UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
Commission file number 33-63914
STANT CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 35-1768429
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
425 Commerce Drive
Richmond, Indiana 47374
(address of principal executive offices)
(zip code)
(317) 962-6655
(Registrant's telephone number, including area code)
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
-----
The number of shares outstanding of the Registrant's common stock,
par value $.01 per share, at May 1, 1996 was 16,226,815 shares.
STANT CORPORATION
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
Item 1 -- FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statement of Stockholders' Equity 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION 9
PART II - OTHER INFORMATION
Item 1 -- LEGAL PROCEEDINGS
None
Item 2 -- CHANGES IN SECURITIES
None
Item 3 -- DEFAULT UPON SENIOR SECURITIES
None
Item 4 -- SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
None
Item 5 -- OTHER INFORMATION
None
Item 6 -- EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits 11
(b) No Form 8-K's were filed during the quarter ended
March 31, 1996
SIGNATURE PAGE 12
Page 2
STANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ In Thousands, Except Share Data)
March 31, December 31,
1996 1995
----------------- ---------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash $1,556 $3,258
Trade accounts receivable, net 110,659 116,155
Other accounts receivable, net 5,192 6,189
Inventory 96,075 92,135
Prepaid expenses 6,713 7,014
Deferred income taxes 1,413 1,413
----------------- ---------------
Total current assets 221,608 226,164
----------------- ---------------
PROPERTY, PLANT AND EQUIPMENT , NET 172,019 174,211
----------------- ---------------
OTHER ASSETS:
Intangible assets, net 164,898 166,470
Deferred financing costs, net 4,532 4,746
Other 2,001 1,945
----------------- ---------------
Total other assets 171,431 173,161
----------------- ---------------
TOTAL ASSETS $565,058 $573,536
----------------- ---------------
----------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt and notes payable $30,319 $29,620
Accounts payable 50,598 48,850
Accrued liabilities 43,589 46,949
Income taxes payable 8,214 5,027
----------------- ---------------
Total current liabilities 132,720 130,446
----------------- ---------------
LONG TERM LIABILITIES:
Long-term debt 202,963 220,763
Deferred income taxes 8,084 7,396
Accrued pension and other benefit liabilities 27,997 27,622
Other 9,696 9,213
----------------- ---------------
Total long-term liabilities 248,740 264,994
----------------- ---------------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value per share, 21,000,000 shares
authorized and 16,226,815 shares issued and outstanding 162 162
Additional paid-in capital 155,349 155,349
Foreign currency translation adjustment (540) (825)
Minimum pension liability adjustment (1,761) (1,761)
Retained earnings 30,388 25,171
----------------- ---------------
Total stockholders' equity 183,598 178,096
----------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $565,058 $573,536
----------------- ---------------
----------------- ---------------
See notes to consolidated financial statements.
Page 3
STANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
($ In Thousands, Except Share Data)
(Unaudited)
Three Months Ended
March 31,
-------------------------------------
1996 1995
--------------- -------------
NET SALES $163,787 $160,638
COST OF SALES 123,344 122,419
--------------- -------------
GROSS MARGIN 40,443 38,219
--------------- -------------
OPERATING EXPENSES:
Selling, general and administrative 24,686 23,659
Amortization of intangible assets 1,284 1,138
Management fee and expenses 213 213
Restructuring charges 972
--------------- -------------
Total Operating Expenses 26,183 25,982
--------------- -------------
INCOME FROM OPERATIONS 14,260 12,237
--------------- -------------
OTHER CHARGES (CREDITS):
Interest expense 4,604 5,516
Other (361) (613)
--------------- -------------
Total Other Charges 4,243 4,903
--------------- -------------
INCOME BEFORE INCOME TAXES 10,017 7,334
PROVISION FOR INCOME TAXES 4,475 3,172
--------------- -------------
NET INCOME $5,542 $4,162
--------------- -------------
--------------- -------------
PRIMARY INCOME PER SHARE OF COMMON STOCK: $0.33 $0.25
--------------- -------------
Average Common Stock and Equivalents Outstanding 16,604 16,883
--------------- -------------
FULLY DILUTED INCOME PER SHARE OF COMMON STOCK: $0.33 $0.25
--------------- -------------
Average Common Stock and Equivalents Outstanding 16,725 16,883
--------------- -------------
DIVIDENDS PER SHARE $0.02 $0.02
--------------- -------------
See notes to consolidated financial statements.
Page 4
STANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
($ In Thousands)
(Unaudited)
Foreign Minimum
Additional Currency Pension Total
Common Paid-in Translation Liability Retained Stockholders'
Stock Capital Adjustment Adjustment Earnings Equity
---------- ------------ ------------ ------------ ---------- --------------
Balance at January 1, 1996 $162 $155,349 ($825) ($1,761) $25,171 $178,096
Net income through March 31, 1996 5,542 5,542
Translation adjustment 285 285
Common stock dividends (325) (325)
---------- ------------ ------------ ------------ ---------- --------------
Balance at March 31, 1996 $162 $155,349 ($540) ($1,761) $30,388 $183,598
---------- ------------ ------------ ------------ ---------- --------------
---------- ------------ ------------ ------------ ---------- --------------
See notes to consolidated financial statements.
Page 5
STANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ In Thousands)
(Unaudited)
Three Months Ended March 31,
1996 1995
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $5,542 $4,162
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of intangible assets 6,638 5,925
Amortization of debt issuance cost 192 191
Loss on disposal of assets 150 21
Provision for deferred taxes 688 1,530
Changes in assets and liabilities:
Decrease in accounts receivable 6,526 5,134
Increase in inventories (3,940) (5,192)
Decrease (increase) in prepaid expenses and other current assets 305 (2,610)
Increase (decrease) in accounts payable and accrued liabilities 1,413 (11,790)
Decrease (increase) in other assets 429 (397)
Increase in other liabilities 858 265
------------- -------------
Net operating activities 18,801 (2,761)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,195) (5,298)
Proceeds from sale of fixed assets 17 5
------------- -------------
Net investing activities (3,178) (5,293)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of term loans (6,094) (369)
Net (repayments) borrowings on revolving loans (11,034) 10,133
Payment of dividends (325) (325)
------------- -------------
Net financing activities (17,453) 9,439
------------- -------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 128 731
------------- -------------
DECREASE IN CASH (1,702) 2,116
CASH:
Beginning of period 3,258 1,517
------------- -------------
End of period $1,556 $3,633
------------- -------------
------------- -------------
See notes to consolidated financial statements.
Page 6
STANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 1996
1. Basis of Presentation
The accompanying unaudited consolidated financial statements of Stant
Corporation and Subsidiaries (the "Company") have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete annual financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Financial information as of December 31, 1995 has been derived from
the audited consolidated financial statements of the Company. Revenue and
operating results for the three-month period ended March 31, 1996 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1996. For further information refer to the audited consolidated
financial statements and footnotes thereto for the year ended December 31, 1995
included in the Company's Annual Report on Form 10-K.
Certain reclassifications have been made to the prior year's financial
statements to conform to current year presentation.
2. Inventory
Inventories at March 31, 1996 and December 31, 1995 consisted of the following
($000's):
March 31, December 31,
1996 1995
------- -------
Raw materials $13,215 $12,295
Work in process and components 42,027 41,697
Finished goods 42,844 40,069
------- -------
Total valued on first-in,
first-out (FIFO) basis 98,086 94,061
Less reduction to last-in,
first-out (LIFO) cost (2,011) (1,926)
------- -------
Total $96,075 $92,135
======= =======
At March 31, 1996 and December 31, 1995 approximately $76,229,000 and
$76,521,000, respectively, of inventories were valued using the LIFO method.
Approximate replacement cost of inventories valued using the LIFO method totaled
$78,240,000 and $78,447,000 at March 31, 1996 and December 31, 1995,
respectively.
Page 7
STANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 1996
3. Accounting Method Changes
Effective January 1, 1996, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of," which requires that long-lived
assets and certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amounts of these
assets may not be recoverable. The adoption of SFAS No. 121 did not have a
material effect on the Company's Consolidated Financial Statements.
Effective January 1, 1996, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation," which encourages, but does not require, companies to
adopt the fair value based method of accounting for stock-based employee
compensation plans. The Company has elected to continue to account for such
transactions under Accounting Principles Board Opinion No. 25, but will be
required to disclose in its 1996 annual Consolidated Financial Statements net
income and net income per share, on a pro forma basis, as if the fair value
based method had been applied in measuring compensation cost.
4. Contingencies
There are certain environmental matters and other potential or actual legal
claims pending against the Company. There were no contingencies with significant
activity during the first three months of 1996. The contingencies are described
in the audited consolidated financial statements and footnotes thereto for the
year ended December 31, 1995 included in the Company's Annual Report on Form
10-K.
Page 8
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Financial Overview - For the three-month period ended March 31, 1996, the
Company achieved record sales and net income, the result of increased activity
in the North American automotive aftermarket. Net sales for the first quarter of
1996 were $163.8 million, compared with $160.6 million for the first quarter of
1995. Income from operations for the quarter increased 16% to $14.3 million,
compared with $12.2 million for the comparable 1995 period. Net income for the
first quarter increased 33% to $5.5 million, or $.33 per share, compared with
$4.2 million, or $.25 per share, for the same period in 1995. Net income for the
first quarter of 1995 included a restructuring charge of $.03 per share ($.6
million net of tax).
Net sales - As a supplier to the automotive parts industry, the Company operates
within one business segment. The following table classifies the Company's
consolidated net sales by its operations in geographic areas. North America
includes the Company's operations in the United States and Mexico, while foreign
includes the United Kingdom, Australia and Argentina (in millions):
Three Months
Ended March 31,
- - -----------------------------------------------------------
1996 1995
- - -----------------------------------------------------------
North America
Original Equipment $ 72.0 $ 77.6
Aftermarket 69.1 58.3
Industrial 9.9 10.3
- - -----------------------------------------------------------
Subtotal 151.0 146.2
- - -----------------------------------------------------------
Foreign
Original Equipment 6.4 7.8
Aftermarket 6.4 6.6
- - -----------------------------------------------------------
Subtotal 12.8 14.4
- - -----------------------------------------------------------
TOTAL $163.8 $160.6
- - -----------------------------------------------------------
Despite a 17 day strike at General Motors ("GM") and a soft automotive original
equipment market ("OE market"), total North American sales of $151.0 million for
the first quarter of 1996 increased 3% from 1995 sales of $146.2 million. The
North American aftermarket (the "Aftermarket"), which benefited from severe
winter weather encountered by many areas of the country, rebounded from weakened
demand experienced during 1995. Aftermarket sales increased 18% compared with
the prior year, primarily in weather sensitive products. Aftermarket sales of
wipers and thermostats increased 42% and 39%, respectively, due in part to more
harsh weather conditions as compared with 1995. Promotional programs and strong
demand for the recently introduced "Exact Fit" wiper product program also
contributed to the increase in aftermarket sales. In the OE market, North
American combined production of cars and light trucks for the first quarter of
1996 dropped 10% from the 1995 level. The Company's North American OE sales
however, decreased by only 7%, where the most significant factor was the strike
by GM in March which reduced OE sales by approximately $3.0 million. The
inclusion of the Company's products on more popular selling platforms, higher
vehicle content and new product introductions helped to offset reduced OE
production, price decreases and lost 1996 model year business.
Foreign entity sales in the first quarter of 1996 were $12.8 million in 1996
compared with $14.4 million in the first quarter of 1995.
Page 9
Gross margin for the first quarter of 1996 was $40.4 million, an increase of
$2.2 million, or 6%, compared with the same period of 1995. Gross margin, as a
percentage of net sales, increased to 24.7% in 1996 from 23.8% in 1995. The
increase in the gross margin percentage is primarily attributable to a higher
mix of Aftermarket sales versus OE sales for the quarter, as sales to the
Aftermarket historically carry a higher gross margin percentage than sales to
the OE market. Although it appears that demand has rebounded, Aftermarket
margins have declined from historical levels. While the Company's aftermarket
margins are still significantly higher than its OE margins, they continue to be
negatively impacted by price competition and consolidation trends within
distribution channels. The Company was able to partially offset the effect of
the GM strike and price concessions on its gross margin by cost savings realized
through consolidation efforts initiated in 1995 and other cost reduction
programs.
Selling, general and administrative ("SG&A") expense for the first quarter of
1996 was $24.7 million, a slight increase over the $23.7 million for the same
period of 1995, primarily due to additional selling expenses. SG&A expense as a
percentage of net sales increased slightly to 15.1% from 14.7% in 1995, the
result of a higher mix of Aftermarket sales, which carry higher selling and
shipping expenses, than do sales to the OE market.
Income from operations for the first quarter of 1996 was $14.3 million, an
increase of 2.1 million, or 16%, over the $12.2 million for the same period of
1995. Income from operations for the first quarter of 1995 included
restructuring charges of $1.0 million ($.6 million net of tax, or $.03 per
share) for the consolidation of two of the Company's operations and other
restructuring efforts.
Interest expense for the first quarter of 1996 was $4.6 million, as compared
with $5.5 million for the same period in 1995. Lower interest rates in 1996 and
debt reductions, including $17.1 million in the first quarter of 1996, resulted
in a decrease in interest expense of $.9 million for the quarter compared with
the prior year.
The provision for income taxes of $4.5 million for the first quarter of 1996 and
$3.2 million for the same period of 1995 represent effective tax rates of 44.7%
and 43.3%, respectively. The increase in the effective rate results from an
increase in permanent differences, primarily amortization of goodwill, as a
percentage of income before taxes.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided by operating activities were strong in the first quarter of
1996, totalling $18.8 million compared with a negative $2.8 million in the first
quarter of 1995. Operating cash flows for 1995 reflected the use of significant
cash to fund acquisition related expenditures as shown by the reduction in
accounts payable and accrued liabilities. In 1996, a $6.5 million reduction in
accounts receivable and increased net income and non-cash charges for
depreciation and amortization provided significant operating cash flows, offset
slightly by a $3.9 million increase in inventory levels. Increased sales
activity in the fourth quarter of 1995 resulted in high levels of receivables at
year-end.
Cash flows utilized by investing activities reflect $3.2 million for capital
expenditures in the first quarter of 1996, as compared with $5.3 million in
1995. The lower level of capital expenditures is due to the timing of certain
expenditures and the Company still expects 1996 capital expenditures, excluding
capital leases, to total between $22 and $27 million. The Company also entered
into a long-term capital lease in early 1996 for a new wiper system technology
center to be constructed in 1996 and used to support research and development
and sales activities of Trico Products Corporation. The lease will require
aggregate annual payments which range from $.9 million to $1.0 million through
2016.
Positive operating cash flows in the first quarter of 1996 were also used to
fund $17.1 million in debt reductions. Financing activities included $6.1
million in payments on the Company's term loans and $11.0 million in net
payments on the Company's revolving loans. At March 31, 1996 the Company had
$89.3 million available for future borrowings under its revolving or swing line
credit facilities.
The Company expects that, absent additional acquisitions, cash flows from
operating activities and trade credit will be sufficient to fund working capital
needs, capital expenditures and debt reductions in 1996. Revolving credit
borrowings under the Company's credit agreement are available to meet temporary
working capital requirements as well as for future acquisitions.
Page 10
Part II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are attached hereto:
11 - Statement Regarding Computations of Per Share Earnings
27.1 - Financial Data Schedule
Page 11
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.
STANT CORPORATION
(Registrant)
May 14, 1996 DAVID R. PARIDY
- - ------------- -------------------------
(Date) David R. Paridy, President
and Chief Executive Officer
May 14, 1996 THOMAS E. SCHMITT
- - ------------ --------------------------
(Date) Thomas E. Schmitt, Senior Vice President and
Chief Financial Officer
(Principal Accounting and Financial Officer)
Page 12