FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the Quarterly Period Ended June 30, 1996
-------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
Commission file number 1-4743
--------
Standard Motor Products, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 11-1362020
- ----------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
37-18 Northern Blvd., Long Island City, N.Y. 11101
- ---------------------------------------------- ------------------------
(Address of principal executive offices) (Zip Code)
(718) 392-0200
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
None
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Date Class Shares Outstanding
- ------------- ------------ -----------------------
June 30, 1996 Common Stock 13,138,811
- ------------- ------------ -----------------------
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL AND OTHER INFORMATION
JUNE 30, 1996
PART 1 - FINANCIAL INFORMATION
------------------------------
Item 1 Page No.
- ------ --------
CONSOLIDATED BALANCE SHEETS
June 30, 1996 and December 31, 1995 2 & 3
CONSOLIDATED STATEMENTS OF EARNINGS AND
RETAINED EARNINGS for the Three-Month and 4
Six-Month periods ended June 30, 1996 and 1995
CONSOLIDATED STATEMENTS OF CASH FLOWS for the
Six-Month periods ended June 30, 1996 and 1995 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6 - 8
Item 2
- ------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 9 & 10
CONDITION AND RESULTS OF OPERATIONS
PART II - OTHER INFORMATION
---------------------------
Item 6
- ------
Exhibits and Reports on Form 8K 11
Signature 11
- 1 -
[CAPTION]
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS
June 30, December 31,
1996 1995
----------- ----------
(Unaudited)
Current assets:
Cash and cash equivalents $ 24,976 $ 10,856
Marketable securities (Note 2) 9,365 6,672
Accounts and notes receivable, net of
allowance for doubtful accounts and
discounts of $8,733 (1995 - $5,907) 225,883 121,516
Inventories (Note 3) 209,451 206,279
Deferred income taxes 22,647 22,647
Prepaid expenses and other current assets 8,422 6,569
----------- ----------
Total current assets 500,744 374,539
Property, plant and equipment, net of
accumulated depreciation (Note 4) 113,153 109,537
Other assets (Note 9) 51,522 37,154
----------- ----------
Total assets $ 665,419 $ 521,230
----------- ----------
----------- ----------
See accompanying notes to consolidated financial statements.
- 2 -
[CAPTION]
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
1996 1995
----------- ----------
(Unaudited)
Current liabilities:
Notes payable - banks $ 104,700 $ 10,200
Current portion of long-term debt (Note 7) 12,436 14,262
Accounts payable 33,405 24,625
Sundry payables and accrued expenses 76,296 69,502
Accrued customer returns 17,274 13,446
Payroll and commissions 10,530 10,331
----------- ----------
Total current liabilities 254,641 142,366
Long-term debt (Note 7) 167,343 148,665
Deferred income taxes 5,730 5,730
Postretirement benefits other than pensions 17,219 14,069
----------- ----------
Total liabilities 444,933 310,830
Commitments and contingencies (Note 7)
Stockholders' equity (Notes 6 and 7):
Common stock-par value $2.00 per share
Authorized - 30,000,000 shares
Issued - 13,324,476 shares in 1996 and 1995
(including 185,665 and 196,650 shares held as 26,649 26,649
treasury shares in 1996 and 1995, respectively)
Capital in excess of par value 2,600 2,651
Loan to Employee Stock Ownership Plan (ESOP) (3,345) (5,025)
Minimum pension liability adjustment (27) (27)
Retained earnings 198,130 189,837
Foreign currency translation adjustment 100 150
----------- ----------
224,107 214,235
Less: treasury stock-at cost 3,621 3,835
----------- ----------
Total stockholders' equity 220,486 210,400
----------- ----------
Total liabilities and stockholders' equity $ 665,419 $ 521,230
----------- ----------
----------- ----------
See accompanying notes to consolidated financial statements.
- 3 -
[CAPTION]
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS
(Dollars in thousands, except for shares and per share data)
(Unaudited) (Unaudited)
For the Three Months Ended For the Six Months Ended
June 30, June 30,
-------------------------- ------------------------
1996 1995 1996 1995
---- ---- ---- ----
Net sales $ 205,252 $ 184,040 $ 379,692 $ 343,760
Cost of sales 139,081 123,272 257,621 228,793
----------- ----------- ----------- -----------
Gross profit 66,171 60,768 122,071 114,967
Selling, general and
administrative expenses 54,028 46,676 100,580 92,761
----------- ----------- ----------- -----------
Operating Income 12,143 14,092 21,491 22,206
Other income (expense) - net 686 725 1,316 1,103
----------- ----------- ----------- -----------
Earnings before interest and taxes 12,829 14,817 22,807 23,309
Interest expense 4,722 3,864 8,567 7,022
----------- ----------- ----------- -----------
Earnings before taxes 8,107 10,953 14,240 16,287
Taxes based on earnings (Note 5) 2,005 2,652 3,845 4,092
----------- ----------- ----------- -----------
Net earnings $ 6,102 $ 8,301 $ 10,395 $ 12,195
Retained earnings
at beginning of period 193,080 180,748 189,837 177,904
----------- ----------- ----------- -----------
199,182 189,049 200,232 190,099
Less: cash dividends for period 1,052 1,049 2,102 2,099
----------- ----------- ----------- -----------
Retained earnings at end of period $ 198,130 $ 188,000 $ 198,130 $ 188,000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Per share data:
- ---------------
Net earnings per share $0.46 $0.63 $0.79 $0.93
Dividends per common share $0.08 $0.08 $0.16 $0.16
Average number of common shares 13,134,701 13,125,189 13,131,263 13,123,925
----------- ----------- ----------- -----------
See accompanying notes to consolidated financial statements.
- 4 -
[CAPTION]
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
For the Six Months Ended
June 30,
-----------------------------
1996 1995
---------- ---------
Cash flows from operating activities:
Net earnings $ 10,395 $ 12,195
Adjustments to reconcile net earnings to net
cash used in operating activities:
Depreciation and amortization 8,786 6,359
(Gain) on disposal of property,plant & equipment (326) (63)
Proceeds from sales of trading securities 4,050 2,299
Purchases of trading securities (6,411) (3,850)
Change in assets and liabilities, net of effects
from acquisitions:
(Increase) in accounts receivable, net (103,107) (62,623)
(Increase) in inventories (2,172) (17,116)
(Increase) in other assets (4,722) (5,657)
Increase (decrease) in accounts payable 8,253 (8,112)
(Decrease) in other current assets and liabilities (1,862) (6,133)
Increase in sundry payables and accrued expenses 10,363 18,103
---------- ---------
Net cash (used in) operating activites (76,753) (64,598)
Cash flows from investing activities:
Purchases of held-to-maturity securities (162) (213)
Capital expenditures, net of effects from acquisitions (9,878) (8,903)
Payments for acquisitions, net of cash acquired (9,953)
---------- ---------
Net cash (used in) investing activities (19,993) (9,116)
Cash flows from financing activities:
Net borrowings under line-of-credit agreements 94,500 83,600
Proceeds from issuance of long-term debt 20,835
Principal payments of long-term debt (4,183) (4,208)
Reduction of loan to ESOP 1,680 1,680
Proceeds from exercise of employee stock options 163 107
Dividends paid (2,102) (2,099)
---------- ---------
Net cash provided by financing activities 110,893 79,080
---------- ---------
Effect of exchange rate changes on cash (27) 7
---------- ---------
Net increase in cash 14,120 5,373
Cash and cash equivalents at beginning of the period 10,856 2,796
---------- ---------
Cash and cash equivalents at end of the period $ 24,976 $ 8,169
---------- ---------
---------- ---------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 6,988 $ 6,897
Income taxes 4,502 4,392
-5-
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1
The accompanying unaudited financial information should be read in conjunction
with the consolidated financial statements, including the notes thereto, for
the year ended December 31, 1995.
Management acknowledges its responsibility for the preparation of the
accompanying interim consolidated financial statements which reflect all
adjustments considered necessary, in the opinion of management, for a fair
statement of the results of interim periods presented. The results of
operations for the interim periods are not necessarily indicative of the
results of operations for the entire year.
Where appropriate, certain amounts in 1995 have been reclassified to conform
with the 1996 presentation.
Note 2
At June 30, 1996, held-to-maturity securities amounted to approximately
$13,452,000 and trading securities amounted to approximately $3,113,000.
Held-to-maturity securities consist primarily of U.S. Treasury Bills and
corporate debt securities which are reported at unamortized cost which
approximates fair value. As of June 30, 1996, $6,252,000 of the
held-to-maturity securities mature within one year and $7,200,000 mature within
five to ten years.
The first-in, first-out method is used in computing realized gains or losses.
Note 3
Inventories
-------------
(Dollars in thousands)
June 30, December 31,
1996 1995
----------- ----------
(Unaudited)
Finished goods $ 148,978 $ 133,035
Work in process 4,108 3,550
Raw materials 56,365 69,694
----------- ----------
Total inventories $ 209,451 $ 206,279
----------- ----------
----------- ----------
Note 4
Property, Plant and Equipment
-------------------------------
(Dollars in thousands)
June 30, December 31,
1996 1995
----------- ----------
(Unaudited)
Land, buildings and improvements $ 69,992 $ 70,159
Machinery and equipment 79,843 76,263
Tools, dies and auxiliary equipment 7,810 7,766
Furniture and fixtures 18,177 17,339
Leasehold improvements 5,594 5,486
Construction in progress 13,319 7,527
----------- ----------
194,735 184,540
Less accumulated depreciation 81,582 75,003
----------- ----------
Total property, plant and equipment - net $ 113,153 $ 109,537
----------- ----------
----------- ----------
Note 5
The provision for taxes is less than the normal statutory rate primarily
because earnings of a subsidiary operating in Puerto Rico, amounting to
approximately $7,273,000 and $5,716,000 for the six months ended June 30, 1996
and 1995, respectively, are exempt from United States income taxes and are
partially exempt from Puerto Rican income taxes.
- 6 -
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6
On January 17, 1996, the Board of Directors adopted a Shareholder Rights Plan
(Plan). Under the Plan, the Board declared a dividend of one Preferred Share
Purchase Right (Right) for each outstanding common share of the Company. The
dividend was paid on March 1, 1996 to the shareholders of record as of February
15, 1996. The Rights are attached to and automatically trade with the
outstanding shares of the Company's common stock.
The Rights will become exercisable only in the event that any person or group
of affiliated persons becomes a holder of 20% or more of the Company's
outstanding common shares, or commences a tender or exchange offer which, if
consummated, would result in that person or group of affiliated persons owning
at least 20% of the Company's outstanding common shares. Once the Rights
become exercisable they entitle all other shareholders to purchase, by payment
of an $80.00 exercise price, one one-thousandth of a share of Series A
Participating Preferred Stock, subject to adjustment, with a value of twice the
exercise price. In addition, at any time after a 20% position is acquired and
prior to the acquisition of a 50% position, the Board of Directors may require,
in whole or in part, each outstanding Right (other than Rights held by the
acquiring person or group of affiliated persons) to be exchanged for one share
of common stock or one one-thousandth of a share of Series A Preferred Stock.
The Rights may be redeemed at a price of $0.001 per Right at any time prior to
their expiration on February 28, 2006.
On May 23, 1996 the Shareholders approved the Company's Independent Outside
Directors' Stock Option Plan which reserved 50,000 shares of the Company's
common stock for issuance under the Plan. The Company granted 4,000 options in
June 1996 and 1,000 options in July 1996 at the stock's fair market value at
the time of issuance.
At June 30, 1996, 481,195 shares of authorized but unissued common stock were
reserved for issuance under the Company's stock option plans, of which 424,195
shares were subject to outstanding options. 185,665 shares held in treasury
will be used to meet requirements for the Company's stock option program.
143,195 outstanding options were vested at June 30, 1996. 281,000 of the
unvested outstanding options will become vested starting April 4, 1997 through
April 4, 2000.
Note 7
Long-Term Debt
----------------
(Dollars in thousands)
June 30, December 31,
1996 1995
----------- ----------
(Unaudited)
Long-term debt consists of:
6.81% senior note payable $ 73,000 $ 53,000
7.85% senior note payable 65,000 65,000
9.47% senior note payable 30,000 30,000
7.88% - 10.50% purchase obligations 6,600 7,113
Credit Agreement 3,354 5,034
Capitalized lease & other 1,045
Floating rate purchase obligation 780 780
9.75% senior note payable 2,000
----------- ----------
179,779 162,927
Less current portion 12,436 14,262
----------- ----------
Total noncurrent portion of
long-term debt $ 167,343 $ 148,665
----------- ----------
----------- ----------
- 7 -
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7 (Continued)
Under the terms of the $73,000,000 senior note agreement, the Company is
required to repay the loan in seven equal annual installments beginning in 2000.
Under the terms of the $65,000,000 senior note agreement, the Company is
required to repay the loan in seven equal annual installments beginning in 1996.
Under the terms of the $30,000,000 senior note agreement, the Company is
required to repay the loan in seven varying annual installments beginning in
1998. Subject to certain restrictions, the Company may make prepayments
without premium beginning in 1998.
The purchase obligations, due under agreements with municipalities, mature in
annual installments through 2003, and are secured by certain property, plant,
and equipment.
The Credit Agreement matures in varying annual installments through 1998 and
bears interest at the lower of 91% of prime rate, or 91% of the "LIBOR" plus
1.092%. The Company also entered into an interest rate swap agreement to
reduce the impact of changes in interest rates on its Credit Agreement. The
swap agreement modifies the interest rate on the Credit Agreement, adjusted
favorably or unfavorably for the spread between 77.52% of the 3-month reserve
unadjusted "LIBOR" and 7.69%. The proceeds of such note were loaned to the
Company's Employee Stock Ownership Plan (ESOP) to purchase 1,000,000 shares of
the Company's common stock to be distributed in accordance with the terms of
the ESOP established in 1989.
Certain loan agreements require the maintenance of a specified amount of
working capital and limit, among other items, investments, leases, indebtedness
and distributions for the payment of dividends and the acquisition of capital
stock. At June 30, 1996, the Company had unrestricted retained earnings of
$35,517,000.
Note 8
In February 1996, the Company acquired substantially all of the assets and
certain liabilities of Federal Parts Corporation for approximately $13,400,000
plus contingent payments based on performance. Located in Dallas, Texas,
Federal Parts assembles and distributes ignition wire sets and battery cables.
The acquisition had an immaterial effect on consolidated net earnings for the
six months ending June 30, 1996.
In July 1996, the Company acquired a 72.9% equity interest in Intermotor
Holdings Limited for approximately $14,050,000 with the option to acquire a
100% interest in the future. Located in Nottingham England, Intermotor
manufactures and distributes, primarily to customers in Europe, a broad line of
engine management products. This acquisition had no effect on consolidated net
earnings for the six months ended June 30, 1996.
Also in July 1996, the Company acquired the assets and assumed certain
liabilities of Fibro Friction, Inc. for approximately $14,000,000 and certain
future performance incentives. Fibro Friction, located in Anjou, Quebec,
Canada is a leading formulator of friction materials and a major supplier of
integrally molded brake pads. This acquisition had no effect on consolidated
net earnings for the six months ended June 30, 1996.
In August 1996, the Company entered into a definitive agreement to acquire
certain assets and liabilities of the aftermarket and heavy duty cooling
business of the Hayden Division of the Equion Corporation for an aggregate cash
consideration of $6,000,000, subject to certain adjustments prior to closing.
The parties expect to complete the transaction in mid-August, with an effective
date of July 31, 1996.
Note 9
Other assets consist of unamortized goodwill, deferred charges, long-term
investments, unamortized customer supply agreements, equity in joint ventures,
pension assets, security deposits and receivables due after one year.
- 8 -
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
----------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
As of June 30, 1996, the Company was in a liquid position with stockholders'
equity of $220,486,000 and working capital of $246,103,000. The Company
expects capital expenditures to be approximately $8,000,000 primarily for new
machinery and equipment for the remainder of 1996. At June 30, 1996, the
Company had unused lines of credit aggregating approximately $14,000,000
including an additional $5,000,000 (Canadian) which was secured during the
second quarter of 1996. The Company secured an additional $20,000,000
(Canadian) of long-term financing in July 1996 which was used to acquire Fibro
Friction. The Company utilized additional funds from its lines of credit to
acquire Intermotor Holdings and plans to convert a portion of such funding to
long-term debt during the third quarter of 1996. Unused lines of credit will
be used as a source of funding working capital requirements and capital
expenditures. The Company anticipates that its present sources of funds under
the credit lines and the additional long-term debt referred to above will
continue to be adequate to meet its current needs.
During the six months ended June 30, 1996, total debt increased by
$111,352,000. This was primarily due to an increase in accounts receivable and
payments for acquisitions.
During the six months ended June 30, 1996, accounts receivable increased by
$104,367,000. This was mainly due to seasonal dating programs extended by the
Climate Control and Brake Parts Divisions, higher net sales in the second
quarter of 1996 ($30,812,000 greater than net sales in the first quarter of
1996), and an increase in days sales outstanding during this period.
As part of an ongoing operating strategy, the Company is reviewing potential
acquisition candidates in related automotive businesses. If any such
acquisitions are made, they would be funded in the short term by presently
available lines of credit. See Note 8 for details of the Company's recent
acquisitions and a planned acquisition scheduled for mid-August.
INTERIM RESULTS OF OPERATIONS
- -----------------------------
Comparison of the three months ended June 30, 1996 to the three months ended
- ----------------------------------------------------------------------------
June 30, 1995.
- --------------
Net sales for the current quarter increased $21,212,000 or 11.5% from the
comparable period in 1995 primarily due to a significant sales increases at the
Standard Division, the Climate Control Division and sales resulting from recent
acquisitions. Excluding the revenues for acquisitions not present in the
results of a year ago, sales increased in 1996 by 8.3%. Sales growth was
evident at all divisions during this period.
The gross margin percentage for the second quarter of 1996 of 32.2% was below
the 33.0% during the comparable quarter in 1995. This increase in cost of goods
sold as a percentage of net sales primarily reflects the Company's continued
shift in the sales mix towards lower margin products.
Selling, general and administrative (S.G. & A.) expenses increased by
$7,352,000 over the comparable quarter in 1995. This increase was primarily due
to costs to support new acquisitions, including goodwill amortization expenses,
higher new business expenses and selling and distribution expenses due to
increased sales.
Interest expense increased by $858,000 as compared to the comparable period of
1995 due primarily to higher average borrowings needed to finance recent
acquisitions and support higher accounts receivable and inventory requirements
resulting from new business, partially offset by a lower average effective
borrowing rate.
Taxes based on earnings decreased by $647,000 primarily due to lower earnings.
- 9 -
INTERIM RESULTS OF OPERATIONS
- -----------------------------
Comparison of six months ended June 30, 1996 to the six months
- --------------------------------------------------------------
ended June 30, 1995.
- --------------------
Net sales for the six months increased $35,932,000 or 10.5% from the comparable
period in 1995 primarily due to significant sales increases at the Standard and
Climate Control Divisions and sales from recent acquisitions. Sales growth was
evident at all divisions during this period.
The gross margin percentage for the six months period in 1996 of 32.2% was
below the 33.4% for the comparable period in 1995. This increase in cost of
goods sold as a percentage of net sales primarily reflects the Company's
continued shift in the sales mix towards lower margin products.
Selling, general and administrative (S.G. & A.) expenses increased $7,819,000
versus the comparable period in 1995. This increase was primarily due to costs
to support new acquisitions, including goodwill amortization expenses and
higher variable selling and distribution expenses due to increased sales. As
a percentage of net sales, S.G. & A. expenses declined by 0.5 percentage points
(26.5% versus 27.0%).
Other income - net increased by $213,000 primarily due to higher earnings at
Blue Streak Electronics, Inc., our Canadian joint venture that rebuilds
automotive computers, and a reduction in the loss on sale of accounts
receivable, partially offset by a lower rate of return on investments.
Interest expense increased by $1,545,000 due primarily to higher average
borrowings needed to finance recent acquisitions and support higher accounts
receivable and inventory requirements resulting from new business, partially
offset by a lower average effective borrowing rate.
Taxes based on earnings decreased by $247,000 primarily due to lower earnings
as compared to the comparable period of 1995.
- 10 -
PART II - OTHER INFORMATION
-----------------------------
Item 6. Exhibits and Reports on Form 8-K
- ------------------------------------------
(a) Exhibit
-----------
Number Description Method of Filing
------ ----------- ----------------
27 Financial Data Schedule Filed with this Document
(b) Reports on Form 8-K
-----------------------
There were no reports on Form 8-K filed for this quarter.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
STANDARD MOTOR PRODUCTS, INC.
-------------------------------
(Registrant)
June 30, 1996 Michael J. Bailey
- ------------- -------------------------------
(Date) Vice President Finance,
Chief Financial Officer
- 11 -