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, 1999
----------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
Commission file number 1-4743
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 29, 2000 of $13.56 per share held by
non-affiliates of the registrant was $92,148,725. 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 29, 1999 there were 12,285,522 shares
outstanding of the Registrant's Common Stock.
1
<PAGE>
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 divisions, 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 all
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 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.
As part of the Company's strategy to focus on the two divisions
previously noted, the Company in March 1998 completed the exchange of its
brake business for the temperature control business of Moog Automotive,
Inc., a subsidiary of Cooper Industries. This transaction involved an
exchange of certain assets, assumption of certain liabilities, and
payment of cash to achieve an equivalent exchange value. The brake
business is accounted for in the Company's consolidated financial
statements as a discontinued operation. The Company's December 31, 1997
consolidated financial statements reflect a $14,500,000 loss on the
disposal of the brake business.
In addition, in the fourth quarter of 1998, the Company completed the
largest phase of its agreement to sell the Service Line business to R&B,
Inc. This transaction involved the sale of selected assets of the Champ
Service Line and the Pik-A-Nut Fastener Line. Completion of the smallest
and final phase of the sale, for the assets of the Everco Brass and Brake
Lines, was completed in the first quarter of 1999. The Service Line
Business is accounted for in the Company's consolidated financial
statements as a discontinued operation. The Company's December 31, 1997
consolidated financial statements reflect a loss on the disposal of the
Service Line business of $12,500,000.
2
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(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..
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(Dollars in thousands)
1999 1998 1997
------------------------- ------------------------------- ----------------------------
% of % of % of
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
------ ----- ------ ----- ------ -----
ENGINE MANAGEMENT:
<S> <C> <C> <C> <C> <C> <C>
Ignition & Emission Parts $249,992 38.0% $256,913 39.6% $ 265,662 47.4%
Wires and Cables 63,852 9.7% 68,840 10.6% 70,484 12.6%
Fuel System Parts 12,265 1.9% 22,911 3.5% 29,678 5.3%
-------- ------- -------- - ------- ------- -----
TOTAL ENGINE MANAGEMENT 326,109 49.6% 348,664 53.7% 365,824 65.3%
-------- ------- -------- - ------- ------- -----
Compressors 141,657 21.5% 131,154 20.2% 79,237 14.2%
Other Air Conditioning Parts 177,395 26.9% 145,207 22.4% 94,744 16.9%
Heating Parts 8,677 1.3% 20,783 3.2% 13,937 2.5%
-------- ------- -------- - ------- ------- -----
TOTAL TEMPERATURE CONTROL 327,729 49.7% 297,144 45.8% 187,918 33.6%
-------- ------- -------- - ------- ------- -----
All Other 4,403 0.7% 3,612 0.5% 6,081 1.1%
-------- ------- -------- - ------- ------- -----
TOTAL $658,241 100% $649,420 100% $559,823 100%
======== ======= ======== ======= ======== =====
</TABLE>
The table below shows the Company's operating profit and identifiable
assets by reportable operating segment.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(Dollars in thousands)
1999 1998 1997
- ------------------------------- ------------------------------ ------------------------------ -----------------------------
OPERATING IDENTIFIABLE OPERATING IDENTIFIABLE OPERATING IDENTIFIABLE
PROFIT ASSETS PROFIT ASSETS PROFIT ASSETS
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Engine Management $ 27,684 $ 288,246 $ 32,243 $ 311,716 $ 28,179 $ 317,162
Temperature Control Systems
17,284 213,490 19,672 183,197 7,302 107,406
All Other
(15,424) 54,285 (7,984) 26,643 (26,026) 152,569
---------- ---------- ---------- ---------- ---------- ---------
TOTAL $ 29,544 $ 556,021 $ 43,931 $ 521,556 $ 9,455 $ 577,137
========== ========== ========== ========== ========== =========
</TABLE>
"All Other" consists of items pertaining to the corporate headquarters
function, a business unit that does not meet the criteria of a reportable
operating segment and businesses that have been sold.
3
<PAGE>
(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 38% of
the Company's 1999 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 20 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
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of hazardous fumes in exhaust gases. In 1999, electronic control modules
and electronic voltage regulators comprised approximately 11% of the
Company's total ignition sales.
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 1999, oxygen sensors comprised approximately 7%
of total ignition and emission parts sales.
Wire and cable parts account for about 10% of the Company's 1999
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.
5
<PAGE>
While the Company has exited the fuel pump business, it remains in the
business of selling carburetor repair kits worldwide and carburetor
systems in Europe and fuel injectors worldwide. Fuel system parts account
for approximately 2% of the Company's 1999 revenues.
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 50% of the Company's 1999 revenues.
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
6
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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 addition, 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.
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.
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.
7
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Members of one marketing group represent the Company's largest group of
customers and accounted for approximately 14% 13%, and 14% of
consolidated net sales (including sales of discontinued operations) for
the years ended December 31, 1999, 1998 and 1997, respectively. One
individual member of this marketing group accounted for 9%, 10% and 9% of
net sales for the years ended December 31, 1999, 1998 and 1997,
respectively. The Company's five largest individual customers, including
members of this marketing group, accounted for 35%, 30% and 32% of net
sales in 1999, 1998 and 1997, respectively.
The loss of one or more of these customers could have a material adverse
impact on our 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.
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.
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.
8
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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 will begin implementation of a fully integrated
enterprise resource planning (ERP) system. The implementation is expected
to be completed in 2002. 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.
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<PAGE>
EMPLOYEES
The Company employs approximately 3,600 people in the United States,
Canada, Puerto Rico, Europe and Hong Kong. In addition, the Company has
joint venture operations in Canada and France. Of these, approximately
2,200 are production employees. Long Island City, New York production
employees are unionized. On October 1, 1998, the hourly workers at the
Long Island City facility, which produces products for the Company's
Engine Management Division, initiated a work stoppage. The Company's
labor contract with such workers expired on such date and the Company did
not reach agreement with the workers on the terms of a new contract at
that time. The workers returned to work on November 13, 1998 and on June
21, 1999 the Company and the workers agreed to a new three year labor
contract, retroactively effective as of October 2, 1998. Production
operated satisfactorily while the workers worked without a contract. 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 7, 2000.
These workers represent approximately 4% of the Company's total
workforce. The Company believes that its facilities are in favorable
labor markets with ready access to adequate numbers of skilled and
unskilled workers.
(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 table below shows the sales by geographic area for the
last three years:
(U.S. DOLLARS IN THOUSANDS)
Revenues
-----------------------------------------------------
1999 1998 1997
---- ---- ----
United States $ 586,781 $ 586,044 $ 493,823
Canada 27,331 25,513 25,748
Other Foreign 44,129 37,863 40,252
-----------------------------------------------------
Total $ 658,241 $ 649,420 $ 559,823
=====================================================
Export sales originating from the United States for the years ended December 31,
1999, 1998 and 1997 were $7,920,000, $14,294,000 and 15,843,000 respectively,
and have been included in the category, Other Foreign.
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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 18 of Notes to Consolidated
Financial Statements).
<TABLE>
<CAPTION>
OWNED OR
STATE OR LEASE EXP.
LOCATION COUNTRY PRINCIPAL BUSINESS ACTIVITY SQUARE FEET DATE
-------- ------- --------------------------- ----------- ----
<S> <C> <C> <C> <C>
Corona CA Manufacturing and Distribution 78,200 2001
(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) 32,000 2000
Cumming GA Distribution (Temperature Control) 30,000 2000
Elk Grove Village IL Manufacturing and Administration (Temperature 25,080 2002
Control)
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 (Temperature 103,000 2004
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
Palestine TX Vacated and available for sublet 200,000 2001
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)
11
<PAGE>
STATE OR LEASE EXP.
LOCATION COUNTRY PRINCIPAL BUSINESS ACTIVITY SQUARE FEET DATE
-------- ------- --------------------------- ----------- ----
St. Thomas CANADA Manufacturing (Temperature Control) 40,000 Owned
Strasbourg FRANCE Administration and Distribution (Temperature 16,146 2002
Control)
Hong Kong HK Manufacturing (Ignition) 19,300 2003
Reynosa MEXICO Manufacturing (Wire) 62,500 2004
Ashford ENGLAND Administration and Distribution (Temperature 15,000 2013
Control)
Litchfield ENGLAND Manufacturing (Ignition) 2,280 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
Redditch ENGLAND Administration and Distribution 11,500 2000
(Ignition and Wire)
Sunbury @ Thames ENGLAND Administration and Distribution 28,095 2007
(Ignition and Wire)
Brighton ENGLAND Administration and Distribution 1,600 2002
(Ignition and Wire)
</TABLE>
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 $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
believes that these matters will not have a material effect on the Company's
consolidated financial position or results of operations.
The Company is involved in various other litigation 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
position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None
12
<PAGE>
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 29,
2000 was approximately 644, including brokers who hold approximately 7,137,597
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.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
1999 QUARTER HIGH LOW DIVIDEND 1998 QUARTER HIGH LOW DIVIDEND
---- ------- ---- --- -------- ---- ------- ---- --- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1st $25.00 $20.50 $0.08 1st $23.50 $16.31 $0.00
2nd $25.25 $20.44 $0.08 2nd $25.00 $19.13 $0.00
3rd $29.62 $19.25 $0.09 3rd $26.50 $21.00 $0.08
4th $19.62 $15.75 $0.09 4th $24.69 $19.75 $0.08
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
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
-----------------------
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net sales $ 658,241 $ 649,420 $ 559,823 $ 513,407 $ 452,253
Earnings (loss) from continuing operations before
extraordinary item $ 8,685 $ 22,257 $ (1,620) $ 23,866 $ 16,851
Earnings (loss) before extraordinary item
$ 8,685 $ 22,257 $ (34,524) $ 14,658 $ 16,132
Net earnings (loss) $ 7,625 $ 22,257 $ (34,524) $ 14,658 $ 16,132
Earnings (loss) from continuing operations per
share - Basic $ 0.66 $ 1.70 $ (0.12) $ 1.82 $ 1.28
Earnings (loss) before extraordinary item per share
- - Basic $ 0.66 $ 1.70 $ (2.63) $ 1.12 $ 1.23
Net earnings (loss) per share - Basic $ 0.58 $ 1.70 $ (2.63) $ 1.12 $ 1.23
Working capital $ 205,806 $ 178,324 $ 177,426 $ 210,962 $ 232,173
Total assets $ 556,021 $ 521,556 $ 577,137 $ 624,806 $ 521,230
Long-term debt (excluding current portion)
$ 163,868 $ 133,749 $ 159,109 $ 172,387 $ 148,665
Stockholders' equity $ 203,518 $ 205,025 $ 183,782 $ 222,576 $ 210,400
Stockholders' equity per share $ 15.57 $ 15.68 $ 14.01 $ 16.95 $ 16.03
Cash dividends per common share $ .34 $ .16 $ .32 $ .32 $ .32
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
LIQUIDITY AND CAPITAL RESOURCES
In 1999, cash provided by operations amounted to $26.0 million, compared to
$110.4 million in 1998 and $73.4 million in 1997. The decrease is primarily
attributable to lower earnings, a smaller decrease in accounts receivable, an
increase in inventories and a decrease in accounts payable as compared to 1998
and 1997. Cash used in investing activities was $23.4 million in 1999, 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, 1999, 1998 and 1997 capital expenditures totaled $14.4
million, $15.3 million and $15.6 million, respectively. Cash provided by
financing activities was $13.7 million in 1999, as net proceeds from the
issuance of new convertible debt (discussed below) more than offset $59.7
million in principal payments of long term debt and $9.8 million in repurchases
of the Company's common stock. Dividends paid for the three years ending
December 31, 1999, 1998 and 1997 were $4.5 million, $2.1 million and $4.2
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 July 26, 1999, the Company issued 6.75% Convertible Subordinated Debentures
in the aggregate principal amount $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
the 8.6% senior note payable, reduce short term bank borrowings and repurchase a
portion of the Company's common stock. The issuance of these Debentures
strengthened the Company's balance sheet, as it allowed the Company to reduce
higher interest debt. The additional proceeds will be used to fund strategic
acquisitions and repurchase additional shares of the Company's common stock.
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 to
$10,000,000, or less, for any consecutive 30 days during each 12 month period of
the facility, and 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, 1999 the
Company did not comply with certain covenant requirements for which the Company
received waivers and amendments on March 3, 2000. One of the amendments changes
the clean-down provision where during the period from September 1 through
December 31 of each year of the facility, the Company must clean down to zero
for 30 consecutive days and for a 30 day period immediately prior to or
immediately following the clean-down period the outstanding loans cannot exceed
$10,000,000.
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 will reflect 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. Including the prepayment, the Company's
long-term debt repayments in 2000 will be approximately $28.9 million.
14
<PAGE>
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, 1999 the Company did not comply with such requirements for which
the Company received a waiver dated March 10, 2000. At December 31, 1999 and
1998, net accounts receivables amounting to $20,000,000 and $25,000,000,
respectively, had been sold under this agreement.
In 1998 and 1999 the Board of Directors authorized three repurchase programs
under which the Company could repurchase a total of 1,050,000 shares of its
common stock at a cost of up to $22 million. The stock purchased is to be used
to meet present and future requirements of the Company's stock option programs
and to fund the Company's ESOP. As of December 31, 1999 the Company may
repurchase up to an additional 551,500 shares at a maximum cost of $12.4
million. On March 2, 2000 the Board of Directors authorized an additional
500,000 share repurchase program at a cost of up to $8,000,000.
The Company expects capital expenditures for 2000 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 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,
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 $30.6 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; 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 $22.6 million as compared to 1998.
Excluding the affects of acquisitions not present in 1998, net sales decreased
by $37.2 million, or 10.7%. 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.
Sales were predominately in the U.S., as 89% of sales were to domestic
customers. Sales in Europe and other export markets increased by 16.5% in 1999,
primarily due to the acquisitions of Webcon UK Limited and Lemark Auto
Accessories in early 1999.
15
<PAGE>
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. 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 the
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 $4.6 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 $2.4 million,
or 12.1%, 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 $1.4 million in 1998 to $1.2 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.
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 13.7% in 1998 to 27% 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.
COMPARISON OF 1998 TO 1997
Net sales in 1998 were $649.4 million, an increase of $89.6 million or 16.0%
from the comparable period in 1997. Excluding revenues from acquisitions not
present in 1997, total net sales increased by $11.6 million, or 2.1%, as
compared to 1997. Sales increases in the Temperature Control division,
reflecting market share gains, product line expansions and the impact of an
extremely hot summer were partially offset by sales declines in the Engine
Management division reflecting the weakness in the automotive aftermarket and
reduced sales to APS, one of the Company's largest customers, as it worked its
way through bankruptcy
16
<PAGE>
proceedings. Sales remain focused in the U.S., as 90% of sales were to domestic
customers. Sales to Canada, Europe and other export markets remained relatively
flat in 1998.
Cost of goods sold increased by $63.5 million from $380.3 million to $443.8
million. Gross margins, as a percentage of net sales, decreased from 32.1% in
1997 to 31.7% in 1998. This decline reflects a higher mix of Temperature Control
products with lower average gross margins than Engine Management products. Gross
margins also were negatively affected by the Cooper transaction due to the
higher carrying cost of the acquired inventory compared with comparable products
produced by the Company's existing Temperature Control business.
Selling, general and administrative expenses (SG&A) in 1998, excluding bad debt
expenses, increased by $1.6 million, or 1.0%, while net sales increased 16%. As
a percentage of net sales, SG&A expenses excluding bad debt expenses decreased
from 28.1% in 1997 to 24.5% in 1998. The 3.6 point improvement in SG&A expenses
resulted primarily from lower new customer acquisition costs and the partial
integration of the Cooper Industries' temperature control business into the
existing Temperature Control infrastructure. Selling expenses also were reduced,
as a further restructuring of the sales force was completed.
Other income (expense), net, decreased by $2.4 million, primarily due to losses
related to continuing joint ventures and the write-off of the carrying value of
a Chinese joint venture and one original equipment venture.
The Company's earnings before interest and taxes increased to $42.5 million from
$10.5 million in 1997. This increase was a direct result of the cost reductions
discussed above, combined with the non-recurrence of the $10.5 million in bad
debt expense recorded in 1997, due to the bankruptcy filing of APS, Inc.
Interest expense increased by $2.3 million to $16.4 million resulting from
several factors including; interest costs related to discontinued operations in
1997 and higher average interest rates in 1998 partially offsetting lower
outstanding borrowings during 1998. When including interest expense related to
discontinued operations, interest expense decreased by $2.2 million, primarily
as a result of lower outstanding borrowings.
Income tax expense related to continuing operations in 1998 was $3.6 million,
compared to a benefit of $2.4 million in 1997, when the Company posted a net
loss. Earnings from the Company's Puerto Rico and Hong Kong subsidiaries
resulted in a 1998 effective tax rate that is lower than the statutory corporate
rate in the U.S.
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 reduction. The Company anticipates that its
recently completed facilities rationalization to consolidate three distribution
centers into one for the Temperature Control Division, merge the Eaglemotive fan
clutch acquisition into the Hayden operation in California and move two US wire
manufacturing plants into a single facility in Reynosa, Mexico, will result in
cost savings and should have a favorable impact on 2000 and 2001 results.
17
<PAGE>
In the fourth quarter of 1999, the Company launched its new pack-to-order
warehouse management system at its largest distribution center in Disputanta,
Va.. This pack-to-order concept maintains inventory in a bulk state until just
prior to shipping and will allow the Company to reduce inventory levels and
packaging costs. This system is expected to become fully operational during
2000.
YEAR 2000
The Company worked diligently to resolve the potential impact of the year 2000
on the processing of date-sensitive information by the Company's computerized
information systems. The year 2000 problem is the result of computer programs
being written using two digits (rather than four) to define the applicable year.
Any programs that have time-sensitive software may recognize a date using "00"
as the year 1900 rather than the year 2000, which could result in
miscalculations or system failures.
The Company established a comprehensive response to its year 2000 exposure.
Generally, the Company had year 2000 exposure in two areas: (i) information
technology ("IT") systems and (ii) non-IT systems. At June 1998, the Company had
completed an inventory of its internal IT systems and made a preliminary
determination of which programs were or were not year 2000 compliant. The
Company substantially completed year 2000 testing and remediation on its
critical information technology systems in June 1999 and completed its Year 2000
testing and remediation on its non-critical information technology systems and
non-information technology systems in the fourth quarter of 1999.
As of this date, the Company has not experienced any significant business
disruptions or system failures as a result of the Year 2000 issue. There have
been no substantial Year 2000 related issues reported from our major customers,
suppliers, financial institutions or other business partners. Although the Year
2000 event has occurred, and while there can be no assurance that there will be
no problems related to the Year 2000 for a period of time after January 1, 2000,
the Company believes it will not be adversely impacted by the Year 2000 issue.
RECENTLY ISSUED ACCOUNTING STANDARDS
In 1998, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging
Activities" (SFAS No. 133), effective for fiscal years beginning after June 15,
2000. SFAS No. 133 requires derivatives to be recorded on the balance sheet as
assets or liabilities, measured at fair value. Gains or losses resulting from
changes in values of derivatives would be accounted for depending on the use of
the derivative and whether it qualifies for hedge accounting. The Company does
not expect SFAS No. 133 to have a material impact on the Company's results of
operations or financial position.
18
<PAGE>
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 the Company' s functional currency, which is the U.S.
dollar. 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 $3.6 million, which includes
$14.4 million of indebtedness of the Company, $5.8 million in accounts payable
and $16.6 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, 1999 the Company had approximately $195 million in loans and
financing outstanding, of which approximately $181 million bear interest at
fixed interest rates and approximately $14 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, 1999 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.
19
<PAGE>
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, 1999 and 1998, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Standard Motor
Products, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally accepted
accounting principles.
KPMG LLP
New York, New York
February 25, 2000, except as to notes 4, 8 and 9,
which are as of March 10,
March 3 and March 13 respectively
F-1
<PAGE>
<TABLE>
<CAPTION>
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts) Years Ended December 31,
------------------------------------------------
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales ....................................................... $ 658,241 $ 649,420 $ 559,823
Cost of sales ................................................... 466,110 443,798 380,335
- -------------------------------------------------------------------------------------------------------------------
Gross profit ............................................ $ 192,131 205,622 179,488
Selling, general and administrative expenses .................... 162,587 161,691 170,033
- -------------------------------------------------------------------------------------------------------------------
Operating income ........................................ 29,544 43,931 9,455
Other income (expense), net (Notes 4 and 14) .................... (1,207) (1,422) 998
- -------------------------------------------------------------------------------------------------------------------
EARNINGS FROM CONTINUING OPERATIONS BEFORE INTEREST,
TAXES, MINORITY INTEREST AND EXTRAORDINARY ITEM ......... 28,337 42,509 10,453
- -------------------------------------------------------------------------------------------------------------------
Interest expense (Note 3) ....................................... 15,951 16,419 14,158
- -------------------------------------------------------------------------------------------------------------------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE
TAXES, MINORITY INTEREST AND EXTRAORDINARY ITEM ......... 12,386 26,090 (3,705)
- -------------------------------------------------------------------------------------------------------------------
Provision for income taxes (Note 15) ............................ 3,344 3,577 (2,417)
Minority interest ............................................... (357) (256) (332)
- -------------------------------------------------------------------------------------------------------------------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE
EXTRAORDINARY ITEM ...................................... 8,685 22,257 (1,620)
- -------------------------------------------------------------------------------------------------------------------
Discontinued operations (Note 3)
Loss from operations of discontinued Brake Group ........ -- -- (568)
Estimated loss on disposal of Brake Group ............... -- -- (14,500)
Loss from operations of discontinued Service Line Group . -- -- (5,336)
Estimated loss on disposal of Service Line Group ........ -- -- (12,500)
- -------------------------------------------------------------------------------------------------------------------
LOSS FROM DISCONTINUED OPERATIONS ....................... -- -- (32,904)
- -------------------------------------------------------------------------------------------------------------------
EARNINGS (LOSS) BEFORE EXTRAORDINARY ITEM ............... 8,685 22,257 (34,524)
- -------------------------------------------------------------------------------------------------------------------
Extraordinary loss on early extinguishment of debt, net of
taxes of $707 (Note 9) .......................................... 1,060 -- --
- -------------------------------------------------------------------------------------------------------------------
NET EARNINGS (LOSS) ................................... $ 7,625 $ 22,257 $ (34,524)
- -------------------------------------------------------------------------------------------------------------------
NET EARNINGS (LOSS) PER COMMON SHARE - BASIC:
Earnings (loss) from continuing operations .............. $ 0.66 $ 1.70 $ (0.12)
Loss from discontinued operations ....................... -- -- $ (2.51)
Extraordinary loss from early extinguishment of debt .... (0.08) -- --
- -------------------------------------------------------------------------------------------------------------------
NET EARNINGS (LOSS) PER COMMON SHARE - BASIC .................... $ 0.58 $ 1.70 $ (2.63)
- -------------------------------------------------------------------------------------------------------------------
NET EARNINGS (LOSS) PER COMMON SHARE - DILUTED:
- -------------------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing operations .............. $ 0.66 $ 1.69 $ (0.12)
Loss from discontinued operations ....................... -- -- $ (2.51)
Extraordinary loss from early extinguishment of debt .... (0.08) -- --
- -------------------------------------------------------------------------------------------------------------------
NET EARNINGS (LOSS) PER COMMON SHARE - DILUTED .................. $ 0.58 $ 1.69 $ (2.63)
- -------------------------------------------------------------------------------------------------------------------
AVERAGE NUMBER OF COMMON SHARES ................................. 13,073,272 13,077,392 13,119,404
AVERAGE NUMBER OF COMMON SHARES AND DILUTIVE
COMMON SHARES ........................................... 13,145,743 13,167,842 13,119,404
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands) December 31,
---------------------
1999 1998
- ------------------------------------------------------------------------------------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents ..................................... $ 40,380 $ 23,457
Accounts receivable, less allowances for discounts and
doubtful accounts of $4,611 (1998-$4,525) (Note 4) .......... 119,635 122,008
Inventories (Note 5) .......................................... 188,400 174,092
Deferred income taxes (Note 15) ............................... 13,830 11,723
Prepaid expenses and other current assets ..................... 12,448 11,231
- ------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS .................................... 374,693 342,511
- ------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, NET (NOTES 6 AND 9) .............. 106,578 109,404
- ------------------------------------------------------------------------------------------
GOODWILL, NET ................................................... 41,619 39,232
- ------------------------------------------------------------------------------------------
OTHER ASSETS (NOTE 7) ........................................... 33,131 30,409
- ------------------------------------------------------------------------------------------
TOTAL ASSETS ............................................ $ 556,021 $ 521,556
- ------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable- banks (Note 8) ................................. $ 2,645 $ 3,555
Current portion of long-term debt (Note 9) .................... 28,912 22,404
Accounts payable .............................................. 41,708 48,414
Sundry payables and accrued expenses .......................... 64,826 60,905
Accrued customer returns ...................................... 22,698 16,296
Payroll and commissions ....................................... 8,098 12,613
- ------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES ............................... 168,887 164,187
- ------------------------------------------------------------------------------------------
LONG-TERM DEBT (NOTE 9) ......................................... 163,868 133,749
- ------------------------------------------------------------------------------------------
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS AND
OTHER ACCRUED LIABILITIES (NOTE 13) ........................... 19,748 18,595
- ------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 9, 10, and 18)
Stockholders' equity (Notes 9, 10, and 11):
Common Stock - par value $2.00 per share:
Authorized 30,000,000 shares, issued 13,324,476
shares in 1999 and 1998 (including 598,154
and 268,126 shares held as treasury shares
in 1999 and 1998, respectively) ......................... 26,649 26,649
Capital in excess of par value ................................ 2,957 2,951
Retained earnings ............................................. 184,848 181,679
Accumulated other comprehensive income (loss) ................. 714 (516)
- ------------------------------------------------------------------------------------------
215,168 210,763
Less: Treasury stock-at cost ................................... 11,650 5,738
- ------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY .............................. 203,518 205,025
- ------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .............. $ 556,021 $ 521,556
- ------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) Years Ended December 31,
------------------------------------
1999 1998 1997
- -------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net earnings (loss) ............................................... $ 7,625 $ 22,257 $ (34,524)
Adjustments to reconcile net
earnings to net cash provided by operating activities:
Depreciation and amortization ................................... 17,230 17,274 18,980
(Gain) loss on disposal of property, plant & equipment .......... (2,564) 226 64
Equity loss (income) from joint ventures ........................ 4,118 2,078 (1,335)
Employee stock ownership plan allocation ........................ 1,739 1,665 1,680
Tax benefit related to employee benefit plans ................... 290 510 108
(Increase) decrease in deferred income taxes .................... (4,552) 2,992 (2,393)
Extraordinary loss on repayment of debt ......................... 1,767 -- --
Loss on sale of business ........................................ -- 1,500 --
Provision for loss on disposal of assets of
discontinued operations ....................................... -- -- 27,000
Change in assets and liabilities, net of effects
from acquisitions and disposals:
(Increase) decrease in accounts receivable, net ............... 15,782 27,534 10,210
(Increase) decrease in inventories ............................ (5,944) 27,733 42,478
(Increase) decrease in other assets ........................... (1,514) 131 12,366
Increase (decrease) in accounts payable ....................... (10,349) 12,833 1,899
Increase (decrease) in other current assets and liabilities ... (242) 232 (4,916)
Increase (decrease) in sundry payables and accrued expenses ... (2,598 (6,589) 1,755
- --------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES ......................... 25,984 110,376 73,372
- --------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of property, plant and equipment ........... 8,420 702 --
Capital expenditures, net of effects from acquisitions ............ (14,423) (15,325) (15,597)
Payments for acquisitions, net of cash acquired ................... (17,381) (13,997) (16,313)
Proceeds from sale of business .................................... -- 6,808 --
- --------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES ............................. (23,384) (21,812) (31,910)
- --------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net repayments under line-of-credit agreements .................... (819) (52,333) (18,671)
Net proceeds from issuance of long-term debt ...................... 86,568 700 13,096
Principal payments of long-term debt .............................. (59,664) (27,046) (17,924)
Proceeds from exercise of employee stock options .................. 1,830 1,579 192
Purchase of treasury stock ........................................ (9,765) (2,614) (1,528)
Dividends paid .................................................... (4,456) (2,092) (4,197)
- --------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ............... 13,694 (81,806) (29,032)
- --------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash ........................... 629 (110) (287)
- --------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents ......................... 16,923 6,648 12,143
Cash and cash equivalents at beginning of year .................... 23,457 16,809 4,666
- --------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR .......................... $ 40,380 $ 23,457 $ 16,809
- --------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest ...................................................... $ 14,733 $ 17,840 $ 20,154
Income taxes .................................................. $ 6,205 $ 1,799 $ 3,391
- --------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(In thousands)
Years Ended December 31, 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
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 ..................... $ 26,649 $ 2,705 $ (3,345) $200,235 $ 71 $ (3,739) $222,576
Comprehensive Income: ............................
Net loss ....................................... (34,524) (34,524)
Foreign currency translation adjustment ........ (525) (525)
--------
Total comprehensive income (loss) ............ (35,049)
Cash dividends paid .............................. (4,197) (4,197)
Exercise of employee stock options ............... (50) 242 192
Tax benefits applicable to
Employee Stock Ownership Plan .................. 108 108
Employee Stock Ownership Plan .................... 1,680 1,680
Purchase of treasury stock ....................... (1,528) (1,528)
- ------------------------------------------------------------------------------------------------------------------------------------
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 0 181,679 (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 $ 0 $184,848 $ 714 $(11,650) $203,518
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
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 1997 and 1998 have been
reclassified to conform with the 1999 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, 1999 and 1998, 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, 1999, the held-to-maturity
securities mature within four 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, 1999 and 1998, was $9,293,000 and $5,906,000, 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 (see note 3).
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
Deferred income taxes result from temporary differences in methods of
recording certain revenues and expenses for financial reporting and income tax
purposes (see Note 15).
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. "Dilutive" 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
<PAGE>
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
Following is a reconciliation of the shares used in calculating basic
and dilutive net income per common share (net income as reported is the
numerator in each calculation):
1999 1998 1997
- --------------------------------------------------------------------------------
Weighted average common
shares outstanding 13,073,272 13,077,392 13,119,404
Effect of dilutive
securities - options 72,471 90,450 --
- --------------------------------------------------------------------------------
Weighted average common equivalent
shares outstanding-
assuming dilution 13,145,743 13,167,842 13,119,404
- --------------------------------------------------------------------------------
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."
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 11)
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 14% 13%, and 14% of
consolidated net sales (including sales of discontinued operations) for the
years ended December 31, 1999, 1998 and 1997, respectively. One individual
member of this marketing group accounted for 9%, 10% and 9% of net sales for the
years ended December 31, 1999, 1998 and 1997, respectively. The Company's five
largest individual customers, including members of this marketing group,
accounted for 35%, 30% and 32% of net sales in 1999, 1998, and 1997,
respectively.
2. ACQUISITIONS
During 1999 and 1998, the Company acquired and accounted for as a
purchase, four businesses as follows:
In March 1998, the Company completed the exchange of its brake business
for the Moog Automotive temperature control business of Cooper Industries. The
total acquisition price amounted to $79,200,000, which included the exchange of
certain net assets, principally inventory and property, plant and equipment and
a cash payment of $13,997,000.
On the basis of a pro forma consolidation, as if the Moog Automotive
temperature control business had been acquired at the beginning of 1997, the
Company's consolidated results would have been as follows:
Pro forma results
------------------------
(Dollars in thousands except per share data) 1998 1997
- --------------------------------------------------------------------------------
Net sales $671,891 $685,570
- --------------------------------------------------------------------------------
Net earnings (loss) from continuing
operations $21,464 $(4,840)
- --------------------------------------------------------------------------------
Net earnings (loss) from continuing
operations per common share $1.64 $(0.37)
- --------------------------------------------------------------------------------
Such pro forma information does not purport to be indicative of the
results of operations that would have actually been attained if the acquisition
had been consummated as of January 1, 1997. In addition, the pro forma financial
information does not purport to be indicative of future results of operations.
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, with the exception of the exchange for the
Moog Automotive temperature control business, 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 1999 and 1998 was approximately
$5,687,000 and $11,650,000, 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
<PAGE>
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
3. DISCONTINUED OPERATIONS
BRAKE BUSINESS
In connection with the exchange transaction described in note 2, during
the fourth quarter of 1997 the Company recorded a provision of $14,500,000,
consisting of an estimated loss on the disposal of the Brake business of
$14,000,000 and a provision of $500,000 for anticipated operating losses until
the completion of the disposal. The income (loss) from operations of the
discontinued Brake business included an allocation of consolidated interest
based upon the ratio of net assets of the discontinued Brake business to the
total net assets of the Company which are applicable to interest bearing
expenses. The interest allocated to the discontinued Brake business amounted to
$1,112,000 and $5,183,000 for the years ended December 31, 1998 and 1997,
respectively. The Company's 1999 and 1998 results do not include any income or
loss from the discontinued Brake business as these anticipated losses were
included in the 1997 provision. The $14,500,000 loss associated with the
disposal of the Brake business reflects no income tax benefit. As of December
31, 1998, substantially all of the assets of the discontinued Brake business
were either sold or disposed of.
SERVICE LINE BUSINESS
In the fourth quarter of 1998, the Company completed the largest phase
of its agreement to sell its Service Line business to R&B, Inc. This transaction
involved the sale of selected assets of the Champ Service Line and the Pik-A-Nut
Fastener Line. The final phase, involving the sale of the Everco Brass & Brake
Line, acquired in the Moog automotive exchange, was completed in the first
quarter of 1999.
In the fourth quarter of 1997, the Company recorded a provision of
$12,500,000, consisting of an estimated loss on the sale of the business of
$12,000,000 and a provision of $500,000 for anticipated operating losses until
the closing of the sale. The loss from operations of the discontinued Service
Line business included an allocation of consolidated interest based upon the
ratio of net assets of the discontinued Service Line business to the total net
assets of the Company which are applicable to interest bearing expenses. The
interest allocated to the discontinued Service Line business amounted to
$629,000 and $975,000 for the years ended December 31, 1998 and 1997,
respectively. The Company's 1999 and 1998 results do not include any income or
loss from the discontinued Service Line business as these anticipated losses
were included in the 1997 provision. The $12,500,000 loss associated with the
disposal of the Service Line business reflects no income tax benefit. As of
December 31, 1998, substantially all of the assets of the discontinued Service
Line business were either sold or disposed of.
4. 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, 1999 the Company did not comply with this
requirement, for which the Company received a waiver dated March 10, 2000. At
December 31, 1999 and 1998, net accounts receivables amounting to $20,000,000
and $25,000,000, 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.
5. INVENTORIES
December 31,
----------------------
(In thousands) 1999 1998
---------------------------------------------------------------------
Inventories consist of:
Finished goods $110,802 $120,108
Work in process 5,393 4,867
Raw materials 72,205 49,117
---------------------------------------------------------------------
Total inventories $188,400 $174,092
---------------------------------------------------------------------
6. PROPERTY, PLANT AND EQUIPMENT
December 31,
-----------------------
(In thousands) 1999 1998
---------------------------------------------------------------------
Property, plant and equipment consist of the following:
Land, buildings and improvements $ 60,046 $ 64,080
Machinery and equipment 99,223 88,282
Tools, dies and auxiliary equipment 10,691 8,412
Furniture and fixtures 24,783 21,542
Leasehold improvements 6,247 5,130
Construction in progress 12,986 18,068
-------- --------
213,976 205,514
Less accumulated depreciation
and amortization 107,398 96,110
---------------------------------------------------------------------
Total property, plant and
equipment, net $106,578 $109,404
---------------------------------------------------------------------
7. OTHER ASSETS
December 31,
-----------------------
(In thousands) 1999 1998
----------------------------------------------------------------------
Other assets consist of the following:
Marketable securities $ 7,200 $ 7,200
Unamortized customer supply agreements 2,838 3,311
Equity in joint ventures 1,439 4,698
Deferred income taxes 6,614 4,169
Deferred loan costs 5,091 2,894
Other 9,949 8,137
---------------------------------------------------------------------
Total other assets $ 33,131 $ 30,409
---------------------------------------------------------------------
Included in Other is a preferred stock investment in a customer of the
Company. Net sales to such customer amounted to $58,041,000, 72,754,000 and
$72,529,000 in 1999, 1998, and 1997, respectively.
F-8
<PAGE>
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
8. 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. 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 to $10,000,000 or less, for any consecutive 30 days during each 12
month period of the facility, 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, 1999 the Company did not comply with certain covenant requirements
for which the Company received waivers and amendments dated March 3, 2000. One
of the amendments changes the clean-down provision where during the period from
September 1 through December 31 of each year of the facility, the Company must
clean down to zero for 30 consecutive days and for a 30 day period immediately
prior to or immediately following the clean-down period the outstanding loans
cannot exceed $10,000,000. There were no outstanding borrowings under this
facility at December 31, 1999 and 1998.
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 $2,645,000 and $3,555,000 at December 31, 1999 and 1998,
respectively. The weighted average interest rates on these borrowings at
December 31, 1999 and 1998 were 7.1% and 8.4%, respectively.
9. LONG-TERM DEBT
December 31,
---------------------
(In thousands) 1999 1998
---------------------------------------------------------------
Long-term debt consists of:
6.75% convertible subordinated
debentures $ 90,000 $ --
7.56% senior note 73,000 73,000
8.60% senior note -- 37,143
10.22% senior note 14,000 21,500
Canadian Credit Facility 6,811 10,960
7.50%-10.50% purchase obligations 2,166 2,833
5.0%-8.8% Facilities 4,941 6,411
5.0% Notes Payable - Honeywell 1,000 3,000
Other 862 1,306
---------------------------------------------------------------
192,780 156,153
Less current portion 28,912 22,404
---------------------------------------------------------------
Total non-current portion of
long-term debt $163,868 $133,749
---------------------------------------------------------------
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 the 8.6% 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 $73,000,000 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 $37,143,000 senior note agree-ment, the Company
was required to repay the loan in four equal annual installments from 1999
through 2002. On July 26, 1999, the Company utilized the proceeds from the
convertible debentures to prepay the entire outstanding balance of $37,143,000.
In connection with this prepayment, the Company incurred a $1,060,000,
extraordinary loss (net of taxes) .
Under the terms of the $14,000,000 senior note agreement, the Company
was required to repay the loan in four varying annual installments from 2000
through 2003. On December 31, 1999 the Company did not comply with certain
covenants. The Company elected to prepay the balance on March 13, 2000. This
amount is classified in the December 31, 1999 balance sheet as current. In
connection with this prepayment, the Company incurred an extraordinary loss for
prepayment penalties and the write-off of deferred loan costs of approximately
$500,000, net of taxes. This extraordinary loss will be reflected in 2000's
results of operations.
Under the terms of a Canadian (CDN) credit agreement, the Company is
required to repay the loan as follows: $2,000,000 CDN in 2000, and 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 averaged 4.9% for 1999.
The purchase obligations, due under agreements with municipalities,
mature in annual installments through 2003, and are secured by properties having
a net book value of approximately $11,300,000 at December 31, 1999.
F-9
<PAGE>
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
The Company holds a 74.3% equity interest in Standard Motor Products
Holdings Limited, formerly Intermotor Holdings Limited, which has various
existing credit facilities that mature by 2003.
Under the terms of an unsecured note agreement with Honeywell (formerly
AlliedSignal), the final payment of $1,000,000 is due in 2000.
Maturities of long-term debt during the five years ending December 31,
2000 through 2004, are $28,912,000, $13,776,000, $16,455,000, $11,873,000 and
$10,609,000, respectively.
10. 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, 1999.
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.
In 1998 and 1999 the Board of Directors authorized three repurchase
programs under which the Company could repurchase a total of 1,050,000 shares of
its common stock at a cost of up to $22,000,000. The stock purchased was to be
used to meet present and future requirements of the Company's stock option
programs and to fund the Company's ESOP. As of December 31, 1999 the Company may
repurchase up to an additional 551,500 shares at a maximum cost of $12,446,000
under the above-referenced authorizations. On March 2, 2000 the Board of
Directors authorized an additional 500,000 share repurchase program at a cost of
up to $8,000,000.
11. STOCK OPTIONS
The Company has principally two fixed stock-based compensation plans.
Under the 1994 Omnibus Stock Option Plan, the Company is authorized to issue
400,000 stock options. The options become exercisable over a four year period
and expire at the end of five years following the date they become exercisable.
The 1994 Omnibus Stock Option Plan was amended during 1997 to increase the
number of shares authorized for issuance to 1,000,000 shares. 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, 1999, in aggregate 869,000 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 (loss) per share would have changed to the pro forma amounts as
follows:
(Dollars in thousands except per share data) 1999 1998 1997
- --------------------------------------------------------------------------------
Net Earnings As reported $ 7,625 $22,257 $(34,524)
(loss) Pro forma $ 6,648 $21,610 $(34,849)
Basic Earnings As reported $ .58 $ 1.70 $ (2.63)
(loss) per share Pro forma $ .51 $ 1.65 $ (2.66)
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 1999, 1998 and
1997, respectively: expected volatility of 39.5%, 33.5% and 33.5%, expected life
of 4.3 years, 4.3 years and 4.4 years, dividend yield of 1.8%, 1.5% and 1.5% and
risk free interest rate of 6.6%, 5.2% and 5.6% for issued options.
A summary of the status of the Company's option plans follows:
F-10
<PAGE>
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
1999 1998 1997
- --------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
(Shares in thousands) Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Outstanding at
beginning of year ............... 793 $19.58 636 $18.45 424 $16.50
Granted ....................... 136 23.73 263 21.54 231 21.87
Exercised ......................... (100) 17.83 (91) 17.08 (10) 16.39
Forfeited ......................... ( 21) 23.13 (15) 21.50 (9) 16.36
- --------------------------------------------------------------------------------
Outstanding at
end of year ..................... 808 $20.40 793 $19.58 636 $18.45
- --------------------------------------------------------------------------------
Options exercisable at
end of year ..................... 431 335 230
- --------------------------------------------------------------------------------
Weighted-average fair value of
options granted during the year ... $ 7.97 $ 6.30 $ 6.11
OPTIONS OUTSTANDING
- --------------------------------------------------------------------------------
Number Weighted-Average
Range of Outstanding Remaining Weighted-
Exercise Prices at 12/31/99 Contractual Life Average
(Years) Exercise Price
- --------------------------------------------------------------------------------
$13.63 - $14.50 .................. 6,000 7.4 $ 13.77
$16.00 - $16.94 .................. 249,500 3.0 $ 16.33
$20.50 - $24.84 .................. 552,491 5.6 $ 22.31
OPTIONS EXERCISABLE
- --------------------------------------------------------------------------------
Range of Number Exercisable Weighted-Average
Exercise Prices at 12/31/99 Exercise Price
- --------------------------------------------------------------------------------
$13.63 - $23.84 431,343 $18.67
12. EMPLOYEE BENEFIT PLANS
The Company has a defined benefit pension plan covering certain former
employees of the Company's discontinued Brake business (see Note 3).
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) 1999 1998
- --------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATIONS:
Benefit obligation at beginning of year .......... $ 9,915 $ 10,109
Service cost ..................................... -- 97
Interest cost .................................... 651 665
Actuarial gain ................................... (511) (121)
Benefits paid .................................... (784) (835)
- --------------------------------------------------------------------------------
Benefit Obligation at End of Year ................ $ 9,271 $ 9,915
- --------------------------------------------------------------------------------
CHANGE IN PLAN ASSETS
Fair value of plan assets at
beginning of year .............................. $ 11,684 $ 11,120
Actual return on plan assets ..................... 1,855 1,399
Benefits paid .................................... (784) (835)
- --------------------------------------------------------------------------------
Fair value of plan assets at end of year ......... $ 12,755 $ 11,684
- --------------------------------------------------------------------------------
Funded status .................................... $ 3,484 $ 1,769
Unrecognized net actuarial gain .................. (3,489) (2,083)
- --------------------------------------------------------------------------------
Accrued benefit cost ............................. $ (5) $ (314)
- --------------------------------------------------------------------------------
December 31,
Weighted-average assumptions: 1999 1998 1997
- --------------------------------------------------------------------------------
Discount rates ................................... 7.50% 6.75% 7.00%
Expected long-term rate of return
on assets ........................................ 8.00% 8.00% 8.00%
- --------------------------------------------------------------------------------
December 31,
-------------------------------
(In thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost ............................... $ -- $ 97 $ 188
Interest cost .............................. 651 665 672
Return on assets ........................... (900) (816) (1,456)
Amortization of prior service cost ......... -- 19 70
Recognized actuarial (gain)/loss ........... (60) (72) 655
- --------------------------------------------------------------------------------
Net periodic (benefit) cost ................ $ (309) $ (107) $ 129
- --------------------------------------------------------------------------------
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:
Defined
Multi- Contribution
employer Plans and Other Plans
- --------------------------------------------------------------------------------
Year-end December 31,
1999 $348,000 $2,332,000
1998 $302,000 $4,350,000
1997 $365,000 $2,840,000
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 and 1997, 106,900 and 98,000 shares were allocated to the
employees, leaving no unallocated shares in the ESOP trust at December 31, 1998.
During 1999, 75,000 shares were granted to employees under the terms of the
ESOP. These shares were funded directly from treasury stock.
F-11
<PAGE>
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
The provision for expense in connection with the ESOP was approximately
$1,739,000 in 1999, $1,664,000 in 1998 and $1,406,000 in 1997. The 1999 expense
was calculated based on the fair market value of the shares granted. The 1998
and 1997 expense was calculated by subtracting dividend and interest income
earned by the ESOP, which amounted to approximately $1,000 and $274,000 for the
years ended December 31, 1998 and 1997, respectively, from the principal
repayment on the outstanding bank loan. Interest costs amounted to approximately
$56,000 and $208,000 for the years ended December 31, 1998 and 1997,
respectively.
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 $98,000, $87,000 and $62,000 in
1999, 1998 and 1997, respectively.
13. 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) 1999 1998
- --------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year ....... $ 17,628 $ 15,783
Service cost .................................. 1,284 975
Interest cost ................................. 1,221 1,082
Amendments .................................... -- 1,410
Actuarial gain ................................ (925) (844)
Benefits paid ................................. (839) (778)
- --------------------------------------------------------------------------------
Benefit obligation at end of year ............. $ 18,369 $ 17,628
- --------------------------------------------------------------------------------
Funded status ................................. $(18,369) $(17,628)
Unrecognized prior service cost ............... 1,162 1,286
Unrecognized net actuarial gain ............... (1,683) (766)
- --------------------------------------------------------------------------------
Accrued benefit cost .......................... $(18,890) $(17,108)
- --------------------------------------------------------------------------------
WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31
1999 1998
- --------------------------------------------------------------------------------
Discount rates ................................ 7.50% 6.75%
For measurement purposes, a 7% and 8% annual rate of increase in the
per capital cost of covered medical benefits was assumed for 1999 and 1998,
respectively. The rate was assumed to decrease gradually to 5% in 2002 and
remain at that level thereafter. A 6% annual rate of increase in the per capita
cost of covered dental benefits was assumed for 1999. The rate was assumed to
decrease gradually to 5% in 2001 and remain at that level thereafter.
December 31,
----------------------------------
(In thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost ............................ $ 1,284 $ 975 $ 671
Interest cost ........................... 1,221 1,082 1,139
Amortization of prior service cost ...... 124 124 --
Recognized actuarial gain ............... (8) (78) (235)
- --------------------------------------------------------------------------------
Net periodic benefit cost ............... $ 2,621 $ 2,103 $ 1,575
- --------------------------------------------------------------------------------
Curtailment gain ........................ -- -- (1,492)
- --------------------------------------------------------------------------------
Total benefit cost ...................... $ 2,621 $ 2,103 $ 83
- --------------------------------------------------------------------------------
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 1999:
1-Percentage- 1-Percentage-
(In thousands) Point Increase Point Decrease
- --------------------------------------------------------------------------------
Effect on total of service and
interest cost components $ 398 $ (334)
Effect on postretirement benefit
obligation $2,302 $(1,961)
14. OTHER INCOME (EXPENSE), NET
(In thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
Other income (expense), net consists of:
Interest and dividend income ............... $ 1,637 $ 1,856 $ 898
(Loss) on sale of accounts
receivable (Note 4) ........................ (1,281) (1,410) (1,358)
Income (loss) from joint ventures .......... (4,118) (2,078) 1,335
Gain (loss) on disposal of property,
plant and equipment ........................ 2,564 (226) (64)
Other - net ................................ (9) 436 187
- --------------------------------------------------------------------------------
Total other income (expense), net .......... $(1,207) $(1,422) $ 998
- --------------------------------------------------------------------------------
15. INCOME TAXES
The income tax provision (benefit) consisted of the following:
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Current:
Domestic ........................... $ 4,376 $(1,879) $(2,160)
Foreign ............................ 3,520 2,467 2,144
- --------------------------------------------------------------------------------
Total Current .............................. 7,896 588 (16)
- --------------------------------------------------------------------------------
Deferred:
Domestic ........................... (5,167) 2,931 (2,393)
Foreign ............................ 615 58 (8)
- --------------------------------------------------------------------------------
Total Deferred ............................. (4,552) 2,989 (2,401)
- --------------------------------------------------------------------------------
Total Income Tax Provision (benefit) ....... $ 3,344 $ 3,577 $(2,417)
- --------------------------------------------------------------------------------
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 $25,485,000 at the
end of 1999, $12,159,000 at the end of 1998, and $17,562,000 at the end of 1997.
Earnings before income taxes for foreign operations (including Puerto Rico)
amounted to approximately $13,000,000, $19,000,000 and $16,000,000 in 1999, 1998
and 1997, respectively.
F-12
<PAGE>
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
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
$.14 per share in 1999 (1998 - $.20; 1997 - $.26).
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:
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
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 .............. 2.9 0.7 4.6
Non-deductible items, net .................. 0.8 0.6 2.3
Benefits of income subject to taxes
at lower than the U.S. federal rate ........ (11.8) (18.3) (87.8)
(Decrease) increase in valuation
allowance .................................. -- (4.2) 50.7
Other ...................................... 0.1 -- --
- --------------------------------------------------------------------------------
Effective tax rate ......................... 27.0% 13.8% (65.2)%
- --------------------------------------------------------------------------------
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) 1999 1998
- --------------------------------------------------------------------------------
Deferred tax assets:
Accrued costs related to disposal of
discontinued operations ....................... $ 622 $ 983
Inventories .................................... 7,382 8,495
Allowance for customer returns ................. 11,532 6,023
Postretirement benefits ........................ 7,463 6,725
Allowance for doubtful accounts ................ 1,766 1,545
Accrued salaries and benefits .................. 2,981 3,347
Other .......................................... 12,722 12,361
------------------------
44,468 39,479
Valuation allowance ............................ (14,171) (14,171)
- --------------------------------------------------------------------------------
Total .......................................... $ 30,297 $ 25,308
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation ................................... $ 4,344 $ 4,032
Promotional costs .............................. 1,652 1,054
Other .......................................... 3,857 4,330
- --------------------------------------------------------------------------------
Total .......................................... 9,853 9,416
- --------------------------------------------------------------------------------
Net deferred tax assets ........................ $ 20,444 $ 15,892
- --------------------------------------------------------------------------------
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.
16. 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 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, 1999
--------------------------------------------------
Engine Temperature Other
(In thousands) Management Control Adjustments Consolidated
- --------------------------------------------------------------------------------
Net Sales ................. $326,109 $327,729 $ 4,403 $658,241
- --------------------------------------------------------------------------------
Depreciation
and amortization .......... $ 10,322 5,957 951 $ 17,230
- --------------------------------------------------------------------------------
Operating income .......... $ 27,684 17,284 (15,424) $ 29,544
- --------------------------------------------------------------------------------
Investment in equity
affiliates ................ $ 105 272 1,062 $ 1,439
- --------------------------------------------------------------------------------
Capital expenditures ...... $ 7,396 7,026 1 $ 14,423
- --------------------------------------------------------------------------------
Total Assets .............. $288,246 $213,490 $ 54,285 $556,021
- --------------------------------------------------------------------------------
For the year ended December 31, 1998
--------------------------------------------------
Engine Temperature Other
(In thousands) Management Control Adjustments Consolidated
- --------------------------------------------------------------------------------
Net Sales .................. $348,664 $297,144 $ 3,612 $649,420
- --------------------------------------------------------------------------------
Depreciation
and amortization ........... $ 10,068 4,473 2,733 $ 17,274
- --------------------------------------------------------------------------------
Operating income ........... $ 32,243 19,672 (7,984) $ 43,931
- --------------------------------------------------------------------------------
Investment in equity
affiliates ................. $ 105 516 4,077 $ 4,698
- --------------------------------------------------------------------------------
Capital expenditures ....... $ 10,597 4,598 130 $ 15,325
- --------------------------------------------------------------------------------
Total Assets ............... $311,716 $183,197 $ 26,643 $521,556
- --------------------------------------------------------------------------------
For the year ended December 31, 1997
-------------------------------------------------
Engine Temperature Other
(In thousands) Management Control Adjustments Consolidated
- --------------------------------------------------------------------------------
Net Sales ................. $ 365,824 $ 187,918 $ 6,081 $ 559,823
- --------------------------------------------------------------------------------
Depreciation
and amortization .......... $ 9,948 3,284 5,748 $ 18,980
- --------------------------------------------------------------------------------
Operating income .......... $ 28,179 7,302 (26,026) $ 9,455
- --------------------------------------------------------------------------------
Investment in equity
affiliates ................ $ 1,105 396 5,933 $ 7,434
- --------------------------------------------------------------------------------
Capital expenditures ...... $ 9,679 3,138 2,780 $ 15,597
- --------------------------------------------------------------------------------
Total Assets .............. $ 317,162 $ 107,406 $ 152,569 $ 577,137
- --------------------------------------------------------------------------------
Other Adjustments consists of items pertaining to the corporate
headquarters function, a Canadian business unit that does not meet the criteria
of a reportable operating segment under SFAS No. 131 and businesses that have
been sold.
F-13
<PAGE>
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
The following table reconciles the measure of profit used in the
previous disclosure to the Company's consolidated Earnings (loss) from
continuing operations before taxes:
(In thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
Operating income ..................... $ 29,544 $ 43,931 $ 9,455
Other income (expense) ............... (1,207) (1,422) 998
Interest expense ..................... 15,951 16,419 14,158
- --------------------------------------------------------------------------------
Earnings (loss) from continuing
operations before taxes,
minority interest and
extraordinary item ................... $ 12,386 $ 26,090 $ (3,705)
- --------------------------------------------------------------------------------
GEOGRAPHIC INFORMATION FOR THE YEAR ENDED DECEMBER 31,
REVENUES
----------------------------------------
(In thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
United States .................. $586,781 $586,044 $493,823
Canada ......................... 27,331 25,513 25,748
Other Foreign .................. 44,129 37,863 40,252
- --------------------------------------------------------------------------------
Total .......................... $658,241 $649,420 $559,823
- --------------------------------------------------------------------------------
LONG LIVED ASSETS
----------------------------------------
(In thousands) ................. 1999 1998 1997
- --------------------------------------------------------------------------------
United States .................. $126,078 $125,627 $126,854
Canada ......................... 3,897 3,719 8,615
Other Foreign .................. 18,222 19,290 21,229
- --------------------------------------------------------------------------------
Total .......................... $148,197 $148,636 $156,698
- --------------------------------------------------------------------------------
Revenues are attributed to countries based upon the location of the
customer.
17. FAIR VALUE OF FINANCIAL INSTRUMENT
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:
(In thousands)
December 31, 1999 Carrying Fair
Amount Value
- --------------------------------------------------------------------------------
Cash and cash equivalents ................ $ 40,380 $ 40,380
Marketable securities .................... 7,200 7,200
Long-term debt ........................... (192,780) (158,768)
- --------------------------------------------------------------------------------
(In thousands)
December 31, 1998 Carrying Fair
Amount Value
- --------------------------------------------------------------------------------
Cash and cash equivalents ................ $ 23,457 $ 23,457
Marketable securities .................... 7,200 7,200
Long-term debt ........................... (156,153) (143,938)
- --------------------------------------------------------------------------------
18. COMMITMENTS AND CONTINGENCIES
Total rent expense for the three years ended December 31, 1999 was as follows:
Real
(In thousands) Total Estate Other
- --------------------------------------------------------------------------------
1999 .......... $8,176 $5,124 $3,052
1998 .......... 5,747 3,619 2,128
1997 .......... 7,437 4,593 2,844
At December 31, 1999, 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)
2000 .............................. $6,434
2001 .............................. 5,441
2002 .............................. 4,991
2003 .............................. 4,247
2004 .............................. 2,917
Thereafter ........................ 3,566
- --------------------------------------------------------------------------------
$27,596
- --------------------------------------------------------------------------------
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, 2000
through 2004 of $1,612,000, $1,775,000, $1,723,000, $1,006,000 and $580,000,
respectively.
At December 31, 1999, the Company had outstanding letters of credit
aggregating approximately $3,175,000. 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 $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 believes this matter will
not have a material effect on the Company's consolidated financial position or
results of operations.
F-14
<PAGE>
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
The Company is involved in various other litigation 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
position and results of operations.
19. QUARTERLY FINANCIAL DATA (UNAUDITED)
(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) from
continuing operations 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)
from continuing operations
before extraordinary item
per common share:
Basic ............................. $ (1.36) $ .80 $ .92 $ .28
Diluted ........................... $ (1.36) $ .74 $ .91 $ .28
- --------------------------------------------------------------------------------
Net Earnings (loss)
per common share:
Basic ............................. $ (1.36) $ .72 $ .92 $ .28
Diluted ........................... $ (1.36) $ .67 $ .91 $ .28
- --------------------------------------------------------------------------------
(In thousands, except per share amounts)
Dec. 31, Sept. 30, June 30, Mar. 31,
Quarter Ended ..................... 1998 1998 1998 1998
- --------------------------------------------------------------------------------
Net Sales ......................... $113,316 $201,293 $208,766 $126,045
- --------------------------------------------------------------------------------
Gross Profit ...................... 36,352 62,408 63,072 43,790
- --------------------------------------------------------------------------------
Earnings from
continuing operations ............. 1,391 9,574 8,639 2,653
- --------------------------------------------------------------------------------
Net Earnings ...................... $ 1,391 $ 9,574 $ 8,639 $ 2,653
- --------------------------------------------------------------------------------
Net Earnings from
continuing operations per
common share:
Basic ............................. $ .11 $ .73 $ .66 $ .20
Diluted ........................... $ .11 $ .72 $ .65 $ .20
- --------------------------------------------------------------------------------
Net Earnings per
common share:
Basic ............................. $ .11 $ .73 $ .66 $ .20
Diluted ........................... $ .11 $ .72 $ .65 $ .20
- --------------------------------------------------------------------------------
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 consolidate and balance Temperature Control
inventories in the field; $3,500,000 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.
F-15
<PAGE>
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 2000 Annual Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
Information relating to Management Remuneration and
Transactions is set forth in the 2000 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 2000
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
2000 Annual Proxy Statement.
20
<PAGE>
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, 1999 and 1998
Consolidated Statements of Operations
- Years Ended December 31, 1999, 1998 & 1997
Consolidated Statements of Changes in Stockholders'
Equity
- Years Ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows -
- Years Ended December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
(2) The following financial schedule for the years 1999, 1998
and 1997 is 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 22.
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, 1999.
21
<PAGE>
STANDARD MOTOR PRODUCTS, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT PAGE
NUMBER NUMBER
- ------ ------
<C> <S> <C>
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.
22
<PAGE>
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.
23
<PAGE>
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.
24
<PAGE>
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 10.20
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 10.20.
25
<PAGE>
STANDARD MOTOR PRODUCTS, INC.
EXHIBIT INDEX
EXHIBIT EXHIBIT PAGE
NUMBER NUMBER
- ------ ------
10.21 Form of Fourth Amendment dated March 3, 2000 to the Credit 10.21
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 10.21.
21. List of Subsidiaries of Standard Motor Products, Inc. 30
23 Consent of Independent Auditors KPMG LLP 31
27. Financial Data Schedule for 1999 32
<FN>
* Incorporated by reference.
</FN>
</TABLE>
26
<PAGE>
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
Chief Executive Officer, President and Director
JAMES J. BURKE
--------------
James J. Burke
Vice President, Finance; Chief Financial Officer
New York, New York
March 28, 2000
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 28, 2000 LAWRENCE I. SILLS
-----------------
Lawrence I. Sills
Chief Executive Officer, President and Director
March 28, 2000 NATHANIEL L. SILLS
------------------
Nathaniel L. Sills
Chairman and Director
March 28, 2000 ARTHUR D. DAVIS
---------------
Arthur D. Davis, Director
March 28, 2000 MARILYN F. CRAGIN
-----------------
Marilyn F. Cragin, Director
March 28, 2000 SUSAN F. DAVIS
--------------
Susan F. Davis, Director
March 28, 2000 ARTHUR S. SILLS
---------------
Arthur S. Sills, Director
27
<PAGE>
The Board of Directors and Stockholders
Standard Motor Products, Inc.:
Under date of February 25, 2000, except as to notes 4, 8 and 9, which are as of
March 10, March 3 and March 13 respectively, we reported on the consolidated
balance sheets of Standard Motor Products, Inc. and subsidiaries as of December
31, 1999, and 1998, and the related consolidated statements of operations,
changes in stockholders' equity, and cash flows for each of the years in the
three year period ended December 31, 1999, as contained in the annual report on
Form 10-K for the year 1999. 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 25, 2000, except as to notes 4, 8 and 9,
which are as of March 10,
March 3 and March 13, respectively
28
<PAGE>
<TABLE>
<CAPTION>
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
----------------------------------------------
Schedule II - Valuation and Qualifying Accounts
Years ended December 31, 1999, 1998 and 1997
ADDITIONS
---------
BALANCE AT CHARGED TO CHARGED
BEGINNING COSTS AND TO OTHER BALANCE AT
DESCRIPTION OF YEAR EXPENSES (1) ACCOUNTS DEDUCTIONS END OF YEAR
----------- ------- ------------ -------- ---------- -----------
YEAR ENDED DECEMBER 31, 1999:
- -----------------------------
<S> <C> <C> <C> <C> <C>
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
========== ========= ============= ============ ==========
YEAR ENDED DECEMBER 31, 1997:
Allowance for doubtful accounts $ 3,012,000 $ 16,478,000 $ 130,000 $ 3,433,000 $ 16,187,000
Allowance for discounts 2,487,000 20,000 2,467,000
--------- ---------- ------------- ------------ ----------
$ 5,499,000 $ 16,478,000 $ 130,000 $ 3,453,000 $ 18,654,000
========= ========== ============= ============ ==========
Allowance for sales returns $ 15,061,000 $ 90,868,000 $ 272,000 $ 88,246,000 $ 17,955,000
========== ========== ============= ============ ==========
Allowance for inventory valuation $ 14,284,000 $ 2,717,000 $ 2,228,000 $ 2,051,000 $ 17,178,000
========== ========= ============= =========== ==========
<FN>
(1) Includes charges reflected in operations of discontinued businesses in 1997.
</FN>
</TABLE>
THIRD AMENDMENT TO
REVOLVING CREDIT AGREEMENT
THIRD AMENDMENT, dated as of October 18, 1999 (the "Amendment"), to
the CREDIT AGREEMENT, dated as of November 30, 1998 among STANDARD MOTOR
PRODUCTS, INC., a New York corporation (the "BORROWER"), the Lenders party
thereto, THE CHASE MANHATTAN BANK, as administrative agent (in such capacity,
the "ADMINISTRATIVE AGENT") for the Lenders and CANADIAN IMPERIAL BANK OF
COMMERCE, as documentation agent (in such capacity, the "DOCUMENTATION AGENT")
for the Lenders.
W I T N E S S E T H:
WHEREAS, the Borrower, the Lenders, the Administrative Agent and the
Documentation Agent are parties to that certain Credit Agreement, dated as of
November 30, 1998, as amended by that certain First Amendment to Revolving
Credit Agreement, dated as of December 8, 1998 and that certain Second Amendment
to Revolving Credit Agreement, dated as of July 16, 1999 (as the same may be
further amended, modified or supplemented from time to time, the "CREDIT
AGREEMENT"); and
WHEREAS, the Borrower, the Lenders, the Administrative Agent and the
Documentation Agent have agreed to amend the Credit Agreement subject to and
upon the conditions set forth herein;
NOW, THEREFORE, it is agreed:
1. As used herein all terms that are defined in the Credit
Agreement shall have the same meanings herein.
2. Section 6.04(g) of the Credit Agreement is hereby amended
in its entirety to read as follows:
"(g) acquisitions of the Capital Stock or assets
of other Persons in an amount not in excess of $40,000,000
in the aggregate during the period from and after October
18, 1999 through the Maturity Date, PROVIDED, that promptly
following the execution of definitive purchase
documentation regarding any such acquisition the purchase
price of which is in excess of $10,000,000, the Borrower
shall deliver to the Lenders a brief description and
financial overview, in such detail as may be reasonably
acceptable to the Lenders, of such acquisition
transaction;"
<PAGE>
3. This Amendment shall not become effective until the date (the
"EFFECTIVE DATE") on which (i) this Amendment shall have been executed by the
Borrower, Lenders representing the Required Lenders and the Administrative
Agent, the Guarantors shall have acknowledged and agreed to the terms hereof,
and the Administrative Agent shall have received evidence satisfactory to it of
such execution and acknowledgment and (ii) the Administrative Agent shall have
received all fees and other amounts due and payable on or prior to the Effective
Date, including, to the extent invoiced, reimbursement or payment of all
out-of-pocket expenses required to be reimbursed or paid by the Borrower under
the Credit Agreement or any other Loan Document.
4. The Borrower agrees that its obligations set forth in Section 9.03
of the Credit Agreement shall extend to the preparation, execution and delivery
of this Amendment.
5. This Amendment shall be limited precisely as written and shall not
be deemed (i) to be a consent granted pursuant to, or a waiver or modification
of, any other term or condition of the Credit Agreement or any of the
instruments or agreements referred to therein or (ii) to prejudice any right or
rights which the Administrative Agent, the Documentation Agent or the Lenders
may now have or have in the future under or in connection with the Credit
Agreement or any of the instruments or agreements referred to therein. Whenever
the Credit Agreement is referred to in the Credit Agreement or any of the
instruments, agreements or other documents or papers executed or delivered in
connection therewith, such reference shall be deemed to mean the Credit
Agreement as modified by this Amendment.
6. This Amendment may be executed in any number of counterparts and
by the different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which taken
together shall constitute but one and the same instrument.
7. This Amendment shall in all respects be construed in accordance
with and governed by the laws of the State of New York applicable to contracts
made and to be performed wholly within such State.
[SIGNATURE ON FOLLOWING PAGE]
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed by their respective authorized officers as of the day and the
year first above written.
STANDARD MOTOR PRODUCTS, INC.
BY: /S/ DAVID KERNER
---------------------------
Name: David Kerner
Title: Treasurer
THE CHASE MANHATTAN BANK,
Individually and as Administrative Agent
BY: /S/ JOHN J. MAST
---------------------------
Name: John J. Mast
Title: Vice President
CANADIAN IMPERIAL BANK OF
COMMERCE
Individually and as Administrative Agent
BY: /S/ W. A. CROUCH
---------------------------
Name: W. A. Crough
Title: Director, Commercial Banking
BANKBOSTON, N.A.
By /S/ DONALD W. PETERS
---------------------------
Name: Donald W. Peters
Title: Vice President
<PAGE>
BANK LEUMI USA
BY: /S/ RISA GOSSET
------------------------------------
Name: Risa Gosset
Title: Assistant Vice President
BY: /S/ J. P. REFFER
------------------------------------
Name: J. P. Reffer
Title: Senior Vice President
HSBC USA
BY: /S/ THOMAS DIONIAN
------------------------------------
Name: Thomas Dionian
Title: Vice President
COMERICA BANK
BY: /S/ ROBERT M. RAMIREZ 10/18/99
------------------------------------
Name: Robert M. Ramirez
Title: Account Officer
FIRST UNION NATIONAL BANK
BY:
-----------------------------------
Name:
Title:
BANCO POPULAR NORTH AMERICA
BY: -----------------------------------
Name:
Title:
<PAGE>
ACKNOWLEDGMENT OF GUARANTORS
----------------------------
Each of the undersigned hereby acknowledges and agrees to the terms
of, and to the execution, delivery and performance by each of the parties to,
this Amendment, and irrevocably and unconditionally ratifies and confirms that
the Subsidiary Guaranty to which it is a party shall remain in full force and
effect in accordance with its terms.
RENO STANDARD INCORPORATED
BY: /S/ DAVID KERNER
----------------------
Name: David Kerner
Title: Treasurer
MARDEVCO CREDIT CORP.
BY: /S/ DAVID KERNER
----------------------
Name: David Kerner
Title: Treasurer
STANRIC, INC.
BY: /S/ DAVID KERNER
----------------------
Name: David Kerner
Title: Treasurer
INDUSTRIAL & AUTOMOTIVE
ASSOCIATES, INC.
BY: /S/ DAVID KERNER
----------------------
Name: David Kerner
Title: Treasurer
<PAGE>
MARATHON AUTO PARTS AND
PRODUCTS INC.
BY: /S/ DAVID KERNER
----------------------
Name: David Kerner
Title: Treasurer
MOTORTRONICS, INC.
BY: /S/ DAVID KERNER
----------------------
Name: David Kerner
Title: Treasurer
FOURTH AMENDMENT TO
REVOLVING CREDIT AGREEMENT
AND LIMITED WAIVER
FOURTH AMENDMENT, dated as of March 3, 2000 (the "AMENDMENT"), to the
CREDIT AGREEMENT, dated as of November 30, 1998, among STANDARD MOTOR PRODUCTS,
INC., a New York corporation (the "BORROWER"), the Lenders party thereto, THE
CHASE MANHATTAN BANK, as administrative agent (in such capacity, the
"ADMINISTRATIVE AGENT") for the Lenders and CANADIAN IMPERIAL BANK OF COMMERCE,
as documentation agent (in such capacity, the "DOCUMENTATION AGENT") for the
Lenders.
W I T N E S S E T H:
WHEREAS, the Borrower, the Lenders, the Administrative Agent and the
Documentation Agent are parties to that certain Credit Agreement, dated as of
November 30, 1998, as amended by that certain First Amendment to Revolving
Credit Agreement, dated as of December 8, 1998, that certain Second Amendment to
Revolving Credit Agreement, dated as of July 16, 1999 and that certain Third
Amendment to Revolving Credit Agreement, dated as of October 18, 1999 (as the
same may be further amended, modified or supplemented from time to time, the
"CREDIT AGREEMENT");
WHEREAS, terms defined in the Credit Agreement shall have their
defined meanings when used herein unless otherwise defined herein; and
WHEREAS, the Borrower, the Lenders, the Administrative Agent and the
Documentation Agent have agreed to amend the Credit Agreement subject to and
upon the conditions set forth herein;
NOW, THEREFORE, the parties hereto hereby agree as follows:
SECTION 1. AMENDMENTS TO CREDIT AGREEMENT.
------------------------------
1.1. (a) Section 1.01 of the Credit Agreement is hereby amended by
inserting the following new definitions in the appropriate alphabetical order:
"CLEAN-UP PERIOD" has the meaning assigned to
such term in Section 2.10(b) hereof.
"JDEDWARDS ERP CAPITAL LEASE OBLIGATION" means the obligation
of the Borrower under the capital lease agreement entered into in respect of the
financing of the JDEdwards ERP project, which obligation shall not exceed
$4,000,000 in the aggregate.
(b) Section 1.01 of the Credit Agreement is hereby further amended by
amending and restating, in its entirety, the following definitions:
"CONSOLIDATED TANGIBLE NET WORTH" means, at any date of
determination, the sum of all amounts which would be included under
shareholders' equity on a consolidated balance sheet of the Borrower and its
Subsidiaries determined on a consolidated basis in accordance with GAAP as at
such date, PLUS proceeds of a high yield or convertible issue to the extent used
to re-purchase stock of the Borrower through fiscal quarter ended March 31, 2000
in an amount not to exceed $18,000,000, PLUS the amount, up to $8,000,000 in the
aggregate, used to re-purchase stock of the Borrower as permitted by Section
6.06(a)(v) hereof, MINUS all intangible assets of the Borrower and its
Subsidiaries on a consolidated basis as at of such date, including, without
limitation, unamortized debt discount and expense, unamortized deferred charges,
goodwill, customer acquisition costs, patents, trademarks, service marks, trade
names, copyrights and organization or developmental expenses.
"INVENTORY TURNOVER RATIO" means, at the end of any fiscal
year, the ratio of
(i) the cost of goods sold as set forth on the income
statement of the Borrower and its Subsidiaries for the fiscal
year ending on such date, to (ii) the value of all inventory
(determined on a first in first out basis) of the Borrower
and its Subsidiaries, determined on a consolidated basis in
accordance with GAAP as at such date; provided that in the
event the Borrower acquires another entity in accordance with
the terms of this Credit Agreement, the cost of goods sold
related to the inventory acquired by the Borrower in
connection with such acquisition shall be calculated on an
annualized basis.
1.2. Section 2.10(b) is hereby amended in its entirety to read as follows:
"(b) During the period from September 1st through
December 31st of each calendar year, the Borrower shall (i)
repay the aggregate principal amounts of all Revolving Loans
so as to reduce, and maintain for a period of 30 consecutive
days, the outstanding aggregate Loans at an amount equal to
zero dollars ($0.00) (the "CLEAN-UP PERIOD") and (ii) for the
30 day period immediately prior to or immediately following
the Clean-Up Period, repay the aggregate principal amount of
all Revolving Loans so as to reduce the outstanding aggregate
Loans during such 30 consecutive day period to an amount not
greater than $10,000,000."
1.3. Section 6.01(e) of the Credit Agreement is hereby amended in its
entirety to read as follows:
"(e) Indebtedness of the Borrower or any Subsidiary
incurred to finance (x) the acquisition, construction or
improvement of any fixed or capital assets, including Capital
Lease Obligations (other than the JDEdwards ERP Capital Lease
Obligation) and any Indebtedness assumed in connection with
the acquisition of any such assets or secured by a Lien on
any such assets prior to the acquisition thereof, and
extensions, renewals and replacements of any such
Indebtedness that do not increase the outstanding principal
amount thereof; provided that (i) such Indebtedness is
incurred prior to or within 120 days after such acquisition
or the completion of such construction or improvement and
(ii) the aggregate principal amount of Indebtedness permitted
by this clause (e)(x) shall not exceed $3,000,000 at any time
outstanding and (y) the JDEdwards ERP Capital Lease
Obligation;"
1.4. Section 6.04(g) of the Credit Agreement is hereby amended in its
entirety to read as follows:
"(g) acquisitions of the capital stock or assets of
other Persons in an amount not in excess of $25,000,000 in
the aggregate during the period from and after October 18,
1999 through the Maturity Date, PROVIDED, that promptly
following the execution of definitive purchase documentation
regarding any such acquisition the purchase price of which is
in excess of $10,000,000, the Borrower shall deliver to the
Lenders a brief description and financial overview, in such
detail as may be reasonably acceptable to the Lenders, of
such acquisition transaction;"
1.5. Section 6.05 of the Credit Agreement is hereby amended by replacing
the dollar amount "$2,000,000" contained therein with "$65,000,000."
1.6. Section 6.06(a) of the Credit Agreement is hereby amended by (x)
deleting the word "and" after the comma in subsection (iii), (y) deleting the
period at the end of subsection (iv) and substituting in lieu thereof ", and"
and (z) adding the following new subsection (v) immediately after subsection
(iv):
"(v) payments in an amount not to exceed $8,000,000 in
the aggregate through December 31, 2000 in connection with
the re-purchase of the Borrower's capital stock."
1.7. Section 6.06(b)(iii) of the Credit Agreement is hereby amended in its
entirety to read as follows:
"(iii) the pre-payment in full no later than April 15,
2000 of the then outstanding principal balance of the
$30,000,000 Note Agreement described in item (iii) of the
definition of "Note Agreement Indebtedness" which principal
balance shall not exceed $14,000,000, together with accrued
interest thereon, and a prepayment penalty; and"
3
<PAGE>
1.8. Section 6.13 of the Credit Agreement is hereby amended by replacing
the chart contained therein with the following:
- ------------------------------------------------------ -----------------------
FISCAL QUARTER ENDING LEVERAGE RATIO
- ------------------------------------------------------ -----------------------
December 31, 1999 3.50 to 1
March 31, 2000 3.75 to 1
June 30, 2000 3.75 to 1
September 30, 2000 through Maturity Date 3.50 to 1
- ------------------------------------------------------ ------------------------
1.9. Section 6.16 of the Credit Agreement is hereby amended by replacing
the chart contained therein with the following:
- ------------------------------------------------------ ------------------------
FISCAL QUARTER ENDING INTEREST COVERAGE RATIO
- ------------------------------------------------------ ------------------------
December 31, 1999 3.0 to 1
March 31, 2000 3.0 to 1
June 30, 2000 3.0 to 1
September 30, 2000 3.5 to 1
December 31, 2000 through Maturity Date 3.75 to 1
- ------------------------------------------------------ ------------------------
1.10. Section 6.18 of the Credit Agreement is hereby amended by replacing
the chart contained therein with the following:
- ------------------------------------------------------- ------------------------
FISCAL YEAR ENDING INVENTORY TURNOVER RATIO
- ------------------------------------------------------- ------------------------
December 31, 1999 through the Maturity Date 2.35 to 1
- ------------------------------------------------------- ------------------------
SECTION 2. LIMITED WAIVERS.
---------------
Subject to the terms and provisions of this Amemdment, the Administrative
Agent and the Lenders hereby waive compliance with (i) the provisions of Section
6.15 of the Credit Agreement for the Borrower's fiscal quarter ended March 31,
2000, provided that Consolidated Tangible Net Worth for such fiscal quarter
shall not be less than $146,000,000 and (ii) the provisions of Section 6.18 of
the Credit Agreement for the Borrower's fiscal year ended December 31, 1999.
SECTION 3. EFFECTIVENESS.
--------------
This Amendment shall not become effective until the date (the "EFFECTIVE
DATE") on which (i) this Amendment shall have been executed by the Borrower,
Lenders representing the Required Lenders and the Administrative Agent, the
Guarantors shall have acknowledged and agreed to the
4
<PAGE>
terms hereof, and the Administrative Agent shall have received evidence
satisfactory to it of such execution and acknowledgment and (ii) the
Administrative Agent shall have received by wire transfer of immediately
available funds all fees and other amounts due and payable on or prior to the
Effective Date, including, without limitation, the Amendment Fee referred to in
Section 4.1 hereof and to the extent invoiced, reimbursement or payment of all
out-of-pocket expenses required to be reimbursed or paid by the Borrower under
the Credit Agreement or any other Loan Document.
SECTION 4. MISCELLANEOUS.
-------------
4.1. AMENDMENT FEE. The Borrower agrees to pay on the Effective Date to the
Administrative Agent for the ratable benefit of the Lenders an amendment fee in
the aggregate amount of $110,000 (the "AMENDMENT FEE"). -------------
4.2. EXPENSES. The Borrower agrees that its obligations set forth in
Section 9.03 of the Credit Agreement shall extend to the preparation, execution
and delivery of this Amendment.
4.3. REFERENCES. This Amendment shall be limited precisely as written and
shall not be deemed (i) to be a consent granted pursuant to, or a waiver or
modification of, any other term or condition of the Credit Agreement or any of
the instruments or agreements referred to therein, (ii) to prejudice any right
or rights which the Administrative Agent, the Documentation Agent or the Lenders
may now have or have in the future under or in connection with the Credit
Agreement or any of the instruments or agreements referred to therein or (iii)
to create on the part of the Administrative Agent or any Lender any obligation
to renew or extend the waivers contained herein. Whenever the Credit Agreement
is referred to in the Credit Agreement or any of the instruments, agreements or
other documents or papers executed or delivered in connection therewith, such
reference shall be deemed to mean the Credit Agreement as modified by this
Amendment.
4.4. RATIFICATION. Except as expressly set forth herein, the terms,
provisions and conditions of the Credit Agreement and the other Loan Documents
shall remain in full force and effect and in all other respects are hereby
ratified and confirmed.
4.5. COUNTERPARTS. This Amendment may be executed in any number of
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed to be an original and
all of which taken together shall constitute but one and the same instrument.
Delivery of an executed counterpart of a signature page of this Amendment by
facsimile shall be effective as delivery of a manually executed counterpart of
this Amendment.
4.6. HEADINGS. Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose or be given any substantive effect.
5
<PAGE>
4.7. GOVERNING LAW. THIS AMENDMENT SHALL IN ALL RESPECTS BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED WHOLLY WITHIN SUCH STATE WITHOUT REGARD TO
CONFLICTS OF LAWS PRINCIPLES.
[SIGNATURES ON FOLLOWING PAGE]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed by their respective authorized officers as of the day and the year
first above written.
STANDARD MOTOR PRODUCTS, INC.
BY
------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK,
Individually and as Administrative Agent
BY
------------------------------
Name:
Title:
CANADIAN IMPERIAL BANK OF COMMERCE,
Individually and as Documentation Agent
BY
---------------------------------
Name:
Title:
BANKBOSTON, N.A.
BY
----------------------------------
Name:
Title:
<PAGE>
BANK LEUMI USA
By
---------------------------------
Name:
Title:
HSBC USA
By
---------------------------------
Name:
Title:
COMERICA BANK
By
---------------------------------
Name:
Title:
FIRST UNION NATIONAL BANK
By
---------------------------------
Name:
Title:
BANCO POPULAR NORTH AMERICA
By
---------------------------------
Name:
Title:
<PAGE>
ACKNOWLEDGMENT OF GUARANTORS
----------------------------
Each of the undersigned hereby acknowledges and agrees to the terms of, and to
the execution, delivery and performance by each of the parties to, this
Amendment, and irrevocably and unconditionally ratifies and confirms that the
Subsidiary Guaranty to which it is a party shall remain in full force and effect
in accordance with its terms.
RENO STANDARD INCORPORATED
By:
---------------------------------
Name:
Title:
MARDEVCO CREDIT CORP.
By:
---------------------------------
Name:
Title:
STANRIC, INC.
By:
---------------------------------
Name:
Title:
INDUSTRIAL & AUTOMOTIVE
ASSOCIATES, INC.
By:
---------------------------------
Name:
Title:
<PAGE>
MARATHON AUTO PARTS AND
PRODUCTS, INC.
By:
---------------------------------
Name:
Title:
MOTORTRONICS, INC.
By:
---------------------------------
Name:
Title:
EAGLEMOTIVE CORPORATION
By:
---------------------------------
Name:
Title:
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
AS OF FEBRUARY 29, 2000
<TABLE>
<CAPTION>
PERCENT
STATE OR OF VOTING
COUNTRY OF SECURITIES
NAME INCORPORATION OWNED
- ---- ------------- -----
<S> <C> <C>
SMP Motor Products Limited Canada 100
Marathon Auto Parts and Products, Inc. New York 100
Motortronics, Inc. New York 100
Reno Standard Incorporated Nevada 100
Stanric, Inc. (1) Delaware 100
Mardevco Credit Corp. (2) New York 100
Standard Motor Products (Hong Kong) Limited Hong Kong 100
Industrial & Automotive Associates, Inc. California 100
Standard Motor Electronics, Limited Israel 100
Four Seasons Europe S.A.R.L. France 100
Standard Motor Products Holdings Limited England and Wales 74.25
Eaglemotive Corporation Delaware 100
Standard Motor Products de Mexico, S. De R.L. De C. V. (3) Mexico 100
SMP Credit Corp. Delaware 100
<FN>
All of the subsidiaries are included in the consolidated financial statements.
(1) Mardevco owns 12.7% of Stanric
(2) Stanric owns 14.9% of Mardevco
(3) Standard Motor Products owns 49,999 shares, Motortronics owns 1 share
</FN>
</TABLE>
EXHIBIT 23
----------
INDEPENDENT AUDITORS' CONSENT
-----------------------------
To the Board of Directors and Stockholders
Standard Motor Products, Inc.:
We consent to incorporation by reference in the Registration Statements (No.'s
33-58655, 333-51565 and 333-51619) on Form S-8 of Standard Motor Products, Inc.
of our reports dated February 25, 2000, except as to notes 4, 8 and 9, which are
as of March 10, March 3 and March 13, respectively, relating to the consolidated
balance sheets of Standard Motor Products, Inc. and subsidiaries as of December
31, 1999 and 1998, and the related consolidated statements of operations,
changes in stockholders' equity, and cash flows and related schedule for each of
the years in the three year period ended December 31, 1999, which reports appear
in the December 31, 1999 annual report on Form 10-K of Standard Motor Products,
Inc.
KPMG LLP
New York, New York
March 24, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 40,380
<SECURITIES> 0
<RECEIVABLES> 119,635
<ALLOWANCES> (4,611)
<INVENTORY> 188,400
<CURRENT-ASSETS> 374,693
<PP&E> 213,976
<DEPRECIATION> (107,398)
<TOTAL-ASSETS> 556,021
<CURRENT-LIABILITIES> 168,887
<BONDS> 163,868
0
0
<COMMON> 26,649
<OTHER-SE> 176,869
<TOTAL-LIABILITY-AND-EQUITY> 556,021
<SALES> 658,241
<TOTAL-REVENUES> 658,241
<CGS> 466,110
<TOTAL-COSTS> 466,110
<OTHER-EXPENSES> 161,764
<LOSS-PROVISION> 2,387
<INTEREST-EXPENSE> 15,951
<INCOME-PRETAX> 12,386
<INCOME-TAX> 3,344
<INCOME-CONTINUING> 8,685
<DISCONTINUED> 0
<EXTRAORDINARY> 1,060
<CHANGES> 0
<NET-INCOME> 7,625
<EPS-BASIC> 0.58
<EPS-DILUTED> 0.58
</TABLE>
