed. (e) Payments on Early Termination. (i) Defaulting Party or One Affected Party. If notice is given designating an Early Termination Date or if an Early Termination Date is deemed to occur and there is a Defaulting Party or only one Affected Party, the other party will determine the Settlement Amount in respect of the Terminated Transactions and:- (1) if there is a Defaulting Party, the Defaulting Party will pay to the other party the excess, if a positive number, of (A) the sum of such Settlement Amount and the Termination Currency Equivalent of the Unpaid Amounts owing to the other party over (B) the Termination Currency Equivalent of the Unpaid Amounts owing to the Defaulting Party; and (2) if there is an Affected Party, the payment to be made will be equal to (A) the sum of such Settlement Amount and the Termination Currency Equivalent of the Unpaid Amounts owing to the party determining the Settlement Amount ("X") less (B) the Termination Currency Equivalent of the unpaid Amounts owing to the party not determining the Settlement Amount ("Y"). (ii) Two Affected Parties. If notice is given of an Early Termination Date and there are two Affected Parties, each party will determine a Settlement Amount in respect of the Terminated Transactions and the payment to be made will be equal to (1) the sum of (A) one-half of the difference between the Settlement Amount of the party with the higher Settlement Amount ("X") and the Settlement Amount of the party with the lower Settlement Amount ("Y") and (B) the Termination Currency Equivalent of the Unpaid Amounts owing to X less (2) the Termination Currency Equivalent of the Unpaid Amounts owing to Y. (iii) Party Owing. If the amount calculated under Section 6(e)(i)(2) or (ii) is a positive number, Y will pay such amount to X; if such amount is a negative number, X will pay the absolute value of such amount to Y. (iv) Adjustment for Bankruptcy. In circumstances where an Early Termination Date is deemed to occur, the amount determined under Section 6(3)(i) will be subject to such adjustments as are appropriate and permitted by law to reflect any payments made by one party to the other under this Agreement (and retained by such other party) during the period from the relevant Early Termination Date to the date for payment determined under Section 6(d)(ii). (v) Pre-Estimate of Loss. The parties agree that the amounts recoverable under this Section 6(e) are a reasonable pre- estimate of loss and not a penalty. Such amounts are payable for the loss of bargain and the loss of protection against future risks and except as otherwise provided in this Agreement neither party will be entitled to recover any additional damages as a consequence of such losses. 7. TRANSFER Subject to Section 6(b) and to any exception provided in the Schedule, neither this Agreement nor any interest or obligation in or under this Agreement may be transferred by either party without the prior written consent of the other party (other than pursuant to a consolidation or amalgamation with, or merger into, or transfer of all or substantially all its assets to, another entity) and any purported transfer without such consent will be void. 8. CONTRACTUAL CURRENCY (a) Payment in the Contractual Currency. Each payment under this Agreement will be made in the relevant currency specified in this Agreement for that payment (the "Contractual Currency"). To the extent permitted by applicable law, any obligation to make payments under this Agreement in the Contractual Currency will not be discharged or satisfied by any tender in any currency other than the Contractual Currency, except to the extent such tender results in the actual receipt by the party to which payment is owed, acting in a reasonable manner and in good faith in converting the currency so tendered into the Contractual Currency, of the full amount in the Contractual Currency of all amounts due in respect of this Agreement. If for any reason the amount in the Contractual Currency so received falls short of the amount 8 22 in the Contractual Currency due in respect of this Agreement, the party required to make the payment will, to the extent permitted by applicable law, immediately pay such additional amount in the Contractual Currency as may be necessary to compensate for the shortfall. If for any reason the amount in the Contractual Currency so received exceeds the amount in the Contractual Currency due in respect of this Agreement, the party receiving the payment will refund promptly the amount of such excess. (b) Judgements. To the extent permitted by applicable law, if any judgment or order expressed in a currency other than the Contractual Currency is rendered (i) for the payment of any amount owing in respect of this Agreement, (ii) for the payment of any amount relating to any early termination in respect of this Agreement or (iii) in respect of a judgment or order of another court for the payment of any amount described in (i) or (ii) above, the party seeking recovery, after recovery in full of the aggregate amount to which such party is entitled pursuant to the judgment or order, will be entitled to receive immediately from the other party the amount of any shortfall of the Contractual Currency received by such party as a consequence of sums paid in such other currency and will refund promptly to the other party any excess of the Contractual Currency received by such party as a consequence of sums paid in such other currency if such shortfall or such excess arises or results from any variation between the rate of exchange at which the Contractual Currency is converted into the currency of the judgment or order for the purposes of such judgment or order and the rate of exchange at which such party is able, acting in a reasonable manner and in good faith in converting the currency received into the Contractual Currency, to purchase the Contractual Currency with the amount of the currency of the judgment or order actually received by such party. The term "rate of exchange" includes, without limitation, any premiums and costs of exchange payable in connection with the purchase of or conversion into the Contractual Currency. (c) Separate Indemnities. To the extent permitted by applicable law, these indemnities constitute separate and independent obligations from the other obligations in this Agreement, will be enforceable as separate and independent causes of action, will apply notwithstanding any indulgence grated by the party to which any payment is owed and will not be affected by judgment being obtained or claim or proof being made for any other sums due in respect of this Agreement. (d) Evidence of Loss. For the purpose of this Section 8, it will be sufficient for a party to demonstrate that it would have suffered a loss had an actual exchange or purchase been made. 9. MISCELLANEOUS (a) Entire Agreement. This Agreement constitutes the entire agreement and understanding of the parties with respect to its subject matter and supersedes all oral communication and prior writings with respect thereto. (b) Amendments. No amendment, modification or waiver in respect of this Agreement will be effective unless in writing and executed by each of the parties or confirmed by an exchange of telexes. (c) Survival of Obligations. Except as provided in Section 6(c)(ii), the obligations of the parties under this Agreement will survive the termination of any Swap Transaction. (d) Remedies Cumulative. Except as provided in this Agreement, the rights, powers, remedies and privileges provided in this Agreement are cumulative and not exclusive of any rights, powers, remedies and privileges provided by law. (e) Counterparts and Confirmations. (i) This Agreement may be executed in counterparts, each of which will be deemed an original. (ii) A Confirmation may be executed in counterparts or be created by an exchange of telexes, which in either case will be sufficient for all purposes to evidence a binding supplement to this Agreement. Any such counterpart or telex will specify that it constitutes a Confirmation. (f) No Waiver of Rights. A failure or delay in exercising any right, power or privilege in respect of this Agreement will not be presumed to operate as a waiver, and a single or partial exercise of any right, power or privilege will not be presumed to preclude any subsequent or further exercise of that right, power or privilege or the exercise of any other right, power or privilege. (g) Headings. The headings used in this Agreement are for convenience of reference only and are not to affect the construction of or to be taken into consideration in interpreting this Agreement. 9 23 10. MULTIBRANCH PARTIES If a party is specified as a Multibranch Party in Part 4 of the Schedule, such Multibranch Party may make and receive payments under any Swap Transaction through any of its branches or offices listed in the Schedule (each an "Office"). The Office through which it so makes and receives payments for the purpose of any Swap Transaction will be specified in the relevant Confirmation and any change of Office for such purpose requires the prior written consent of the other party. Each Multibranch Party represents to the other party that, notwithstanding the place of payment, the obligations of each Office are for all purposes under this Agreement the obligations of such Multibranch Party. This representation will be deemed to be repeated by such Multibranch Party on each date on which a Swap Transaction is entered into. 11. EXPENSES A Defaulting Party will, on demand, indemnify and hold harmless the other party for and against all reasonable out-of-pocket expenses, including legal fees and Stamp Tax, incurred by such other party by reason of the enforcement and protection of its rights under this Agreement or by reason of the early termination of any Swap Transaction, including, but not limited to, costs of collection. 12. NOTICES (a) Effectiveness. Any notice or communication in respect of this Agreement will be sufficiently given to a party if in writing and delivered in person, sent by certified or registered mail (airmail, if overseas) or the equivalent (with return receipt requested) or by overnight courier or given by telex (with answerback received) at the address or telex number specified in Part 4 of the Schedule. A notice or communication will be effective:- (i) if delivered by hand or sent by overnight courier, on the day it is delivered (or if that day is not a day on which commercial banks are open for business in the city specified in the address for notice provided by the recipient (a "Local Banking Day"), or if delivered after the close of business on a Local Banking Day, on the first following day that is a Local Banking Day); (ii) if sent by telex, on the day the recipient's answerback is received (or if that day is not a Local Banking Day, or if after the close of business on a Local Banking Day, on the first following day that is a Local Banking Day); or (iii) if sent by certified or registered mail (airmail, if overseas) or the equivalent (return receipt requested), three Local Banking Days after despatch if the recipient's address for notice is in the same country as the place of despatch and otherwise seven Local Banking Days after despatch. (b) Change of Addresses. Either party may by notice to the other change the address or telex number at which notices or communications are to be given to it. 13. GOVERNING LAW AND JURISDICTION (a) Governing Law. This Agreement will be governed by and construed in accordance with the law specified in Part 4 of the Schedule. (b) Jurisdiction. With respect to any suit, action or proceedings relating to this Agreement ("Proceedings"), each party irrevocably:- (i) submits to the jurisdiction of the English courts, if this Agreement is expressed to be governed by English law, or to the non-exclusive jurisdiction of the courts of the State of New York and the United States District Court located in the Borough of Manhattan in New York City, if this Agreement is expressed to be governed by the laws of the State of New York; and (ii) waives any objection which it may have at any time to the laying of venue of any Proceedings brought in any such court, waives any claim that such Proceedings have been brought in an inconvenient forum and further waives the right to object, with respect to such Proceedings, that such court does not have jurisdiction over such party. Nothing in this Agreement precludes either party from bringing Proceedings in any other jurisdiction (outside, if this Agreement is expressed to be governed by English law, the Contracting States, as defined in Section I(3) of the Civil Jurisdiction and Judgments Act 1982 or any modification, extension or re-enactment thereof for the time being in force) nor will the bringing of Proceedings in any one or more jurisdictions preclude the bringing of Proceedings in any other jurisdiction. (c) Service of Process. Each party irrevocably appoints the Process Agent (if any) specified opposite its name in Part 4 of the Schedule to receive, for it and on its behalf, service of process in any Proceedings. If for any reason any party's Process Agent is unable to act as such, such party will 10 24 promptly notify the other party and within 30 days appoint a substitute process agent acceptable to the other party. The parties irrevocably consent to service of process given in the manner provided for notices in Section 12. Nothing in this Agreement will affect the right of either party to serve process in any other manner permitted by law. (d) Waiver of Immunities. Each party irrevocably waives, to the fullest extent permitted by applicable law, with respect to itself and its revenues and assets (irrespective of their use or intended use), all immunity on the grounds of sovereignty or other similar grounds from (i) suit, (ii) jurisdiction of any court, (iii) relief by way of injunction, order for specific performance or for recovery of property, (iv) attachment of its assets (whether before or after judgment) and (v) execution or enforcement of any judgment to which it or its revenues or assets might otherwise be entitled in any Proceedings in the courts of any jurisdiction and irrevocably agrees, to the extent permitted by applicable law, that it will not claim any such immunity in any Proceedings. 14. DEFINITIONS As used in this Agreement:- "AFFECTED PARTY" has the meaning specified in Section 5(b). "AFFECTED TRANSACTIONS" means (a) with respect to any Termination Event consisting of an Illegality, Tax Event or Tax Event Upon Merger, all Swap Transactions affected by the occurrence of such Termination Event and (b) with respect to any other Termination Event, all Swap Transactions. "AFFILIATE" means, subject to Part 4 of the Schedule, in relation to any person, any entity controlled, directly or indirectly, by the person, any entity that controls, directly or indirectly, the person or any entity under common control with the person. For this purpose, "control" of any entity or person means ownership of a majority of the voting power of the entity or person. "BURDENED PARTY" has the meaning specified in Section 5(b). "BUSINESS DAY" means (a) in relation to any payment due under Section 2(a)(i), a day on which commercial banks and foreign exchange markets are open for business in the place(s) specified in the relevant Confirmation and (b) in relation to any other payment, a day on which commercial banks and foreign exchange markets are open for business in the place where the relevant account is located and, if different, in the principal financial centre of the currency of such payment. "CHANGE IN TAX LAW" means the enactment, promulgation, execution or ratification of, or any change in or amendment to, any law (or in the application or official interpretation of any law) that occurs on or after the date on which the relevant Swap Transaction is entered into. "CONSENT" includes a consent, approval, action, authorisation, exemption, notice, filing, registration or exchange control consent. "CREDIT EVENT UPON MERGER" has the meaning specified in Section 5(b). "CREDIT SUPPORT DOCUMENT" means any agreement or instrument which is specified as such in this Agreement. "DEFAULT RATE" means a rate per annum equal to the cost (without proof or evidence of any actual cost) to the relevant payee (as certified by it) of funding the relevant amount plus 1% per annum. "DEFAULTING PARTY" has the meaning specified in Section 6(a). "EARLY TERMINATION DATE" means the date specified as such in a notice given under Section 6(a) or 6(b)(iv). "EVENT OF DEFAULT" has the meaning specified in Section 5(a). "ILLEGALITY" has the meaning specified in Section 5(b). "INDEMNIFIABLE TAX" means any Tax other than a Tax that would not be imposed in respect of a payment under this Agreement but for a present or former connection between the jurisdiction of the government or taxation authority imposing such Tax and the recipient of such payment or a person related to such recipient (including, without limitation, a connection arising from such recipient or related person being or having been a citizen or resident of such jurisdiction, or being or having been organised, present or engaged in a trade or business in such jurisdiction, or having or having had a permanent establishment or fixed place of business in such jurisdiction, but excluding a connection arising solely from such recipient 11 25 or related person having executed, delivered, performed its obligations or received a payment under, or enforced, this Agreement or a Credit Support Document). "LAW" includes any treaty, law, rule or regulation (as modified, in the case of tax matters, by the practice of any relevant governmental revenue authority) and "LAWFUL" and "UNLAWFUL" will be construed accordingly. "LOSS" means, with respect to a Terminated Transaction and a party, an amount equal to the total amount (expressed as a positive amount) required, as determined as of the relevant Early Termination Date (or, if an Early Termination Date is deemed to occur, as of a time as soon thereafter as practicable) by the party in good faith, to compensate if for any losses and costs (including loss of bargain and costs of funding but excluding legal fees and other out-of-pocket expenses) that it may incur as a result of the early termination of the obligations of the parties in respect of such Terminated Transaction. If a party determines that it would gain or benefit from such early termination, such party's Loss will be an amount (expressed as a negative amount) equal to the amount of the gain or benefit as determined by such party. "MARKET QUOTATION" means, with respect to a Terminated Transaction and a party to such Terminated Transaction making the determination, an amount (which may be negative) determined on the basis of quotations from Reference Market-makers for the amount that would be or would have been payable on the relevant Early Termination Date, either by the party to the Terminated Transaction making the determination (to be expressed as a positive amount) or to such party (to be expressed as a negative amount), in consideration of an agreement between such party and the quoting Reference Market-maker and subject to such documentation as they may in good faith agree, with the relevant Early Termination Date as the date of commencement of such agreement (or, if later, the date specified as the effective date of such Terminated Transaction in the relevant Confirmation), that would have the effect of preserving for such party the economic equivalent of the payment obligations of the parties under Section 2(a)(i) in respect of such Terminated Transaction that would, but for the occurrence of the relevant Early Termination Date, fall due after such Early Termination Date (excluding any Unpaid Amounts in respect of such Terminated Transaction but including, without limitation, any amounts that would, but for the occurrence of the relevant Early Termination Date, have been payable (assuming each applicable condition precedent had been satisfied) after such Early Termination Date by reference to any period in which such Early Termination Date occurs). The party making the determination (or its agent) will request each Reference Market-maker to provide its quotation to the extent practicable as of the same time (without regard to different time zones) on the relevant Early Termination Date (or, if an Early Termination Date is deemed to occur, as of a time as soon thereafter as practicable). The time as of which such quotations are to obtained will, if only one party is obliged to make a determination under Section 6(e), be selected in good faith by that party and otherwise will be agreed by the parties. If more than three such quotations are provided, the Market Quotation will be the arithmetic mean of the Termination Currency Equivalent of the quotations, without regard to the quotations having the highest and lowest values. If exactly three such quotations are provided, the Market Quotation will be the quotation remaining after disregarding the quotations having the highest and lowest values. If fewer than three quotations are provided, it will be deemed that the Market Quotation in respect of such Terminated Transaction cannot be determined. "OFFICE" has the meaning specified in Section 10. "POTENTIAL EVENT OF DEFAULT" means any event which, with the giving of notice or the lapse of time or both, would constitute an Event of Default. "REFERENCE MARKET-MAKERS" means four leading dealers in the relevant swap market selected by the party determining a Market Quotation in good faith(a) from among dealers of the highest credit standing which satisfy all the criteria that such party applies generally at the time in deciding whether to offer or to make an extension of credit and (b) to the extent practicable, from amount such dealers having an office in the same city. "RELEVANT JURISDICTION" means, with respect to a party, the jurisdictions (a) in which the party is incorporated, organised, managed and controlled or considered to have its seat, (b) where a branch or office through which the party is acting for purposes of this Agreement is located, (c) in which the party executes this Agreement and (d) in relation to any payment, from or through which such payment is made. "SCHEDULED PAYMENT DATE" means a date on which a payment is due under Section 2(a)(i) with respect to a Swap Transaction. 12 26 "SETTLEMENT AMOUNT" means, with respect to a party and any Early Termination Date, the sum of:- (a) the Termination Currency Equivalent of the Market Quotations (whether positive or negative) for each Terminated Transaction for which a Market Quotation is determine; and (b) for each Terminated Transaction for which a Market Quotation is not, or cannot be, determined, the Termination Currency Equivalent of such party's Loss (whether positive or negative); provided that if the parties agree that an amount may be payable under Section 6(e) to a Defaulting Party by the other party, no account shall be taken of a Settlement Amount expressed as a negative number. "SPECIFIED ENTITY" has the meaning specified in Part 1 of the Schedule. "SPECIFIED INDEBTEDNESS" means, subject to Part 1 of the Schedule, any obligation (whether present or future, contingent or otherwise, as principal or surety or otherwise) in respect of borrowed money. "SPECIFIED SWAP" means, subject to Part 1 of the Schedule, any rate swap or currency exchange transaction now existing or hereafter entered into between one party to this Agreement (or any applicable Specified Entity) and the other party to this Agreement (or any applicable Specified Entity). "STAMP TAX" means any stamp, registration, documentation or similar tax. "TAX" means any present or future tax, levy, impost, duty, charge, assessment or fee of any nature (including interest, penalties and additions thereto) that is imposed by any government or other taxing authority in respect of any payment under this Agreement other than a stamp, registration, documentation or similar tax. "TAX EVENT" has the meaning specified in Section 5(b). "TAX EVENT UPON MERGER" has the meaning specified in Section 5(b). "TERMINATED TRANSACTIONS" means (a) with respect to any Early Termination Date occurring as a result of a Termination Event, all Affected Transactions and (b) with respect to any Early Termination Date occurring as a result of an Event of Default, all Swap Transactions, which in either case are in effect as of the time immediately preceding the effectiveness of the notice designating such Early Termination Date (or, in the case of an Event of Default specified in Section 5(a)(vii), in effect as of the time immediately preceding such Early Termination Date). "TERMINATION CURRENCY" has the meaning specified in Part 1 of the Schedule. "TERMINATION CURRENCY EQUIVALENT" means, in respect of any amount denominated in the Termination Currency, such Termination Currency amount and, in respect of any amount denominated in a currency other than the Termination Currency (the "Other Currency"), the amount in the Termination Currency determined by the party making the relevant determination as being required to purchase such amount of such Other Currency as at the relevant Early Termination Date with the Termination Currency at the rate equal to the spot exchange rate of the foreign exchange agent (selected as provided below) for the purchase of such Other Currency with the Termination Currency at or about 11:00 a.m. (in the city in which such foreign exchange agent is located) on such date as would be customary for the determination of such a rate for the purchase of such Other Currency for value the relevant Early Termination Date. The foreign exchange agent will, of only one party is obliged to make a determination under Section 6(e), be selected in good faith by that party and otherwise will be agreed by the parties. "TERMINATION EVENT" means an Illegality, a Tax Event, a Tax Event Upon Merger or a Credit Event Upon Merger. "UNPAID AMOUNTS" owing to any party means, with respect to any Early Termination Date, the aggregate of the amounts that became due and payable (or that would have become due and payable but for Section 2(a)(iii) or the designation or occurrence of such Early Termination Date) to such party under Section 2(a)(i) in respect of all Terminated Transactions by reference to all periods ended on or prior to such Early Termination Date and which remain unpaid as at such Early Termination Date, together with (to the extent permitted under applicable law and in lieu of any interest calculated under Section 2(e)) interest thereon, in the currency of such amounts, from (and including) the date such amounts became due and payable or would have become due and payable to (but excluding) such Early Termination Date, calculated as follows:- (a) in the case of notice of an Early Termination Date given as a result of an Event of Default:- 13 27 (i) interest on such amounts due and payable by a Defaulting Party will be calculated at the Default Rate; and (ii) interest on such amounts due and payable by the other party will be calculated at a rate per annum equal to the cost to such other party (as certified by it) if it were to fund such amounts (without proof or evidence of any actual cost); and (b) in the case of notice of an Early Termination Date given as a result of a Termination Event, interest on such amounts due and payable by either party will be calculated at a rate per annum equal to the arithmetic mean of the cost (without proof or evidence of any actual cost) to each party (as certified by such party and regardless of whether due and payable by such party) if it were to fund or of funding such amounts. Such amounts of interest will be calculated on the basis of daily compounding and the actual number of days elapsed. IN WITNESS WHEREOF the parties have executed this document as of the date specified on the first page of this document. National City Bank, Cleveland The Standard Products Co. ----------------------------- ------------------------------- (Name of party) (Name of party) By: /s/ William Mahnic By: /s/ Charles F. Nagy --------------------- ------------------------ Name: William Mahnic Name: Charles F. Nagy Title: Vice President Title: Corporate Treasurer 14 EX-4.H 4 EXHIBIT 4.H 1 NATCITY NATCITY INVESTMENTS, INC. Investments 1965 East Sixth Street Cleveland, OH 44114 Exhibit 4h June 16, 1995 Mr. Charles F. Nagy Corporate Treasurer The Standard Products Co. Dearborn, Michigan VIA FAX Re: Termination of $7 million in principal amount of an original $25,350,256 currency swap dated November 10, 1993. Dear Chuck: This letter will confirm the agreement between National City Bank ("NCB") and Standard Products Co. ("Standard Products") to terminate $ 7 million in principal amount of the original balance of $25,350,256 on a currency swap entered into between NCB and Standard Products dated November 10, 1993. The terms of the termination as as follows: Trade Date: June 14, 1995 Effective Date: June 26, 1995 Settlement Date: June 28, 1995 National City Bank Will Pay Standard Products Co.: Principal USD 7,033,000.00 Accrued Interest USD 40,600.00 ----------------- Total Due USD 7,073,600.00 Standard Products Will Pay National City Bank: Principal FRD 41,419,700.00 Accrued Interest FRF 269,228.05 ----------------- Total Due FRF 41,688,928.05 Please evidence your confirmation of this trade by executing this Confirmation Letter and faxing it to the attention of Bill Mahnic, at 216/575-3355. For: National City Bank For: The Standard Products Co. By: /s/ Michael T. Whalen By: /s/ Charles F. Nagy ------------------------- ------------------------- Mike Whalen, Vice President Charles F. Nagy, Corporate Treasurer MEMBER NASD o MEMBER SIPC 2 ORIGINAL AMORT. CASH FLOW SCHEDULE (SELL/MARK-TO-MARKET)
PERIOD PAYMENT NCB PAYS USD FIXED DISCOUNT DISCOUNT DATE DATE TOTAL PAYMENTS RATE FACTOR ------------ ------------ ------------------ --------- -------- 22-NOV-95 22-NOV-95 735,157.42 6.0661736 .97286889 22-MAY-96 22-MAY-96 735,157.42 5.9586661 .94531143 22-NOV-96 22-NOV-96 5,805,208.62 5.9351203 .9181216 22-MAY-97 22-MAY-97 588,125.94 5.972081 .891265 22-NOV-97 24-NOV-97 5,658,177.14 6.0271054 .86379632 22-MAY-98 22-MAY-98 441,094.45 6.0933657 .8374109 22-NOV-98 23-NOV-98 5,511,145.65 6.1602482 .81049447 22-MAY-99 25-MAY-99 294,062.97 6.2278053 .78417109 22-NOV-99 22-NOV-99 5,364,114.17 6.2932862 .75853068 22-MAY-00 22-MAY-00 147,031.48 6.3622806 .73306674 22-NOV-00 22-NOV-00 5,217,082.68 6.3782234 .7097452 NPV (ACT/ACT SA) PCT 07-JUN-95 25,097,895.02 PERIOD PAYMENT STAN PAYS FRF FIXED DISCOUNT DISCOUNT DATE DATE TOTAL PAYMENTS RATE FACTOR ------------ ------------ ------------------ --------- -------- 22-NOV-95 22-NOV-95 4,875,000.00 7.0925828 .9684293 22-MAY-96 22-MAY-96 4,875,000.00 6.6573021 .93919883 22-NOV-96 22-NOV-96 34,875,000.00 6.5290817 .91042976 22-MAY-97 22-MAY-97 3,900,000.00 6.4320315 .88352097 22-NOV-97 24-NOV-97 33,900,000.00 6.4895489 .85429816 22-MAY-98 22-MAY-98 2,925,000.00 6.561246 .82625853 22-NOV-98 23-NOV-98 32,925,000.00 6.6412837 .79751671 22-MAY-99 25-MAY-99 1,950,000.00 6.7211379 .76945533 22-NOV-99 22-NOV-99 31,950,000.00 6.791504 .74238297 22-MAY-00 22-MAY-00 975,000.00 6.8614979 .71571238 22-NOV-00 22-NOV-00 30,975,000.00 6.9157279 .68986731 NPV (ACT/ACT SA) PCT 07-JUN-95 149,418,441.41
3 NEW AMORT. CASH FLOW SCHEDULE (SELL/MARK-TO-MARKET)
PERIOD PAYMENT NCB PAYS USD FIXED DISCOUNT DISCOUNT DATE DATE TOTAL PAYMENTS RATE FACTOR ------------ ------------ ------------------ --------- -------- 22-NOV-95 22-NOV-95 532,157.42 6.0661736 .97286889 22-MAY-96 22-MAY-96 532,157.42 5.9586661 .94531143 22-NOV-96 22-NOV-96 4,202,208.62 5.9351203 .9181216 22-MAY-97 22-MAY-97 425,725.94 5.972081 .891265 22-NOV-97 24-NOV-97 4,095,777.14 6.0271054 .86379632 22-MAY-98 22-MAY-98 319,294.45 6.0933657 .8374109 23-NOV-98 23-NOV-98 3,989,345.65 6.1602482 .81049447 22-MAY-99 25-MAY-99 212,862.97 6.2278053 .78417109 22-NOV-99 22-NOV-99 3,882,914.17 6.2932862 .75853068 22-MAY-00 22-MAY-00 106,431.48 6.3622806 .73306674 22-NOV-00 22-NOV-00 3,776,482.68 6.3782234 .7097452 NPV (ACT/ACT SA) PCT 07-JUN-95 18,167,579.79 PERIOD PAYMENT STAN PAYS FRF FIXED DISCOUNT DISCOUNT DATE DATE TOTAL PAYMENTS RATE FACTOR ------------ ------------ ------------------ --------- -------- 22-NOV-95 22-NOV-95 3,528,859.74 7.0925828 .9684293 22-MAY-96 22-MAY-96 3,528,859.74 6.6573021 .93919883 22-NOV-96 22-NOV-96 25,244,919.70 6.5290817 .91042976 22-MAY-97 22-MAY-97 2,823,087.79 6.4320315 .88352097 22-NOV-97 24-NOV-97 24,539,147.75 6.4895489 .85429816 22-MAY-98 22-MAY-98 2,117,315.85 6.561246 .82625853 22-NOV-98 23-NOV-98 23,833,375.81 6.6412837 .79751671 22-MAY-99 25-MAY-99 1,411,543.90 6.7211379 .76945533 22-NOV-99 22-NOV-99 23,127,603.86 6.791504 .74238297 22-MAY-00 22-MAY-00 705,771.95 6.8614979 .71571238 22-NOV-00 22-NOV-00 22,421,831.89 6.9157279 .68986731 NPV (ACT/ACT SA) PCT 07-JUN-95 108,159,327.74
EX-13 5 EXHIBIT 13 1 Exhibit 13 THE STANDARD PRODUCTS CO. EXPANDING OUR GLOBAL POSITION ANNUAL REPORT 1995 2 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. Standard Products is one of the world's leading suppliers of sealing, trim and vibration-control systems for the worldwide original equipment automotive industry. We are also the major North American supplier of seals for home and commercial refrigerators and freezers, as well as an important supplier to the residential door and window industry. Through our Oliver Rubber subsidiary, we are a leading manufacturer of tread rubber and equipment for the truck retread industry. 3 FISCAL YEAR HIGHLIGHTS
(Thousands of Dollars Except Share Data) 1995 1994 1993 ------------------------------------------------------------------- ---------- ---------- --------- Net Sales.............................................................. $995,926 $872,367 $763,796 Income Before Extraordinary Item and Cumulative Effect on Prior Years of Change in Accounting Principle........................ 20,066 33,032 33,423 Extraordinary Item, Early Repayment of Debt, Net of Tax................ - - (2,559) Cumulative Effect on Prior Years of Change in Accounting Principle, Adoption of SFAS No. 106, Net of Tax...................... - - (8,301) -------- -------- -------- Net Income............................................................. $ 20,066 $ 33,032 $ 22,563 ======== ======== ======== Earnings Per Common Share: Income Before Extraordinary Item and Cumulative Effect on Prior Years of Change in Accounting Principle..................... $1.20 $1.99 $2.21 Extraordinary Item, Early Repayment of Debt, Net of Tax.............. - - (.17) Cumulative Effect on Prior Years of Change in Accounting Principle, Adoption of SFAS No. 106, Net of Tax.................... - - (.55) ----- ----- ----- $1.20 $1.99 $1.49 ----- ----- ----- Cash Dividends Declared Per Common Share............................... $ .68 $ .65 $ .54 Shareholders' Equity................................................... $ 260,495 $242,677 $224,436 Book Value Per Common Share............................................ $15.56 $14.55 $13.56 Shares Outstanding at Year End......................................... 16,736 16,674 16,552 -------------------------------------------------------------------------------------------------------------------------------
4 TO OUR SHAREHOLDERS As we write this letter, Standard Products is in the midst of the largest single new-vehicle launch in the Company's history--the Ford Taurus/Mercury Sable. This launch culminates the most intensive three-year schedule of new programs ever for Standard Products--some two dozen launches worth $350 million in new business, replacing $105 million in existing volume. We have also embarked on a major new initiative in Brazil, part of an ongoing global expansion of our business, and we continue to remake the Company in response to the demands of our primary customers for competitiveness, global sourcing and full-service design and engineering capability. We had a difficult year and profits were squeezed, but we believe our investments will ultimately be positively reflected in our bottom line. As we have said, this is the price of admission to the future. We are building a billion dollar-plus global automotive supplier for the next century. We have confidence in our strategy. Sales for the year reached $995.9 million, a 14% increase over 1994. Of that increase, $15.9 million, or approximately 13%, was due to the net effect of foreign currency exchange rates. Net income was $20.1 million, or $1.20 per share, compared with $33.0 million, or $1.99 per share, in the prior year. Net earnings for the year reflected a net tax credit of $2.8 million compared with a tax charge of $17.2 million for the prior year. The normal income tax provision for fiscal 1995 of $7.3 million was more than offset by a tax benefit related to the previously announced closing of Oliver Rubber's European subsidiary and the recognition of benefits associated with tax loss carryforwards at our United Kingdom subsidiary, Standard Products Limited (SPL). As a consequence, all future earnings of SPL will be taxable. For the fiscal year, our largest unit, North American automotive operations, had sales of $531 million, a 15% increase over the prior year. The increase was driven primarily by new automobile programs launched during the prior 18 months, including the Chevrolet Lumina, Ford Crown Victoria/Mercury Grand Marquis and Chrysler's Neon, Cirrus/Stratus and NS minivan. Production for the new Taurus/Sable began in June, and is going well at this time. The new Taurus/Sable is worth $125 million in annualized sales to Standard Products, including sales of NISCO, our joint venture with Nishikawa Rubber Company of Japan. Fiscal 1995 sales from our European automotive operations increased $35.5 million to $240 million. This was a 17% improvement over fiscal 1994. However, favorable currency exchange rates against the weak U.S. dollar accounted for half of the gain. Although the European auto market was flat for the 12 months, our European operations benefited from participation on the Fiat Punto and other popular new models. Oliver Rubber reported annual sales of $127 million, a 7% increase. Holm Industries contributed $94 million to total sales, an 8% increase over last year. NISCO also enjoyed increased sales and late in the fiscal year added a third plant outside Fort Wayne, Indiana, to handle anticipated volume increases. Our share of NISCO's profits is 50%, but the sales are not consolidated in our income statement. A number of factors accounted for the decline in fiscal 1995 profits--raw material price increases that we have not been able to pass on to our customers, start-up costs related to new launches, intermittent automotive OEM production shutdowns of key models, and higher interest costs. We also experienced operating problems at our Spartanburg, South Carolina, plastics plant, which we are addressing. In addition, we incurred one-time charges to consolidate our North American automotive plastics production facilities and, as a result of the decision a year ago, to close Oliver Rubber's European operation. Standard Products handled eight major new-model launches during the year. It is worth noting that new business typically comes in at lower margins than the business it is replacing, and it takes time to bring down the startup production costs. At the same time, the automotive OEMs are placing higher demands on their suppliers than ever before. No longer just parts producers, preferred suppliers are now expected to handle the full range of design and engineering responsibilities related to their systems and components. Today we bear much of the 5 cost of the 2-3 years of product definition, design, prototyping and testing that precede Job 1, along with the additional engineering changes that typically accompany the ramp-up to full production. As a result of these market pressures, our spending on research, engineering and development has increased from $10 million in fiscal 1990 to $33 million in fiscal 1995. In addition, we have taken a number of steps to make the Company more efficient, more competitive and more technologically capable. We have restructured our North American automotive operations, appointing a new executive vice president, reassigning our best managers, flattening the manufacturing organization, and starting the process of consolidating our plastics production facilities. We have consolidated administrative and operational functions in our Dearborn, Michigan, offices. We have also created the Standard Products Worldwide Technology Organization. The mission of WTO is to develop new products and processes, share our technological expertise across the Company on a worldwide basis, and ensure worldwide consistency of equipment and technology. WTO will invest in equipment and a facility to manufacture tooling for Company plants around the world. In recognition of our efforts to elevate Standard Products to a world-class automotive parts company, Ford Motor Co. last year designated us as a Full Service Supplier for glass sealing and exterior ornamentation. Standard Products was one of the first nine of Ford's 1,600 suppliers worldwide to be so acknowledged. During 1995, at the request of our automotive OEM customers, we initiated actions to begin manufacturing products in South America and Mexico. The Mexican venture is temporarily on hold, but we are moving ahead in Brazil on a $25 million plant in Varginha, in the state of Minas Gerais, to manufacture glass run channels, weatherstripping and door seals. The plant, scheduled to begin production in January 1996, initially will be dedicated to supplying Fiat with parts for its new Mercosur "world car." To strengthen our position in Brazil, we acquired 100% of Itatiaia Standard, a Sao Paulo-based supplier of automotive sealing systems, where we had long been a 20% joint venture partner. Itatiaia has annual sales of approximately $30 million. The acquisition provides us with an experienced local sales and engineering team supplying all of the auto makers in Brazil. For automotive suppliers, Brazil is one of the most attractive markets in the world. Ford, General Motors, Volkswagen, Renault and Fiat have all announced multi-billion dollar investments there. Total vehicle production has risen 47% since 1992 to 1.58 million vehicles last year and is expected to double again by the year 2000. That would make Brazil the fifth largest automotive producer in the world by the turn of the century, ahead of Italy, Britain and Canada. Looking ahead, the first quarter is traditionally our weakest, due to model changeovers and vacation closings at our automotive OEM customer plants. With the added burden this year of heavy launch costs on the Taurus/Sable, high initial costs associated with our Brazilian investments and some softness in the car build in many of our major world markets, including Brazil, we anticipate a loss in the first quarter. For the year, we expect sales to exceed $1 billion for the first time in the Company's history. However, earnings will continue to be under pressure and, while they may improve over last year, we still expect fiscal 1996 will be another difficult year for the Company. /s/ James S. Reid, Jr. /s/ Theodore K. Zampetis ---------------------- ------------------------ James S. Reid, Jr. Theodore K. Zampetis Chairman and Chief Executive Officer President and Chief Operating Officer August 18, 1995 6 DESIGN & ENGINEERING TECHNOLOGY WE HAVE MADE CONSIDERABLE INVESTMENTS TO STRENGTHEN OUR TECHNOLOGICAL CAPABILITIES. TODAY, WE ARE NOT ONLY RESPONSIBLE FOR DESIGN AND ENGINEERING, BUT ARE ALSO DEEPLY INVOLVED IN THE PRE-DESIGN STAGES OF BENCHMARKING, PRODUCT DEFINITION AND COST-BENEFIT ANALYSIS. 7 TESTING & QUALITY ASSURANCE WORKING CLOSELY WITH OUR OEM CUSTOMERS, WE DESIGN AND TEST OUR AUTOMOTIVE SEALING SYSTEMS, EXTERIOR TRIM AND OTHER PRODUCTS TO ENSURE THAT THEY MEET DEMANDING SPECIFICATIONS FOR FIT, FUNCTIONALITY, APPEARANCE AND DURABILITY. 8 MANUFACTURING & PROGRAM LAUNCH WE ARE WORKING TO IMPROVE OUR MANUFACTURING OPERATIONS BY BETTER UTILIZING OUR DIVERSE RESOURCES, ESPECIALLY THE EXPERTISE OF OUR PEOPLE. WE SEE TREMENDOUS OPPORTUNITIES FOR IMPROVEMENT THROUGH WORLDWIDE CONSISTENCY OF EQUIPMENT AND TECHNOLOGY AND WORLDWIDE SHARING OF BEST PRACTICES. 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS Sales for fiscal 1995 were $995,926,000, an increase of $123,559,000, or 14%, over the prior year. Net income was $20,066,000, or $1.20 a share, compared to $33,032,000, or $1.99 a share, a year ago. SALES PERFORMANCE - 1995 AND 1994 Fiscal 1995 sales of the Transportation Equipment Segment were $868,892,000, an increase of $115,128,000, or 15%, over the prior year. In North America, automotive sales were $531,086,000, 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 have increased to normal production rates and, as a result, sales of the Company's parts to General Motors increased $45,000,000 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 $26,038,000. 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 $35,504,000 to $240,100,000, an increase of 17%. During fiscal 1995, the U.S. dollar has weakened in relation to the currencies of the Company's European subsidiaries. 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. Its sales for June were $2,640,000. For fiscal 1995, sales of Oliver Rubber Company, the Company's subsidiary which comprises the Tread Rubber Segment, were $133,656,000, including intersegment sales of $6,622,000. Sales increased by 7.6%, or $9,487,000, over fiscal 1994. In North America, sales increased $13,150,000. Sales volumes increased over 1994 in both precure and mold cure rubber. In addition, Oliver increased selling prices, primarily in the second half of fiscal 1995, partially to 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 $3,663,000. Oliver has concluded its European operations. Holm Industries, the Company's subsidiary which serves the appliance and building products industries, recorded sales of $94,217,000, an increase of $7,173,000, 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. SALES PERFORMANCE - 1994 AND 1993 Sales of the Transportation Equipment Segment for fiscal 1994 amounted to $753,764,000, an increase of $103,709,000, or 16%, over fiscal 1993. Fiscal year 1994 included a full year effect of the Company's acquisition in fiscal 1993 of Standard Products Industriel (SPI) and its subsidiary in the United States, 5 Rubber Corporation. In 1993, sales of SPI and 5 Rubber Corporation since the date of acquisition were $46,411,000. In 1994, full year sales of SPI and 5 Rubber Corporation were $161,825,000. In North America, sales, including 5 Rubber Corporation, amounted to $461,794,000, an increase of $3,973,000 over the previous year. A full year of sales of 5 Rubber Corporation combined with the launch of 5 Rubber Corporation's new products on the Chrysler Neon resulted in increased sales of $26,812,000. The sales of parts for the Neon amounted to $20,672,000. Offsetting these gains were sales declines in Canada. General Motors ceased production of the former Lumina model in November 1993 to begin conversion of plant facilities for the new Lumina/Monte Carlo models. Sales volumes of the Company's 10 Canadian subsidiary, therefore, declined by a net $11,033,000, with the decline of $26,300,000 related to the Lumina offset partially by other new production. In addition, over the course of fiscal 1994, the rate of exchange of the U.S./Canadian dollar declined, and the effect of the decline was to reduce sales by $10,600,000. For fiscal 1994, sales of U.S. operations other than 5 Rubber Corporation declined $1,200,000. This resulted from model changeovers and declines in units of production of some models which are assembled with parts manufactured by the Company. Car and light truck build advanced 10.2% over the build of fiscal 1993. The decline in the Lumina build, as well as several other models, caused the Company's sales to lag behind the pace of the North American production of fiscal 1994. Sales of the Company's United Kingdom subsidiary, Standard Products Limited (SPL), increased $2,834,000 to $75,706,000. New business with European automotive manufacturers, including Saab, Volkswagen and Japanese transplant Toyota, and increased volumes of production resulted in sales increases of $8,498,000. These gains were offset by a decline in the rate of exchange of the British pound sterling and the U.S. dollar. SPI recorded full year sales of $128,890,000 compared to fiscal 1993's short period of $40,288,000. SPI benefited from new business and rising production volumes realized during the period of economic recovery in Europe during 1994. Holm Industries recorded sales increases of $7,890,000, or 10%, to $87,044,000. The sales increases were attributable to increased demand in the residential and commercial appliance market and the broadening of its product line in building products. In the Tread Rubber Segment, sales in fiscal 1994 were $124,169,000, including intersegment sales of $5,566,000. Sales increased 5.9%, or $6,945,000. Increased sales were realized in this segment's mold cure and mixed rubber products, while precure sales were approximately even with a year ago. Prices were generally stable in 1994 compared to 1993. OPERATING EXPENSE ANALYSIS For 1995, consolidated gross margins were 10%, a decrease from 13.7% in fiscal 1994 and 14.2% in fiscal 1993. The costs of materials, wages and manufacturing expenses were $863,260,000 in 1995, $724,090,000 in 1994 and $634,218,000 in 1993. Research, engineering and development expenses were $33,211,000 in 1995, and $28,850,000 in 1994 for an increase of $4,361,000. In 1993, research, engineering and development was $20,971,000. 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 production programs compared to 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 believes that raw material costs have stabilized. 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 Company has instituted corrective actions at this plant and believes that these problems will not materially affect fiscal 1996. The increase in research, engineering and development expenses represents .5% of 1995 sales. During the year, design and development expenses were incurred for current year new programs as well as future year programs in the development of new business opportunities. The Company expects that these expenses will remain at current levels. In the Tread Rubber Segment, the effect of volume increases exceeded profitability decreases, representing .1% of fiscal 1995 sales. The effect of foreign currency variations on gross margins in 1995 was minor. For 1994 compared to 1993, consolidated gross margins were favorably affected by the inclusion of SPI and 5 Rubber Corporation for a full year period compared to last year's four-month period and by rising volumes of sales related to increased production and new model introductions. SPI also benefited from an improved European economy. The incremental gross income from SPI and 5 Rubber Corporation represented 2.7% of fiscal 1994 sales. Similarly, SPL benefited from its new business and the increasing volumes of its European car base. The incremental gross income from SPL represented .5% of fiscal 1994 11 sales. North American automotive operations adversely affected gross income due to a significant decline in sales with the conversion of General Motors assembly plants to the new Lumina/Monte Carlo models and related delayed start up. Operations also were down from the preceding year as production volumes were off for several car models which use the Company's parts. Further, the U.S. plants began preparing for upcoming new product introductions. North American operations adversely affected gross income by .8% of fiscal 1994 sales. The increase in research, engineering and development expenditures included $5,067,000 of incremental expenses associated with the acquisition of SPI. Holm Industries' profitability for the year was ahead of fiscal 1993 on sales volume increases. Margins in the Tread Rubber Segment declined. Profitability was affected by a shift in sales mix to lower margin products. In addition, two plants experienced problems in the introduction of new manufacturing processes. The Tread Rubber Segment decline represented .4% of fiscal 1994 sales. Selling, general and administrative expenses were $60,121,000 for fiscal 1995, an increase of $2,334,000 over 1994's level of $57,787,000 as reclassified. As a percent of sales, these expenses were 6.0% in 1995 and 6.6% in 1994. Selling, general and administrative expenses were $49,768,000 or 6.5% of sales, in 1993. Expenditures increased over the prior year by 4% in 1995 and 16% in 1994, with the inclusion of a 1993 acquisition for a complete year. Increases have occurred in order to support the higher level of sales and support activities. The Company reported expenses of $8,832,000 in 1995 and $4,424,000 in 1994 related to rationalization of business units. In 1995, the Company concluded its European tread rubber operations with the closure of the Oliver Rubber subsidiary in the United Kingdom. The Company has reduced assets to net realizable value, accrued closure costs for severance, liquidation and other expenses, and recognized deferred currency losses formerly included in the foreign currency translation account. Total losses recorded to conclude this subsidiary amounted to $5,347,000 with $2,309,000 recorded in the first quarter and the balance recorded in the fourth quarter. The Company attempted to realize as much value as possible on remaining assets before beginning formal liquidation. The Company also recorded $3,485,000 to provide for the reduction of its plastics plant in Canada. Charges included severance, idle assets and remaining lease commitments. In 1994, expenses of $4,424,000 were reclassified from selling, general and administrative expenses. These included reserves for two departmental relocations which were announced in 1994 and completed in 1995 for $2,424,000, and $2,000,000 for accounting irregularities which were identified at Oliver Rubber's European subsidiary. Interest expense, net in fiscal 1995 was $13,010,000 compared to $9,093,000 in 1994. In 1995, interest expense was $14,135,000 and interest income was $1,125,000. In 1994, interest expense was $9,982,000 and interest income was $899,000. Interest expense increased as interest rates and the level of borrowed funds increased since 1994. Interest income increased on a higher level of invested funds at the Company's United Kingdom subsidiary, Standard Products Limited (SPL). Interest expense, net in 1993 was $8,214,000, with interest expense of $9,684,000 and interest income of $1,470,000. Interest expense in 1994 and 1993 are comparable while interest income declined on a lower level of invested funds. Royalty and dividend income were comparable for each of the last three years. Other, net was expense of $1,047,000 in 1995 compared to income of $1,322,000 in 1994 and expense of $1,150,000 in 1993. The results of the Company's joint venture, Nishikawa Standard Company, were below those of last year but better than the operating loss recorded in 1993. In 1995, the Company also recorded losses of $942,000 in disposing of fixed assets. The Company's tax provision reflects the recognition of the benefit of the remaining net operating loss carryforward of $3,181,000 from its subsidiary, SPL. Previously, the Company reserved for this net operating loss carryforward asset as its realization was not assured. However, recent performance of SPL indicates that realization is more likely than not. In addition, the Company recognized a tax benefit of $4,441,000 related to the write-off for tax purposes of Oliver Rubber's investment in its United Kingdom subsidiary. Absent these two transactions, the Company's effective tax rate would have been 28% and this rate compares favorably with 1994's rate of 34.2% and 1993's rate of 33.5%. Tax benefits available to the Company in several countries have reduced 1995's effective rate. 12 EFFECT OF INFLATION During the three year period ended June 30, 1995, inflation has been reasonable and operating costs reflect current costs for raw materials and inventory, operating expenses and depreciation. FINANCIAL CONDITION At June 30, 1995, the total capitalization of the Company was $451,017,000. Long-term debt represented 42.2% of capitalization while shareholders' equity was 57.8%. Working capital at year end was $118,450,000 and the ratio of current assets to current liabilities was 1.63 to 1. Average working capital to support a dollar of sales remained at $.10 and the Company's liquidity is adequate to meet its near-term requirements. Cash provided by operations amounted to $56,043,000 including funds provided by depreciation and amortization of $46,839,000. Depreciation reflected the high level of capital spending in recent years. Working capital variations required the use of $2,934,000. Accounts receivable provided $9,436,000, a function of normal collections and reduction of sales in the fourth quarter. Inventories, however, have risen as the Company prepares for the increased production volumes to follow for the current launch and vacation shutdown periods. Cash used for investments included $54,671,000 for property, plant and equipment and $8,679,000 for investments in the Company's Brazilian and Mexican operations. Long-term debt increased $44,189,000 net of decreases in short-term borrowings. Normal debt repayments were $1,914,000 and cash dividends required $11,445,000. Capital expenditures for fiscal 1996 are budgeted to be $79,000,000, including the investments in Brazil and Mexico. Cash flow from operations and the Company's borrowing capability under its Revolving Credit Agreement and other sources are expected to be adequate to finance operating needs and capital requirements. Cash on hand at year end is invested in bank deposits at varying rates of interest with maturities less than 30 days. OUTLOOK The Company believes that the results of operations for the first quarter of fiscal 1996 will be a loss, based upon the Company's continuing launch costs related to products being introduced for the new Ford Taurus/Sable, the seasonally lower activity throughout the Company, high initial costs associated with its Brazilian investments, and some softness in the car build in many of the major world markets, including Brazil. For the year, the Company expects sales to exceed $1 billion for the first time in its history. However, earnings will continue to be under pressure and, while they may improve over last year, the Company still expects fiscal 1996 to be another difficult year. 13 SELECTED FINANCIAL DATA
(Thousands of Dollars Except Share Data) 1995 1994 1993 1992 ------------------------------------------------------------------------ INCOME STATEMENT Net Sales............................................................... $995,926 $872,367 $763,796 $657,036 Gross Income............................................................ 99,455 119,427 108,607 94,253 Selling, General & Administrative Expenses.............................. 60,121 57,787 49,768 41,760 Rationalization of Business Units....................................... 8,832 4,424 - - Interest Income (Expense), net.......................................... (13,010) (9,093) (8,214) (13,659) Other Income (Expense), net............................................. (233) 2,092 (399) (54) Provision for Taxes on Income........................................... (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 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............................... 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)....................................................... $ 20,066 $ 33,032 $ 22,563 $ 23,305 Percent Net Income to Sales............................................. 2.0 3.8 3.0 3.5 Percent Net Income to Average Shareholders' Equity...................... 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 $ 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)....................................................... $ 1.20 $ 1.99 $ 1.49 $ 1.79 Cash Dividends Declared................................................. $ .68 $ .65 $ .54 $ .38 Book Value.............................................................. $ 15.56 $ 14.55 $ 13.56 $ 11.82 BALANCE SHEET Property, Plant & Equipment............................................. $489,534 $422,576 $377,564 $279,830 Accumulated Depreciation................................................ 220,095 180,567 153,137 130,410 Total Assets............................................................ 701,889 624,314 564,850 398,793 Working Capital......................................................... 118,450 87,922 79,396 97,303 Long-term Debt.......................................................... 190,522 135,381 115,607 69,289 Shareholders' Equity.................................................... 260,495 242,677 224,436 177,753 Cash Dividends Declared................................................. $ 11,445 $ 10,821 $ 8,450 $ 5,103 OTHER Additions to Property, Plant & Equipment................................ $ 59,750 $ 61,380 $ 39,574 $ 19,207 Depreciation & Amortization............................................. $ 46,839 $ 40,495 $ 29,887 $ 26,228 Shares Outstanding...................................................... 16,736 16,674 16,552 15,044 Average Shares Outstanding.............................................. 16,711 16,627 15,114 13,010 (Thousands of Dollars Except Share Data) 1991 1990 1989 1988 ------------------------------------------------------------------------ INCOME STATEMENT Net Sales............................................................... $592,090 $590,699 $527,896 $473,035 Gross Income............................................................ 38,946 65,316 81,452 83,878 Selling, General & Administrative Expenses.............................. 40,073 35,011 27,111 23,694 Rationalization of Business Units....................................... - - - - Interest Income (Expense), net.......................................... (11,663) (8,608) (3,125) (1,430) Other Income (Expense), net............................................. (285) (1,846) (2,062) (1,612) Provision for Taxes on Income........................................... 7,879 8,060 18,333 20,373 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 Income (Loss) from Operations and Disposal of Discontinued Division, Net of Tax............................................................ (24,655) - (2,132) (2,712) Income (Loss) Before Extraordinary Item and Cumulative Effect on Prior Years of Change in Accounting Principle............................... (45,609) 11,791 28,689 34,057 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 Percent Net Income to Sales............................................. - 2.0 5.4 7.2 Percent Net Income to Average Shareholders' Equity...................... - 7.7 18.8 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 Income (Loss) from Discontinued Operations.............................. $ (1.94) - $ (.16) $ (.20) 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 Cash Dividends Declared................................................. $ .47 $ .74 $ .69 $ .61 Book Value.............................................................. $ 8.06 $ 12.05 $ 12.05 $ 10.96 BALANCE SHEET Property, Plant & Equipment............................................. $251,151 $239,773 $200,801 $154,623 Accumulated Depreciation................................................ 102,553 91,739 76,591 65,922 Total Assets............................................................ 369,272 362,399 333,741 255,211 Working Capital......................................................... 61,594 90,014 88,937 74,759 Long-term Debt.......................................................... 113,298 99,480 75,213 16,577 Shareholders' Equity.................................................... 102,366 152,829 156,348 145,800 Cash Dividends Declared................................................. $ 5,992 $ 9,365 $ 9,084 $ 8,194 OTHER Additions to Property, Plant & Equipment................................ $ 23,532 $ 39,676 $ 33,077 $ 22,300 Depreciation & Amortization............................................. $ 24,747 $ 19,975 $ 14,196 $ 11,078 Shares Outstanding...................................................... 12,695 12,689 12,975 13,293 Average Shares Outstanding.............................................. 12,694 12,753 13,250 13,571 (Thousands of Dollars Except Share Data) 1987 1986 ------------------------------------------------------------------------ INCOME STATEMENT Net Sales............................................................... $412,507 $377,870 Gross Income............................................................ 81,911 67,032 Selling, General & Administrative Expenses.............................. 21,388 20,113 Rationalization of Business Units....................................... - - Interest Income (Expense), net.......................................... 86 501 Other Income (Expense), net............................................. 1,720 1,530 Provision for Taxes on Income........................................... 29,165 21,695 Income (Loss) from Continuing Operations and Before Extraordinary Item and Cumulative Effect on Prior Years of Change in Accounting Principle 33,164 27,255 Income (Loss) from Operations and Disposal of Discontinued Division, Net of Tax............................................................ (1,639) (71) Income (Loss) Before Extraordinary Item and Cumulative Effect on Prior Years of Change in Accounting Principle............................... 31,525 27,184 Extraordinary Item, Net of Tax.......................................... - - Cumulative Effect on Prior Years of Change in Accounting Principle, Net of Tax................................................................ - - Net Income (Loss)....................................................... $ 31,525 $ 27,184 Percent Net Income to Sales............................................. 7.6 7.2 Percent Net Income to Average Shareholders' Equity...................... 25.5 25.9 PER SHARE Income (Loss) from Continuing Operations and Before Extraordinary Item and Cumulative Effect on Prior Years of Change in Accounting Principle $ 2.33 $ 1.88 Income (Loss) from Discontinued Operations.............................. $ (.11) $ (.01) Extraordinary Item, Net of Tax.......................................... - - Cumulative Effect on Prior Years of Change in Accounting Principle, Net of Tax................................................................ - - Net Income (Loss)....................................................... $ 2.22 $ 1.87 Cash Dividends Declared................................................. $ .46 $ .38 Book Value.............................................................. $ 9.14 $ 8.06 BALANCE SHEET Property, Plant & Equipment............................................. $131,036 $105,484 Accumulated Depreciation................................................ 55,878 46,697 Total Assets............................................................ 226,009 199,252 Working Capital......................................................... 74,572 78,280 Long-term Debt.......................................................... 18,180 17,504 Shareholders' Equity.................................................... 127,359 117,383 Cash Dividends Declared................................................. $ 6,516 $ 5,583 OTHER Additions to Property, Plant & Equipment................................ $ 24,133 $ 16,069 Depreciation & Amortization............................................. $ 9,437 $ 7,581 Shares Outstanding...................................................... 13,928 14,551 Average Shares Outstanding.............................................. 14,241 14,525
14 CONSOLIDATED BALANCE SHEETS The Standard Products Company and Subsidiary Companies, June 30, 1995 and 1994
(Thousands of Dollars) 1995 1994 ---------------------------------------------------------------------------------- ---------- -------- ASSETS Current Assets: Cash and cash equivalents..................................................... $ 19,546 $ - Receivables, less allowances of $4,978 in 1995 and $3,627 in 1994............. 196,613 202,363 Inventories................................................................... 69,458 53,018 Prepaid insurance, taxes, etc................................................. 21,820 15,305 -------- -------- Total current assets...................................................... 307,437 270,686 -------- -------- Property, Plant and Equipment, at cost: Land......................................................................... 7,553 6,751 Buildings and improvements................................................... 92,907 85,085 Machinery and equipment...................................................... 332,729 263,865 Furniture and fixtures....................................................... 37,407 32,317 Capital projects in process.................................................. 18,938 34,558 -------- -------- 489,534 422,576 Less - Accumulated depreciation.............................................. (220,095) (180,567) -------- -------- 269,439 242,009 Goodwill, net................................................................... 64,976 62,564 Other Assets.................................................................... 60,037 49,055 -------- -------- $701,889 $624,314 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Short-term notes payable..................................................... $ 4,609 $ 10,373 Current maturities of long-term debt......................................... 2,176 1,690 Accounts payable............................................................. 102,066 94,514 Accrued payrolls............................................................. 26,360 24,433 Accrued expenses............................................................. 50,931 48,919 Dividend payable............................................................. 2,845 2,835 -------- -------- Total current liabilities................................................ 188,987 182,764 -------- -------- Long-term Debt, net of current maturities....................................... 190,522 135,381 -------- -------- Other Postretirement Benefits................................................... 25,907 25,649 -------- -------- Deferred Income Taxes and Other Credits......................................... 35,978 37,843 -------- -------- 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 16,736,155 in 1995 and 16,674,016 in 1994 16,736 16,674 Paid-in capital............................................................. 96,237 95,614 Retained earnings........................................................... 151,492 142,871 Foreign currency translation adjustments.................................... (496) (10,359) Minimum pension liability................................................... (3,474) (2,123) -------- -------- Total shareholders' equity.............................................. 260,495 242,677 -------- -------- $701,889 $624,314 ======== ======== The accompanying notes are an integral part of these statements.
15 CONSOLIDATED STATEMENTS OF INCOME The Standard Products Company and Subsidiary Companies, For the Years Ended June 30, 1995, 1994 and 1993
(Thousands of Dollars Except Share Data) 1995 1994 1993 ------------------------------------------------------------ -------- -------- -------- Net Sales.................................................. $995,926 $872,367 $763,796 Cost of Goods Sold: Materials, wages and other manufacturing costs... 863,260 724,090 634,218 Research, engineering and development expenses 33,211 28,850 20,971 -------- -------- -------- 896,471 752,940 655,189 -------- -------- -------- Gross Income................................ 99,455 119,427 108,607 Selling, General and Administrative Expenses............... 60,121 57,787 49,768 Rationalization of Business Units.......................... 8,832 4,424 - -------- -------- -------- 30,502 57,216 58,839 -------- -------- -------- Other Income (Deductions): Royalty and dividend income....................... 814 770 751 Net interest expense.............................. (13,010) (9,093) (8,214) Other, net........................................ (1,047) 1,322 (1,150) -------- -------- --------- (13,243) (7,001) (8,613) -------- -------- --------- Income before Taxes on Income, Extraordinary Item and Cumulative Effect on Prior Years of Change in Accounting Principle.................................... 17,259 50,215 50,226 Provision for Taxes on Income.............................. (2,807) 17,183 16,803 -------- -------- --------- Income before Extraordinary Item and Cumulative Effect on Prior Years of Change in Accounting Principle...................................... 20,066 33,032 33,423 Extraordinary Item, Early Repayment of Debt, Less Applicable Income Tax of $1,569......................... - - (2,559) Cumulative Effect on Prior Years of Change in Accounting Principle, Less Applicable Income Tax of $5,088........ - - (8,301) -------- -------- --------- Net Income........................................ $20,066 $ 33,032 $ 22,563 ======== ======== ======== Earnings Per Common Share: Income before Extraordinary Item and Cumulative Effect on Prior Years of Change in Accounting Principle......................................... $1.20 $1.99 $2.21 Extraordinary Item, Early Repayment of Debt, Net of Tax............................................... - - (.17) Cumulative Effect on Prior Years of Change in Accounting Principle, Net of Tax.................. - - (.55) ------ ------ ------ Net Income........................................ $1.20 $1.99 $1.49 ====== ====== ====== The accompanying notes are an integral part of these statements.
16 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY The Standard Products Company and Subsidiary Companies, For the Years Ended June 30, 1995, 1994 and 1993 ____________________________________________________________________________________________________________________________________ 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 28, 1992................................ $12,035 $53,222 $106,547 $ 6,264 $ (315) $177,753 Net income.......................................... - - 22,563 - - 22,563 Cash dividends ($.54 per share)..................... - - (8,450) - - (8,450) Foreign currency translation adjustments............ - - - (12,914) - (12,914) Restricted stock awards............................. - 866 - - - 866 Sale of 89,889 shares to option holders............. 90 1,121 - - - 1,211 Common stock offering net of recorded expenses...... 1,400 41,913 - - - 43,313 Minimum pension liability........................... - - - - 106 106 Par value of shares issued in connection with a five-for-four stock split........................ 3,027 (3,039) - - - (12) -------- ------- -------- ----------- --------- -------- BALANCE, JUNE 30, 1993................................ $16,552 $94,083 $120,660 $ (6,650) $ (209) $224,436 Net income.......................................... - - 33,032 - - 33,032 Cash dividends ($.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 The accompanying notes are an integral part of these statements.
17 CONSOLIDATED STATEMENTS OF CASH FLOWS The Standard Products Company and Subsidiary Companies, For the Years Ended June 30, 1995, 1994 and 1993
(Thousands of Dollars) 1995 1994 1993 ---------------------------------------------------------------- -------- -------- -------- Net cash provided by (used for) operating activities: Net income................................................... $ 20,066 $ 33,032 $ 22,563 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization............................ 46,839 40,495 29,887 Deferred taxes and other credits......................... (2,631) (7,839) 4,851 Equity in (income) loss of non-consolidated affiliate (786) (1,603) 363 Cumulative effect on prior years of change in accounting principle.................................. - - 8,301 Effect of changes in foreign currency.................... (2,834) (627) (5,935) Other operating items.................................... (4,611) (4,665) (967) -------- -------- -------- Net cash provided by operations....................... 56,043 58,793 59,063 -------- -------- -------- Net cash provided by (used for) changes in operating assets and liabilities: Receivables.................................................. 9,436 (34,419) 5,403 Inventories.................................................. (14,790) (6,304) 982 Accounts payable and accrued expenses........................ 8,925 29,248 (7,993) Other........................................................ (6,505) (981) (3,490) -------- -------- -------- Net cash used for changes in operating assets and liabilities........................................... (2,934) (12,456) (5,098) -------- -------- -------- Net cash provided by operating activities................ 53,109 46,337 53,965 -------- -------- -------- Net cash provided by (used for) investments: Purchase of property, plant and equipment, net............... (54,671) (59,120) (38,000) Investments in affiliates.................................... (8,679) (1,500) (8,700) Assets acquired by purchase of businesses.................... (840) - (128,438) Utilization of industrial revenue bonds...................... - - 3,752 -------- -------- -------- Net cash used for investments......................... (64,190) (60,620) (171,386) -------- -------- -------- Net cash provided by (used for) financing: Proceeds of common stock offering............................ - - 43,313 Proceeds from exercise of stock options...................... 477 1,068 1,211 Proceeds of new long-term borrowings......................... 55,929 140,343 140,730 Net increase (decrease) in short-term borrowings............. (11,740) 2,247 7,834 Repayment of long-term borrowings............................ (1,914) (124,031) (105,993) Cash dividends............................................... (11,445) (10,821) (8,450) -------- -------- -------- Net cash provided by financing........................... 31,307 8,806 78,645 -------- -------- -------- Effect of exchange rate changes on cash......................... (680) (71) (18) -------- -------- -------- Increase (decrease) in cash and cash equivalents................ 19,546 (5,548) (38,794) Cash and cash equivalents at the beginning of the year.......... - 5,548 44,342 -------- -------- -------- Cash and cash equivalents at the end of the year................ $ 19,546 $ - $ 5,548 ======== ======== ======== The accompanying notes are an integral part of these statements.
18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Standard Products Company and Subsidiary Companies, June 30, 1995, 1994 and 1993 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. SHORT-TERM INVESTMENTS Short-term investments 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. For purposes of reporting the Company's cash flow, these investments are cash equivalents. FOREIGN CURRENCY TRANSLATION The financial statements of the Company's Brazilian, Canadian, English and French subsidiaries have been translated in accordance with Statement of Financial Accounting Standards No. 52. Except for Brazil, 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 accounts. The resulting unrealized gains and losses are recorded as a component of shareholders' equity. As the Company's Brazilian subsidiary operates 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 subsidiary 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. INVESTMENTS IN AFFILIATES 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. 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, 1995, the Company believes that the goodwill is realizable and that the period of amortization is proper. INCOME TAXES In fiscal 1993, the Company adopted Statement of Financial Accounting Standard (SFAS) No. 109, Accounting for Income Taxes. The effect of adopting SFAS No. 109 was immaterial, and prior years were not restated. 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 19 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 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 Company's policy is to fund the pension costs of the defined benefit plans in accordance with Internal Revenue Service regulations. The 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. In fiscal 1993, the Company adopted SFAS No. 106, Employers' Accounting For Postretirement Benefits Other Than Pensions, and the accumulated postretirement benefit obligation was recorded as a charge to earnings in 1993. 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 and foreign exchange contracts. The currency and interest rate swap transaction protects the Company from fluctuations in the value of the U.S. dollar in relation to the French franc and establishes a fixed U.S. dollar rate of return on a loan from the Company to its French subsidiary. The 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. REVENUE RECOGNITION The Company recognizes revenues as products are shipped to its customers. RECLASSIFICATIONS Certain prior year amounts have been reclassified to conform to their 1995 presentation in the financial statements. 2. ACQUISITIONS Prior to May 1995, the Company owned 20% of Itatiaia Standard (Itatiaia), located in Brazil. At that time, the Company acquired the remaining 80% of Itatiaia. The acquisition has been 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. The acquisition was completed for cash and notes payable plus future contingent payments based on results of operations, not to exceed $3,200,000. A minor amount of goodwill resulted from the preliminary allocation of the purchase price. Pro forma sales and operating results are not material. 20 In January 1993, the Company acquired all of the issued and outstanding shares of capital stock of Standard Products Industriel (SPI), a French company, and its subsidiary companies. The cost of the acquisition was approximately $125,500,000. The acquisition has been 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 of SPI since the date of acquisition. Valuation of the assets acquired and liabilities assumed in accordance with Accounting Principles Board Opinion No. 16 resulted in goodwill and other intangible assets of approximately $54,000,000. In fiscal 1993, the Company increased its ownership in Nishikawa Standard Company (NSC), to 50% from 40% by making additional capital contributions and by purchasing partnership units from its joint venture partner, Nishikawa Rubber Company. The additional investment in NSC was $8,700,000. In fiscal 1994, the Company invested $1,500,000 in NSC. The Company's investment in NSC at June 30, 1995 was $16,140,000. In 1995, the Company's share of NSC's operating income was $431,000, compared to $1,603,000 in 1994 and a loss of $363,000 in 1993. The NSC investment is reported in Other Assets in the accompanying consolidated balance sheet, and the operating results are reported in Other, net in the accompanying consolidated statement of income. 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 year end was $6,500,000. 3. RATIONALIZATION OF BUSINESS UNITS AND DISCONTINUED OPERATIONS In 1995, the Company has provided $8,832,000 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 $5,347,000 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, $2,309,000 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. Liquidation is expected to be completed in fiscal 1996 and the Company believes that proceeds of remaining assets will fund remaining liabilities. The second business unit involves the Company's plastic plant in Canada. As part of its formal plan, the Company recorded $3,485,000 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 will begin in the first quarter of fiscal 1996. The Company previously closed its Port Clinton Division, which had been dedicated primarily to the Company's former military business. Reserves were provided for the costs associated with the discontinuance. At June 30, 1995, the remaining balance of the reserve of $2,750,000, which is included in Accrued Expenses in the accompanying consolidated balance sheet, is for building and site work and closure costs. 4. FINANCING ARRANGEMENTS Long-term debt at June 30, 1995 and 1994 consisted of the following:
(Thousands of Dollars) 1995 1994 ---------------------- -------- -------- Senior notes..................... $100,000 $100,000 Revolving credit agreement....... 85,000 30,000 Other debt....................... 7,698 7,071 -------- -------- Total............................ 192,698 137,071 Less-current maturities.......... 2,176 1,690 -------- -------- $190,522 $135,381
At June 30, 1995, Senior Notes outstanding of $100,000,000 include two issues, $75,000,000 and $25,000,000. The $75,000,000 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 $12,500,000 begin in December 1998 through December 2002, with the balance due on maturity in December 2003. The $25,000,000 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 borrowings from a group of banks that have committed 21 to make available for borrowing up to $125,000,000 until January 1998 with provisions for extending the agreement beyond that date upon satisfaction of certain requirements. The Company has the right to convert up to $50,000,000 of revolving loans into a five-year term loan with quarterly repayments thereafter. 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, 1995, borrowings under the Credit Agreement bear interest at 6.68%. A commitment fee of .25% is due on the unused portion of the agreement. The terms of the Credit Agreement also require the Company to maintain certain financial covenants as to net worth, leverage and working capital. The maturities of long-term debt for the five years subsequent to June 30, 1995 are $2,176,000 in 1996, $2,963,000 in 1997, $86,318,000 in 1998, $13,742,000 in 1999 and $37,500,000 in 2000. Under the most restrictive covenants of the Company's various loan agreements, principally the Credit Agreement, $64,163,000 of retained earnings were not restricted at June 30, 1995 for the payment of dividends, and the ratio of current assets to current liabilities was 1.63 to 1, in excess of the minimum requirement of 1.25 to 1. The Company and its subsidiaries also have from various banking sources approximately $35,000,000 of unused short-term lines of credit at rates of interest approximating the prime commercial rate. These funds are available subject to satisfying covenant restrictions as to funded debt limitations. In 1995, the average month-end borrowings were $17,800,000, and the highest month-end balance was $23,000,000. Comparable amounts for 1994 were $8,400,000 and $13,400,000 and $4,800,000 and $12,300,000, for 1993. The effective annual borrowing rate was 6.8% in 1995, 4.2% in 1994 and 4.9% in 1993. At year end, the weighted average interest rate was 7.1%. Interest payments with respect to all of the Company's borrowing arrangements amounted to $13,935,000 in 1995, $9,655,000 in 1994 and $10,430,000 in 1993. 5. FAIR VALUES OF FINANCIAL INSTRUMENTS The Company's accounting policies with respect to financial instruments are described in Note 1. The carrying amounts and fair values of the Company's significant balance sheet financial instruments at June 30, 1995 and 1994, are as follows:
Carrying Fair 1995 (Thousands of Dollars) Amount Values --------------------------- ------- ------- 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 1994 (Thousands of Dollars) --------------------------- Cash and cash equivalents.......... $ 0 $ 0 Short-term bank debt............... 10,373 10,373 Long-term bank debt (including current portion)...... 137,071 132,571
Off balance sheet derivative financial instruments at June 30, 1995 and 1994, held for purposes other than trading, were as follows:
1995 1994 -------------------- --------------------- Contract/ Contract/ Notional Fair Notional Fair (Thousands of Dollars) Amount Values Amount Values ---------------------- -------- ------ -------- ------ Currency and interest rate swap............... $18,350 $402 $25,350 $(816) Foreign currency exchange agreements..... 8,982 (186) 4,300 (88)
With regard to the currency and interest rate swap agreement, the nominal amount of 108,580,000 French francs is payable by the Company to a bank, while the amount due from the bank to the Company is $18,350,000. 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. 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 22 are remote. 6. RETIREMENT PLANS The cost of providing pension, retirement and profit sharing benefits charged to operations amounted to $5,444,000 in 1995, $4,932,000 in 1994 and $5,141,000 in 1993. For 1995, the expense of defined benefit plans equalled $1,207,000, while the expense of defined contribution plans was $3,683,000 and multi-employer plan expense was $508,000. Comparable figures for 1994 were $533,000, $3,859,000 and $540,000, and for 1993, $105,000, $4,389,000 and $607,000. 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. Pension expense of defined benefit plans was based on the provisions of SFAS No. 87. Components of pension expense for defined benefit plans included the following items:
(Thousands of Dollars) 1995 1994 1993 ---------------------- ------ ------ ------ Service cost....................... $2,753 $2,113 $1,772 Interest cost on projected benefit obligation...................... 5,868 4,750 5,299 Actual loss (gain) on plan assets.. 457 (1,391) (8,206) Net amortization and deferral...... (7,871) (4,939) 1,240 ------ ------ ------ Net pension expense................ $1,207 $ 533 $ 105 ====== ====== ======
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. For 1995, the calculations assume a weighted-average discount rate of 8.5%, an anticipated long-term rate of return of 10% and an increase in compensation levels of 5%. For 1994 and 1993, the calculations assumed a weighted-average discount rate of 8%, an anticipated long-term rate of return on plan assets of 9% and an increase in compensation levels of 5%. The assets of the plans consist of listed bonds, stocks, mutual investment funds and cash securities. In connection with the recognition of the minimum liability as required by SFAS No. 87, the Company has recorded an intangible asset of $1,095,000, included in Other Assets in the accompanying consolidated balance sheet, and an equity reduction of $3,474,000.
(Thousands of Dollars) 1995 1994 ---------------------- ------------------ ----------------- Less Greater Less Greater Than Than Than Than Plan Plan Plan Plan Accumulated benefits are: Assets Assets Assets Assets ------------------------- ------- ------- ------- ------- Vested benefits............. $41,143 $22,930 $41,776 $21,667 Non-vested benefits......... 1,373 639 1,303 600 ------- ------- ------- ------- Accumulated benefit obligation................. 42,516 23,569 43,079 22,267 Projected future compensation increases 7,196 840 6,739 777 ------- ------- ------- ------- Projected benefit obligation................ 49,712 24,409 49,818 23,044 Plan assets at fair market value..................... 52,870 19,145 56,915 18,452 ------- ------- ------- ------- Projected benefit obliga- tion (in excess of) or less than plan assets..... 3,158 (5,264) 7,097 (4,592) Unrecognized transition asset..................... (6,268) (248) (6,876) (270) Unrecognized loss........... 7,136 3,741 3,105 2,674 Adjustment required to recognize minimum liability................. - (4,569) - (3,188) Unrecognized prior service cost............... 2,320 1,611 2,526 1,562 ------- ------- ------- ------- Prepaid Pension Cost, (Liability) $ 6,346 $(4,729) $ 5,852 $(3,814) ======= ======= ======= =======
The Company has accrued $11,175,000 for Workers' Compensation claims as of June 30, 1995, and this amount is included in Accrued Expenses in the accompanying consolidated balance sheet. A year ago, the comparable figure was $8,224,000. 7. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS The cost of providing health and life insurance benefits for certain retired employees has been determined under the provisions of SFAS No. 106. As a result, the estimated cost of these benefits has been accrued based on the employees' active service lives. The expense for postretirement benefits other than pensions was $2,281,000 in 1995, $2,444,000 in 1994 and $2,172,000 in 1993. All plans under which these benefits are provided are unfunded. 23 In 1993, the Company recognized this change in accounting on the immediate recognition basis. The effect of adopting SFAS No. 106 as of the beginning of 1993 was to reduce pretax earnings by $13,389,000, and the accrual method of accounting for postretirement health care costs was approximately equal to the former claims paid method. 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. A summary of plan information is as follows:
(Thousands of Dollars) 1995 1994 1993 ---------------------- ------ ------ ------ Accumulated postretirement benefit obligation (APBO): Retirees........................ $19,874 $21,782 $22,725 Active participants eligible to receive benefits...................... 1,872 1,978 2,498 Other active plan participants.................. 2,558 2,519 3,021 ------- ------- ------- 24,304 26,279 28,244 Unrecognized gain (loss)........ 3,689 1,522 (836) ------- ------- ------- $27,993 $27,801 $27,408 ======= ======= ======= Periodic postretirement benefit cost: Current service cost............ $ 248 $ 243 $ 269 Interest on postretirement benefit obligation............ 2,033 2,201 1,903 ------- ------- ------- $ 2,281 $ 2,444 $ 2,172 ======= ======= ======= Actuarial assumptions: Discount rate................... 8.5% 8% 8% 1995 to 2003 - health care cost trend rate............... 13.9%-5.5% 15%-5.5% 15%-5.5% Effect of a 1% increase in health care cost trend rate: Increase year end APBO 6.3% 7.3% 7.2% Increase expense.............. 7.3% 6.8% 8.0%
8. INVENTORY The major components of inventory are as follows:
(Thousands of Dollars) 1995 1994 1993 ---------------------- ------- ------- ------- Raw Materials.................... $25,726 $20,477 $20,055 Work-in-process and finished goods.................. 43,732 32,541 26,622 ------- ------- ------- Total, at both FIFO and LIFO cost..................... $69,458 $53,018 $46,677 ------- ------- ------- Excess of FIFO cost over LIFO cost....................... $14,427 $11,651 $11,045 ======= ======= =======
Approximately 50% of the Company's inventories are valued at LIFO cost. 9. COMMITMENTS AND CONTINGENT LIABILITIES The Company and its subsidiaries have operating leases covering manufacturing facilities and transportation and material handling equipment expiring at various dates through 2005. Rental costs charged to operations amounted to $14,209,000 in 1995, $11,844,000 in 1994 and $9,162,000 in 1993. At June 30, 1995, future commitments under the terms of non-cancelable operating leases for minimum rentals are $8,735,000 in 1996, $6,600,000 in 1997, $4,480,000 in 1998, $2,320,000 in 1999, $1,000,000 in 2000 and $2,890,000 in 2001 through 2005. 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. 24 10. COMMON SHARES Options to purchase common shares have been granted under employee stock option plans adopted by shareholders in 1993, 1991, 1989 and 1985. 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 1994 and 1995.
Shares Range of Option Prices ------- ---------------------- Stock options outstanding at June 30, 1993 397,405 $13.50 - 36.99 Options granted 105,500 29.13 - 32.05 Options exercised (108,479) 13.50 - 22.80 Options cancelled (5,068) 13.50 - 33.63 -------- 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 --------
At June 30, 1995, options for 137,622 shares were exercisable at an average exercise price of $26.03 a share. Shares reserved for the future granting of options were 369,978 at year end; 373,995 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, 16,800 shares were earned in 1995, 20,800 shares in 1994 and 25,000 shares in 1993. In 1995, $208,000 was charged to operations as compensation expense based upon the market value of the earned shares. The similar charge to operations in 1994 and 1993 was $585,000 and $866,000, respectively. At year end, 112,500 shares remain available for future awards. 11. EARNINGS PER COMMON SHARE Earnings per common share have been determined based on the weighted-average common shares outstanding during the periods. The averages for 1995, 1994 and 1993 were 16,711,451, 16,626,927 and 15,114,013, respectively. 12. SEGMENT INFORMATION The Company's operations are in two industry segments. The Transportation Equipment Segment includes extruded and molded rubber and plastic products for automotive, building and marine industries and plastic and magnetic door seals for home appliances. The Tread Rubber Segment produces tread rubber for the truck tire retreading industry. Net sales by segment include both sales to unaffiliated customers, as reported in the Company's consolidated statements of income, and intersegment sales. Operating income consists of net sales less applicable operating costs and expenses related to those sales. In computing operating income, general corporate expenses are excluded. Identifiable assets by segment are those assets that are used in the operations of each segment. General corporate assets are those not identifiable with the operations of a segment. The Company's major customers include automotive original equipment manufacturers. The percentage of sales of each of these major customers to total consolidated sales for the three-year periods 1995, 1994 and 1993, respectively, has been as follows: Chrysler - 15%, 13% and 11%; Ford - 23%, 26% and 31%; General Motors - 18%, 17%, and 23%. 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. 25 BUSINESS SEGMENT INFORMATION
(Thousands of Dollars) 1995 1994 1993 ---------------------- -------- -------- -------- Net Sales: Transportation equipment....................... $868,892 $753,764 $650,055 Tread rubber...................... 133,656 124,169 117,224 Less-intersegment sales........................... (6,622) (5,566) (3,483) -------- -------- -------- Net sales..................... $995,926 $872,367 $763,796 ======== ======== ======== Operating Income: Transportation equipment....................... $ 41,882 $ 59,676 $ 53,067 Tread rubber...................... 1,727 6,114 9,308 Rationalization of business units.................. (8,832) (4,424) - General corporate expenses........................ (4,275) (4,150) (3,536) -------- -------- -------- Total operating income........................ $ 30,502 $ 57,216 $ 58,839 -------- -------- -------- Other expense, net................ (13,243) (7,001) (8,613) -------- -------- -------- Income from operations before taxes.................. $ 17,259 $ 50,215 $ 50,226 ======== ======== ======== Identifiable Assets: Transportation equipment....................... $595,109 $519,088 $468,236 Tread rubber...................... 74,229 81,365 75,770 General corporate assets.......................... 32,551 23,861 20,844 -------- -------- -------- Total identifiable assets......................... $701,889 $624,314 $564,850 ======== ======== ======== Capital Expenditures*: Transportation equipment....................... $ 59,750 $ 57,291 $109,431 Tread rubber...................... 5,981 4,089 3,381 -------- -------- -------- Total capital expenditures.................... $ 65,731 $ 61,380 $112,812 ======== ======== ======== Depreciation and Amortization: Transportation equipment....................... $ 42,951 $ 37,340 $ 26,529 Tread rubber...................... 3,888 3,155 3,358 -------- -------- -------- Total depreciation and amortization.................... $ 46,839 $ 40,495 $ 29,887 ======== ======== ======== * Includes assets acquired by purchase of businesses in 1995 and 1993.
GEOGRAPHIC AREA
(Thousands of Dollars) 1995 1994 1993 ---------------------- -------- -------- -------- Net Sales: United States..................... $574,064 $532,546 $491,184 Canada............................ 203,265 153,484 166,102 Europe............................ 245,362 213,961 121,413 Brazil............................ 2,640 - - Less--inter-area sales............ (29,405) (27,624) (14,903) -------- -------- -------- Net sales..................... $995,926 $872,367 $763,796 ======== ======== ========
Net Income From Operations: 26 United States..................... $ 12,821 $ 19,691 $ 24,807 Canada............................ 1,946 7,114 9,991 Europe............................ 7,915 8,796 817 Brazil............................ (51) - - General corporate expenses, net of tax............ (2,565) (2,569) (2,192) -------- -------- -------- Net income from operations.................... $ 20,066 $ 33,032 $ 33,423 ======== ======== ======== Identifiable Assets: United States..................... $340,235 $311,947 $266,423 Canada............................ 81,979 62,193 65,121 Europe............................ 234,918 226,313 212,462 Brazil............................ 12,206 - - General corporate assets.......................... 32,551 23,861 20,844 -------- -------- -------- Total identifiable assets........................ $701,889 $624,314 $564,850 ======== ======== ========
13. INCOME TAXES
(Thousands of Dollars) 1995 1994 1993 ---------------------- -------- -------- -------- Income before taxes: United States..................... $ 1,265 $ 36,097 $ 14,084 Foreign........................... 15,994 14,118 18,625 -------- -------- -------- $ 17,259 $ 50,215 $ 32,709 ======== ======== ======== Amounts currently payable: Federal........................... $ (3,174) $ 8,591 $ 8,252 Foreign........................... 5,779 4,139 5,904 State and local................... 1,038 1,262 2,130 -------- -------- -------- $ 3,643 $ 13,992 $ 16,286 ======== ======== ======== Deferred taxes: Federal........................... $ (233) $ 4,485 $ (3,413) Foreign........................... (6,101) (1,317) (811) State and local................... (116) 23 (1,916) -------- -------- -------- (6,450) 3,191 (6,140) -------- -------- -------- Total provision................. $ (2,807) $ 17,183 $ 10,146 ======== ======== ======== Provision before non- recurring items................... $ (2,807) $ 17,183 $ 16,803 Extraordinary item.................. - - (1,569) Cumulative effect on prior years of changes in accounting principles.......... - - (5,088) -------- -------- -------- Total provision................. $ (2,807) $ 17,183 $ 10,146 ======== ======== ======== A reconciliation of income tax expense to the U.S. statutory rate is as follows:
1995 1994 1993 -------- -------- -------- Tax at U.S. statutory rate.......... 35.0% 35.0% 34.0% Difference in effective rate of international operations, including benefit of SPL.................... (34.3) (2.1) (3.8) Write-off of investment............. (25.7) - - State and local income tax............................... 3.4 1.7 .4 Permanent book to tax dif- ferences not deductible........... 6.0 - - Other............................... (.7) (.4) .4 -------- -------- -------- Effective tax rate.................. (16.3)% 34.2% 31.0% ======== ======== ========
27 In accordance with the Company's policy, as of June 30, 1995, federal income taxes have not been provided on the undistributed earnings of foreign subsidiaries. If these earnings were distributed, approximately $12,800,000 of tax would be payable. In connection with cash flow information, the Company paid $3,600,000 in 1995, $20,338,000 in 1994 and $16,022,000 in 1993 for federal, foreign and state taxes on income. Through its United Kingdom subsidiaries, the Company had available at the beginning of the year net operating loss carryforwards of $28,000,000 for income tax purposes with no limit as to expiration under United Kingdom tax regulations. Of this amount, approximately $6,000,000 is attributable to the operations of Oliver Rubber's subsidiary, Oliver Rubber Europa. This subsidiary is being liquidated and the loss carryforward is no longer available. The remainder of the net operating loss carryforward was attributable to the Company's subsidiary, Standard Products Limited (SPL). SPL's results of operations have been profitable, indicating that realization of the net operating loss carryforward is more likely than not. Accordingly, in 1995 the Company has reversed the full valuation allowance related to SPL's tax loss carryforward, net of the portion of the carryforward used in 1995. At June 30, 1995, deferred tax liabilities were $27,300,000 and deferred tax assets, included in prepaids and other assets, were $26,100,000. The major component of deferred tax liabilities is $23,600,000 for excess depreciation and amortization. In addition to the loss carryforward of $3,668,000, deferred tax assets include $3,100,000 for discontinued operations and rationalization of business units and $14,600,000 related to employee benefits. 14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following table sets forth a summary of the quarterly results of operations for the years ended June 30, 1995 and 1994:
1995 ------------------------------------------------------------ Three Months Ended ------------------------------------------------------------ Sept. 30 Dec. 31 March 31 June 30 -------- -------- -------- -------- (Thousands of Dollars Except Per Share Data) 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................................. $.17 $.32 $.41 $.30 ==== ==== ==== ====
1994 ------------------------------------------------------------ Three Months Ended ------------------------------------------------------------ Sept. 30 Dec. 31 March 31 June 30 -------- -------- -------- -------- (Thousands of Dollars Except Per Share Data) Net sales................................................. $201,691 $198,335 $222,676 $249,665 Gross income.............................................. 26,165 24,623 28,150 40,489 Net income................................................ 4,852 6,187 8,178 13,815 Earnings per common share................................. $.29 $.37 $.49 $.83 ==== ==== ==== ====
28 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To The Shareholders and the Board of Directors, The Standard Products Company: We have audited the accompanying consolidated balance sheets of The Standard Products Company (an Ohio corporation) and Subsidiary Companies as of June 30, 1995 and 1994, 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, 1995. 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, 1995 and 1994, and the results of their operations and their cash flows for each of the three fiscal years in the period ended June 30, 1995 in conformity with generally accepted accounting principles. As explained in Note 1 to the consolidated financial statements, in fiscal 1993 the Company changed its methods of accounting for postretirement benefits other than pensions and income taxes. ARTHUR ANDERSEN LLP August 2, 1995, Cleveland, Ohio. 29 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 seven 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. /s/ James S. Reid, Jr. /s/ Donald R. Sheley, Jr. ---------------------- ------------------------- James S. Reid, Jr. Donald R. Sheley, Jr. Chairman and Vice President - Finance and Chief Executive Officer Chief Financial Officer 30 COMMON SHARES 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 ----------------------------------- ------------------------ 1995 1994 1995 1994 --------------- ---------------- ---- ---- High Low High Low ------ ----- ------ ------ Quarter 1st................ $31.13 $24.88 $36.63 $29.63 $.17 $.16 2nd............... $25.25 $21.38 $36.00 $31.25 $.17 $.16 3rd................ $24.13 $18.50 $38.75 $32.50 $.17 $.16 4th................ $22.63 $19.13 $32.63 $26.25 $.17 $.17 ---- ---- $.68 $.65 ==== ====
There were approximately 1,022 shareholders as of August 16, 1995. 31 THE STANDARD PRODUCTS COMPANY DIRECTORS JAMES C. BAILLIE * Partner, Tory Tory DesLauriers & Binnington, Barristers & Solicitors EDWARD B. BRANDON * + Chairman - National City Corporation (Bank holding company) 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 and Chief Executive Officer, 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 * 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 * Audit Committee o Finance Committee + Compensation Committee 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 TED M. MCQUADE Executive Vice President-North American Automotive Operations GERARD MESNEL Executive Vice President-Advanced Technology Worldwide 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 JOSEPH FARKAS President, Standard Products Industriel JAMES F. KEYS Vice President and Managing Director, Standard Products Limited STEPHAN J. MACK President, Holm Industries, Inc. WILLIAM A. RUSSELL Vice President-Sales and Marketing J. RICHARD HAMILTON Secretary CHARLES F. NAGY Treasurer THOMAS J. STECZ Corporate Controller MARY S. KEYERLEBER Assistant Secretary FACILITIES ADMINISTRATIVE, PRODUCT DEVELOPMENT AND SALES OFFICES, 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 Sao Paulo, 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., Monday, October 16, 1995 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 administrative offices, 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 32 THE STANDARD PRODUCTS CO. Administrative Offices 2401 South Gulley Road Dearborn, Michigan 48124 (313) 561-1100 33 APPENDIX TO ANNUAL REPORT TO SHAREHOLDERS Paper Format Photo No. Description Document Page --------- ------------------------------------ ------------- 1 Picture of Globe Front Cover 2 Chairman and CEO and President and COO 1 3 CAD Systems 2 4 Designer and work 3 5 Sealing systems parts 4 6 Water test on car 5 7 Model shop worker 6 8 Engineer and parts 7 9 Picture of Globe 8 Graphs ------ Bar Graph No. 1 10 Depicts comparison of Net Sales for the years 1986 through 1995 - refer to line entitled "Net Sales" under caption "Income Statement" on table on page 11 for figures Bar Graph No. 2 10 Total Company R,E&D (Thousands of Dollars) 1986 $ 4,888 1987 $ 4,137 1988 $ 6,296 1989 $10,079 1990 $10,038 1991 $10,181 1992 $13,619 1993 $20,971 1994 $28,850 1995 $33,211 Bar Graph No. 3 10 Depicts comparison of Capital Expenditures for the years 1986 through 1995 - refer to line entitled "Additions to Property, Plant & Equipment" under caption "Other" on table on page 11 for figures Bar Graph No. 4 10 Depicts comparison of Earnings Per Share for the years 1986 through 1995 - refer to the lines entitled "Income (Loss) from Continuing Operations and Before Extraordinary Item and Cumulative Effect on Prior Years of Change in Accounting Principle" through "Net Income (Loss)" under caption "Per Share" on table on page 11 for figures
EX-21 6 EXHIBIT 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, 1995. 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 Europa United Kingdom Oliver Rubber Company California Standard Products Brazil Brazil 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 Westborn Service Center, Inc. Michigan Union Trucking Company Michigan EX-23 7 EXHIBIT 23 1 EXHIBIT NO. 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS ----------------------------------------- As independent public accountants, we hereby consent to the incorporation of our reports dated August 2, 1995, included and incorporated by reference in this Form 10-K, into the Company's previously filed Registration Statements on Form S-8 File Numbers 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 13, 1995. EX-27 8 EXHIBIT 27
5 1000 YEAR JUN-30-1995 JUL-01-1994 JUN-30-1995 19,546 0 201,591 4,978 69,458 307,437 489,534 220,095 701,889 188,987 190,522 16,736 0 0 243,759 701,889 995,926 995,926 896,471 965,424 233 0 13,010 17,259 (2,807) 20,066 0 0 0 20,066 1.20 1.20