FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the Quarterly Period Ended JUNE 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
Commission file number 1-4743
STANDARD MOTOR PRODUCTS, INC.
-----------------------------
(Exact name of registrant as specified in its charter)
NEW YORK 11-1362020
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
37-18 NORTHERN BLVD., LONG ISLAND CITY, N.Y. 11101
- -------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(718) 392-0200
--------------
(Registrant's telephone number, including area code)
NONE
----
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
DATE CLASS SHARES OUTSTANDING
---- ----- ------------------
JULY 31, 1998 COMMON STOCK 13,103,050
<PAGE>
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL AND OTHER INFORMATION
JUNE 30, 1998
PART 1 - FINANCIAL INFORMATION
------------------------------
ITEM 1 PAGE NO.
- ------ --------
CONSOLIDATED BALANCE SHEETS
June 30, 1998 and December 31, 1997 3 & 4
CONSOLIDATED STATEMENTS OF EARNINGS AND
RETAINED EARNINGS for the Three Months and
and Six Months ended June 30, 1998 and 1997 5
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME for the Three Months and Six Months ended
June 30, 1998 and 1997 5
CONSOLIDATED STATEMENTS OF CASH FLOWS for the
Six Months ended June 30, 1998 and 1997 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7 - 10
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 11 - 13
PART II - OTHER INFORMATION
---------------------------
ITEM 4
- ------
Submission of matters to a vote of Security Holders 14
ITEM 6
Exhibits and Reports on Form 8-K 14 - 16
Signature 16
2
<PAGE>
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except for shares and per share data)
ASSETS
------
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
- --------------------------------------------------------------------------------
(Unaudited)
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 2,811 $ 16,809
Accounts and notes receivable, net of
allowance for doubtful accounts and
discounts of $21,862 (1997 - $18,654) 214,958 151,026
Inventories (Note 2) 177,150 189,006
Deferred income taxes 22,005 22,005
Prepaid expenses and other current assets 11,475 11,630
-------- --------
Total current assets 428,399 390,476
Property, plant and equipment, net of
accumulated depreciation (Note 3) 122,719 126,024
Goodwill, net 29,484 30,674
Other assets (Note 8) 25,237 29,963
-------- --------
Total assets $605,839 $577,137
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except for shares and per share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
- --------------------------------------------------------------------------------
(Unaudited)
Current liabilities:
<S> <C> <C>
Notes payable $ 42,958 $ 55,897
Current portion of long-term debt (Note 6) 17,958 24,373
Accounts payable 47,842 36,421
Sundry payables and accrued expenses 77,524 67,224
Accrued customer returns 26,462 17,955
Payroll and commissions 12,694 11,180
--------- ---------
Total current liabilities 225,438 213,050
Long-term debt (Note 6) 161,956 159,109
Deferred income taxes 3,176 3,124
Postretirement benefits other than pensions
and other accrued liabilities 18,358 18,436
--------- ---------
Total liabilities 408,928 393,719
Minority interest (281) (364)
Commitments and contingencies (Note 6)
Stockholders' equity (Notes 5 and 6) :
Common stock-par value $2.00 per share
Authorized - 30,000,000 shares
Issued - 13,324,476 shares in 1998 and 1997
(including 209,726 and 247,781 shares held as
treasury shares in 1998 and 1997, respectively) 26,649 26,649
Capital in excess of par value 2,604 2,763
Loan to Employee Stock Ownership Plan (ESOP) 0 (1,665)
Retained earnings 172,806 161,514
Accumulated other comprehensive income (loss) (589) (454)
--------- ---------
201,470 188,807
Less: treasury stock-at cost 4,278 5,025
--------- ---------
Total stockholders' equity 197,192 183,782
--------- ---------
Total liabilities and stockholders' equity $ 605,839 $ 577,137
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS
(Dollars in thousands, except for shares and per share data)
(Unaudited)
<TABLE>
<CAPTION>
For Three Months Ended For Six Months Ended
June 30, June 30,
--------------------------- ----------------------------
1998 1997 1998 1997
------------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 208,766 $ 163,181 $ 334,811 $ 300,915
Cost of sales 145,694 109,723 227,949 203,877
------------- ------------ ------------ ------------
Gross profit 63,072 53,458 106,862 97,038
Selling, general and administrative expenses 48,175 42,790 85,680 82,725
------------- ------------ ------------ ------------
Operating income 14,897 10,668 21,182 14,313
Other income (expense) - net 115 61 347 594
------------- ------------ ------------ ------------
15,012 10,729 21,529 14,907
Interest expense 5,105 3,797 8,480 7,328
------------- ------------ ------------ ------------
Earnings from continuing operations
before taxes and minority interest 9,907 6,932 13,049 7,579
Minority interest (17) (32) (135) (178)
Income taxes (Note 4) 1,251 1,329 1,622 1,971
------------- ------------ ------------ ------------
Earnings from continuing operations 8,639 5,571 11,292 5,430
------------- ------------ ------------ ------------
Income from operations of
discontinued Brake Group 0 1,180 0 832
Income (loss) from operations
of discontinued Service Line Group 0 (231) 0 (678)
------------- ------------ ------------ ------------
Earnings from discontinued operations 0 949 0 154
------------- ------------ ------------ ------------
Net earnings 8,639 6,520 11,292 5,584
------------- ------------ ------------ ------------
Retained earnings beginning of period 164,167 198,249 161,514 200,235
------------- ------------ ------------ ------------
172,806 204,769 172,806 205,819
Less: cash dividends for period 0 1,051 0 2,101
------------- ------------ ------------ ------------
Retained earnings at end of period $ 172,806 $ 203,718 $ 172,806 $ 203,718
============ ============ ============ ============
PER COMMON SHARE DATA:
Net Earnings from continuing operations:
Basic $ 0.66 $ 0.42 $ 0.86 $ 0.41
Diluted 0.65 0.42 0.86 0.41
Net earnings:
Basic $ 0.66 $ 0.50 $ 0.86 $ 0.43
Diluted 0.65 0.50 0.86 0.43
Dividends $ 0.00 $ 0.08 $ 0.00 $ 0.16
Average number of common shares 13,102,469 13,131,367 13,089,653 13,130,918
------------- ------------ ---------- ------------
Average number of common and
dilutive common shares 13,211,406 13,131,431 13,168,063 13,132,173
------------- ------------ ---------- ------------
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net earnings $ 8,639 $ 6,520 $ 11,292 $ 5,584
Other Comprehensive income (loss), net of tax
Foreign currency translation adjustment 99 5 (135) 76
------------- ------------ ---------- ------------
Comprehensive income $ 8,738 $ 6,525 $ 11,157 $ 5,660
============ ============ =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For Six Months Ended
June 30,
-----------------------
1998 1997
----------- ----------
Cash flows from operating activities:
<S> <C> <C>
Net earnings $ 11,292 $ 5,584
Adjustments to reconcile net earnings to net
cash used in operating activities:
Depreciation and amortization 9,722 9,658
(Gain) Loss on disposal of property,
plant & equipment 55 (22)
Change in assets and liabilities,
net of effects from acquisitions:
(Increase) decrease in accounts receivable, net (65,181) (86,107)
(Increase) decrease in inventories 36,584 17,468
(Increase) decrease in other assets 2,824 3,627
Increase (decrease) in accounts payable 11,870 19,132
Increase (decrease) in other current assets
and liabilities 98 (3,162)
Increase (decrease) in sundry payable and
accrued expenses 16,463 8,514
-------- --------
Net cash provided by (used in)
operating activities: 23,727 (25,308)
-------- --------
Cash flows from investing activities
Capital expenditures, net of effects
from acquisitions (8,422) (8,657)
Payments for acquisitions, net of cash acquired -- (6,157)
-------- --------
Net cash (used in) investing activities (8,422) (14,814)
-------- --------
Cash flows from financing activities:
Net borrowings (payments) under
line-of-credit agreements (29,068) 38,257
Proceeds from issuance of long-term debt 700 1,997
Principal payments of long-term debt (3,610) (2,270)
Reduction of loan to ESOP 1,665 1,680
Proceeds from exercise of employee
stock options 1,040 --
Purchase of treasury stock (451) --
Dividends paid -- (2,101)
-------- --------
Net cash provided by (used in)
financing activities (29,724) 37,563
-------- --------
Effect of exchange rate changes on cash 421 (17)
-------- --------
Net (decrease) in cash (13,998) (2,576)
Cash and cash equivalents at beginning of period 16,809 4,666
-------- --------
Cash and cash equivalents at end of period $ 2,811 $ 2,090
======== ========
Non-cash investing and financing activities:
Assets and liabilities assumed in
exchange transaction:
Current assets $ 64,350 $ --
Property, plant and equipment 24,200 --
Current liabilities (8,300) --
-------- --------
Net assets assumed 80,250 --
-------- --------
Assets and liabilities divested in
exchange transaction:
Current assets 40,195 --
Property, plant and equipment, net 27,169 --
Other assets 1,181 --
Current liabilities (4,314) --
-------- --------
Net assets divested 64,231 --
-------- --------
Notes payable (excess net fair value
of assets assumed) $ 16,019 $ --
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 7,292 $ 10,355
Income taxes $ (246) $ 1,837
</TABLE>
<PAGE>
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
The accompanying unaudited financial information should be read in conjunction
with the consolidated financial statements, including the notes thereto, for the
year ended December 31, 1997.
The consolidated financial statements include the accounts of the Company and
all domestic and international companies 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 inter-company items have
been eliminated.
Management acknowledges its responsibility for the preparation of the
accompanying interim consolidated financial statements which reflect all
adjustments considered necessary, in the opinion of management, for a fair
statement of the results of interim periods presented. The results of operations
for the interim periods are not necessarily indicative of the results of
operations for the entire year.
Where appropriate, certain amounts in 1997 have been reclassified to conform
with the 1998 presentation. Such reclassifications include amounts related to
the disposals of the Brake and Service Line businesses which have been accounted
for as discontinued operations and accordingly, their operating results are
segregated and reported separately in the accompanying consolidated statements
of operations.
The Company has adopted the provisions of SFAS No. 130, "Reporting Comprehensive
Income", which became effective in January of 1998. This statement requires the
presentation of comprehensive income and its components in financial statements.
Accordingly, the Consolidated Statements of Comprehensive Income have been
included in the accompanying financial statements.
NOTE 2
INVENTORIES
-----------
(Dollars in thousands)
June 30, December 31,
1998 1997
(Unaudited)
Finished goods $ 117,692 $ 124,224
Work in process 4,789 5,392
Raw materials 54,669 59,390
-------------- -------------
Total inventories $ 177,150 $ 189,006
============== =============
NOTE 3
PROPERTY, PLANT AND EQUIPMENT
-----------------------------
(Dollars in thousands)
June 30, December 31,
1998 1997
(Unaudited)
Land, buildings and improvements $ 74,172 $ 75,752
Machinery and equipment 89,060 104,178
Tools, dies and auxiliary equipment 10,342 10,029
Furniture and fixtures 21,416 22,841
Leasehold improvements 5,429 7,213
Construction in progress 15,538 8,840
------------- -------------
215,957 228,853
Less accumulated depreciation 93,238 102,829
------------- -------------
Total property, plant and equipment - net $ 122,719 $ 126,024
============= =============
7
<PAGE>
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4
The provision for taxes is less than the normal statutory rate primarily because
earnings of a subsidiary operating in Puerto Rico, amounting to approximately
$4,109,000 and $4,514,000 for the six months ended June 30, 1998 and 1997 and
$2,137,000 and $1,981,000 for the three months ended June 30, 1998 and 1997,
respectively, are exempt from United States income taxes and are partially
exempt from Puerto Rican income taxes.
In addition, the Company adjusted the valuation allowance applied against the
net deferred tax assets and realized certain tax benefits which reduced the
effective tax rate in 1998. In assessing the valuation allowance , the Company
reviewed the results of operations for the six months ended June 30, 1998 and
estimates regarding the future operations and the Company's ability to generate
sufficient taxable income to realize the net deferred tax assets. The Company
will continue to evaluate its projected future results of operations and
consequently, further adjustments to the valuation allowance may be required.
NOTE 5
At June 30, 1998, the Company has principally two fixed stock-based compensation
plans. Under these plans, stock options to purchase common stock of the Company
are issued to certain employees and directors. These options become exercisable
and expire at various dates and have an exercise price, which is typically equal
to or greater than the stocks fair market value at the date of grant.
At June 30, 1998, 1,002,000 shares of authorized but unissued common stock were
reserved for issuance under the Company's stock option plans, of which 838,500
shares were subject to outstanding options. These outstanding options, were
comprised of 636,000 options granted in prior years, plus 263,000 options
granted during the six months ended June 30, 1998, less 58,000 exercised and
2,500 forfeited during the six months ended June 30, 1998.
At June 30, 1998, 278,000 outstanding options were vested. The unvested
outstanding options, in the amount of 560,500 will become vested in stages from
September 1998 through September 2001.
NOTE 6
LONG-TERM DEBT
--------------
(Dollars in thousands)
June 30, December 31,
1998 1997
------------- -------------
(Unaudited)
Long-term debt consists of:
8.06% senior note payable $ 73,000 $ 73,000
9.10% senior note payable 46,429 46,429
10.72% senior note payable 30,000 30,000
Credit Facility ($20 Million Canadian) 13,616 13,935
5.0% Notes Payable - AlliedSignal 5,000 5,000
5.53% - 10.08% Intermotor Facilities 7,044 7,524
6.38% - 9.06% Purchase Obligations 3,167 4,840
Credit Agreement --- 1,674
Other 1,658 1,080
------------- -------------
179,914 183,482
Less current portion 17,958 24,373
------------- -------------
Total noncurrent portion of
long-term debt $ 161,956 $ 159,109
============= =============
8
<PAGE>
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 (CONTINUED)
Under the terms of the $73,000,000 senior note agreement, the Company is
required to repay the loan in seven equal annual installments beginning in 2000.
Under the terms of the $46,429,000 senior note agreement, the Company is
required to repay the remaining loan in five equal annual installments from 1998
through 2002.
Under the terms of the $30,000,000 senior note agreement, the Company is
required to repay the loan in seven varying annual installments beginning in
1998. Subject to certain restrictions, the Company may make prepayments without
premium beginning in 1998.
Under the terms of the $20,000,000 CDN credit agreement, the Company is required
to repay the loan with three equal annual installments of $2,000,000 CDN
beginning in 1999 with a final payment of $14,000,000 CDN due in 2002. Subject
to certain restrictions, the Company can make prepayments without premium. The
credit agreement has various interest rate options.
Under the terms of the unsecured note agreement with AlliedSignal the $5,000,000
is to be repaid in two equal annual installments of $2,000,000 beginning in
September 1998 with a final payment of $1,000,000 due in 2000.
The Company acquired a 73.4% equity interest in Intermotor Holdings Limited
during 1996. Intermotor has various existing credit facilities which mature by
2003.
The purchase obligations, due under agreements with municipalities, mature in
annual installments through 2003, and are secured by certain property, plant,
and equipment.
Certain loan agreements contain restrictive covenants which require the
maintenance, on a quarterly basis, of minimum working capital and tangible net
worth, as defined, and limit, among other items, investments, indebtedness and
distributions for the payment of dividends and the acquisition of capital stock.
NOTE 7
In October 1997, the Company signed a letter of intent to sell its Service Line
business to R & B, Inc. This anticipated transaction will involve the sale of
selected assets of Champ and APS Service Line and the Pik-A-Nut Fastener Line.
Closing on the sale, which is anticipated in the third quarter of 1998, is
subject to reaching a definitive Purchase Agreement.
On March 28, 1998, the Company completed the exchange of its Brake business for
the Moog Automotive Temperature Control business of Cooper Industries.
During the year ended December 31, 1997 the Company provided for estimated
losses on the disposal of these discontinued operations, which included
anticipated operating losses prior to disposal.
These businesses have been classified as discontinued operations in the
accompanying financial statements and as such the operating losses associated
with these businesses have been applied against the provisions for operating
losses established during 1997.
The accompanying financial statements reflect the disposition of selected assets
of the Brake business and the acquisition of selected assets of Moog Automotive
Temperature Control business. These amounts have been estimated based upon
currently available information. Such information may be revised at a later date
based upon the completion of post closing audits by both parties.
9
<PAGE>
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 (CONTINUED)
In July 1998, the Company signed a letter of intent to sell the assets of its
fuel pump business to The Pierce Company, Inc., a leading manufacturer of fuel
pumps. This anticipated transaction which is targeted for closing in August
1998, is subject to reaching a definitive Purchase Agreement. During the second
quarter ended June 30, 1998 the Company recorded a $1,500,000 provision to write
down the assets of the fuel pump business to their estimated net realizable
value. This provision is anticipated to fully provide for any loss incurred from
the divestiture and consequently it is not expected that any additional loss
will be incurred upon the completion of the sale.
NOTE 8
Other assets primarily consist of deferred new customer acquisition costs,
certain held-to-maturity securities, unamortized customer supply agreements,
equity in joint ventures and pension assets.
NOTE 9
Following is a reconciliation of the shares used in calculating basic and
dilutive net income per common share:
For Three Months Ended For Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
Weighted average common
shares outstanding ....... 13,102,469 13,131,367 13,089,653 13,130,918
Effect of dilutive
securities - options ..... 108,937 64 78,410 1,255
---------- ---------- ---------- ----------
Weighted average common
equivalent shares
outstanding assuming
dilution ................. 13,211,406 13,131,431 13,168,063 13,132,173
========== ========== ========== ==========
10
<PAGE>
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
As of June 30, 1998 the Company had stockholders' equity of $197,192,000 and
working capital of $202,961,000. The Company expects capital expenditures for
the remainder of 1998 to be approximately $8,000,000, primarily for new
machinery and equipment.
In the first and second quarters of 1998 the Company suspended the dividend due
to losses incurred in the fourth quarter of 1997. The Company has decided to
reinstate the dividend in the third quarter of 1998. The declaration of a
dividend in succeeding quarters of 1998 and beyond will be reviewed based upon
achieving targeted financial results.
On March 30, 1998, the Company entered into an agreement for a new $108,500,000
short term bank facility consisting of two segments, Segment A $78,500,000 and
Segment B $30,000,000. Segment B in the amount of $30,000,000 was retired in
July 1998, due to the Company's favorable cash flow over the first half of 1998
and was no longer necessary to finance the Company's current needs. The
remaining Segment A, in the amount of $78,500,000, which has been syndicated to
a group of six banks expires on November 30, 1998. Prior to the expiration of
this facility, it is the Company's intent to enter into a multi-year committed
bank credit facility to meet its working capital requirements and to raise
additional capital to fund the future growth opportunities of the Company.
In March 1998, the Company completed the exchange of its Brake business for the
Moog Automotive Temperature Control business of Cooper Industries. The fair
value of the assets received in this exchange exceeded the fair value of the
assets disposed of by approximately $16,019,000 and results in an equal amount
payable to Cooper Industries. This amount will be paid as the Company sells the
acquired finished goods inventory to third parties. Cooper Industries will
retain a security interest in approximately $15,000,000 of such inventory,
however, such interest will decrease as payments under the note are made. During
the three months ended June 30, 1998, the Company made repayments of $1,248,000
in accordance with the note agreement. The remaining balance is expected to be
repaid over the balance of 1998 with final payment due by March 28, 1999.
In addition, the Company received short-term financing of $22,500,000 from
Cooper Industries in April 1998 to fund part of the operations of the acquired
temperature control business for the first year. The repayment of the
$22,500,000 note payable is based on a proportional paydown formula related to
the banks paydown, under the new credit facility, with any outstanding balance
payable in July 1999.
In July 1998, the Company signed a letter of intent to sell its fuel pump
business to The Pierce Company, Inc. This anticipated transaction, which is
targeted for closing in August 1998, is a direct result of the Company's
continued efforts to concentrate on its core businesses. The fuel pump business
did not contribute to the Company's long term goals and as a result the capital
invested in this business will be redeployed into projects with higher potential
returns and which support the Company's long term goals. A provision for loss on
disposal, in the amount of $1,500,000, established during the second quarter of
1998, is anticipated to fully provide for any potential loss from the
divestiture.
During the six and twelve month periods ended June 30, 1998 total debt after the
inclusion of $16,019,000 in new debt from the exchange with Cooper Industries,
decreased by $16,507,000 and $78,771,000 respectively. These decreases were
primarily the result of the effective management of all assets, which includes
reductions in inventory, accounts receivable and reductions in various new
customer acquisition costs, as compared to a year ago. Inventories decreased by
approximately $11,856,000 during the six month period and by $38,854,000 as
compared to a year ago. Excluding the effects of the exchange with Cooper
Industries, which resulted in an additional $25,100,000 in inventory, these
reductions would have been
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
- -------------------------------------------
more significant. Accounts receivable increased for the six month period by
$63,932,000 primarily due to increased volume of the Climate Control Group and
the seasonal nature of some of its dating programs. However as compared to June
30, 1997, accounts receivable decreased by approximately $32,205,000. Deferred
new customer acquisition costs decreased by approximately $10,100,000 as
compared with the period ended June 30, 1997. This reduction is a direct result
of the Company's decision to concentrate on its two core businesses, namely
Engine Management and Temperature Control. These reductions, coupled with the
Company's continued implementation of various cost reduction programs, have
resulted in significant decreases in total debt.
INTERIM RESULTS OF OPERATIONS
- -----------------------------
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 1998 TO THE THREE MONTHS ENDED
- ----------------------------------------------------------------------------
JUNE 30, 1997.
- --------------
Net sales for the current quarter increased by $45,585,000 or 27.9% from the
comparable period in 1997. The acquisition of the Cooper Industries temperature
control business added approximately $35,000,000 in sales for the quarter.
Excluding these sales, revenues for the quarter increased by approximately
$10,600,000 or 6.5%. This increase is primarily due to the strong demand for our
temperature control products.
The gross margin percentage for the second quarter of 1998 of 30.2% was below
the 32.8% achieved during the second quarter of 1997. This decline was primarily
the result of higher manufacturing costs of Cooper Industries temperature
control business which was acquired on March 28, 1998. The impact of these
higher costs is expected to be eliminated later this year as the acquired
inventory is depleted and manufacturing synergies develop.
Selling, general and administrative (S.G. & A.) expenses increased by $5,385,000
over the comparable quarter in 1997, however, as a percent of net sales
decreased by 3.1 percentage points (23.1% versus 26.2% in 1997). These
fluctuations represent reductions in most areas of our businesses, however, the
reductions were offset by additional costs incurred to support the Cooper
Industries temperature control business. As the year progresses it is
anticipated that the full effect of our cost reduction program will take effect
and that synergies will begin to develop as we consolidate the Moog Automotive
Temperature Control business within our existing temperature control business.
In addition, results of operations for the second quarter of 1998 were
unfavorably impacted by $3,910,000 in expenses related to the write down of
various assets of the Company's OE, China and fuel pump businesses. The write
down of approximately $2,410,000 for the Company's OE and China ventures was
determined to be necessary based upon the Company's continued analysis of the
commercial viability of these projects. As previously discussed a provision of
$1,500,000 was established in relation to the planned divestiture of the fuel
pump business. This provision is anticipated to provide for any potential loss
on the divestiture of that business.
Interest expense increased by $1,308,000 as compared to 1997, due primarily to
higher average interest rates for the period as compared to 1997.
Taxes based upon earnings were comparable to 1997, however, the effective tax
rate declined as the result of adjustments to the Company's valuation allowance
against net deferred tax assets. (See note 4).
In accordance with the accounting treatment as discontinued operations, the
operating losses associated with the discontinued businesses for the three and
six month periods ended June 30, 1998 were applied against provisions,
established in the prior year, and as such did not affect net income for the
periods ended June 30, 1998.
12
<PAGE>
INTERIM RESULTS OF OPERATIONS
- -----------------------------
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1998 TO THE SIX MONTHS ENDED
- ------------------------------------------------------------------------
JUNE 30, 1997
- -------------
Net sales for the six month period increased by $33,896,000 or 11.3% from the
comparable period in 1997. The acquisition of Cooper Industries temperature
control business added approximately $35,000,000 in sales for the six month
period. Excluding these sales, total revenues remained relatively flat with
increases in temperature control being offset by slight decreases in other
divisions.
The gross margin percentage for the six month period in 1998 of 31.9% was
slightly below the 32.2% achieved during the comparable period in 1997. This
decrease was primarily the result of higher manufacturing costs of Cooper
Industries temperature control business which was acquired on March 28, 1998.
The impact of these higher costs is expected to be eliminated later this year as
the acquired inventory is depleted and manufacturing synergies develop.
Selling, general and administrative (S.G. & A) expenses increased by $ 2,955,000
over the comparable period in 1997, however, as a percentage of net sales, S.G.
& A decreased by 1.9 percentage points (25.6% versus 27.5% in 1997). This
fluctuation represents reductions in most areas of our businesses as the effects
of our cost reduction programs are beginning to be realized. The reductions are
more noteworthy, considering that the Company incurred additional costs to
support the Cooper Industries temperature control business. It is expected that
as various synergies develop these costs will be further reduced.
In addition, results of operations for the six month period ended June 1998 were
unfavorably impacted by $3,910,000 in expenses related to the write down of
various assets of the Company's OE, China and fuel pump businesses. The write
down of approximately $2,410,000 for the Company's OE and China ventures was
determined to be necessary based upon the Company's continued analysis of the
commercial viability of these projects. As previously discussed, a provision of
$1,500,000 was established in relation to the planned divestiture of the fuel
pump business. This provision is anticipated to provide for any potential loss
on the divestiture of that business.
Interest expense increased by $1,152,000, as compared to 1997, due primarily to
higher average interest rates for the period.
Taxes based upon earnings were comparable to 1997, however, the effective tax
rate declined as the result of adjustments to the Company's valuation allowance
against net deferred tax assets. (See note 4).
In accordance with the accounting treatment as discontinued operations, the
operating losses associated with the discontinued businesses for the three and
six month periods ended June 30, 1998 were applied against provisions,
established in the prior year, and as such did not affect net income for the
periods ended June 30, 1998.
RECENTLY ISSUED ACCOUNTING STANDARDS
- ------------------------------------
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income", which became effective in
January of 1998. This statement requires the presentation of comprehensive
income and its components in financial statements. Accordingly, the Consolidated
Statements of Comprehensive Income have been included in the accompanying
financial statements.
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information". This statement requires the disclosure of information relating to
each of the Company's key operating segments, as well as, various geographic and
major customer data. In accordance with the provisions of the statement interim
financial statements in the initial year of application need not present these
disclosures and as such the accompanying financial statements do not reflect the
related disclosures. These disclosures will be reflected in the Company's 1998
Annual Report and in all subsequent interim financial statements.
13
<PAGE>
PART II - OTHER INFORMATION
---------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -------------------------------------------------------------
(a) May 21, 1998, Annual Meeting
(b) Directors Elected -- Nathaniel L. Sills
Lawrence I. Sills
Arthur D. Davis
Susan F. Davis
William H. Turner
John L. Kelsey
Robert J. Swartz
Marilyn F. Cragin
Arthur S. Sills
Robert M. Gerrity
Andrew M. Massimilla
(c) Proposals voted upon:
(I) Election of Directors:
VOTES FOR VOTES WITHHELD
--------- --------------
Nathaniel L. Sills 11,883,882 42,132
Lawrence I. Sills 11,890,239 35,775
Arthur D. Davis 11,894,213 31,801
Susan F. Davis 11,891,747 34,267
William H. Turner 11,894,184 31,830
John L. Kelsey 11,893,479 32,535
Robert J. Swartz 11,893,345 32,669
Marilyn F. Cragin 11,894,070 31,944
Arthur S. Sills 11,887,677 38,337
Robert M. Gerrity 11,894,184 31,830
Andrew M. Massimilla 11,892,781 33,233
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------------------------------------------
(a) EXHIBIT(S)
NUMBER DESCRIPTION METHOD OF FILING
------ ----------- ----------------
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., without exhibits and
schedules to said agreement filed as an Exhibit of
Registrant's Current Report on Form 8-K dated
March 28, 1998, is incorporated herein by reference.
14
<PAGE>
NUMBER DESCRIPTION METHOD OF FILING
10.17 Override and Amendment Agreement of March 27, 1998 *
amending the Note Agreement between the Registrant
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 Company
Accident and Life Insurance and Nomura Holding
America, Inc. dated October 15, 1989 filed as an
Exhibit of Registrant's Current Report on Form 8-K dated
March 28, 1998 is incorporated herein by reference.
10.18 Override and Amendment Agreement of March 27, 1998 *
amending the Note Agreement between the Registrant
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 Registrant's Current Report on Form 8-K
dated March 28, 1998 is incorporated herein by reference.
10.19 Override and Amendment Agreement of March 27, 1998 *
amending the Note Agreement between the Registrant
Life and Metropolitan 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 Registrant's Current Report on Form 8-K
dated March 28, 1998 is incorporated herein by reference.
10.20 Revolving Credit and Guarantee Agreement dated March *
30, 1998 among Standard Motor Products, Inc., Reno Standard
Incorporated, Mardevco Credit Corp., Stanric, Inc., The Chase
Manhattan Bank, The Bank of New York, Fleet Bank, National
Association, NBD Bank, Canadian Imperial Bank of Commerce and
Comerica Bank filed as an Exhibit of Registrant's Current
Report on Form 8-K dated March 28, 1998 is incorporated herein
by reference.
10.21 1994 Omnibus Stock Option Plan of Standard Motor Products, *
Inc., as amended, is incorporated by reference to Exhibit
4.1 of the Company's Registration Statement on Form S-8
(333-51565), dated May 1, 1998.
10.22 Standard Motor Products, Inc. Independent Directors' Stock *
Option Plan, is incorporated by reference to the Company's
Registration Statement on Form S-8 (333-51619), dated May 1, 1998.
27.1 Financial Data Schedule for June 30, 1998. Filed with
this Document
27.2 Restated Financial Data Schedule for June 30, 1997. Filed with
this Document
* INCORPORATED HEREIN BY REFERENCE
15
<PAGE>
(b) REPORTS ON FORM 8-K
--------------------
(1) A Current Report on Form 8-K, dated March 28, 1998, was filed for
the acquisition and disposition of a significant amount of assets
and for certain other events.
(2) A Current Report on Form 8-K, dated May 14, 1998, amended the
previously filed Form 8-K dated March 28, 1998, to include pro
forma financial information as required.
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
STANDARD MOTOR PRODUCTS, INC.
-----------------------------
(Registrant)
AUGUST 14, 1998 /s/ JAMES J. BURKE
-------------------------------
(Date) Director of Finance,
Chief Accounting Officer
16
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