UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the Quarterly Period Ended MARCH 31, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION
13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
Commission file number 1-4743
STANDARD MOTOR PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 11-1362020
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
37-18 NORTHERN BLVD., LONG ISLAND CITY, N.Y. 11101
(Address of principal executive offices) (Zip Code)
(718) 392-0200
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
DATE CLASS SHARES
OUTSTANDING
COMMON STOCK PAR
APRIL 30, 2001 VALUE $2.00 PER SHARE 12,445,179
-------------- --------------------- ----------
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL AND OTHER INFORMATION
MARCH 31, 2001
PART 1 - FINANCIAL INFORMATION
ITEM 1
PAGE NO.
CONSOLIDATED BALANCE SHEETS
March 31, 2001 and December 31, 2000 3 & 4
CONSOLIDATED STATEMENTS OF OPERATIONS AND
RETAINED EARNINGS for the three-month
periods ended March 31, 2001 and 2000. 5
CONSOLIDATED STATEMENTS OF CASH FLOWS for the
three-month periods ended March 31, 2001 and 2000 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7 - 11
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 12 - 13
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 14
PART II - OTHER INFORMATION
ITEM 1
Legal Proceedings 15
ITEM 6
Exhibits and Reports on Form 8-K 16
Signature 16
2
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS
------
March 31, December 31,
2001 2000
- ---------------------------------------------------------------------------------------------------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 4,216 $ 7,699
Accounts and notes receivable, net of
allowance for doubtful accounts and
discounts of $5,627 (2000 - $4,577) (Notes 4 and 6) 150,281 106,261
Inventories (Notes 2 and 4) 220,888 234,257
Deferred income taxes 12,466 12,482
Prepaid expenses and other current assets 13,407 12,060
------------ ------------
Total current assets 401,258 372,759
------------ ------------
Property, plant and equipment, net of
accumulated depreciation (Notes 3 and 4) 103,729 104,536
Goodwill, net 40,516 40,685
Other assets 31,317 31,416
------------ ------------
Total assets $ 576,820 $ 549,396
============ ============
See accompanying notes to consolidated financial statements.
3
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except for shares and per share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
March 31, December 31,
2001 2000
- ---------------------------------------------------------------------------------------------------------
(Unaudited)
Current liabilites:
Notes payable (Note 4) $ 89,081 $ 38,930
Current portion of long-term debt (Note 5) 13,481 13,643
Accounts payable 49,871 56,612
Sundry payables and accrued expenses 46,321 49,671
Accrued customer returns 17,566 17,693
Payroll and commissions 7,344 8,119
------------ ------------
Total current liabilites 223,664 184,668
------------ ------------
Long-term debt (Note 5) 138,665 150,018
Postretirement benefits other than pensions
and other accrued liabilities 20,846 20,405
------------ ------------
Total liabilities 383,175 355,091
------------ ------------
Commitments and contingencies (Notes 4, 5, 8, 10 and 12)
Stockholders' equity (Notes 5, 7, 8, 9 and 10):
Common stock - par value $2.00 per share
Authorized - 30,000,000 shares Issued - 13,324,476 shares in 2001
and 2000 (including 1,554,297 and 1,629,297 shares held as treasury
shares in 2001 and
2000, respectively) 26,649 26,649
Capital in excess of par value 2,123 2,541
Retained earnings 189,820 190,253
Accumulated other comprehensive income (1,530) (591)
------------ ------------
217,062 218,852
Less: treasury stock - at cost 23,417 24,547
------------ ------------
Total stockholders' equity 193,645 194,305
------------ ------------
Total liabilities and stockholders' equity $ 576,820 $ 549,396
============ ============
See accompanying notes to consolidated financial statements.
4
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Dollars in thousands, except for shares and per share data)
(Unaudited)
For Three-Months Ended
March 31,
2001 2000
--------------- -----------------
Net sales $155,545 $146,759
Cost of sales 110,580 99,440
--------------- -----------------
Gross profit 44,965 47,319
Selling, general and administrative expenses 40,012 43,183
--------------- -----------------
Operating income 4,953 4,136
Other income (expense) - net 80 424
Interest expense 4,127 3,907
--------------- -----------------
Earnings before taxes, minority interest
and extraordinary item 906 653
Income taxes 287 229
Minority interest - (39)
--------------- -----------------
Earnings before extraordinary item 619 385
Extraordinary loss on early extinguishment of debt, net of taxes - 501
--------------- -----------------
Net earnings(loss) 619 (116)
Retained earnings at beginning of period 190,253 184,848
--------------- -----------------
190,872 184,732
Less: cash dividends for period 1,052 1,105
--------------- -----------------
Retained earnings at end of period $189,820 183,627
=============== =================
Per share data:
Net earnings per common share - basic:
Earnings per share before extraordinary item $0.05 $0.03
Extraordinary loss on early extinguishment of debt - (0.04)
--------------- -----------------
Net earnings per common share - basic $0.05 ($0.01)
=============== =================
Net earnings per common share - diluted:
Earnings per share before extraordinary item $0.05 $0.03
Extraordinary loss on early extinguishment of debt - (0.04)
--------------- -----------------
Net earnings per common share - diluted $0.05 ($0.01)
=============== =================
Average number of common shares 11,714,346 12,409,547
=============== =================
Average number of common and dilutive shares 11,728,569 12,409,547
=============== =================
See accompanying notes to consolidated financial statements.
5
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
For the Three-Months Ended
March 31,
----------------------------
2001 2000
------------ ----------
Cash flows from operating activities:
Net earnings (loss) $ 619 $ (116)
Adjustments to reconcile net earnings (loss) to net cash used in operating
activities:
Depreciation and amortization 4,828 4,729
Equity income from joint ventures (120) (127)
Employee Stock Ownership Plan Allocation 133 419
Extraordinary Loss on repayment of debt - 865
Change in assets and liabilities, net of effects from acquisitions:
Increase in accounts receivable, net (44,020) (28,615)
Decrease (Increase) in inventories 13,369 (29,013)
(Decrease) Increase increase in other current assets (767) 190
Decrease in other assets 369 1,940
(Decrease) Increase in accounts payable (6,741) 29,201
(Decrease) in sundry payables and accrued expenses (3,351) (3,621)
(Decrease) increase in other liabilities (401) (1,069)
------------ ----------
Net cash used in operating activities (36,082) (25,217)
------------ ----------
Cash flows from investing activities
Proceeds from the sale of property, plant & equipment - 650
Capital expenditures, net of effects from acquisitions (3,430) (6,405)
Payments for acquisitions, net of cash acquired (796) (1,353)
------------ ----------
Net cash used in investing activities (4,226) (7,108)
------------ ----------
Cash flows from financing activities:
Net borrowings under line-of-credit agreements 50,151 29,884
Principal payments and retirement of long-term debt (11,515) (25,526)
Purchase of treasury stock - (8,117)
Dividends paid (1,052) (1,105)
------------ ----------
Net cash provided by (used in) financing activities 37,584 (4,864)
------------ ----------
Effect of exchange rate changes on cash (759) 6
Net decrease in cash and cash equivalents (3,483) (37,183)
Cash and cash equivalents at beginning of the period 7,699 40,380
------------ ----------
Cash and cash equivalents at end of the period $ 4,216 $3,197
============ ==========
Supplemental disclosure of cash flow information: Cash paid during the period
for:
Interest $ 4,640 $5,418
============ ==========
Income taxes $ 170 $1,371
============ ==========
See accompanying notes to consolidated financial statements.
6
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
The accompanying unaudited financial information should be read in conjunction
with the consolidated financial statements, including the notes thereto, for the
year ended December 31, 2000.
The consolidated financial statements include the accounts of the Company and
all domestic and international companies in which the Company has more than a
50% equity ownership. The Company's investments in unconsolidated affiliates are
accounted for on the equity method. All significant inter-company items have
been eliminated.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. The results of operations for the interim periods are not
necessarily indicative of the results of operations for the entire year.
Where appropriate, certain amounts in 2000 have been reclassified to conform
with the 2001 presentation.
In June 1998 and June 2000, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" and SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities." These statements
establish accounting and reporting standards requiring that every derivative
instrument be recorded on the balance sheet as either an asset or liability
measured at its fair value. Adoption of these pronouncements on January 1, 2001
had no effect on the Company's consolidated financial statements taken as a
whole since the Company does not have any significant derivative instruments.
NOTE 2
INVENTORIES
-----------
(Dollars in Thousands)
March 31, 2001 December 31, 2000
(unaudited)
-------------- -----------------
Finished Goods $148,713 $165,381
Work in Process 4,236 3,552
Raw Materials 67,939 65,324
------ ------
Total inventories $220,888 $234,257
======== ========
NOTE 3
PROPERTY, PLANT AND EQUIPMENT
-----------------------------
(Dollars in thousands)
March 31, 2001 December 31, 2000
(unaudited)
-------------- -----------------
Land, buildings and improvements $60,627 $60,435
Machinery and equipment 102,889 101,884
Tools, dies and auxiliary equipment 12,357 12,035
Furniture and fixtures 33,101 33,164
Leasehold improvements 7,470 7,475
Construction in progress 13,453 12,328
-------- --------
229,897 227,321
Less: accumulated depreciation
and amortization 126,168 122,785
--------- --------
Total property, plant and
equipment - net $103,729 $104,536
======== ========
7
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4
On November 30, 1998, the Company entered into a three-year revolving credit
facility with eight lending institutions, providing for an unsecured line of
credit of $110,000,000. 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, as amended, include, among other
provisions, the requirement for a clean-down, maintenance of defined levels of
tangible net worth, various financial performance ratios and restrictions on
capital expenditures, dividend payments, acquisitions and additional
indebtedness. At March 31, 2001, borrowings under this facility amounted to $85
million.
With the current revolving credit facility set to expire on November 30, 2001,
the Company, effective April 27, 2001 entered into an agreement with GE Capital
Corp. and a syndicate of lenders for a new revolving credit facility. The term
of the new credit agreement is for a period of five years and provides for a
line of credit up to $225,000,000. The initial proceeds have been used to
refinance approximately $97 million of the outstanding indebtedness under the
Company's aforementioned existing bank line of credit, the 7.56% senior note of
$52 million, a $25 million accounts receivable sales arrangement and the
Canadian Credit Facility of $5 million. The Company expects to record an
extraordinary loss of approximately $2.7 million, net of taxes, in the second
quarter of 2001, for a prepayment penalty and write-off of unamortized fees for
the retirement of the above related debt. Availability under the new credit
facility is based on a formula of eligible accounts receivable and eligible
inventory. Direct borrowings will bear interest at the Prime Rate plus the
applicable margin (as defined) or the applicable LIBOR Rate plus the applicable
margin (as defined), at the option of the Company. Borrowings are collateralized
by accounts receivable, inventory and fixed assets of the Company and its
subsidiaries. The terms of the new revolving credit facility contain, among
other provisions, requirements of maintaining defined levels of tangible net
worth and specific limits or restrictions on additional indebtedness, capital
expenditures, liens and acquisitions.
NOTE 5
LONG-TERM DEBT
(Dollars in thousands)
March 31, 2001 December 31, 2000
(unaudited)
--------------- ------------------
Long Term Debt Consists of:
6.75% convertible subordinated debentures $ 90,000 $ 90,000
7.56% senior note payable 52,143 62,571
Canadian Credit Facility 5,075 5,335
Other 4,928 5,755
--------------- -------------
152,146 163,661
Less: current portion 13,481 13,643
--------------- -------------
Total non-current portion of
Long-term debt: $ 138,665 150,018
=============== =============
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 2,796,000 shares of the Company's
common stock.
Under the terms of the 7.56% senior note agreement, the Company was required to
repay the loan in seven equal annual installments beginning in 2000. As noted
above, this senior note was paid off as part of the new revolving credit
facility described in Note 4.
8
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 (CONTINUED)
Under the terms of a Canadian (CDN) credit agreement, the Company was required
to repay the loan as follows: $2,000,000 CDN in 2001 and a final payment of
$6,000,000 CDN in 2002. Subject to certain restrictions, the Company can make
prepayments without premium. The credit agreement had various interest rate
options. As noted above, this credit agreement was paid off as part of the new
revolving credit facility described in Note 4.
Certain note agreements contain restrictive covenants which require 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.
NOTE 6
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
March 31, 2001, net account receivables amounting to $25,000,000 had been sold
under this agreement. As noted above, this agreement was terminated as part of
the new revolving credit facility described in Note 4.
NOTE 7
Total comprehensive (loss) income was ($320,000) and $90,000 for the three-month
periods ended March 31, 2001 and 2000, respectively.
NOTE 8
At March 31 2001, in aggregate 1,369,154 shares of authorized but unissued
common stock were reserved for issuance under the Company's stock option plans.
9
NOTE 9
Following are reconciliations of the earnings available to common stockholders
and the shares used in calculating basic and dilutive net earnings per common
share:
For Three-Months Ended
March 31,
------------ -- ----------------
2001 2000
---- ----
Earnings before extraordinary item $619,000 $385,000
Extraordinary item -- (501,000)
------------ ----------------
Earnings available to common stockholders 619,000 (116,000)
Effect of convertible debentures -- --
------------ ----------------
Net earnings available to common
stockholders assuming dilution $619,000 $(116,000)
============ ================
Weighted average common shares 11,714,346 12,409,547
Effect of convertible debentures -- --
Effect of stock options 14,223 --
------------ ----------------
Weighted average common
equivalent shares
outstanding assuming dilution 11,728,569 12,409,547
============ ================
The average shares listed below were not included in the computation of diluted
earnings per share because to do so would have been anti-dilutive for the
periods presented.
For Three-Months Ended
March 30,
-------------- -- ---------------
2001 2000
---- ----
Stock options 1,390,075 806,991
Convertible debentures 2,796,120 2,796,120
============== ===============
NOTE 10
In fiscal 2000, the Company created an employee benefits trust to which it
contributed 750,000 shares of treasury stock. The Company is authorized to
instruct the trustees to distribute such shares toward the satisfaction of the
Company's future obligations under Employee Benefit Plans. The shares held in
trust are not considered outstanding for purposes of calculating earnings per
share until they are committed to be released. The trustees will vote the shares
in accordance with its fiduciary duties. During March of 2001, the Company
committed 75,000 shares to be released.
NOTE 11
The Company's two reportable operating segments are Engine Management and
Temperature Control.
Industry Segment
(Dollars in thousands)
For the three-months ended March 31,
--------------------------------------------------
2001 2000
----------------------------- -------------------------
Operating Operating
----------- ----------
Net Sales Income Net Sales Income
--------- ------ --------- ------
Engine Management $75,010 $6,722 $73,155 $7,574
Temperature Control 70,958 715 62,042 738
All Other 9,577 (2,484) 11,562 (4,176)
----------- --------- ----------- ---------
Consolidated $155,545 $4,953 $146,759 $4,136
=========== ========= =========== =========
10
NOTE 11 (CONTINUED)
- --------------------------------------
All other consists of items pertaining to European and Canadian operations and
the corporate headquarters function, which do not meet the criteria of a
reportable operating segment.
The following table reconciles the measure of profit used in the previous
disclosure to the Company's consolidated Earnings before taxes, minority
interest and extraordinary item:
For Three-Months Ended
March 30,
--------------------------
2001 2000
---- ----
Operating income $4,953 $4,136
Other income (expense) 80 424
Interest expense 4,127 3,907
----------- --------
Earnings before taxes,
minority interest and
extraordinary item $906 $653
=========== ========
NOTE 12
On January 28, 2000, a former significant customer of the Company currently
undergoing a Chapter 7 liquidation in U.S. Bankruptcy Court, filed claims
against a number of its former suppliers, including the Company. The claim
against the Company alleges $500,000 (formerly $19,759,000) of preferential
payments in the 90 days prior to the related Chapter 11 bankruptcy petition. In
addition, this former customer seeks $10,500,000 from the Company for a variety
of claims including antitrust, breach of contract, breach of warranty and
conversion. These latter claims arise out of allegations that this customer was
entitled to various discounts, rebates and credits after it filed for
bankruptcy. The Company has purchased insurance with respect to the two actions.
The Company believes this matter 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 and product liability
matters arising in the ordinary course of business. Although the final outcome
of these matters cannot be determined, it is management's opinion that the final
resolution of these matters will not have a material effect on the Company's
consolidated financial statements taken as a whole.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ---------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
- -----------------------------------
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS CONTAINS FORWARD-LOOKING STATEMENTS
WHICH INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER
SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. THE
FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, INCLUDED ELSEWHERE IN THIS
FORM 10-Q.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
During the first quarter of 2001, cash used in operations amounted to $36.1
million, as compared to $25.2 million in the same period of 2000. The increase
is primarily attributable to higher accounts receivable due to the increase in
sales and a reduction in accounts payable. This increase was partially offset by
the Company's efforts to reduce inventory levels from their elevated levels at
December 31, 2000.
In connection with inventories and the related decrease in inventory turnover
(1.9x in 2001 vs. 2.4x in 2000, on a rolling twelve month basis) the reasons are
two-fold. First, with respect to the Temperature Control Segment, the related
business is highly seasonal with sales of air conditioning parts being the
greatest in the second and third quarters of the year. This seasonality requires
the build-up of inventory levels prior to the main selling season. This combined
with lower than anticipated 2000 sales, increased Temperature Control inventory
levels. Second, with respect to the Engine Management Segment, in the third
quarter of 2000, Engine Management successfully acquired a new major customer
which required inventory levels to be increased in order to fill the initial
"pipeline" of orders from such customer; the customer launch for new orders has
extended in 2001, versus 2000, as originally planned. In order to achieve
significant inventory reductions and in order to improve our working capital
position, the Company has continued to monitor production levels on our
Temperature Control business and reduced production and purchasing requirements
for the Engine Management business.
Cash used in investing activities was $4.2 million in the first quarter of 2001,
as compared to $7.1 million in the same period of 2000. The decrease is
primarily due to reductions in capital expenditures and acquisitions.
Cash provided by financing activities was $37.6 million in the first quarter of
2001, as compared to cash used in financing activities of $4.9 million in the
same period of 2000. The change is primarily due to increased borrowings under
the short-term line of credit to finance the seasonal working capital needs of
the Company and the elevated inventory levels discussed previously.
Payments under the Company's long-term debt arrangements during the first
quarter of 2001 amounted to $11.5 million. During the first quarter of 2000,
long-term debt payments amounted to $25.5 million and reflected a $14 million
prepayment of a 10.22% senior note. In connection with this prepayment, the
Company reflected an extraordinary loss of approximately $0.5 million in the
first quarter of 2000 related to prepayment penalties and the write-off of
deferred loan costs.
During the years 1998 through 2000, the Board of Directors authorized multiple
repurchase programs under which the Company could repurchase shares of its
common stock. During such years, $26.7 million (in the aggregate) of common
stock has been repurchased to meet present and future requirements of the
Company's stock option programs and to fund the Company's ESOP. As of March 31,
2001, the Company has Board authorization to repurchase additional shares at a
maximum cost of $1.7 million. During the first quarter of 2001, the Company did
not repurchase any shares of its common stock. During the first quarter of 2000,
the Company repurchased approximately 648,700 shares at a cost of approximately
$8.1 million.
On November 30, 1998, the Company entered into a three-year revolving credit
facility with eight lending institutions, providing for an $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.
12
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
- -------------------------------------------
The terms of the revolving credit facility, as amended, include, among other
provisions, the requirement for a clean-down, maintenance of defined levels of
tangible net worth, various financial performance ratios and restrictions on
capital expenditures, dividend payments, acquisitions and additional
indebtedness. At March 31, 2001, borrowings under the Company's aggregate
revolving credit facilities amounted to $89.1 million.
With the current revolving credit facility set to expire on November 30, 2001,
the Company, effective April 27, 2001 entered into an agreement with GE Capital
Corp. and a syndicate of lenders for a new revolving credit facility. The term
of the new credit agreement is for a period of five years and provides for a
line of credit up to $225,000,000. The initial proceeds have been used to
refinance approximately $97 million of the outstanding indebtedness under the
Company's aforementioned existing bank line of credit, the 7.56% senior note of
$52 million, a $25 million accounts receivable sale arrangement and the Canadian
Credit Facility of $5 million. The Company expects to record an extraordinary
loss of approximately $2.7 million, net of taxes, in the second quarter of 2001,
for a prepayment penalty and write-off of unamortized fees for the retirement of
the above related debt. Availability under the new credit facility is based on a
formula of eligible accounts receivable and eligible inventory. Direct
borrowings will bear interest at the Prime Rate plus the applicable margin (as
defined) or the applicable LIBOR Rate plus the applicable margin (as defined),
at the option of the Company. Borrowings will be collateralized by accounts
receivable, inventory and fixed assets of the Company and its subsidiaries. The
terms of the new revolving credit facility contain, among other provisions,
requirements of maintaining defined levels of tangible net worth and specific
limits or restrictions on additional indebtedness, capital expenditures, liens
and acquisitions.
The Company's profitability and its working capital requirements have become
more seasonal with the increased sales mix of temperature control products.
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.
INTERIM RESULTS OF OPERATIONS
- -----------------------------
COMPARISON OF THE THREE-MONTHS ENDED MARCH 30, 2001 TO THE
- -----------------------------------------------------------
THREE-MONTHS ENDED MARCH 31, 2000
- ---------------------------------
On a consolidated basis, net sales in the first quarter of 2001 were $155.5
million, an increase of $8.8 million, or 6%, from the first quarter of 2000. The
increase resulted primarily from sales to new accounts in both Engine Management
and Temperature Control divisions.
Gross margins, as a percentage of net sales, decreased to 28.9% in the first
quarter of 2001 from 32.2% in the first quarter of 2000. The overall decrease in
gross margins was primarily due to inventory reduction programs. The reduction
in gross margins was across all product lines as the Company targets a minimum
$30 million inventory reduction during 2001. The Company expects continued
pressure on gross margins throughout the second quarter and into the third
quarter, as inventory levels are reduced.
Selling, general and administrative expenses decreased by $3.2 million to $40.0
million in the first quarter of 2001, as compared to $43.2 million in the first
quarter of 2000. This decrease reflects the focus on the Company's cost
reduction efforts with benefits primarily in the marketing and distribution
areas.
Operating income increased by $0.8 million in the first quarter of 2001, as
compared to the first quarter of 2000, primarily due to the increased sales and
a focus on selling, general and administrative expenses.
Other income, net, decreased in the first quarter 2001 due to lower
investment-related income, as compared to the first quarter of 2000.
Interest expense increased 0.2 million in the first quarter 2001 as compared to
the same period in 2000, due to higher average borrowings.
Income tax expense remained flat as compared to the first quarter of 2000.
However, the effective tax rate decreased from 35% in the first quarter of 2000
to 32% in first quarter of 2001, due to a decrease in earnings from the
Company's domestic subsidiaries. The 32% current effective tax rate reflects the
Company's anticipated tax rate for the balance of the year.
13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------------------------------------------------------------------
As a result of principal payments on long term debt and an increase in short
term borrowings during the first quarter 2001, the Company's percentage of
variable rate debt to total debt has increased from 23% at December 31, 2000 to
39% at March 31, 2001.
Other than the aforementioned, there have been no significant changes to the
information presented in Item 7A (Market Risk) of the Company's Annual Report on
Form 10-K for the year ended December 31, 2000.
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PART II - OTHER INFORMATION
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ITEM 1. LEGAL PROCEEDINGS
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On January 28, 2000, a former significant customer of the Company currently
undergoing a Chapter 7 liquidation in U.S. Bankruptcy Court, filed claims
against a number of its former suppliers, including the Company. The claim
against the Company alleges $500,000 (formerly $19,759,000) of preferential
payments in the 90 days prior to the related Chapter 11 bankruptcy petition. In
addition, this former customer seeks $10,500,000 from the Company for a variety
of claims including antitrust, breach of contract, breach of warranty and
conversion. These latter claims arise out of allegations that this customer was
entitled to various discounts, rebates and credits after it filed for
bankruptcy. The Company has purchased insurance with respect to the two actions.
The Company believes that these matters will not have a material effect on the
Company's consolidated financial statements taken as a whole.
The Company is involved in various other litigation and product liability
matters arising in the ordinary course of business. Although the final outcome
of these matters cannot be determined, it is management's opinion that the final
resolution of these matters will not have a material effect on the Company's
consolidated financial statements taken as a whole.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBIT(S)
----------
NUMBER DESCRIPTION METHOD OF FILING
- ------ ----------- ----------------
10.24 Credit Agreement dated April 27, 2001 among Standard Filed with this
Motor Products, Inc. and subsidiaries, as Borrowers Document
and GE Capital Corp. as Agent and Lender, GMAC
Commercial Credit LLC, as Lender and Syndication
Agent and Bank of America, N.A., as Lender and
Documentation Agent.
(b) REPORTS ON FORM 8-K
-------------------
There were no reports on Form 8-K filed for this period.
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
STANDARD MOTOR PRODUCTS, INC.
-----------------------------
(Registrant)
MAY 14, 2001 JAMES J. BURKE
- ------------ -----------------------------
(Date) Vice President Finance,
Chief Financial Officer
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