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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended DECEMBER 31, 2000
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file number 1-4743
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STANDARD MOTOR PRODUCTS, INC.
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(Exact name of registrant as specified in its charter)
NEW YORK 11-1362020
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
37-18 NORTHERN BLVD., LONG ISLAND CITY, N.Y. 11101
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (718) 392-0200
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Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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COMMON STOCK NEW YORK STOCK EXCHANGE
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Securities registered pursuant to Section 12(g) of the Act:
NONE
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(TITLE OF CLASS)
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Common voting stock based on a closing price
on the New York Stock Exchange on February 28, 2001 of $9.90 per share held by
non-affiliates of the registrant was $69,613,731. For purposes of the foregoing
calculation, all directors and officers have been deemed to be affiliates, but
the registrant disclaims that any of such are affiliates.
As of the close of business on February 28, 2001 there were 12,445,179 shares
outstanding of the Registrant's Common Stock.
PART I
------
ITEM 1. BUSINESS
(A) GENERAL DEVELOPMENT OF BUSINESS
Standard Motor Products (referred to herein as the "Company" or "SMP")
manufactures and distributes replacement parts for motor vehicles. The
Company is now organized into two principal segments, each focused on a
specific type of replacement part. The Engine Management Division consists
primarily of ignition and emission parts, on-board computers, ignition
wires, battery cables and fuel system parts. The Temperature Control
Division consists primarily of air conditioning compressors, other air
conditioning parts and heater parts. The Company sells its products
primarily to warehouse distributors and large auto parts retail chains.
SMP's customers consist of most of the top warehouse distributors and most
of the leading auto parts retail chains, including Advance Auto Parts,
AutoZone, Carquest and NAPA Auto Parts. The Company distributes parts
under its own brand names, such as Standard, Blue Streak and Four Seasons,
and also under private labels for key customers. In addition to its two
principal operating segments, effective with the beginning of fiscal 2000,
the Company considers its European Operations to be a separate operating
segment along with its Canadian operations. Both the European and Canadian
operations consist of Engine Management and Temperature Control related
activities.
In January 1999, the Company acquired, through its European subsidiary
Standard Motor Products Holdings Limited, 85% of the stock of Webcon UK
Limited and, through its UK joint venture, Blue Streak Europe Limited,
Webcon's affiliate Injection Correction UK Limited, for approximately $3.5
million. Webcon is an assembler and distributor of automotive fuel system
components and other engine management and motor sport performance
products. Injection Correction is a leading remanufacturer of engine
computers and has developed a line of engine diagnostic equipment. The
remaining 15% was acquired in January 2000.
In February 1999, the Company acquired the Eaglemotive unit of Mark IV
Industries, Inc. for $12,400,000. Eaglemotive, located in Fort Worth,
Texas when acquired, manufactures and distributes fan clutches and oil
coolers. It has since been merged with the Company's Hayden operations in
California.
In April 1999, the Company acquired Lemark Auto Accessories Limited, a UK
based supplier of wire sets, for approximately $1,900,000.
In January 2000, the Company completed the purchase of Vehicle Air
Condition Parts, located in England, which has subsequently been renamed
"Four Seasons UK, LTD." The purchase will assist in distributing
components for the repair of air conditioning systems. The total
acquisition price was approximately $1.4 million. In addition, in July
2000, the Company completed the purchase of Automotive Heater Exchange SRL
in Massa, Italy. The acquisitions are in alignment with the Company's
strategy of growing the Company's Temperature Control sales in Europe.
-2-
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The table below shows the Company's sales by operating segment and by
major product group within each segment. The Company's two reportable
operating segments are Engine Management and Temperature Control.
Effective with the beginning of fiscal 2000, the Company reclassified
certain European operations from the Engine Management and Temperature
control segments to a separate segment, which currently does not meet the
criteria of a reportable segment. Amounts in 1999 and 1998 have been
reclassified to conform to the 2000 presentation.
YEARS ENDED DECEMBER 31,
(Dollars in thousands)
2000 1999 1998
--------------------- --------------------- -----------------------
% of % of % of
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
------ ----- ------ ----- ------ -----
ENGINE MANAGEMENT:
Ignition & Emission Parts $226,297 37.4% $218,221 33.2% $ 235,502 36.3%
Wires and Cables 61,405 10.1% 61,275 9.3% 67,661 10.4%
Fuel System Parts 9,684 1.6% 12,265 1.9% 22,870 3.5%
----- ---- ------ ---- ------ ----
TOTAL ENGINE MANAGEMENT 297,386 49.1% 291,761 44.4% 326,033 50.2%
------- ----- ------- ----- ------- -----
Compressors 122,113 20.1% 141,657 21.5% 131,154 20.2%
Other Air Conditioning Parts 133,020 21.9% 175,115 26.6% 143,499 22.1%
Heating Parts 12,012 2.0% 8,677 1.3% 20,783 3.2%
------ ---- ----- ---- ------ ----
TOTAL TEMPERATURE CONTROL 267,145 44.0% 325,449 49.4% 295,436 45.5%
------- ----- ------- ----- ------- -----
All Other 41,919 6.9% 41,031 6.2% 27,951 4.3%
------ ---- ------ ---- ------ ----
TOTAL $606,450 100.0% $658,241 100.0% $649,420 100.0%
======== ====== ======== ====== ======== ======
The table below shows the Company's operating profit and identifiable
assets by reportable operating segment.
YEARS ENDED DECEMBER 31,
(Dollars in thousands)
2000 1999 1998
---------------------- ---------------------- ----------------------
OPERATING IDENTIFIABLE OPERATING IDENTIFIABLE OPERATING IDENTIFIABLE
PROFIT ASSETS PROFIT ASSETS PROFIT ASSETS
------ ------ ------ ------ ------ ------
Engine Management $ 37,964 $265,336 $ 26,104 $253,346 $ 30,912 $282,628
Temperature Control Systems 11,537 224,410 17,289 212,026 19,544 182,107
All Other (18,837) 59,650 (13,849) 90,649 (6,525) 56,821
-------- -------- -------- -------- -------- --------
TOTAL $ 30,664 $549,396 $ 29,544 $556,021 $ 43,931 $521,556
=============================== ======== ======== ======== ======== ======== ========
"All Other" consists of items pertaining to the corporate headquarters
function, as well as the Canadian and European business units that do not
meet the criteria of a reportable operating segment.
-3-
(C) NARRATIVE DESCRIPTION OF BUSINESS
THE AUTOMOTIVE AFTERMARKET
A large, diverse number of manufacturers varying in product specialization
and size makes up the automotive aftermarket industry. In addition to
manufacturing, aftermarket companies also allocate resources towards an
efficient distribution process and product engineering in order to
maintain the flexibility and responsiveness on which their customers
depend. The automotive aftermarket differs substantially from the original
equipment manufacturer supply business. Aftermarket manufacturers must be
efficient producers of small run lot sizes and do not have to provide
systems engineering support. Aftermarket manufacturers also must
distribute, with rapid turnaround times, products for a full range of
vehicles on the road. While sales of original equipment manufacturer
suppliers are tied closely to the North American production volumes of the
"Big Three" automakers, aftermarket manufacturers tend to follow different
trends (such as average vehicle age, increased pricing of new cars, total
miles driven per year, environmental laws becoming more stringent and the
quality of new cars and their related warranties).
The primary customers of the automotive aftermarket manufacturers are
national and regional warehouse distributors, large retail chains,
automotive repair chains and the dealer service networks of the original
equipment vehicle manufacturers.
ENGINE MANAGEMENT DIVISION
In the Company's Engine Management Division, replacement parts for
automotive ignition and emission control systems account for about 37% of
the Company's 2000 revenues. These parts include distributor caps and
rotors, electronic ignition control modules, voltage regulators, coils,
switches, sensors and EGR valves. The Company is a basic manufacturer of
many of the ignition parts it markets. These products cover a wide range
of applications, from 30-year old vehicles to current models, both
domestic and imports, including passenger cars and light trucks. The
products also cover certain off-road and marine applications.
SMP offers products at three different price points under a
"good-better-best" concept. It began by offering ignition parts under the
"Standard" brand name that were equal in quality to original equipment
parts installed on new vehicles. Soon afterward, the company pioneered the
concept of offering higher quality parts, sold under the Blue Streak brand
name, that were significantly better than original equipment. These
products were priced at a premium. SMP now offers lower-priced lines under
the Tru-Tech and Modern mechanic brand to compete with certain lower
priced private labels.
Nearly all new vehicles are factory-equipped with computer-controlled
engine management systems to control ignition, emission control and fuel
injection. The on-board computers monitor inputs from many types of
sensors located throughout the vehicle, and control a myriad of valves,
switches and motors to manage engine and vehicle performance. The Company
is a leader in the manufacture and sale of these engine management
component parts, including remanufactured automotive computers. The shift
from the traditional breaker-point ignition systems to electronic ignition
systems started approximately 25 years ago. The shift was a response to
pressures from the government and environmental groups to reduce national
fuel consumption and the level of pollutants from auto exhaust. Electronic
ignition systems enable the engine to improve fuel efficiency and reduce
this level of hazardous fumes in exhaust gases. In 2000, electronic
control modules and electronic voltage regulators comprised approximately
11% of the Company's total ignition and emission sales.
-4-
In 1992 the Company entered into a 50/50 joint venture, Blue Streak
Electronics, Inc., in Canada to rebuild automotive engine management
computers and mass air flow ("MAF") sensors. This joint ventures volume is
sold primarily to SMP and has positioned the Company as a key supplier in
the rapidly growing remanufactured electronics markets. In 1994, the
Company vastly increased its offering of remanufactured computers and
instituted a program to offer slower-moving items by overnight shipment
from its factory. This has enabled the Company's customers to expand their
coverage without increasing inventory investment. The joint venture has
further expanded its product range to include temperature control
computers, anti-lock brake system computers and air bag computers. In 1997
it launched an operation in Europe to serve that market and an operation
in Florida to better serve the United States market in slow-moving items.
In January 1999 Blue Streak Europe acquired Injection Correction UK LTD.
Injection Correction is a remanufacturer of engine computers and has
developed a line of engine diagnostic equipment.
The Company divides its electronic operations between product design and
highly automated manufacturing operations in Orlando, Florida, and
assembly operations, which are performed in assembly plants in Orlando and
Hong Kong.
The Company's sales of sensors, valves, solenoids and related parts have
increased steadily as automobile manufacturers equip their cars with more
complex engine management systems. Stricter government emission laws are
being implemented in various parts of the United States. Specifically, the
most significant law is 1990's Federal Clean Air Act. The I/M 240 section
of the Clean Air Act imposes strict emission control test standards on
existing as well as new vehicles, by means of a dynamometer test. The law
is widely expected to be gradually implemented throughout the United
States. In the future, we expect these new laws to have a positive impact
on sales of our ignition and emission controls parts. However, the timing
of such impact will depend on how quickly government agencies implement
these new procedures at state levels. Vehicles failing these new, more
stringent tests have required repairs utilizing parts sold by the Company.
In 2000, oxygen sensors comprised approximately 8% of total ignition and
emission parts sales.
Wire and cable parts account for about 10% of the Company's 2000 revenues.
These products include ignition (spark plug) wires, battery cables and a
wide range of electrical wire, terminals, connectors and tools for
servicing an automobile's electrical system.
The largest component of this product line is the sale of ignition wire
sets. The Company has historically offered a premium brand of ignition
wires and battery cables, which capitalize on the market's awareness of
the importance of quality. With the growing customer interest in
lower-priced products, the Company introduced a second line of wire and
cable products in 1989. This line has steadily expanded to include import
coverage, and in 1995 was reintroduced under the Tru-Tech brand name.
In 1999 the Company relocated two of its wire and cable operations, one in
Dallas, TX and the other in Bradenton, FL, to a new facility in Reynosa,
Mexico. The Mexican operation focuses on assembly and packaging of the
economy wire sets while the premium line is manufactured at the Company's
facility in Edwardsville, KS.
TEMPERATURE CONTROL DIVISION
The Company manufactures, re-manufactures, and markets a broad line of
replacement parts for automotive temperature control systems (air
conditioning and heating), primarily under the brand names Four Seasons,
Murray, Everco, Factory Air, Trumark, NAPA and Carquest. In recent years
Four Seasons has offered private label packaging to its larger accounts.
The major product groups sold by this division are Compressors, Other Air
Conditioning parts including small motors, fan clutches, dryers,
evaporators, accumulators and hoses, and Heating Parts, including heater
cores and valves. Total Temperature Control sales account for
approximately 44% of the Company's 2000 revenues.
-5-
A major factor in the Temperature Control division's business is the
federal regulation of chlorofluorocarbon refrigerants. United States
legislation phased out production of domestic R-12 refrigerant (e.g.,
DuPont's Freon) completely by the end of 1995. As the law became
effective, vehicle air conditioners needing repair or recharge were retro
fitted to use the new R-134a refrigerant. New vehicles began to use the
new refrigerants in 1993. Installers continue to seek training and
certification in the new technology and the Company's Temperature Control
division has taken the lead in providing this training and certification.
Technological changes necessitate many new parts, as well as new service
equipment. In anticipation of the CFC phaseout, in 1994 the Company
reengineered its compressor line to be able to operate efficiently
utilizing either R-12 or R-134a refrigerants, and remains a leader in
providing retrofit kits for conversion of R-12 systems.
In June 1995, the Company acquired Automotive Dryers, Inc and Air Parts,
Inc. to become a more basic manufacturer of the major product supplied by
the Temperature Control division and to gain access to the lower priced
tier of the market through a new distribution channel. Automotive Dryers,
Inc. manufacturers and distributes receiver filter dryers and accumulators
for mobile air conditioning systems, and is the leading independent
supplier of aftermarket evaporators and accumulators for high performance
cars in the United States. Air Parts, Inc. is a distributor of a limited,
no-frills line of parts for mobile air conditioning systems.
In December 1996, the Company acquired the Hayden Division of The Equion
Corporation, a basic manufacturer of fan clutches and oil coolers. This
acquisition expanded the profitable manufacturing base and greatly
expanded the distribution channels for this key product line.
To further leverage our strong base with retailers, in 1996 the Company
launched a small electric motor manufacturing and assembly facility in
Ontario, Canada. This has enhanced the sale of parts requiring small
motors.
In 1998, the Company exchanged its brake business for the Moog Automotive
temperature control business of Cooper Industries. The Moog acquisition
also expanded the Company's position in the small motor and heater parts
markets. In 1999 it acquired Eaglemotive Corporation, manufacturer of fan
clutches and oil coolers. In consolidating these two businesses with its
existing operations, the Company has closed three manufacturing facilities
and consolidated three distribution sites into one.
Temperature Control strengthened its presence in the international market
by opening a new European distribution center in Strasbourg, France, which
became fully operational in January of 1997. Four Seasons Europe will
assure the rapid availability of the Company's Temperature Control
products throughout Europe, Africa, and the Middle East. A joint venture
with Valeo, SA, one of the largest European automotive equipment
manufacturers was begun in April of 1997 to remanufacture air conditioner
compressors for the developing European market.
In January 2000, the Company completed the purchase of Vehicle Air
Conditioning Parts, located in England, which has subsequently been
renamed "Four Seasons UK, LTD." The purchase will assist in distributing
components for the repair of air conditioning systems. Total acquisition
price was approximately $1.4 million. In addition, in July 2000, the
Company completed the purchase of Automotive Heater Exchange SRL in Massa,
Italy.
-6-
THE COMPETITION
The Company is among the largest manufacturers of replacement parts for
product lines in our two divisions, namely Engine Management and
Temperature Control. The Company competes primarily on the basis of
product quality, price, customer service, product coverage, product
availability, order turn-around time and order fill rate. Management
believes the Company differentiates itself primarily through a
value-added, knowledgeable salesforce; extensive product coverage;
sophisticated parts cataloguing systems; and inventory levels sufficient
to meet the rapid delivery requirements of customers.
Although the Company is a leading independent manufacturer of automotive
replacement parts with strong brand name recognition, the Company faces
substantial competition in all markets that it serves. Certain major
manufacturers of replacement parts are divisions of companies having
greater financial resources than those of SMP. In addition, automobile
manufacturers supply virtually every replacement part sold by the Company,
although these manufacturers generally supply parts only for cars they
produce.
SALES AND DISTRIBUTION
The Company sells its products under proprietary brand names throughout
the United States, Canada, Latin America, Europe and the Middle East.
Products are distributed to warehouse distributors, including jobber
outlets located throughout the United States and Canada. The jobbers sell
the Company's products primarily to professional mechanics and to
consumers who perform their own automobile repairs. In addition, the
Company sells directly to large auto parts retail chains .
The Company has a direct sales force which generates demand for its
products by directing the major portion of its sales effort to its
customers' customers (i.e. jobbers and professional mechanics). The
Company conducts instructional clinics, which teach mechanics how to
diagnose and repair complex systems related to its products. It also
publishes and sells related service manuals and video cassettes and
provides a free technical information bulletin service to registered
mechanics. The Company's Standard Plus Club, a professional service dealer
network comprising approximately 13,000 members, offers technical and
business development support and has a technical service telephone hotline
which provides diagnostics and installation support.
In connection with the Company's sales activities, the Company offers
several types of discounts and or allowances. These discounts and
allowances, the Company believes to be common practice throughout the
aftermarket automotive industry. First, the Company offers cash discounts
for paying invoices in accordance with the discounted terms of the
invoice. Secondly, the Company offers pricing discounts based on volume
and different product lines purchased from the Company. In addition to the
aforementioned discounts, allowances for warranty and overstock returns
are provided.
CUSTOMERS
The Company's customer base is comprised largely of warehouse
distributors, jobber outlets, retailers, other manufacturers and export
customers. In addition to serving our traditional customer base, we have
expanded into the retail market by commencing sales to large retail
chains.
Members of one marketing group represent the Company's largest group of
customers and accounted for approximately 15%, 14% and 13% of consolidated
net sales for the years ended December 31, 2000, 1999 and 1998,
respectively. One individual member of this marketing group accounted for
9%, 9% and 10% of net sales for the years ended December 31, 2000, 1999
and 1998, respectively. The Company's five largest individual customers,
including members of this marketing group, accounted for 33%, 35% and 30%
of net sales in 2000, 1999 and 1998, respectively.
-7-
The loss of one or more of these customers could have a material adverse
impact on the Company's business, financial condition and results of
operations.
BACKLOG
Backlog is maintained at minimal levels by the Company. The Company
primarily fills orders, as received, from inventory and manufactures to
maintain minimum inventory levels.
SEASONALITY
Historically, the Company's operating results have fluctuated by quarter,
with the greatest sales and earnings occurring in the second and third
quarters of the year. It is in these quarters that demand for the
Company's products is typically the highest. It is anticipated that these
quarterly fluctuations will become more pronounced in the future as the
highly seasonal Temperature Control business comprises an increasing
portion of the Company's total revenues.
This seasonality impacts profitability and working capital requirements.
In addition, this seasonality offers significant operational challenges in
the manufacturing and distribution functions. The Company traditionally
offers a pre-season selling program (Spring promotion) to limit these
challenges (e.g. rapid turnaround time of customer orders). The ultimate
consumer (the car owner) wants a repair done correctly and quickly, and
the Company's customers consider order turnaround time critical in
evaluating SMP's performance.
The pre-selling program primarily consists of two types of incentives and
relates to orders placed in the months of January through May. Customers
are offered a choice of an "off-invoice" discount or "dating terms" that
are established whereby longer payment terms are offered on a monthly
basis with final remaining balances due no later than August of that year.
WORKING CAPITAL MANAGEMENT
Since the early 1990s, automotive aftermarket companies have been under
increasing pressure to provide broad SKU coverage in response to parts and
brand proliferation.
Since 1996, the Company has made significant changes to the inventory
management system to reduce inventory requirements. The Company launched a
new forecasting system in our Engine Management division that permitted a
significant reduction in safety stocks. The Engine Management division
also has introduced a new distribution system in the second half of 1999,
which permits pack-to-order systems to be implemented. Such systems permit
the Company to retain slow moving items in a bulk storage state until an
order for a specific brand part is received. This system reduces the
volume of a given part in inventory and reduces the labor requirements to
package and repackage inventory.
In late 1997, we adopted Economic Value Added (EVA (R)) as our primary
financial measurement for evaluating investments and foR determining
incentive compensation. EVA is equal to net operating profits after
economic taxes, less a charge for capital invested in the Company. The
charge for invested capital is equal to the product of the total capital
invested in the Company and the weighted average cost of capital for the
Company's target blend of debt and equity (12% for the Company). The
Company's management places emphasis on improving our financial
performance, achieving operating efficiencies and improving asset
utilization.
-8-
The Company's profitability and working capital requirements have become
more seasonal with the increased sales mix of temperature control
products. Our working capital requirements peak near the end of the second
quarter, as the inventory build-up of air conditioning products is
converted to sales and payments on the receivables associated with such
sales begin to be received. These increased working capital requirements
are funded by borrowings from our lines of credit.
SUPPLIERS
The principal raw materials purchased by the Company consist of brass,
electronic components, fabricated copper (primarily in the form of magnet
and insulated cable), ignition wire, stainless steel coils and rods,
aluminum coils and rods, lead, rubber molding compound, thermo-set and
thermo plastic molding powders. Additionally, the Company uses components
and cores (used parts) in its remanufacturing processes for computerized
electronics and air conditioning compressors.
SMP purchases most materials in the open market, but does have a limited
number of supply agreements on key components. A number of prime suppliers
make these materials available. In the case of cores, the Company obtains
them either from exchanges with customers who return cores when purchasing
remanufactured parts, or through direct purchases from a network of core
brokers. The Company believes there is an adequate supply of primary raw
materials and cores. In order to ensure a consistent, high quality, low
cost supply of key components for each product line, the Company continues
to develop its own sources through internal manufacturing capacity and/or
acquisitions.
PRODUCTION AND ENGINEERING
The Company engineers, tools and manufactures many of the components for
its products, except for certain commonly available small component parts
from outside suppliers. The Company also performs its own plastic and
rubber molding operations, stamping and machining operations, automated
electronics assembly and a wide variety of other processes. In the case of
remanufactured components, it conducts its own teardown, diagnostics, and
rebuilding for computer modules and air conditioning compressors. This
level of vertical integration has been found to provide advantages in
terms of cost, quality and availability. The Company intends to
selectively continue efforts toward further vertical integration to ensure
a consistent quality and supply of low cost components.
In 1990 the Company adopted the "just-in-time" cellular manufacturing
concept as a major program to lower costs and improve efficiency. The main
thrust of cellular manufacturing is the reduction of work-in-process and
finished goods inventory, and its implementation reduces the inefficient
operations that burden many manufacturing processes. To date, the Company
has substantially implemented the just-in-time manufacturing program at
the majority of its manufacturing facilities and plans to convert the
remaining facilities to cellular production over the next few years.
In 2000 the Company has started working on implementing a fully integrated
enterprise resource planning (ERP) system. The implementation is expected
to be fully completed in 2003. At that time, the system will encompass all
aspects of the supply chain, including procurement, manufacturing, sales,
distribution and finance, at all of the Company's facilities. It will also
serve as the foundation upon which the Company can facilitate its
E-commerce strategy.
INSURANCE
The Company maintains basic liability coverage (general, product and
automobile) of $1 million and umbrella liability coverage of $50 million.
Historically, the Company has not experienced casualty losses in any year
in excess of its coverage. Management has no reason to expect this
experience to change, but can offer no assurances that liability losses in
the future will not exceed the Company's coverage.
-9-
EMPLOYEES
The Company employs approximately 3,400 people in the United States,
Mexico, Canada, Puerto Rico, Europe and Hong Kong. Of these, approximately
2,300 are production employees. In addition, the Company has joint venture
operations in Canada and France. The Company now has binding labor
agreements with the workers at all of its unionized facilities.
Edwardsville, Kansas production employees are covered by a United Auto
Workers contract that expires April 1, 2003. Long Island City, New York
production employees are under a contract that expires October 1, 2001.
The Company believes that its facilities are in favorable labor markets
with ready access to adequate numbers of skilled and unskilled workers. In
addition, the Company has joint venture operations in Canada and France.
(D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES
The Company sells its line of products primarily in the United States,
with additional sales through Canada, Latin America, Europe and the Middle
East. The Company's sales are substantially denominated in dollars. The
table below shows the sales by geographic area for the last three years:
(U.S. DOLLARS IN THOUSANDS)
Revenues
------------------------------------------------
2000 1999 1998
---- ---- ----
United States $527,188 $ 582,508 $ 586,044
Canada 26,553 27,331 25,513
Other Foreign 52,709 48,402 37,863
------------------------------------------------
Total $606,450 $ 658,241 $ 649,420
================================================
Export sales originating from the United States for the years ended December 31,
2000, 1999 and 1998 were $13,547,000, $11,774,000 and $14,294,000 respectively,
and have been included in the category, Other Foreign.
-10-
ITEM 2. PROPERTIES
The Company maintains its executive offices and a manufacturing plant at 37-18
Northern Boulevard, Long Island City, NY.
The table below describes the Company's principal physical properties. (For
information with respect to rentals, see note 17 of Notes to Consolidated
Financial Statements).
STATE OR OWNED OR LEASE
LOCATION COUNTRY PRINCIPAL BUSINESS ACTIVITY SQUARE FEET EXP. DATE
-------- ------- --------------------------- ----------- --------------
Corona CA Manufacturing and Distribution 78,200 2007
(Temperature Control)
Ontario CA Vacated-subleased 250,200 2003
Bradenton FL Vacated-available for sublease 52,000 2004
Orlando FL Manufacturing (Ignition) 50,600 2006
Cumming GA Manufacturing (Temperature Control) 47,000 2007
Cumming GA Distribution (Temperature Control) 30,000 2007
Elk Grove Village IL Manufacturing (Temperature Control) 25,080 2002
Bensenville IL Vacated-subleased 14,000 2002
Edwardsville KS Manufacturing and Distribution (Wire) 355,000 Owned
Wilson NC Manufacturing (Ignition) 31,500 2008
Reno NV Distribution (Ignition) 67,000 Owned
Long Island City NY Administration and 318,000 Owned
Manufacturing (Ignition)
Lewisville TX Administration and Distribution 415,000 2009
(Temperature Control)
Dallas TX Vacated-subleased 42,700 2001
Fort Worth TX Manufacturing & Distribution (Temperature 204,000 Owned
Control)
Fort Worth TX Manufacturing and Distribution 103,000 2004
(Temperature Control)
Grapevine TX Manufacturing (Temperature Control) 180,000 Owned
Grapevine TX Storage 5,000 2001
Grapevine TX Storage 83,125 2004
Irving TX Training Center 13,400 2004
Disputanta VA Distribution (Ignition) 411,000 Owned
Rural Retreat VA Vacated-subleased 72,400 2003
Fajardo PR Manufacturing (Ignition) 114,000 2007
Mississauga CANADA Administration and Distribution 128,400 2006
(Ignition, Wire, Temperature Control)
St. Thomas CANADA Manufacturing (Temperature Control) 40,000 Owned
Strasbourg FRANCE Administration and Distribution 16,146 2002
(Temperature Control)
Hong Kong HK Manufacturing (Ignition) 21,534 2003
Reynosa MEXICO Manufacturing (Wire) 62,500 2004
Ashford ENGLAND Vacated - available for sublease 12,750 2013
Litchfield ENGLAND Vacated 4,560 2001
Nottingham ENGLAND Administration and Distribution 29,000 Owned
(Ignition and Wire)
Nottingham ENGLAND Manufacturing (Ignition and Wire) 46,777 Owned
Nottingham ENGLAND Manufacturing (Ignition) 10,000 2012
Sunbury @ Thames ENGLAND Distribution (Ignition, Wire, Temperature 28,095 2007
Control)
Brighton ENGLAND Distribution (Ignition and Wire) 1,600 2002
Massa ITALY Administration and Distribution 13,100 2004
(Temperature Control)
-11-
ITEM 3. LEGAL PROCEEDINGS
On January 28, 2000, a former significant customer of the Company currently
undergoing a Chapter 7 liquidation in U.S. Bankruptcy Court, filed claims
against a number of its former suppliers, including the Company. The claim
against the Company alleges $500,000 (formerly $19,759,000) of preferential
payments in the 90 days prior to the related Chapter 11 bankruptcy petition. In
addition, this former customer seeks $10,500,000 from the Company for a variety
of claims including antitrust, breach of contract, breach of warranty and
conversion. These latter claims arise out of allegations that this customer was
entitled to various discounts, rebates and credits after it filed for
bankruptcy. The Company has purchased insurance with respect to the two actions.
The Company believes that these matters will not have a material effect on the
Company's consolidated financial statements taken as a whole.
The Company is involved in various other litigation and product liability
matters arising in the ordinary course of business. Although the final outcome
of these matters cannot be determined, it is management's opinion that the final
resolution of these matters will not have a material effect on the Company's
consolidated financial statements taken as a whole.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
-12-
PART II
ITEM 5: MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS:
--------------------------------------------------
The Company's Common Stock is traded on the New York Stock Exchange under the
symbol SMP. The number of Shareholders of record of Common Stock on February 28,
2001 was approximately 583, including brokers who hold approximately 7,869,887
shares in street name. The following table shows the high and low sale prices on
the composite tape of, and the dividend paid per share on, the Common Stock
during the periods indicated.
- ----- ------- ------- ------- ---------- ----- ------- ------- ------- ---------
2000 QUARTER HIGH LOW DIVIDEND 1999 QUARTER HIGH LOW DIVIDEND
- ---- ------- ---- --- -------- ---- ------- ---- --- ---------
1st $16.50 $12.63 $ 0.09 1st $25.00 $20.50 $0.08
2nd $15.70 $7.38 $ 0.09 2nd $25.25 $20.44 $0.08
3rd $10.63 $7.94 $ 0.09 3rd $29.62 $19.25 $0.09
4th $8.44 $6.44 $ 0.09 4th $19.62 $15.75 $0.09
- ----- ------- ------- ------- ---------- ----- ------- ------- ------- ---------
The Board of Directors will consider the payment of future dividends on the
basis of earnings, capital requirements and the financial condition of the
Company. The Company's loan agreements limit dividends and distributions by the
Company.
ITEM 6. SELECTED FINANCIAL DATA
Years Ended December 31,
--------------------------------------------------------------------
2000 1999 1998 1997 1996
--------------------------------------------------------------------
(In thousands, except per share data)
Net sales $ 606,450 $ 658,241 $ 649,420 $ 559,823 $ 513,407
Earnings (loss) before extraordinary item $ 10,230 $ 8,685 $ 22,257 $ (34,524) $ 14,658
Net earnings (loss) $ 9,729 $ 7,625 $ 22,257 $ (34,524) $ 14,658
Earnings (loss) before extraordinary item
per share - Basic $ 0.86 $ 0.66 $ 1.70 $ (2.63) $ 1.12
Net earnings (loss) per share - Basic $ 0.82 $ 0.58 $ 1.70 $ (2.63) $ 1.12
Working capital $ 188,091 $ 205,806 $ 178,324 $ 177,426 $ 210,962
Total assets $ 549,396 $ 556,021 $ 521,556 $ 577,137 $ 624,806
Long-term debt (excluding current portion) $ 150,018 $ 163,868 $ 133,749 $ 159,109 $ 172,387
Stockholders' equity $ 194,305 $ 203,518 $ 205,025 $ 183,782 $ 222,576
Stockholders' equity per share $ 16.28 $ 15.57 $ 15.68 $ 14.01 $ 16.95
Cash dividends per common share $ .36 $ .34 $ .16 $ .32 $ .32
-13-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
In 2000, cash used in operations amounted to $1.0 million, compared to cash
provided by operations of $21.0 million in 1999 and $110.4 million in 1998. The
decrease is primarily attributable to an increase in inventories as compared to
1999 and 1998, and a decrease in net earnings as compared to 1998.
In connection with the aforementioned increase in inventories and the related
decrease in inventory turnover (1.8x in 2000 vs. 2.7x in 1999) the reasons are
two-fold. First, with respect to the Temperature Control Segment, and as noted
elsewhere, the related business is highly seasonal with sales of air
conditioning parts being greatest in the second and third quarters of the year.
This seasonality requires the build-up of inventory levels prior to the main
selling season. As discussed in our comparison of the year 2000 vs. 1999,
Temperature Control sales were significantly below the prior year and forecasted
amounts. Although significant reductions were made to Temperature Control
production levels in 2000, the short fall in net sales more than off-set such
reductions. Second, with respect to the Engine Management Segment, in the third
quarter of 2000, Engine Management successfully acquired a new major customer
which required inventory levels to be increased in order to fill the initial
"pipeline" of orders from such customer. In addition, the customer launch for
new orders has extended into 2001, versus the fourth quarter of 2000, as
originally planned. In order to achieve significant inventory reductions and in
order to improve our working capital position, the Company has continued to
monitor production levels in our Temperature Control business and reduced
production and purchasing requirements for the Engine Management business.
Cash used in investing activities was $18.7 million in 2000, as capital
expenditures and payments for acquisitions were partially offset by proceeds
from the sale of property, plant and equipment. For the three years ended
December 31, 2000, 1999 and 1998 capital expenditures totaled $16.7 million,
$14.4 million and $15.3 million, respectively. Cash used by financing activities
was $11.5 million in 2000, as $29.1 million of principal payments of long term
debt and $14.3 million in repurchases of the Company's common stock more than
off-set borrowings of $36.3 million under line of credit arrangements. Dividends
paid for the three years ended December 31, 2000, 1999 and 1998 were $4.3
million, $4.5 million and $2.1 million, respectively. In the first two quarters
of 1998 the Company suspended the dividend due to a deterioration in financial
performance. The dividend was reinstated in the third quarter of 1998 as the
Company's financial results and prospects greatly improved. In the third quarter
of 1999, the Board of Directors increased the regular quarterly dividend from
$.08 to $.09 per share.
On November 30, 1998, the Company entered into a new three year revolving credit
facility with eight lending institutions, providing for a $110,000,000 unsecured
line of credit. The facility allows the Company to select from two interest rate
options, one based on a spread over the prime rate and the other based on a
spread over LIBOR. The spread above each interest rate option is determined by
the Company's ratio of Consolidated Debt to Earnings Before Interest, Taxes,
Depreciation and Amortization. The terms of the revolving credit facility
included, among other provisions, the requirement for a clean-down, maintenance
of defined levels of tangible net worth, various financial performance ratios
and restrictions on capital expenditures, dividend payments, acquisitions and
additional indebtedness. At December 31, 2000 the Company did not comply with
certain covenant requirements for which the Company received waivers and
amendments on March 14, 2001. With the revolving credit facility set to expire
on November 30, 2001, the Company is currently negotiating with potential
lenders to provide for a multi-year revolving credit facility. The Company is
expecting to complete the placement of such a facility by April 30, 2001.
Depending on the specific financing agreement, the Company may be required to
repay and extinguish certain long-term debt obligations, as well as incur
prepayment penalties. In addition, should a new financing agreement not be
entered into prior to April 30, 2001, the Company is obligated to provide
security interests in inventory and accounts receivable to the lending
institutions party to the current revolving credit facility.
-14-
In connection with the Company's 10.22% senior note payable, at December 31,
1999, the Company did not comply with certain covenant requirements. The Company
elected to prepay the balance on March 13, 2000. In connection with this
prepayment, the Company reflected an extraordinary loss of approximately $0.5
million in the first quarter of 2000 related to prepayment penalties and the
write-off of deferred loan costs.
On July 26, 1999, the Company issued 6.75% Convertible Subordinated Debentures
in the aggregate principal amount of $90,000,000. The Debentures are convertible
into approximately 2,796,000 shares of the Company's common stock, and mature on
July 15, 2009. The proceeds from the Convertible Debentures were used to prepay
an 8.6% senior note payable, reduce short term bank borrowings and repurchase a
portion of the Company's common stock.
The Company sells certain accounts receivable to an independent financial
institution, through its wholly-owned subsidiary, SMP Credit Corp., a qualifying
special-purpose corporation. In May 1999 SMP Credit Corp. entered into a three
year agreement whereby it can sell up to a $25 million undivided ownership
interest in a designated pool of certain of these eligible receivables. This
agreement expires in March 2002. The terms of the agreement contain restrictive
covenants, including the maintenance of defined levels of tangible net worth. At
December 31, 2000 and 1999, net accounts receivables amounting to $25,000,000
and $20,000,000, respectively, had been sold under this agreement.
During the years 1998 through 2000, the Board of Directors authorized multiple
repurchase programs under which the Company could repurchase shares of its
common stock. During such years, $26.7 million (in aggregate) of common stock
has been repurchased to meet present and future requirements of the Company's
stock option programs and to fund the Company's ESOP. As of December 31, 2000
the Company has Board authorization to repurchase additional shares at a maximum
cost of $1.7 million.
The Company expects capital expenditures for 2001 to be approximately $18
million, primarily for new machinery and equipment.
The Company's profitability and working capital requirements have become more
seasonal with the increased sales mix of temperature control products. Our
working capital requirements usually peak near the end of the second quarter, as
the inventory build-up of air conditioning products is converted to sales and
payments on the receivables associated with such sales begin to be received.
These increased working capital requirements are funded by borrowings from our
lines of credit.
The Company anticipates that its present sources of funds will continue to be
adequate to meet its near term needs.
COMPARISON OF 2000 TO 1999
Net sales in 2000 were $606.5 million, a decrease of $51.8 million or 7.9% when
compared to 1999. Net sales in Temperature Control decreased by $58.3 million
primarily due to a significant retail customer achieving substantial inventory
reductions; loss of a major retail customer early in the year (contributed
approximately $18.5 million to the overall decrease); and a very cool and wet
summer in the northeast and mid-west. In connection with the lost customer, such
customer was reacquired in the beginning of 2001. With respect to Engine
Management, net sales in 2000 were $297.4 million, an increase of $5.6 million
or 1.9% when compared to 1999. The increase reflects the successful acquisition
of a major new customer in the third quarter of 2000 (contributed approximately
$6.4 million of net sales for the year ended December 31, 2000).
-15-
As discussed in more detail in our comparison of 1999 to 1998, significant
warranty and overstock returns in our Temperature Control Segment adversely
impacted financial performance in 1999. With respect to warranty returns, after
thorough analysis of related warranty claims, the Company has taken specific
actions to reduce compressor warranty returns in 2000 and beyond. The Company
has instituted new counterperson and installer training programs; increased
emphasis on clinics and professional seminars for installers; and tightened
rules for authorized warranty returns (this the Company believes to be the major
improvement, which was previously not required).
Beginning in 2000, it is now a requirement that each and every compressor
returned for warranty credit must have either a service repair work order or a
purchase receipt providing proof that a number of additional auxiliary parts
were replaced concurrently (i.e. accumulator, orifice tube, in-line filter,
condenser) and that an air conditioning system flushing with an approved solvent
was performed. Not performing a twelve step process, that we have defined, will
void the warranty.
With respect to overstock returns, 1999 was adversely impacted by the Company's
decision to accept customer returns in connection with the Company's decision to
discontinue the offering of certain Temperature Control products (discussed in
more detail in our 1999 to 1998 comparison). The year 2000 was absent of any
such significant decision. In addition, during 2000, the Company placed further
restrictions on the amounts that customers can return as overstock returns.
Gross margins, as a percentage of net sales, increased to 31.4% in 2000 from
29.2% in 1999. Temperature Control gross margins were positively impacted by
reduced customer returns and an increase in net pricing. Engine Management
margins were positively impacted by increased sales volume, increases in net
pricing and certain cost reductions activities discussed below.
In connection with cost reduction activities, the year 2000 was benefited by the
consolidation of three distribution centers into one in our Temperature Control
Segment; merging our existing fan clutch operations in our Temperature Control
Segment; and moving two U.S. manufacturing plants to a single facility in Mexico
in the Engine Management Segment. The aforementioned initiatives improved
operating income of Temperature Control and Engine Management Segments by
approximately $2.0 million and $1.5 million, respectively.
Selling, general and administrative expenses (SG&A) decreased approximately $2.8
million in 2000, primarily a result of the cost reduction efforts described in
the previous paragraph and an $1.7 million decrease in bad debt expense as
compared to 1999.
Operating Income increased by $1.1 million, or 3.8% in 2000. Results of the
Engine Management Division, as compared to a year ago, reflected an increase in
operating income of $11.9 million due to higher sales, favorable overhead
absorption and cost reduction activities. Operating Income at the Temperature
Control Division decreased by $5.8 million, primarily due to the net sales
decrease reasons cited above. The Company has strengthened its controls and
procedures for accepting authorized customer warranty returns in 2000, and has
completed the consolidation of its manufacturing and distribution facilities.
These changes have had a favorable impact on 2000 results and are expected to
provide future benefits.
Other income, net, was approximately $.5 million, comparing favorable to other
expense, net of $1.6 million in 1999. This is primarily the result of our 1999
decision to exit the Heat Battery joint venture in Canada, further discussed in
our comparison of 1999 to 1998.
Interest expense increased by approximately $2.1 million to $18 million in 2000,
primarily do to higher average borrowings resulting from elevated inventory
levels and decreased sales.
-16-
Income tax expense decreased from $3.3 million in 1999 to $2.9 million in 2000.
The effective tax rate also decreased from 28% in 1999 to 22% in 2000 due to a
increase in earnings from the Company's Puerto and Hong Kong subsidiaries, which
have lower tax rates than the United States statutory rate.
On March 13, 2000, the Company prepaid the entire outstanding balance of the
10.22% senior note payable in the amount of $14,000,000. In connection with this
prepayment, the Company incurred an extraordinary loss of $501,000 net of taxes,
for prepayment penalties and the write-off of deferred loan costs.
COMPARISON OF 1999 TO 1998
Net sales in 1999 were $658.2 million, an increase of $8.8 million or 1.4% from
the comparable period in 1998. The Company's 1999 results include twelve months
of sales of the temperature control business acquired from Cooper Industries
(Moog Automotive), while 1998 results reflect nine months. Excluding revenues
from acquisitions not present in 1998, sales decreased by $57.4 million or 8.8%,
as compared to 1998. Net Sales in our Temperature Control Division increased by
$30.0 million, however, after giving consideration to acquisitions not present
in 1998, net sales decreased by $21.0 million, or 7.1%, as compared to 1998. The
decrease is primarily a function of a higher level of warranty and overstock
returns; non-recurring costs of approximately $7 million (before income taxes)
associated with the consolidating and balancing of Four Seasons and Cooper
inventories in the field (discussed below); and the negative impact of mild
weather conditions on automotive air conditioning and heating product gross
sales. With respect to our Engine Management Division, net sales decreased by
$34.3 million as compared to 1998. Net sales declines in the Engine Management
Division reflect the continued weakness in the automotive aftermarket and
reduced orders from a major customer, as this customer absorbed inventory
acquired from APS Holding Corporation, a former customer currently in bankruptcy
proceedings.
With respect to the Company and specifically our Temperature Control Segment,
the product that contributes most significantly to defective returns is the air
conditioning compressor. The air conditioning compressor, not unlike electronic
components, is subject to failure when an incomplete or inadequate repair job is
done by the person servicing the automobile. A large percentage of warranty
returns historically have been received by the Company in the fourth quarter of
any given year. This is because of the seasonal nature of the Company's
Temperature Control business. The fourth quarter of 1999 was unusually high in
dollars and was above the Company's estimates. The Company believes that the
major cause of the increase in warranty returns was two fold: (1) an increasing
level of improper installations. In many cases, after subsequent examination, it
was found that an incomplete repair job on the vehicles was performed either by
neglecting to "flush" the air conditioning system of contaminants, failure to
notice defects elsewhere in the system or failure to replace auxiliary parts,
and (2) a mild summer resulting in customers returning compressors as "allegedly
defective" that otherwise may not have been returned.
With respect to overstock returns, approximately $7 million relates to the
Company's decision to discontinue the offering of certain Temperature Control
products, previously sold by Moog Automotive under the brand names of Murray and
Everco (estimated to be 75% of total) and certain other products sold by the
Company under the Four Seasons brand name (estimated to be 25% of remaining
total). With the acquisition of Moog Automotive in 1998, the Company's brand
offerings increased and in turn so did catalogue and inventory challenges.
Traditionally, in these types of situations, the Company has two choices; expand
the product offering in the brands absent such products or to discontinue the
product offerings; the Company decided the latter. In connection with decisions,
such as these, products on the customer's shelves are negatively impacted. The
investment in these products need to be absorbed by either the Company's
customers or by the Company allowing the customers to return such product as an
"overstock return." The Company decided the latter.
-17-
Gross margins, as a percentage of net sales, decreased to 29.2% in 1999 from
31.7% in 1998. On an overall basis, this decline reflects a higher mix of
Temperature Control products with lower average gross margins than Engine
Management products. Temperature Control gross margins were negatively impacted
by the customer returns and non-recurring costs discussed above and by discounts
related to a pre-season selling program which was not present in 1998. Engine
Management margins were negatively impacted by reduced sales volume and the
related unfavorable changes in overhead absorption at certain facilities. As a
result, gross profit on a consolidated basis decreased in 1999 by $13.5 million
as compared to 1998.
Selling, general and administrative expenses (SG&A) increased approximately $0.9
million in 1999, primarily a result of SG&A expenses related to entities
acquired in 1999, not present in 1998 and $1 million related to severance
payments primarily associated with personnel reductions in the corporate
headquarters function. Such reductions are part of the Company's cost reduction
initiatives. As a percentage of net sales, SG&A decreased from 24.9% to 24.7%.
This decrease reflects the Company's continued focus on cost reduction programs
implemented in 1998, the integration of Cooper Industries' temperature control
business into the existing Four Seasons infrastructure and lower compensation
costs related to the Company's EVA incentive compensation program and
retirement/profit sharing program.
Operating Income decreased by $14.4 million, or 32.7% in 1999, primarily due to
the decline in gross profit discussed above. Results of the Engine Management
Division, as compared to a year ago, reflected a reduction in operating income
of $4.8 million due to lower sales and the negative impact on overhead
absorption. The underabsorption of overhead experienced at certain facilities
has also been impacted by the divestiture of the Service Line business, which
shared these facilities. Plans are being considered to reduce these costs in
2000.
Operating Income at the Temperature Control Division decreased by $2.3 million,
or 11.5%, primarily for the reasons cited above. The Company has strengthened
its controls and procedures for accepting authorized customer warranty returns
in 2000, and has completed the consolidation of its manufacturing and
distribution facilities. These changes are expected to have a favorable impact
on 2000 results and beyond.
Other expense, net, decreased from $1.7 million in 1998 to $1.6 million in 1999,
as gains from selling certain administrative and distribution facilities offset
costs incurred in connection with the Company's decision to exit its Heat
Battery joint venture in Canada, Centaur Thermal Systems, Inc. (Centaur).
Through a 50/50 joint venture relationship with a ATS Automation Tooling
Systems, Inc. (a Canadian Corporation) the Company set out a goal to
commercialize sales to the original equipment market; a market to which the
Company had only limited success in supplying products on an aftermarket basis
(dealer accessory only) . Centaur's main business operation was manufacturing
and selling heat batteries for automobiles. Although Centaur had reached some
limited commercial success, as an aftermarket accessory, dating back to 1997,
sales were limited with no large successes going into the fourth quarter of
1999. In the fourth quarter of 1999, it was mutually agreed to between the joint
venture participants, that due to lack of significant commercial success and
recurring losses, the joint venture would close. In connection with this
decision, we recorded an approximate $4.0 million charge relating to writing
down the Company's investment to net realizable value. Beyond our investment,
only insignificant costs were expended. This action is part of the Company's
cost reduction efforts.
Interest expense decreased by approximately $0.5 million to $16.0 million in
1999, primarily due to more favorable borrowing rates.
Income tax expense decreased from $3.6 million in 1998 to $3.3 million in 1999.
However, the effective tax rate increased from 14% in 1998 to 28% in 1999 due to
a decrease in earnings from the Company's Puerto Rico and Hong Kong
subsidiaries, which have lower tax rates than the United States statutory rate.
On July 26, 1999 the Company prepaid the entire outstanding balance of the 8.6%
senior note payable in the amount of $37,143,000. In connection with this
prepayment, the Company incurred an extraordinary loss of $1,060,000, net of
taxes, for prepayment penalties and the write-off of deferred loan costs.
-18-
IMPACT OF INFLATION
Although inflation is not a significant issue, the Company's management believes
it will be able to continue to minimize any adverse effect of inflation on
earnings. This will be achieved principally by cost reduction programs and,
where competitive situations permit, selling price increases.
FUTURE RESULTS OF OPERATIONS
The Company continues to face competitive pressures. In order to sell at
competitive prices while maintaining profit margins, the Company is continuing
to focus on overhead and cost reductions. However, the Company's main focus
currently is to reduce inventory levels requiring reductions in production and
purchasing levels. Gross margins have been, and will continue to be negatively
impacted resulting from underabsorbed overhead.
At December 31, 2000 the Company did not comply with certain covenant
requirements for which the Company received waivers and amendments on March 14,
2001. With the revolving credit facility set to expire on November 30, 2001, the
Company is currently negotiating with potential lenders to provide for a
multi-year revolving credit facility. The Company is expecting to complete the
placement of such a facility by April 30, 2001. Depending on the specific
financing agreement, the Company may be required to repay and extinguish certain
long-term debt obligations, as well as incur prepayment penalties. In addition,
should a new financing agreement not be entered into prior to April 30, 2001,
the Company is obligated to provide security interests in inventory and accounts
receivable to the lending institutions party to the current revolving credit
facility.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998 and June 2000, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" and SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities." These statements
establish accounting and reporting standards requiring that every derivative
instrument be recorded on the balance sheet as either an asset or liability
measured at its fair value. SFAS Nos. 133 and 138 also require that changes in
the derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. SFAS Nos. 133 and 138 are effective for
fiscal years beginning after June 15, 2000. The adoption of SFAS Nos. 133 and
138 will not have an effect on the Company's consolidated financial statements.
SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" was issued in September 2000, and replaces SFAS
No. 125. It revises the standards for accounting for securitizations and other
transfers of financial assets and collateral and requires certain disclosures.
The adoption of SFAS No. 140 will not have an effect on the Company's
consolidated financial statements.
In May 2000, the FASB Emerging Issues Task Force (the "EITF") issued new
guidelines entitle, "Accounting for Certain Sales Incentives" (the
"Guidelines"), which addresses when sales incentives and discounts should be
recognized, as well as where the related revenues and expenses should be
classified in the financial statements. The Guidelines, as amended in November
2000, are effective for the second quarter ending June 30, 2001, and would be
applied retroactively for purposes of comparability. The adoption of these
guidelines is not expected to have a significant effect on the Company's
consolidated financial statements.
-19-
In March 2000, the FASB issued SFAS Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation: An Interpretation of APB
Opinion No. 25" (the "Interpretation"). The Interpretation provides guidance for
issues that have arisen in the application of APB Opinion No. 25, "Accounting
for Stock Issued to Employees" ("Opinion No. 25"). The Interpretation, which
became effective July 1, 2000, applies prospectively to new awards, exchanges of
awards, modifications to outstanding awards and changes in grantee status that
occur on or after July 1, 2000, except for the provisions related to repricings
and the definition of an employee, which apply to awards issued after December
15, 1998. The implementation of the Interpretation by the Company on July 1,
2000 had no impact on the Company's consolidated financial statements.
In December 1999, the staff of the United States Securities and Exchange
Commission issued Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements," as amended by SAB 101A and SAB 101B ("SAB 101"). SAB 101
outlines basic criteria that must be met to recognize revenue and provides
guidelines for disclosure related to revenue recognition policies. SAB 101 was
required to be implemented in the fourth quarter of 2000. The adoption of SAB
101 did not have an effect on the Company's consolidated financial statements.
-20-
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in both foreign currency
exchange rates and interest rates. The Company's exposure to foreign exchange
rate risk is due to certain costs, revenues and borrowings being denominated in
currencies other than a subsidiary's functional currency. Similarly, the Company
is exposed to market risk as the result of changes in interest rates which may
affect the cost of its financing. The Company does not use any significant
derivative instruments, such as foreign exchange forward contracts, foreign
currency options, interest rate swaps and interest rate agreements, to manage
these risks, nor does it hold or issue derivative or other financial instruments
for trading purposes.
EXCHANGE RATE RISK
The Company has exchange rate exposure, primarily, with respect to the Canadian
Dollar and the British Pound. The Company's financial instruments which are
subject to this exposure amount to approximately $6.3 million, which includes
$13.0 million of indebtedness, $10.2 million in accounts payable and $16.9
million of accounts receivable. The potential immediate loss to the Company that
would result from a hypothetical 10% change in foreign currency exchange rates
would not be expected to have a material impact on the earnings or cash flows of
the Company. This sensitivity analysis assumes an unfavorable 10% fluctuation in
both of the exchange rates affecting both of the foreign currencies in which the
indebtedness and the financial instruments described above are denominated and
does not take into account the offsetting effect of such a change on the
Company's foreign-currency denominated revenues.
INTEREST RATE RISK
At December 31, 2000 the Company had approximately $203 million in loans and
financing outstanding, of which approximately $155 million bear interest at
fixed interest rates and approximately $48 million bear interest at variable
rates of interest. The Company invests its excess cash in highly liquid
short-term investments. Due to the fact that the majority of the Company's debt
is at fixed rates with various maturities and due to the short-term nature of
cash investments, the potential loss to the Company over one year, that would
have resulted from a hypothetical, instantaneous and unfavorable change of 100
basis points in the interest rates applicable to financial assets and
liabilities on December 31, 2000 would not be expected to have a material impact
on the earnings or cash flows of the Company. However, due to seasonality with
respect to the Company's short-term financing, which is at variable rates, the
market risk may be higher at various points throughout the year. The Company's
existing three year credit facility provides a $110 million unsecured line of
credit, subject to a borrowing base as defined and consists of two variable
based interest options. Depending upon the level of borrowings, under this
credit facility, which may at times approach $110 million, the effect of a
hypothetical, instantaneous and unfavorable change of 100 basis points in the
interest rate may have a material impact on the earnings or cash flows of the
Company.
-21-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Standard Motor Products, Inc.:
We have audited the consolidated balance sheets of Standard Motor Products, Inc.
and subsidiaries as of December 31, 2000 and 1999, and the related consolidated
statements of earnings, changes in stockholders' equity, and cash flows for each
of the years in the three-year period ended December 31, 2000. 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 auditing standards generally accepted
in the United States of America. 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 Standard Motor
Products, Inc. and subsidiaries as of December 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America.
KPMG LLP
New York, New York
February 23, 2000, except as to the second and third paragraphs of note 7 which
are as of March 14, 2001
F-1
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF EARNINGS
Years Ended December 31,
--------------------------------------------
(Dollars in thousands, except per share amounts) 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------
Net sales $ 606,450 $ 658,241 $ 649,420
Cost of sales 415,965 466,110 443,798
- ---------------------------------------------------------------------------------------------------------
Gross profit $ 190,485 192,131 205,622
Selling, general and administrative expenses 159,821 162,587 161,691
- ---------------------------------------------------------------------------------------------------------
Operating income 30,664 29,544 43,931
Other income (expense), net (Notes 3 and 13) 497 (1,564) (1,678)
Interest expense 18,045 15,951 16,419
- ---------------------------------------------------------------------------------------------------------
Earnings before taxes and extraordinary item 13,116 12,029 25,834
- ---------------------------------------------------------------------------------------------------------
Provision for income taxes (Note 14) 2,886 3,344 3,577
- ---------------------------------------------------------------------------------------------------------
Earnings before extraordinary item 10,230 8,685 22,257
- ---------------------------------------------------------------------------------------------------------
Extraordinary loss on early extinguishment of debt, net of
taxes of $364 and $707 in 2000 and 1999, respectively
(Note 8) 501 1,060 --
- ---------------------------------------------------------------------------------------------------------
Net earnings $ 9,729 $ 7,625 $ 22,257
- ---------------------------------------------------------------------------------------------------------
Net earnings Per Common Share - Basic:
Earnings before extraordinary item $ 0.86 $ 0.66 $ 1.70
Extraordinary loss from early extinguishment of debt (0.04) $ (0.08) --
- ---------------------------------------------------------------------------------------------------------
Net earnings Per Common Share - Basic $ 0.82 $ 0.58 $ 1.70
- ---------------------------------------------------------------------------------------------------------
Net earnings Per Common Share - Diluted:
Earnings before extraordinary item $ 0.85 $ 0.66 $ 1.69
Extraordinary loss from early extinguishment of debt (0.04) $ (0.08) --
- ---------------------------------------------------------------------------------------------------------
Net earnings Per Common Share - Diluted $ 0.81 $ 0.58 $ 1.69
- ---------------------------------------------------------------------------------------------------------
Average number of common shares 11,933,774 13,073,272 13,077,392
Average number of common shares and dilutive
common shares 11,974,341 13,145,743 13,167,842
- ---------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-2
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
-----------------------
(Dollars in thousands) 2000 1999
- -------------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 7,699 $ 40,380
Accounts receivable, less allowances
for discounts and doubtful accounts
of $4,577 and $4,611 in 2000 and 1999,
respectively (Notes 3 and 7) 106,261 119,635
Inventories (Notes 4 and 7) 234,257 188,400
Deferred income taxes (Note 14) 12,482 13,830
Prepaid expenses and other current assets 12,060 12,448
- -------------------------------------------------------------------------------------
Total current assets 372,759 374,693
- -------------------------------------------------------------------------------------
Property, plant and equipment, net (Note 5) 104,536 106,578
- -------------------------------------------------------------------------------------
Goodwill, net 40,685 41,619
- -------------------------------------------------------------------------------------
Other assets (Note 6) 31,416 33,131
- -------------------------------------------------------------------------------------
Total assets $ 549,396 $ 556,021
- -------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable - banks (Note 7) $ 38,930 $ 2,645
Current portion of long-term debt (Note 8) 13,643 28,912
Accounts payable 56,612 41,708
Sundry payables and accrued expenses 49,671 64,826
Accrued customer returns 17,693 22,698
Payroll and commissions 8,119 8,098
- -------------------------------------------------------------------------------------
Total current liabilities 184,668 168,887
- -------------------------------------------------------------------------------------
Long-term debt (Note 8) 150,018 163,868
- -------------------------------------------------------------------------------------
Postretirement benefits other than pensions and
other accrued liabilities (Note 12) 20,405 19,748
- -------------------------------------------------------------------------------------
Commitments and contingencies (Notes 8, 9, and 17)
Stockholders' equity (Notes 8, 9, and 10):
Common Stock - par value $2.00 per share:
Authorized 30,000,000 shares, issued
13,324,476 shares in 2000 and 1999
(including 1,629,297 and 598,154 shares
held as treasury shares in 2000 and 1999,
respectively) 26,649 26,649
Capital in excess of par value 2,541 2,957
Retained earnings 190,253 184,848
Accumulated other comprehensive (loss) income (591) 714
=====================================================================================
218,852 215,168
Less: Treasury stock - at cost 24,547 11,650
- -------------------------------------------------------------------------------------
Total stockholders' equity 194,305 203,518
- -------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 549,396 $ 556,021
- -------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-3
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES
Years Ended December 31,
-----------------------------------
(In thousands) 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------
Net earnings $ 9,729 $ 7,625 $ 22,257
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 18,922 17,230 17,274
(Gain) loss on disposal of property, plant & equipment (99) (2,564) 226
Equity loss (income) from joint ventures (702) 4,118 2,078
Employee stock ownership plan allocation 1,032 1,739 1,665
Tax benefit related to employee benefit plans -- 290 510
(Increase) decrease in deferred income taxes (897) (4,552) 2,992
Extraordinary loss on repayment of debt 865 1,767 --
Loss on sale of business -- -- 1,500
Change in assets and liabilities, net of effects from acquisitions:
(Increase) decrease in accounts receivable, net 14,793 10,782 27,534
(Increase) decrease in inventories (44,666) (5,944) 27,733
(Increase) decrease in current assets 388 (947) 219
(Increase) decrease in other assets 3,811 (1,514) 131
Increase (decrease) in accounts payable 14,413 (10,349) 12,833
Increase (decrease) in sundry payables and accrued expenses (16,724) 1,129 (7,820)
Increase (decrease) in other liabilities (1,818) 2,174 1,244
- -----------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by operating activities (953) 20,984 110,376
- -----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of property, plant and equipment 657 8,420 702
Capital expenditures, net of effects from acquisitions (16,652) (14,423) (15,325)
Payments for acquisitions, net of cash acquired (2,718) (17,381) (13,997)
Proceeds from sale of business -- -- 6,808
- -----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (18,713) (23,384) (21,812)
- -----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayments) under line-of-credit agreements 36,285 (819) (52,333)
Net proceeds from issuance of long-term debt -- 86,568 700
Principal payments of long-term debt (29,119) (54,664) (27,046)
Proceeds from exercise of employee stock options -- 1,830 1,579
Purchase of treasury stock (14,345) (9,765) (2,614)
Dividends paid (4,324) (4,456) (2,092)
- -----------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (11,503) 18,694 (81,806)
- -----------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (1,512) 629 (110)
- -----------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (32,681) 16,923 6,648
Cash and cash equivalents at beginning of year 40,380 23,457 16,809
- -----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 7,699 $ 40,380 $ 23,457
- -----------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 18,943 $ 14,733 $ 17,840
Income taxes $ 2,776 $ 6,205 $ 1,799
- -----------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-4
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands) Years Ended December 31, 2000, 1999, 1998 and 1997
- ---------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED
CAPITAL IN LOAN OTHER
COMMON EXCESS OF TO RETAINED COMPREHENSIVE TREASURY
STOCK PAR VALUE ESOP EARNINGS INCOME (LOSS) STOCK TOTAL
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 $ 26,649 $ 2,763 $ (1,665) $161,514 $ (454) $ (5,025) $183,782
Comprehensive Income:
Net earnings 22,257 22,257
Foreign currency translation adjustment (62) (62)
-------
Total comprehensive income 22,195
Cash dividends paid (2,092) (2,092)
Exercise of employee stock options (322) 1,901 1,579
Tax benefits applicable to
the exercise of employee stock options 510 510
Employee Stock Ownership Plan 1,665 1,665
Purchase of treasury stock (2,614) (2,614)
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 26,649 2,951 -- 181,679 (516) (5,738) 205,025
Comprehensive Income:
Net earnings 7,625 7,625
Foreign currency translation adjustment 1,230 1,230
--------
Total comprehensive income 8,855
Cash dividends paid (4,456) (4,456)
Exercise of employee stock options (381) 2,211 1,830
Tax benefits applicable to
the exercise of employee stock options 290 290
Employee Stock Ownership Plan 97 1,642 1,739
Purchase of treasury stock (9,765) (9,765)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 26,649 2,957 -- 184,848 714 (11,650) 203,518
Comprehensive Income:
Net earnings 9,729 9,729
Foreign currency translation adjustment (1,305) (1,305)
-------
Total comprehensive income 8,424
Cash dividends paid (4,324) (4,324)
Employee Stock Ownership Plan (416) 1,448 1,032
Purchase of treasury stock (14,345) (14,345)
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2000 $ 26,649 $ 2,541 -- $190,253 $ (591) $(24,547) $194,305
- ---------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-5
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
Standard Motor Products, Inc. (the "Company") is engaged in the
manufacture and sale of automotive replacement parts. The consolidated financial
statements include the accounts of the Company and all subsidiaries in which the
Company has more than a 50% equity ownership. The Company's investments in
unconsolidated affiliates are accounted for on the equity method. All
significant intercompany items have been eliminated.
USE OF ESTIMATES
In conformity with generally accepted accounting principles, management
of the Company has made a number of estimates and assumptions relating to the
reporting of assets, liabilities, revenues and expenses, and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements. Some of the more significant estimates include allowances for
doubtful accounts, inventory valuation reserves, depreciation and amortization
of long-lived assets, deferred tax asset valuation allowance and sales return
allowances. Actual results could differ from those estimates.
RECLASSIFICATIONS
Where appropriate, certain amounts in 1999 and 1998 have been
reclassified to conform with the 2000 presentation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
MARKETABLE SECURITIES
At December 31, 2000 and 1999, held-to-maturity securities amounted to
$7,200,000. 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 December 31, 2000, the held-to-maturity
securities mature within three years.
The first-in, first-out method is used in computing realized gains or
losses.
INVENTORIES
Inventories are stated at the lower of cost (determined by means of the
first-in, first-out method) or market.
PROPERTY, PLANT AND EQUIPMENT
These assets are recorded at cost and are depreciated using the
straight-line method of depreciation over the estimated useful lives as follows:
ESTIMATED LIFE
--------------
Buildings and Improvements 10 to 33-1/2 years
Machinery and equipment 7 to 12 years
Tools, dies and auxiliary equipment 3 to 8 years
Furniture and fixtures 3 to 12 years
Leasehold improvements 10 years or life of lease
GOODWILL
Goodwill, which represents the excess of purchase price over fair value
of net assets acquired, is amortized on a straight-line basis over 15 years. The
Company assesses the recoverability of this intangible asset by determining
whether the amortization of the goodwill balance over its remaining life can be
recovered through undiscounted future operating cash flows of the acquired
operation. The assessment of the recoverability of goodwill will be impacted if
estimated future operating cash flows are not achieved. Accumulated amortization
at December 31, 2000 and 1999, was $12,797,000 and $9,293,000, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities are translated into U.S. dollars at year end
exchange rates and revenues and expenses are translated at average exchange
rates during the year. The resulting translation adjustments are recorded as a
separate component of accumulated other comprehensive income (loss).
REVENUE RECOGNITION
The Company recognizes revenues from product sales upon shipment to
customers. The Company estimates and records provisions for cash discounts,
quantity rebates, sales returns and warranties, in the period the sale is
recorded, based upon its prior experience.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The annual net postretirement benefit liability and related expense
under the Company's benefit plans are determined on an actuarial basis. The
Company's current policy is to pay these benefits as they become due. Benefits
are determined primarily based upon employees' length of service.
INCOME TAXES
Income taxes are calculated using the liability method in accordance
with the provisions of Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes."
NET EARNINGS PER COMMON SHARE
The Company presents two calculations of earnings per common share.
"Basic" earnings per common share equals net income divided by weighted average
common shares outstanding during the period. "Diluted" earnings per common share
equals net income divided by the sum of weighted average common shares
outstanding during the period plus potentially dilutive common shares.
Potentially dilutive common shares that are anti-dilutive are excluded from net
income per common share.
F-6
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Following is a reconciliation of the shares used in calculating basic
and dilutive net earnings per common share.
(In thousands) 2000 1999 1998
- --------------------------------------------------------------------------------
Weighted average common shares 11,934 13,073 13,077
Effect of stock options 41 72 90
- --------------------------------------------------------------------------------
Weighted average common
equivalent shares outstanding
assuming dilution 11,974 13,146 13,168
- --------------------------------------------------------------------------------
The average shares listed below were not included in the computation of diluted
earnings per share because to do so would have been anti-dilutive for the
periods presented.
(In thousands) 2000 1999 1998
- --------------------------------------------------------------------------------
Stock options 861 552 --
Convertible debentures 2,796 1,165 --
- --------------------------------------------------------------------------------
STOCK OPTION PLANS
The Company accounts for its stock option plans in accordance with the
provisions of SFAS No. 123 "Accounting for Stock Based Compensation." As
permitted by this statement, the Company has chosen to continue to apply the
intrinsic value-based method of accounting as prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and
related interpretations including FAB interpretation No. 44, "Accounting for
certain transactions involving stock compensation and interpretation of APB No.
25," issued in March 2001. Accordingly, no compensation expense has been
recognized for options granted. As required, the Company provides pro forma net
income and pro forma earnings per share disclosures for stock option grants, as
if the fair value based method defined in SFAS No. 123 had been applied. (See
Note 10)
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of cash
investments and accounts receivable. The Company places its cash investments
with high quality financial institutions and limits the amount of credit
exposure to any one institution. With respect to accounts receivable, such
receivables are primarily from warehouse distributors and major retailers in the
automotive aftermarket industry located in the United States. The Company
performs ongoing credit evaluations of its customers' financial conditions.
Members of one marketing group represent the Company's largest group of
customers and accounted for approximately 15%, 14% and 13%, of consolidated net
sales for the years ended December 31, 2000, 1999 and 1998, respectively. One
individual member of this marketing group accounted for 9%, 9% and 10% of net
sales for the years ended December 31, 2000, 1999 and 1998, respectively. The
Company's five largest individual customers, including members of this marketing
group, accounted for 33%, 35% and 30% of net sales in 2000, 1999, and 1998,
respectively.
2. ACQUISITIONS
In January 2000, the Company completed the purchase of Vehicle Air
Conditioning Parts, located in England, which has subsequently been named "Four
Seasons UK, LTD." In July 2000, the Company completed the purchase of Automotive
Heater Exchange SRL in Massa, Italy. In addition, during 2000, the Company
increased its ownership percentage in Standard Motor Products Holdings Limited,
formerly Intermotor Holdings Limited, from 74.25% to 80.05%. In aggregate,
approximately $2.7 million was incurred in connection with these acquisitions.
Such acquisitions had an immaterial effect on net earnings.
During 1999, the Company acquired and accounted for as a purchase, the
following business: In January 1999, the Company acquired 85% of the stock of
Webcon UK Limited, and, through its UK joint venture Blue Streak Europe Limited,
Webcon's affiliate Injection Correction UK Limited located in Sunbury-on-Thames
England, for approximately $3,500,000. The remaining 15% was acquired in January
2000. The acquisition increased consolidated net sales by approximately $12
million in 1999 and had an immaterial effect on net earnings for the year ended
December 31, 1999.
In February 1999, the Company acquired 100% of the stock of Eaglemotive
Corporation for approximately $12,400,000. The acquisition increased
consolidated net sales by approximately $22 million in 1999 and had an
immaterial effect on net earnings for the year ended December 31, 1999.
In April 1999, the Company acquired Lemark Auto Accessories Limited,
located in Redditch, England, for approximately $1,900,000. The acquisition
increased consolidated net sales by approximately $3 million and had an
immaterial effect on net earnings for the year ended December 31, 1999.
The Company's acquisitions, were funded from cash and short term
borrowings. Assets acquired in all of the acquisitions consisted primarily of
inventory and property, plant and equipment. The purchase prices have been
allocated to the assets acquired and liabilities assumed based on the fair value
at the dates of acquisition. In aggregate, the excess of the purchase price over
the fair value of the net assets acquired during 2000 and 1999 was approximately
$2,566,000 and $5,687,000, respectively. The operating results of these acquired
businesses have been included in the consolidated financial statements from the
date of each respective acquisition.
F-7
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. SALE OF ACCOUNTS RECEIVABLe
The Company sells certain accounts receivable through its wholly-owned
subsidiary, SMP Credit Corp., a qualifying special-purpose corporation. In May
1999 SMP Credit Corp. and an independent financial institution entered into a
three year agreement whereby SMP Credit Corp. can sell up to a $25,000,000
undivided ownership interest in a designated pool of certain of these eligible
receivables. This agreement expires in March 2002. The terms of the agreement
contain restrictive covenants, including the maintenance of defined levels of
tangible net worth. At December 31, 2000 and 1999, net accounts receivables
amounting to $25,000,000 and $20,000,000, respectively, had been sold under this
agreement. These sales were reflected as reductions of trade accounts receivable
and the related fees and discounting expense were recorded as Other Expense.
4. INVENTORIES
December 31,
--------------------
(In thousands) 2000 1999
- --------------------------------------------------------------------------------
Inventories consist of:
Finished goods $165,381 $110,802
Work in process 3,552 5,393
Raw materials 65,324 72,205
- --------------------------------------------------------------------------------
Total inventories $234,257 $188,400
- --------------------------------------------------------------------------------
5. PROPERTY, PLANT AND EQUIPMENT
December 31,
--------------------
(In thousands) 2000 1999
- --------------------------------------------------------------------------------
Property, plant and equipment consist of the following:
Land, buildings and improvements $ 60,435 $ 60,046
Machinery and equipment 101,884 99,223
Tools, dies and auxiliary equipment 12,035 10,691
Furniture and fixtures 33,164 24,783
Leasehold improvements 7,475 6,247
Construction in progress 12,328 12,986
-------- --------
227,321 213,976
Less accumulated depreciation
and amortization 122,785 107,398
- --------------------------------------------------------------------------------
Total property, plant and
equipment, net $104,536 $106,578
- --------------------------------------------------------------------------------
6. OTHER ASSETS
December 31,
--------------------
(In thousands) 2000 1999
- --------------------------------------------------------------------------------
Other assets consist of the following:
Marketable securities $ 7,200 $ 7,200
Unamortized customer supply agreements 2,365 2,838
Equity in joint ventures 1,956 1,439
Deferred income taxes 8,859 6,614
Deferred loan costs 3,864 5,091
Other 7,172 9,949
- --------------------------------------------------------------------------------
Total other assets $31,416 $33,131
- --------------------------------------------------------------------------------
Included in Other is a preferred stock investment in a customer of the
Company. Net sales to such customer amounted to $57,397,000, $58,041,000 and
72,754,000 in 2000, 1999, and 1998, respectively.
7. NOTES PAYABLE - BANKS
On November 30, 1998, the Company entered into a three year revolving
credit facility with eight lending institutions, providing for a $110,000,000
unsecured line of credit, subject to a borrowing base as defined. This facility
consists primarily of two interest rate options, one a function of LIBOR and the
other a function of the prime rate. The spread above each interest rate option
is determined by the Company's ratio of consolidated debt to earnings before
interest, taxes, depreciation and amortization (interest rate at December 31,
2000 was 9.75%). The Company incurred commitment fees of approximately .70% of
the total facility. The terms of the revolving credit facility include, among
other provisions, the requirement for a clean-down, maintenance of defined
levels of tangible net worth, various financial performance ratios and
restrictions on capital expenditures, dividend payments, acquisitions and
additional indebtedness.
At December 31, 2000 the Company did not comply with certain covenant
requirements for which the Company received waivers and amendments dated March
14, 2001.
With the revolving credit facility set to expire on November 30, 2001,
the Company is currently negotiating with potential lenders to provide for a
multi-year revolving credit facility. The Company is expecting to complete the
placement of such a facility by April 30, 2001. Depending on the specific
financing agreement, the Company may be required to repay and extinguish certain
long-term debt, as well as incur prepayment penalties. In addition, should a new
financing agreement not be entered into prior to April 30, 2001, the Company is
obligated to provide security interests in inventory and accounts receivable to
lending institutions party to the current revolving credit facility. There were
$35,000,000 outstanding borrowings under this facility at December 31, 2000.
In addition, a foreign subsidiary of the Company has a revolving credit
facility. The amount of short-term bank borrowings outstanding under that
facility was $3,930,000 and $2,645,000 at December 31, 2000 and 1999,
respectively. The weighted average interest rates on these borrowings at
December 31, 2000 and 1999 were 6.9% and 7.1%, respectively.
F-8
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
8. LONG-TERM DEBT
December 31,
-----------------------
(In thousands) 2000 1999
- --------------------------------------------------------------------------------
Long-term debt consists of:
6.75% convertible subordinated
debentures $ 90,000 $ 90,000
7.56% senior note 62,571 73,000
10.22% senior note -- 14,000
Canadian Credit Facility 5,335 6,811
Other 5,755 8,969
- --------------------------------------------------------------------------------
163,661 192,780
Less current portion 13,643 28,912
- --------------------------------------------------------------------------------
Total non-current portion of
long-term debt $150,018 $163,868
- --------------------------------------------------------------------------------
On July 26, 1999, the Company completed a public offering of
convertible subordinated debentures amounting to $90,000,000. The Convertible
Debentures carry an interest rate of 6.75%, payable semi-annually, and will
mature on July 15, 2009. The Debentures are convertible into approximately
2,796,000 shares of the Company's common stock. The Company may, at its option,
redeem some or all of the Debentures at any time on or after July 15, 2004, for
a redemption price equal to the issuance price plus accrued interest. In
addition, if a change in control, as defined, occurs at the Company, the Company
will be required to make an offer to purchase the convertible debentures at a
purchase price equal to 101% of their aggregate principal amount, plus accrued
interest. The Company incurred fees in relation to the offering of approximately
$3,400,000. Net proceeds from the offering were used to pre-pay a senior note
payable, including prepayment penalties, repurchase a portion of the Company's
common stock and pay down short term bank borrowings.
Under the terms of the 7.56% senior note agreement, the Company is
required to repay the loan in seven equal annual installments beginning in 2000.
The senior note agreement contains restrictive covenants which requires the
maintenance of defined levels of working capital, tangible net worth and
earnings and limit, among other items, investments, indebtedness and
distributions for the payment of dividends and the acquisition of capital stock.
Under the terms of the 10.22% senior note agreement, the Company was
required to repay the loan in four varying annual installments from 2000 through
2003. The Company elected to prepay the balance on March 13, 2000. In connection
with this prepayment, the Company incurred an extraordinary loss for prepayment
penalties and the write-off of deferred loan costs of approximately $501,000,
net of taxes.
Under the terms of a Canadian (CDN) credit agreement, the Company is
required to repay the loan as follows: $2,000,000 CDN in 2001 and a final
payment of $6,000,000 CDN in 2002. Subject to certain restrictions, the Company
can make prepayments without premium. The credit agreement has various interest
rate options which at December 31, 2000 was 5.89%.
Maturities of long-term debt during the five years ending December 31,
2001 through 2005, are $13,643,000, $16,265,000, $11,776,000, $10,789,000 and
$10,504,000, respectively.
9. STOCKHOLDERS' EQUITY
The Company has authority to issue 500,000 shares of preferred stock,
$20 par value, and the Board of Directors is vested with the authority to
establish and designate series of preferred, to fix the number of shares therein
and the variations in relative rights as between series. On December 18, 1995,
the Board of Directors established a new series of preferred shares designated
as Series A Participating Preferred Stock. The number of shares constituting the
Series A Preferred Stock is 30,000. The Series A Preferred Stock is designed to
participate in dividends, ranks senior to the Company's common stock as to
dividends and liquidation rights and has voting rights. Each share of the Series
A Preferred Stock shall entitle the holder to one thousand votes on all matters
submitted to a vote of the stockholders of the Company. No such shares were
outstanding at December 31, 2000.
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 payable 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.
During the years 1998 through 2000, the Board of Directors authorized
multiple repurchase programs under which the Company could repurchase shares of
its common stock. During such years, $26.7 million (in aggregate) of common
stock has been repurchased to meet present and future requirements of the
Company's stock option programs and to fund the Company's ESOP. As of December
31, 2000 the Company has Board authorization to repurchase additional shares at
a maximum cost of $1.7 million.
F-9
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
10. STOCK OPTIONS
The Company has principally two fixed stock-based compensation plans.
Under the 1994 Omnibus Stock Option Plan, as amended, the Company is authorized
to issue $1,500,000 stock options. The options become exercisable over a three
to five year period and expire at the end of five years following the date they
become exercisable. Under the 1996 Independent Directors' Stock Option Plan, the
Company is authorized to issue 50,000 stock options. The options become
exercisable one year after the date of grant and expire at the end of ten years
following the date of grant. At December 31, 2000, in aggregate 1,369,154 shares
of authorized but unissued common stock were reserved for issuance under the
Company's stock option plans.
As permitted under SFAS No. 123, the Company continues to apply the
provisions of APB Opinion No. 25 for stock-based awards granted to employees.
Accordingly, no compensation cost has been recognized for the fixed stock option
plans. Had compensation cost for the Company's stock-based compensation plans
been determined based on the fair value method of SFAS No. 123, the Company's
net earnings per share would have changed to the pro forma amounts as follows:
(Dollars in thousands except per share data) 2000 1999 1998
- --------------------------------------------------------------------------------
Net Earnings As reported $9,729 $7,625 $22,257
Pro forma $8,708 $6,648 $21,610
Basic Earnings As reported $ .82 $ .58 $ 1.70
per share Pro forma $ .73 $ .51 $ 1.65
For pro forma calculations, the fair value of each option grant is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted-average assumptions used for grants in 2000, 1999 and
1998, respectively: expected volatility of 39.1%, 39.5% and 33.5%, expected life
of 4.3 years, dividend yield of 3.8%, 1.8% and 1.5% and risk free interest rate
of 4.6%, 6.6% and 5.2% for issued options.
A summary of the status of the Company's option plans follows:
2000 1999 1998
- ----------------------------------------------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
(Shares in thousands) EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
- ----------------------------------------------------------------------------------------------------------
Outstanding at
beginning of year 808 $20.40 793 $19.58 636 $18.45
Granted 498 10.73 136 23.73 263 21.54
Exercised -- -- (100) 17.83 (91) 17.08
Forfeited (117) 17.78 (21) 23.13 (15) 21.50
- ----------------------------------------------------------------------------------------------------------
Outstanding at
end of year 1,189 $16.60 808 $20.40 793 $19.58
- ----------------------------------------------------------------------------------------------------------
Options exercisable at
end of year 526 431 335
- ----------------------------------------------------------------------------------------------------------
Weighted-average fair value of options
granted during the year $ 2.53 $ 7.97 $ 6.30
OPTIONS OUTSTANDING
- --------------------------------------------------------------------------------
NUMBER WEIGHTED-AVERAGE
RANGE OF OUTSTANDING REMAINING WEIGHTED-AVERAGE
EXERCISE PRICES AT 12/31/00 CONTRACTUAL LIFE (YEARS) EXERCISE PRICE
- --------------------------------------------------------------------------------
$6.56 - $11.29 462 5.9 $9.86
$13.63 - $16.94 177 2.4 $16.25
$20.50 - $24.84 550 4.5 $22.37
OPTIONS EXERCISABLE
- --------------------------------------------------------------------------------
RANGE OF NUMBER EXERCISABLE WEIGHTED-AVERAGE
EXERCISE PRICES AT 12/31/00 EXERCISE PRICE
- --------------------------------------------------------------------------------
$13.63 - $23.84 526 $19.89
11. EMPLOYEE BENEFIT PLANS
The Company has defined benefit pension plan covering certain former
employees of the Company's discontinued Brake business.
The following table represents a reconciliation of the beginning and
ending benefit obligation, the fair value of plan assets and the funded status
of the plan:
December 31,
-----------------------
(In thousands) 2000 1999
- --------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year $ 9,271 $ 9,915
Interest cost 658 651
Actuarial gain (102) (511)
Benefits paid (870) (784)
- --------------------------------------------------------------------------------
Benefit Obligation at End of Year $ 8,957 $ 9,271
- --------------------------------------------------------------------------------
CHANGE IN PLAN ASSETS:
Fair value of plan assets at
beginning of year $ 12,755 $ 11,684
Actual return on plan assets 178 1,855
Benefits paid (870) (784)
- --------------------------------------------------------------------------------
Fair value of plan assets at end of year $ 12,063 12,755
- --------------------------------------------------------------------------------
Funded status $ 3,106 $ 3,484
Unrecognized net actuarial gain (2,654) (3,489)
- --------------------------------------------------------------------------------
Prepaid (accrued) benefit cost $ 452 $ (5)
- --------------------------------------------------------------------------------
December 31,
-----------------------------
Weighted-average assumptions: 2000 1999 1998
- --------------------------------------------------------------------------------
Discount rates 7.50% 7.50% 6.75%
Expected long-term rate
of return on assets 8.00% 8.00% 8.00%
- --------------------------------------------------------------------------------
December 31,
----------------------------
(In thousands) 2000 1999 1998
- --------------------------------------------------------------------------------
COMPONENTS OF NET PERIODIC (BENEFIT) COST:
Service cost $-- $-- $ 97
Interest cost 658 651 665
Return on assets (988) (900) (816)
Amortization of prior service cost -- -- 19
Recognized actuarial (gain)/loss (127) (60) (72)
- --------------------------------------------------------------------------------
Net periodic (benefit) cost $(457) $(309) $(107)
- --------------------------------------------------------------------------------
F-10
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
In addition, the Company participates in several multiemployer plans
which provide defined benefits to substantially all unionized workers. The
Multiemployer Pension Plan Amendments Act of 1980 imposes certain liabilities
upon employers associated with multiemployer plans. The Company has not received
information from the plans' administrators to determine its share, if any, of
unfunded vested benefits.
The Company and certain of its subsidiaries also maintain various
defined contribution plans, which include profit sharing and provide retirement
benefits for other eligible employees. The provisions for retirement expense in
connection with the plans are as follows:
Multi- Defined Contribution
employer Plans and Other Plans
- --------------------------------------------------------------------------------
Years-end December 31,
2000 $344,000 $2,319,000
1999 $348,000 $2,332,000
1998 $302,000 $4,350,000
- --------------------------------------------------------------------------------
In January 1989 the Company established an Employee Stock Ownership
Plan and Trust for employees who are not covered by a collective bargaining
agreement. The ESOP authorized the Trust to purchase up to 1,000,000 shares of
the Company's common stock in the open market. In 1989, the Company entered into
an agreement with a bank authorizing the Company to borrow up to $18,000,000 in
connection with the ESOP. Under this agreement, the Company borrowed
$16,729,000, payable in annual installments through 1998, which was loaned on
the same terms to the ESOP for the purchase of common stock. During 1989, the
ESOP made open market purchases of 1,000,000 shares at an average cost of $16.78
per share. In January 1998, the Company made the final required payment and the
credit agreement has thus been paid in full.
During 1998, 106,900 shares were allocated to the employees, leaving no
unallocated shares in the ESOP trust at December 31, 1998. During 2000 and 1999,
75,000 shares were granted to employees under the terms of the ESOP. These
shares were funded directly from treasury stock.
In fiscal 2000, the Company created an employee benefits trust to which
it contributed 750,000 shares of treasury stock. The company is authorized to
instruct the trustees to distribute such shares toward the satisfaction of the
Company's future obligations under employee benefit plans. The shares held in
trust are not considered outstanding for purposes of calculating earnings per
share until they are committed to be released. The trustees will vote the shares
in accordance with its fiduciary duties. As of December 31, 2000, the Company
had not committed any shares to be released.
The provision for expense in connection with the ESOP was approximately
$1,032,000 in 2000, $1,739,000 in 1999, and $1,665,000 in 1998. The 2000 and
1999 expense was calculated based on the fair market value of the shares
granted. The 1998 expense was calculated by subtracting dividend and interest
income earned by the ESOP, which amounted to approximately $1,000 for the year
ended December 31, 1998 from the principal repayment on the outstanding bank
loan. Interest costs amounted to approximately $56,000 for the year ended
December 31, 1998.
In August 1994 the Company established an unfunded Supplemental
Executive Retirement Plan for key employees of the Company. Under the plan,
these employees may elect to defer a portion of their compensation and, in
addition, the Company may at its discretion make contributions to the plan on
behalf of the employees. Such contributions were $24,000, $98,000 and $87,000 in
2000, 1999 and 1998, respectively.
12. POSTRETIREMENT BENEFITS
The Company provides certain medical and dental care benefits to
eligible retired employees. The Company's current policy is to fund the cost of
the health care plans on a pay-as-you-go basis.
The following table represents a reconciliation of the beginning and
ending benefit obligation and the funded status of the plan.
December 31,
-----------------------
(In thousands) 2000 1999
- --------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year $ 18,369 $ 17,628
Service cost 1,377 1,284
Interest cost 1,152 1,221
Actuarial gain (2,586) (925)
Benefits paid (865) (839)
- --------------------------------------------------------------------------------
Benefit obligation at end of year $ 17,447 $ 18,369
- --------------------------------------------------------------------------------
CHANGE IN PLAN ASSETS:
Funded status $(17,447) $(18,369)
Unrecognized prior service cost 1,038 1,162
Unrecognized net actuarial gain (3,996) (1,683)
- --------------------------------------------------------------------------------
Accrued benefit cost $(20,405) $(18,890)
- --------------------------------------------------------------------------------
WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31,
- --------------------------------------------------------------------------------
2000 1999
- --------------------------------------------------------------------------------
Discount rates 7.50% 7.50%
- --------------------------------------------------------------------------------
For measurement purposes, a 10% and 7% annual rate of increase in the
per capital cost of covered medical benefits was assumed for 2000 and 1999,
respectively. The rate was assumed to decrease gradually to 5% in 2005 and
remain at that level thereafter. A 5.5% annual rate of increase in the per
capita cost of covered dental benefits was assumed for 2000. The rate was
assumed to decrease gradually to 5% in 2001 and remain at that level thereafter.
December 31,
----------------------------------
(In thousands) 2000 1999 1998
- --------------------------------------------------------------------------------
COMPONENTS OF NET PERIODIC (BENEFIT) COST:
Service cost $ 1,377 $ 1,284 $ 975
Interest cos 1,152 1,221 1,082
Amortization of prior service cost 124 124 124
Recognized actuarial gain (275) (8) (78)
- --------------------------------------------------------------------------------
Net periodic benefit cost $ 2,378 $ 2,621 $ 2,103
- --------------------------------------------------------------------------------
F-11
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage-point change in
assumed health care cost trend rates would have the following effects for 2000:
1-Percentage- 1-Percentage-
(In thousands) Point Increase Point Decrease
- --------------------------------------------------------------------------------
Effect on total of service and
interest cost components $ 242 $(199)
Effect on postretirement
benefit obligation $1,311 $(1,107)
- --------------------------------------------------------------------------------
13. OTHER INCOME (EXPENSE), NET
(In thousands) 2000 1999 1998
- --------------------------------------------------------------------------------
Other income (expense), net consists of:
Interest and dividend income $ 1,038 $ 1,637 $ 1,856
(Loss) on sale of accounts
receivable (Note 3) (1,567) (1,281) (1,410)
Income (loss) from joint ventures 702 (4,118) (2,078)
Gain (loss) on disposal of property,
plant and equipment 99 2,564 (226)
Other - net 225 (366) 180
- --------------------------------------------------------------------------------
Total other income (expense), net $ 497 $(1,564) $(1,678)
- --------------------------------------------------------------------------------
In connection with the Company's Heat Battery joint venture in Canada,
in the fourth quarter of 1999, it was mutually agreed to between the joint
venture participants, that due to lack of significant commercial success and
recurring losses, the joint venture would close. In connection with this
decision, the Company recorded an approximate $4.0 million charge relating to
writing down the Company's investment to net realizable value.
Summarized financial information for the joint venture is as follows:
December 31,
-------------------------
(In thousands) 1999 1998
- --------------------------------------------------------------------------------
Current assets $ 500 $ 2,000
Property, plant and equipment, net 4,500 5,000
Other assets 5,500 6,000
- --------------------------------------------------------------------------------
Total Assets $ 10,500 $ 13,000
- --------------------------------------------------------------------------------
Current liabilities $ 2,400 $ 2,800
Total shareholders equity 8,100 10,200
- --------------------------------------------------------------------------------
Total liabilities and equity $ 10,500 $ 13,000
- --------------------------------------------------------------------------------
Net Sales $ 622 $ 1,000
Gross Profit (loss) (1,500) (1,000)
Net Loss $ 2,100 $ 5,600
- --------------------------------------------------------------------------------
14. INCOME TAXES
The income tax provision (benefit) consisted of the following:
2000 1999 1998
- --------------------------------------------------------------------------------
Current:
Domestic $ 1,260 $ 4,376 $(1,879)
Foreign 2,523 3,520 2,467
- --------------------------------------------------------------------------------
Total Current 3,783 7,896 588
- --------------------------------------------------------------------------------
Deferred:
Domestic (1,103) (5,167) 2,931
Foreign 206 615 58
- --------------------------------------------------------------------------------
Total Deferred (897) (4,552) 2,989
- --------------------------------------------------------------------------------
Total Income Tax Provision $ 2,886 $ 3,344 $ 3,577
- --------------------------------------------------------------------------------
The Company has not provided for federal income taxes on the
undistributed income of its foreign subsidiaries because of the availability of
foreign tax credits and/or the Company's intention to permanently reinvest such
undistributed income. Cumulative undistributed earnings of foreign subsidiaries
on which no United States income tax has been provided were $27,452,000 at the
end of 2000, $25,485,000 at the end of 1999, and $12,159,000 at the end of 1998.
Earnings before income taxes for foreign operations (including Puerto
Rico) amounted to approximately $14,000,000, $13,000,000 and $19,000,000 in
2000, 1999 and 1998, respectively. Earnings of the Puerto Rico subsidiary are
not subject to United States income taxes and are partially exempt from Puerto
Rican income taxes under a tax exemption grant expiring on December 31, 2002.
The tax benefits of the exemption, reduced by a minimum tollgate tax instituted
in 1993, amounted to $.23 per share in 2000 (1999 - $.14; 1998 - $.20).
Reconciliations between the U.S. federal income tax rate and the
Company's effective income tax rate as a percentage of earnings from continuing
operations before income taxes are as follows:
2000 1999 1998
- --------------------------------------------------------------------------------
U.S. federal income tax rate 35.0% 35.0% 35.0%
Increase (decrease) in tax rate
resulting from:
State and local income taxes, net
of federal income tax benefit 1.2 2.9 0.7
Non-deductible items, net 0.1 0.8 0.6
Benefits of income subject to taxes at
lower than the U.S. federal rate (14.3) (11.0) (18.3)
(Decrease) increase in valuation
allowance -- -- (4.2)
Other -- 0.1 --
- --------------------------------------------------------------------------------
Effective tax rate 22.0% 27.8% 13.8%
- --------------------------------------------------------------------------------
F-12
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The following is a summary of the components of the net deferred tax
assets and liabilities recognized in the accompanying consolidated balance
sheets:
December 31,
------------------------
(In thousands) 2000 1999
- --------------------------------------------------------------------------------
Deferred tax assets:
Inventories $ 7,639 $ 7,382
Allowance for customer returns 7,332 11,532
Postretirement benefits 8,060 7,463
Allowance for doubtful accounts 1,604 1,766
Accrued salaries and benefits 3,342 2,981
Other 15,458 13,344
-------- --------
43,435 44,468
Valuation allowance (14,171) (14,171)
- --------------------------------------------------------------------------------
Total $ 29,264 $ 30,297
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation $ 4,717 $ 4,344
Promotional costs 915 1,652
Other 2,291 3,857
- --------------------------------------------------------------------------------
Total 7,923 9,853
- --------------------------------------------------------------------------------
Net deferred tax assets $ 21,341 $ 20,444
The Company believes that it is more likely than not that the results
of future operations will generate sufficient taxable income to realize the net
deferred tax assets. However, if the Company is unable to generate sufficient
taxable income in the future through its operations, increases in the valuation
allowance may be required.
15. INDUSTRY SEGMENT AND GEOGRAPHIC DATA
Under the provisions of SFAS No. 131, the company has two reportable
operating segments which are the major product areas of the automotive
aftermarket in which the Company competes. The Engine Management Division
consists primarily of ignition and emission parts; wires and cables; and fuel
system parts. The Temperature Control Division consists primarily of
compressors; other air conditioning parts and heater parts. The Company's two
reportable operating segments are Engine Management and Temperature Control.
Effective with the beginning of fiscal 2000, the Company reclassified certain
European operations from the Engine Management and Temperature control segments
to a separate segment, which currently does not meet the criteria of a
reportable segment. Amounts in 1999 and 1998 have been reclassified to conform
to the 2000 presentation. The accounting policies of each segment are the same
as those described in the summary of significant accounting policies (see Note
1). The following tables contain financial information for each reportable
segment:
For the year ended December 31, 2000
-------------------------------------------------
Engine Temperature Other
(In thousands) Management Control Adjustments Consolidated
- --------------------------------------------------------------------------------
Net Sales $297,386 $267,145 $ 41,919 $606,450
- --------------------------------------------------------------------------------
Depreciation
and amortization 10,293 6,116 2,513 18,922
- --------------------------------------------------------------------------------
Operating income 37,964 11,537 (18,837) 30,664
- --------------------------------------------------------------------------------
Investment in equity
affiliates 105 -- 1,851 1,956
- --------------------------------------------------------------------------------
Capital expenditures 8,914 6,454 1,284 16,652
- --------------------------------------------------------------------------------
Total Assets $265,336 $224,410 $ 59,650 $549,396
- --------------------------------------------------------------------------------
For the year ended December 31, 1999
--------------------------------------------------
Engine Temperature Other
(In thousands) Management Control Adjustments Consolidated
- --------------------------------------------------------------------------------
Net Sales $291,761 $325,449 $ 41,031 $658,241
- --------------------------------------------------------------------------------
Depreciation and
amortization 8,535 5,949 2,746 17,230
- --------------------------------------------------------------------------------
Operating income 26,104 17,289 (13,849) 29,544
- --------------------------------------------------------------------------------
Investment in equity
affiliates 105 272 1,062 1,439
- --------------------------------------------------------------------------------
Capital expenditures 7,118 7,026 279 14,423
- --------------------------------------------------------------------------------
Total Assets $253,346 $212,026 $ 90,649 $556,021
- --------------------------------------------------------------------------------
For the year ended December 31, 1998
-------------------------------------------------
Engine Temperature Other
(In thousands) Management Control Adjustments Consolidated
- --------------------------------------------------------------------------------
Net Sales $326,033 $295,436 $ 27,951 $649,420
- --------------------------------------------------------------------------------
Depreciation and
amortization 8,336 4,193 4,745 17,274
- --------------------------------------------------------------------------------
Operating income 30,912 19,544 (6,525) 43,931
- --------------------------------------------------------------------------------
Investment in equity
affiliates 105 516 4,077 4,698
- --------------------------------------------------------------------------------
Capital expenditures 10,274 4,594 457 15,325
- --------------------------------------------------------------------------------
Total Assets $282,628 $182,107 $ 56,821 $521,556
- --------------------------------------------------------------------------------
Other Adjustments consists of items pertaining to the corporate
headquarters function, as well as Canadian and European business units that do
not meet the criteria of a reportable operating segment under SFAS No. 131.
The following table reconciles the measure of profit used in the
previous disclosure to the Company's consolidated Earnings before taxes and
extraordinary item:
(In thousands) 2000 1999 1998
- --------------------------------------------------------------------------------
Operating income $ 30,664 $ 29,544 $ 43,931
Other income (expense) 497 (1,564) (1,678)
Interest expense 18,045 15,951 16,419
- --------------------------------------------------------------------------------
Earnings
before taxes and
extraordinary item $ 13,116 $ 12,029 $ 25,834
- --------------------------------------------------------------------------------
F-13
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
GEOGRAPHIC INFORMATION FOR THE YEAR ENDED DECEMBER 31,
Revenues
---------------------------------------
(In thousands) 2000 1999 1998
- --------------------------------------------------------------------------------
United States $527,188 $582,508 $586,044
Canada 26,553 27,331 25,513
Other Foreign 52,709 48,402 37,863
- --------------------------------------------------------------------------------
Total $606,450 $658,241 $649,420
- --------------------------------------------------------------------------------
Long Lived Assets
---------------------------------------
(In thousands) 2000 1999 1998
- --------------------------------------------------------------------------------
United States $122,825 $125,766 $125,627
Canada 3,511 3,897 3,719
Other Foreign 18,885 18,534 19,290
- --------------------------------------------------------------------------------
Total $145,221 $148,197 $148,636
- --------------------------------------------------------------------------------
Revenues are attributed to countries based upon the location of the
customer.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value:
CASH AND CASH EQUIVALENTS
The carrying amount approximates fair value because of the short
maturity of those instruments.
MARKETABLE SECURITIES
The fair values of investments are estimated based on quoted market
prices for these or similar instruments.
LONG-TERM DEBT
The fair value of the Company's long-term debt is estimated based on
the current rates offered to the Company for debt of the same remaining
maturities.
The estimated fair values of the Company's financial instruments are as
follows:
DECEMBER 31, 2000 CARRYING FAIR
(In thousands) AMOUNT VALUE
- --------------------------------------------------------------------------------
Cash and cash equivalents $ 7,699 $ 7,699
Marketable securities 7,200 7,200
Long-term debt $(163,661) $(107,174)
- --------------------------------------------------------------------------------
DECEMBER 31, 1999 CARRYING FAIR)
(In thousands) AMOUNT VALUE
- --------------------------------------------------------------------------------
Cash and cash equivalents $ 40,380 $ 40,380
Marketable securities 7,200 7,200
Long-term debt $(192,780) $(158,768)
- --------------------------------------------------------------------------------
17. COMMITMENTS AND CONTINGENCIES
Total rent expense for the three years ended December 31, 2000 was as
follows:
REAL
(In thousands) TOTAL ESTATE OTHER
- --------------------------------------------------------------------------------
2000 $9,797 $7,217 $2,580
1999 8,176 5,124 3,052
1998 $5,747 $3,619 $2,128
- --------------------------------------------------------------------------------
At December 31, 2000, the Company is obligated to make minimum rental
payments (exclusive of real estate taxes and certain other charges) through
2011, under operating leases for real estate, as follows:
(In thousands)
- --------------------------------------------------------------------------------
2001 $6,409 2004 3,756
2002 5,957 2005 3,305
2003 5,184 Thereafter 8,821
- --------------------------------------------------------------------------------
$33,432
- --------------------------------------------------------------------------------
The Company also has lease and sub-lease agreements in place for
various properties under its control. The Company expects to receive operating
lease payments from lessees during the five years ending December 31, 2001
through 2005 of $1,775,000, $1,723,000, $1,006,000, $580,000 and $571,000,
respectively.
At December 31, 2000, the Company had outstanding letters of credit
aggregating approximately $1,429,000. The contract amount of the letters of
credit is a reasonable estimate of their value as the value for each is fixed
over the life of the commitment.
On January 28, 2000, a former significant customer of the Company
currently undergoing a Chapter 7 liquidation in U.S. Bankruptcy Court, filed
claims against a number of its former suppliers, including the Company. The
claim against the Company alleges $500,000 (formerly $19,759,000) of
preferential payments in the 90 days prior to the related bankruptcy petition.
In addition, this former customer seeks $10,500,000 from the Company for a
variety of claims including antitrust, breach of contract, breach of warranty
and conversion. These latter claims arise out of allegations that this customer
was entitled to various discounts, rebates and credits after it filed for
bankruptcy. The Company has purchased insurance with respect to the two actions.
The Company believes this matter will not have a material effect on the
Company's consolidated financial statements taken as a whole.
The Company is involved in various other litigation and product
liability matters arising in the ordinary course of business. Although the final
outcome of these matters cannot be determined, it is management's opinion that
the final resolution of these matters will not have a material effect on the
Company's financial statements taken as a whole.
F-14
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
18. QUARTERLY FINANCIAL DATA (UNAUDITED)
- -------------------------------------------------------------------------------------
(In thousands, except per share amounts)
Dec. 31, Sept. 30, June 30, Mar. 31,
Quarter Ended 2000 2000 2000 2000
- -------------------------------------------------------------------------------------
Net Sales $ 116,587 $ 166,819 $ 176,285 $ 146,759
- -------------------------------------------------------------------------------------
Gross Profit 33,586 51,914 57,666 47,319
- -------------------------------------------------------------------------------------
Earnings (loss) before
extraordinary item (2,049) 4,858 7,036 385
Extraordinary item -
loss on early extinguishment
of debt, net of taxes -- -- -- 501
- -------------------------------------------------------------------------------------
Net Earnings (loss) $ (2,049) $ 4,858 $ 7,036 $ (116)
- -------------------------------------------------------------------------------------
Net Earnings (loss)
before extraordinary item
per common share:
Basic $ (.18) $ 0.41 $ 0.59 $ 0.03
Diluted $ (.18) $ 0.40 $ 0.54 $ 0.03
- -------------------------------------------------------------------------------------
Net Earnings (loss)
per common share:
Basic $ (.18) $ 0.41 $ 0.59 ($ 0.01)
Diluted $ (.18) $ 0.40 $ 0.54 ($ 0.01)
- -------------------------------------------------------------------------------------
(In thousands, except per share amounts)
Dec. 31, Sept. 30, June 30, Mar. 31,
Quarter Ended 1999 1999 1999 1999
- ----------------------------------------------------------------------------------------------------
Net Sales $ 85,979 $189,759 $ 205,714 $ 176,789
- ----------------------------------------------------------------------------------------------------
Gross Profit 11,690 62,132 65,089 53,220
- ----------------------------------------------------------------------------------------------------
Earnings (loss) before
extraordinary item (17,569) 10,573 12,033 3,648
- ----------------------------------------------------------------------------------------------------
Extraordinary item -
loss on early extinguishment
of debt, net of taxes -- 1,060 -- --
- ----------------------------------------------------------------------------------------------------
Net Earnings (loss) $ (17,569) $ 9,513 $ 12,033 $ 3,648
Net Earnings (loss) before extraordinary item
per common share:
Basic $ (1.36) $ 0.80 $ 0.92 $ 0.28
Diluted $ (1.36) $ 0.74 $ 0.91 $ 0.28
- ----------------------------------------------------------------------------------------------------
Net Earnings (loss)
per common share:
Basic $ (1.36) $ 0.72 $ 0.92 $ 0.28
Diluted $ (1.36) $ 0.67 $ 0.91 $ 0.28
- ----------------------------------------------------------------------------------------------------
The fourth quarter of 1999 reflects several unfavorable year-end
adjustments including a $7,000,000 increase in sales returns expense related to
the Company's decision to accept certain inventory returns related to
discontinued product offerings in the Temperature Control business, $4,000,000
related to the Company's decision to close a joint venture in Canada; and
$1,000,000 related to severance payments associated with certain personnel
reductions in the Corporate headquarters function.
F-15
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Information relating to Directors and Executive Officers is set
forth in the 2001 Annual Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
Information relating to Management Remuneration and Transactions
is set forth in the 2001 Annual Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information relating to Security Ownership of Certain Beneficial
Owners and Management is set forth in the 2001 Annual Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information relating to Certain Relationships and Related
Transactions is set forth under "Certain Transactions" in the
2001 Annual Proxy Statement.
-22-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K.
14(A). DOCUMENT LIST
(1) Among the responses to this Item 14(a) are the following
financial statements.
Independent Auditors' Report
Financial Statements:
Consolidated Balance Sheets - December 31, 2000 and
1999
Consolidated Statements of Earnings
- Years Ended December 31, 2000, 1999 and 1998
Consolidated Statements of Changes in Stockholders'
Equity - Years Ended December 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows - -
Years Ended December 31, 2000, 1999 and 1998
Notes to Consolidated Financial Statements
(2) The following financial schedule for the years 2000, 1999
and 1998 is submitted herewith:
SCHEDULE
II. Valuation and Qualifying Accounts
All other schedules are omitted because they are not
required, not applicable or the information is
included in the financial statements or notes
thereto.
(3) Exhibits required by Item 601 of Securities and
Exchange Commission Regulations S-K: See "Exhibit
Index" beginning on page 24.
14(B). REPORTS ON FORM 8-K
No reports on Form 8-K were required to be filed for the
three-months ended December 31, 2000.
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STANDARD MOTOR PRODUCTS, INC.
EXHIBIT INDEX
EXHIBIT EXHIBIT PAGE
NUMBER NUMBER
2.1 Asset Exchange Agreement dated as of March 28, 1998 among SMP *
Motor Products, LTD., Standard Motor Products, Inc., Cooper Industries
(Canada) Inc., Moog Automotive Company and Moog Automotive
Products, Inc., filed as an Exhibit of Company's report on
Form 8-K dated March 28, 1998.
3.1 By-laws filed as an Exhibit of Company's annual report on *
Form 10-K for the year ended December 31, 1986.
3.2 Restated Certificate of Incorporation, dated July 31, 1990, filed as *
an Exhibit of Company's Annual Report on Form 10-K for the year
ended December 31, 1990.
3.3 Restated Articles of Incorporation, dated February 15, 1996, filed as *
an Exhibit of Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996.
*
3.4 Restated By-Laws dated May 23, 1996, filed as an Exhibit of the
Company's annual report on Form 10-K for the year ended December 31,
1996.
4.1 Form of Subordinated Debenture Indenture (including form of convertible *
debenture) (filed as Exhibit 4.1 to Amendment No. 2 to the
Registration Statement on Form S-3 (333-79177) filed on
July 20, 1999.)
4.2 Registration of Preferred Share Purchase Rights filed on Form 8-A on *
February 29, 1996.
10.1 Note Purchase Agreement dated October 15, 1989 between the *
Company and the American United Life Insurance Company, the
General American Life Insurance Company, the Jefferson-Pilot
Life Insurance Company, the Ohio National Life Insurance
Company, the Crown Insurance Company, the Great-West Life
Assurance Company, the Guarantee Mutual Life Company, the
Security Mutual Life Insurance Company of Lincoln, Nebraska,
and the Woodmen Accident and Life Company filed as an
Exhibit of Company's Annual Report on Form 10-K for the year
ended December 31, 1989.
STANDARD MOTOR PRODUCTS, INC.
EXHIBIT INDEX
EXHIBIT EXHIBIT PAGE
NUMBER NUMBER
10.2 Note Agreement of November 15, 1992 between the Company and *
Kemper Investors Life Insurance Company, Federal Kemper Life
Assurance Company, Lumbermens Mutual Casualty Company, Fidelity Life
Association, American Motorists Insurance Company, American
Manufacturers Mutual Insurance Company, Allstate Life Insurance
Company, Teachers Insurance & Annuity Association of America, and
Phoenix Home Life Mutual Insurance Company filed as an Exhibit of
Company's Annual Report on Form 10-K for the year ended December 31,
1992.
10.3 Employee Stock Ownership Plan and Trust dated January 1, 1989 *
filed as an Exhibit of Company's Annual Report on Form 10-K for the
year ended December 31, 1989.
10.4 Supplemental Executive Retirement Plan dated August 15, 1994 *
filed as an Exhibit of Company's Annual Report on Form 10-K for the
year ended December 31, 1994.
10.5 1994 Omnibus Stock Option Plan of Standard Motor Products, Inc. *
is filed as Exhibit 4.1 of the Company's Registration Statement
on Form S-8 (33-58655).
10.6 Note Purchase Agreement dated December 1, 1995 between *
the Company and Metropolitan Life Insurance Company, the
Travelers Insurance Company Connecticut Life Insurance Company,
CIGNA Property and Casualty Insurance Company, Life
Insurance Company of North America and American United Life
Insurance Company filed as an Exhibit of Company's Annual Report
on Form 10-K for the year ended December 31, 1995.
10.7 Credit Agreement of May 1, 1996 between the Company and *
Canadian Imperial Bank of Commerce ("CIBC") filed as an
Exhibit of Company's annual report on Form 10-K for the year
ended December 31, 1996.
10.8 Letter Agreement dated September 25, 1996 amending the *
Note Agreement between the Company and Canadian Imperial
Bank of Commerce ("CIBC") filed as an Exhibit of Company's
annual report on Form 10-K for the year ended December 31, 1996.
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STANDARD MOTOR PRODUCTS, INC.
EXHIBIT INDEX
EXHIBIT EXHIBIT PAGE
NUMBER NUMBER
10.9 Letter Agreement of September 30, 1996 amending the *
Note Agreement between the Company and Mutual Life Insurance
Company, Allstate Life Insurance Company, Teachers Insurance
and Annuity Association of America and Phoenix Home Life
Mutual Insurance Company dated November 15, 1992 filed as an
Exhibit of Company's annual report on Form 10-K for the year
ended December 31, 1996.
10.10 Letter Agreement of November 22, 1996 amending the *
Note Agreement between the Company and Mutual Life
Insurance Company, Allstate Life Insurance Company,
Teachers Insurance and Annuity Association of America, and
Phoenix Home Life Mutual Insurance Company with amendment
dated September 30, 1996, dated November 15, 1992, filed as an Exhibit
of Company's annual report on Form 10-K for the year ended
December 31, 1996.
10.11 1996 Independent Outside Directors Stock Option Plan of Standard *
Motors Products, Inc. filed as an Exhibit of Company's annual
report on Form 10-K for the year ended December 31, 1996.
10.12 Letter Agreement of March 27, 1998 amending the Note Agreement *
between the Company and the American United Life Insurance Company, the
Great American Life Insurance Company, the Jefferson- Pilot Life
Insurance Company, the Ohio National Life Insurance Company, the Crown
Insurance Company, the Great-West Life Insurance Company, the Security
Mutual Life Insurance Company, Woodmen Accident and Life Insurance
Company and Nomura Holding America, Inc. dated October 15, 1989, filed
as an Exhibit of Company's report on Form 8-K dated March 28, 1998.
10.13 Letter Agreement of March 27, 1998 amending the Note Agreement *
between the Company and Kemper Investors Life Insurance Company,
Federal Kemper Life Assurance Company, Lumbermens Mutual Casualty
Company, Fidelity Life Association, American Motorists Insurance
Company, American Manufacturers Mutual Insurance Company, Allstate Life
Insurance Company, Teachers Insurance & Annuity Association of America,
and Phoenix Home Life Mutual Insurance Company dated November 15, 1992,
filed as an Exhibit of Company's report on Form 8-K dated March 28,
1998.
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STANDARD MOTOR PRODUCTS, INC.
EXHIBIT INDEX
EXHIBIT EXHIBIT PAGE
NUMBER NUMBER
10.14 Letter Agreement of March 27, 1998 amending the Note Agreement *
between the Company and Metropolitan Life Insurance Company, the
Travelers Insurance Company, Connecticut Life Insurance Company, CIGNA
Property and Casualty Insurance Company, Life Insurance Company of
North America and American United Life Insurance Company dated December
1, 1995, filed as an Exhibit of Company's report on Form 8-K dated
March 28, 1998.
10.15 1994 Omnibus Stock Option Plan of Standard Motor Products, Inc., as *
amended, is filed as Exhibit 4.1 to the Company's Registration
Statement on Form S-8 (333-51565), dated May 1, 1998.
10.16 Credit Agreement dated November 30, 1998 among Standard Motor *
Products, Inc., Lenders party thereto, The Chase Manhattan Bank
and Canadian Imperial Bank of Commerce.
10.17 Form of First Amendment, dated as of December 8, 1998 *
to the Credit Agreement, dated as of November 30, 1998,
among Standard Motor Products, Inc., Lenders party thereto,
The Chase Manhattan Bank and Canadian Imperial Bank of
Commerce (filed as Exhibit 10.14 to Amendment No. 2
to the Registration Statement on Form S-3 (333-79177)
filed on July 20, 1999.)
10.18 Form of Second Amendment, dated as of July 16, 1999 to *
the Credit Agreement, dated as of November 30, 1998,
among Standard Motor Products, Inc., Lenders party thereto,
The Chase Manhattan Bank and Canadian Imperial Bank of
Commerce (filed as Exhibit 10.15 to Amendment No. 2
to the Registration Statement on Form S-3 (333-79177)
filed on July 20, 1999.)
10.19 Credit Agreement of March 31, 1998, as amended & *
restated as at November 30, 1998, between the Registrant
and Canadian Imperial Bank of Commerce ("CIBC") filed as
Exhibit 10.16 on Form 10-Q for the quarter ended June 30, 1999.
10.20 Form of Third Amendment dated October 18, 1999 to the Credit *
Agreement dated November 30, 1998 among Standard Motor
Products, Inc., Lenders party thereto, The Chase Manhattan Bank
and Canadian Imperial Bank of Commerce.
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STANDARD MOTOR PRODUCTS, INC.
EXHIBIT INDEX
EXHIBIT EXHIBIT PAGE
NUMBER NUMBER
10.21 Form of Fourth Amendment dated March 3, 2000 to the Credit *
Agreement dated November 30, 1998 among Standard Motor
Products, Inc., Lenders party thereto, The Chase Manhattan Bank
and Canadian Imperial Bank of Commerce.
10.22 Form of Fifth Amendment dated August 11, 2000 to the Credit 10.22
Agreement dated November 30, 1998 among Standard Motor Products,
Inc., Lenders party thereto, The Chase Manhattan Bank and Canadian
Imperial Bank of Commerce is included as Exhibit 10.22
10.23 Form of Sixth Amendment dated March 14, 2001 to the Credit 10.23
Agreement dated November 30, 1998 among Standard Motor Products,
Inc., Lenders party thereto, The Chase Manhattan Bank and Canadian
Imperial Bank of Commerce is included as Exhibit 10.23
21. List of Subsidiaries of Standard Motor Products, Inc. 32
23 Consent of Independent Auditors KPMG LLP 33
* Incorporated by reference.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
STANDARD MOTOR PRODUCTS, INC.
(COMPANY)
LAWRENCE I. SILLS
-----------------------------------------------------
Lawrence I. Sills
Chairman, Chief Executive Officer and Director
JAMES J. BURKE
-----------------------------
James J. Burke
Vice President, Finance; Chief Financial Officer
New York, New York
March 29, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company and in
the Capacities and on the dates indicated:
March 29, 2001 LAWRENCE I. SILLS
------------------------
Lawrence I. Sills
Chairman, Chief Executive Officer and Director
March 29, 2001 ARTHUR D. DAVIS
------------------------
Arthur D. Davis, Vice Chairman and Director
March 29, 2001 MARILYN F. CRAGIN
-------------------------
Marilyn F. Cragin, Director
March 29, 2001 SUSAN F. DAVIS
--------------
Susan F. Davis, Director
March 29, 2001 ARTHUR S. SILLS
Arthur S. Sills, Director
March 29, 2001 PETER J. SILLS
--------------
Peter J. Sills, Director
-28-
The Board of Directors and Stockholders
Standard Motor Products, Inc.:
Under date of February 23, 2001, except as to the second and third paragraphs of
note 7, which are as of March 14, 2001, we reported on the consolidated balance
sheets of Standard Motor Products, Inc. and subsidiaries as of December 31,
2000, and 1999, and the related consolidated statements of earnings, changes in
stockholders' equity, and cash flows for each of the years in the three year
period ended December 31, 2000, as contained in the annual report on Form 10-K
for the year 2000. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related consolidated
financial statement schedule as listed in the accompanying index. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG LLP
New York, New York
February 23, 2001, except as to the second and third paragraphs of note 7 which
are as of March 14, 2001
-29-
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
Schedule II - Valuation and Qualifying Accounts
Years ended December 31, 2000, 1999 and 1998
ADDITIONS
BALANCE AT CHARGED TO CHARGED
BEGINNING COSTS AND TO OTHER BALANCE AT
DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS END OF YEAR
----------- ------- -------- -------- ---------- -----------
YEAR ENDED DECEMBER 31, 2000:
Allowance for doubtful accounts $ 2,619,000 $ 699,000 $ - $ 339,000 $ 2,979,000
Allowance for discounts 1,992,000 -- 394,000 1,598,000
---------------- --------------- -------------- -------------- ---------------
$ 4,611,000 $ 699,000 $ - $ 733,000 $ 4,577,000
================ =============== ============== ============== ===============
Allowance for sales returns $ 22,698,000 $ 100,403,000 $ 0 $ 105,408,000 $ 17,693,000
================ =============== ============== ============== ===============
Allowance for inventory valuation $ 13,766,000 $ 3,165,000 $ 0 $ 4,001,000 $ 12,930,000
================ =============== ============== ============== ===============
YEAR ENDED DECEMBER 31, 1999:
Allowance for doubtful accounts $ 2,664,000 $ 2,387,000 $ 611,000 $ 3,043,000 $ 2,619,000
Allowance for discounts 1,861,000 -- 131,000 -- 1,992,000
---------------- --------------- -------------- -------------- ---------------
$ 4,525,000 $ 2,387,000 $ 742,000 $ 3,043,000 $ 4,611,000
================ =============== ============== ============== ===============
Allowance for sales returns $ 16,296,000 $ 115,749,000 $ 0 $ 109,347,000 $ 22,698,000
================ =============== ============== ============== ===============
Allowance for inventory valuation $ 18,221,000 $ 1,911,000 $ 599,000 $ 6,965,000 $ 13,766,000
================ =============== ============== ============== ===============
YEAR ENDED DECEMBER 31, 1998:
Allowance for doubtful accounts $ 16,187,000 $ 3,811,000 $ 31,000 $ 17,365,000 $ 2,664,000
Allowance for discounts 2,467,000 -- -- 606,000 1,861,000
---------------- --------------- -------------- -------------- ---------------
$ 18,654,000 $ 3,811,000 $ 31,000 $ 17,971,000 $ 4,525,000
================ =============== ============== ============== ===============
Allowance for sales returns $ 17,955,000 $ 93,299,000 $ 3,436,000 $ 98,394,000 $ 16,296,000
================ =============== ============== ============== ===============
Allowance for inventory valuation $ 17,178,000 $ 1,556,000 $ 1,754,000 $ 2,267,000 $ 18,221,000
================ =============== ============== ============== ===============
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