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, 1998
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
Commission file number 1-4743
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STANDARD MOTOR PRODUCTS, INC.
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(Exact name of registrant as specified in its charter)
NEW YORK 11-1362020
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
37-18 NORTHERN BLVD., LONG ISLAND CITY, N.Y. 11101
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (718) 392-0200
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Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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COMMON STOCK NEW YORK STOCK EXCHANGE
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Securities registered pursuant to Section 12(g) of the Act:
NONE
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(TITLE OF CLASS)
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Common voting stock based on a closing price
on the New York Stock Exchange on February 28, 1999 of $21.4375 per share held
by non-affiliates of the registrant was $165,689,366. For purposes of the
foregoing calculation, all directors and officers have been deemed to be
affiliates, but the registrant disclaims that any of such are affiliates.
As of the close of business on February 28, 1999 there were 13,051,350 shares
outstanding of the Registrant's Common Stock.
1
PART I
ITEM 1. BUSINESS
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(A) GENERAL DEVELOPMENT OF BUSINESS
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Registrant manufactures replacement parts and automotive related items for
the automotive industry. The Registrant's continuing operations consist of
two product segments. The Engine Management segment consists primarily of
ignition and electrical parts, emission and engine controls, on-board
computers, sensors, ignition wires, battery cables, carburetor and fuel
system parts. The Temperature Control segment consists primarily of air
conditioning compressors, clutches, accumulators, filter/driers, blower
motors, heater valves, heater cores, evaporators, condensers, hoses and
fittings.
In March 1998 the Registrant 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 Registrant filed the transaction
with the Department of Justice and received regulatory approval of the
exchange in December of 1997. The brake business is accounted for in the
Registrant's consolidated financial statements as a discontinued
operation. The Registrant's December 31, 1997 consolidated financial
statements reflect a $14,500,000 loss on the disposal of the brake
business, which consists of an estimated loss on the exchange of the
business of $14,000,000 and a provision of $500,000 for anticipated losses
until the completion of the disposal. No additional income or loss was
recorded for the brake business in 1998.
In the fourth quarter of 1998, the Registrant 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 Registrant's consolidated financial statements as a
discontinued operation. The Registrant's December 31, 1997 consolidated
financial statements reflect a loss on the disposal of the Service Line
business 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. No additional income or
loss was recorded for the service line business in 1998.
On October 19, 1998, the Registrant sold substantially all of the assets
related to its Fuel Pump business to the Pierce Company, Inc. The
Registrant's consolidated financial statements at December 31, 1998
reflect a loss on disposal of $1,500,000 pertaining to the Fuel Pump
business.
In January 1999, the Registrant 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.
In February 1999, the Registrant acquired the Eaglemotive unit of Mark IV
Industries, Inc. for $13,400,000. Eaglemotive, located in Fort Worth,
Texas, manufactures and distributes fan clutches and oil coolers, and will
compliment the Registrant's Temperature Control operations.
2
AUTOMOTIVE AFTERMARKET Factors favorably impacting the outlook for the
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automotive aftermarket include the growth in the number of vehicles on the
road, an increase in the driving age population, an increase in longer
duration vehicles and in the miles driven per year per vehicle, the high
price of new cars, the attempt by retailers to displace traditional
jobbers, and more stringent environmental laws. Conversely, the automotive
aftermarket has been negatively impacted by the broader range in prices
for replacement parts, the increased complexity of vehicle systems
requiring a greater specialization of parts, higher quality new cars with
longer service warranties and the effect of foreign imports and dealer
versus non-dealer servicing. The net impact of these factors result in a
forecast for the automotive aftermarket to grow at one to two percent over
the next several years.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
---------------------------------------------
DISTRIBUTION OF SALES The table below shows the registrant's sales by
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operating segment.
YEARS ENDED DECEMBER 31,
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(Dollars in thousands)
1998 1997 1996
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% OF % OF % OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
ENGINE MANAGEMENT:
Ignition Parts $256,913 39.6% $265,662 47.4% $259,782 50.6%
Wires and Cables 68,840 10.6% 70,484 12.6% 60,718 11.9%
Fuel System Parts 22,911 3.5% 29,678 5.3% 32,909 6.4%
-------- ----- -------- ----- -------- -----
TOTAL ENGINE MANAGEMENT 348,664 53.7% 365,824 65.3% 353,409 68.9%
TEMPERATURE CONTROL SYSTEMS 297,144 45.8% 187,918 33.6% 156,423 30.4%
All Other 3,612 0.5% 6,081 1.1% 3,575 0.7%
-------- ----- -------- ----- -------- -----
TOTAL $649,420 100% $559,823 100% $513,407 100%
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In the year ended December 31, 1998, the registrant's five largest
customers accounted for approximately 30% of sales. The loss of one or
more of these customers could have an adverse effect on the Registrant's
financial condition and results of operations.
OPERATING PROFIT AND IDENTIFIABLE ASSETS The table below shows the
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registrant's operating profit and identifiable assets by reportable
operating segment.
YEARS ENDED DECEMBER 31,
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(Dollars in thousands)
1998 1997 1996
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Operating Identifiable Operating Identifiable Operating Identifiable
Profit Assets Profit Assets Profit Assets
------ ------ ------ ------ ------ ------
Engine Management $ 32,243 $ 311,716 $ 28,179 $ 317,162 $ 43,149 $ 317,761
Temperature Control Systems 19,672 183,187 7,302 107,406 13,712 120,912
All Other (7,984) 26,643 (26,026) 152,569 (12,127) 186,133
-------- --------- -------- --------- -------- ---------
TOTAL $ 43,931 $ 521,556 $ 9,455 $ 577,137 $ 44,734 $ 624,806
"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
IGNITION PARTS Replacement parts for automotive ignition and emission
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control systems account for about 40% of the Registrant's 1998 revenues.
These parts include distributor caps and rotors, electronic ignition
control modules, voltage regulators, coils, switches and sensors. The
Registrant 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 import, including
passenger car, truck, farm, off-road and marine applications.
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
Registrant is a leader in the manufacture and sale of these engine
management component parts, including remanufactured automotive computers.
Electronic control modules and electronic voltage regulators comprise a
significant portion of registrant's total ignition sales. The Registrant
is one of the few aftermarket companies that manufactures these parts, and
the first independent aftermarket supplier to manufacture the complex
electronic control modules for DIS (distributor-less ignition systems).
The Registrant's Electronic Business Unit consists of design work and
highly-automated manufacturing operations, which are performed in Orlando,
FL, and assembly operations, which are performed in Hong Kong and Puerto
Rico.
The Registrant's sales of such parts as sensors, valves and solenoids have
increased steadily as automobile manufacturers equip their cars with more
complex engine management systems. New government emission laws such as
the 1990 Federal Clean Air act are increasing automotive repair activity,
creating an increase in parts sales. Although there is much controversy
over how quickly these new procedures will be implemented, there is no
doubt they will have a positive impact on sales of the registrant's
products. The Registrant is a basic manufacturer of oxygen sensors, MAP
(Manifold Absolute Pressure) sensors, throttle position sensors, coolant
temperature sensors, air charge temperature sensors, EGR (Exhaust Gas
Recirculation) valves, air pump check valves, idle air control valves and
a number of different types of solenoids.
Oxygen sensors are a leading product in emission controls, with relatively
few basic manufacturers. In September 1997, the Company acquired the
oxygen sensor manufacturing business of AlliedSignal and has relocated the
manufacturing assets from AlliedSignal's plant to a new facility in
Wilson, North Carolina. This acquisition has improved the Company's
position in this growing emissions market.
The joint venture entered into in 1992 with Blue Streak Electronics, Inc.,
A rebuilder of engine management computers and MAF sensors, has positioned
the registrant as a key supplier in the fast growing remanufactured
electronics market. In 1994, the registrant 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
Registrant's customers to expand their coverage without increasing
inventory investment. In 1997 a branch of Blue Streak Electronics, Inc.
Was opened in Boca Raton, Florida to meet the growing demand of the U.S.
market for overnight repair of slower moving engine computers. This JV
maintains a research and development facility in Haifa, Israel and is
expanding further into European markets through its JV, Blue Streak Europe
LTD., located in England. In January 1999 Blue Streak Europe acquired 100%
of the stock of Injection Correction UK LTD. Injection Correction is a
remanufacturer of engine computers and has developed a line of engine
diagnostic equipment.
4
In 1996, the Registrant acquired a majority equity interest in Standard
Motor Products Holdings Limited, and followed this action with 1999
acquisitions of majority stakes in Webcon Limited and, as mentioned above,
Injection Correction Limited. These three companies, based in Great
Britain, supply ignition components, fuel system components and rebuilt
engine computers throughout the UK and Western Europe. They provide a
solid base to increase sales in Europe, a market that is forecast to grow
at a rate more than double that of the U.S.
Like most automotive aftermarket suppliers, the Registrant began by
offering mechanical ignition parts which were equal in quality to O.E.
(Original equipment parts installed on new vehicles). A number of decades
ago, the Registrant pioneered the concept of offering an alternate higher
level of quality, significantly better than O.E. And priced
proportionately higher. These parts were sold under the Blue Streak brand.
In recent years this has evolved to a "good-better-best" concept, and a
lower priced line has been made available under the registrant's Tru-Tech
brand.
WIRES AND CABLES Wire and cable parts account for about 11% of the
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Registrant's 1998 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 Registrant 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 registrant 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.
The acquisition of Federal Parts Corporation in February 1996, the leading
supplier of economy wire sets in the industry, expanded the Registrant's
presence in the ignition wire business. The acquisition of Filko
Automotive (January 1997) further expanded wire sales within its existing
presence in the retail market.
FUEL SYSTEM PARTS Fuel system parts, including fuel pumps, account for
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about 4% of the Registrant's 1998 revenues. The fuel pump business, with
1998 sales of approximately $6.7 Million, was sold to the Pierce Company,
Inc. On October 19, 1998. As of January 1999, the Registrant manufactures
and markets nearly 1500 parts for the maintenance and repair of automotive
carburetors and fuel injection systems.
For several decades, the Registrant's most important fuel system product
was the carburetor rebuilding kit. However, nearly all new cars are
equipped with electronic fuel injection systems instead of carburetors.
Therefore, sales of carburetor kits have been declining in recent years.
Of the 23% decline in sales of fuel system parts over the past year, 10%
is due to the decrease in fuel pump sales, and the remainder can be
attributed to the reduced sales of carburetor kits. Partially offsetting
these aforementioned decreases is the Registrant's sales of fuel injection
parts, which have steadily increased. This segment of the business is
expected to grow.
5
TEMPERATURE CONTROL SYSTEMS The Registrant manufactures, re-manufactures,
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and markets a complete line of replacement parts for automotive climate
control systems (air conditioning and heating), under the brand names Four
Seasons, Murray, Everco, Factory Air, Trumark, API/ADI, Hayden, and
Unimotor. Temperature Control also offers private label packaging to its
larger accounts. 1998 Revenues from the Temperature Control Division
account for approximately 46% of the Registrant's revenues.
In 1998, the Registrant completed its consolidation of Cooper Industries'
Moog Automotive temperature control business and is now the industry's
largest aftermarket supplier of automotive climate control products. The
integration of manufacturing facilities acquired from Cooper should
produce operational synergies that are expected to result in substantial
cost savings. Production of all heat exchange products will be
consolidated into the newly acquired Fort Worth, TX manufacturing
facility. Blower motor and radiator fan production has been consolidated
into Temperature Control's Unimotor facility in St. Thomas, Ontario.
Over the past few years, the Registrant has invested in the growing market
for temperature control products through expanded manufacturing
capabilities and acquisitions. During 1996, Temperature Control expanded
its product offering by becoming the first aftermarket company ever to
manufacture completely new air conditioning compressors. In 1997,
Temperature Control offered more than ten models of new compressors
manufactured in its Grapevine, TX. Facility. The 1995 acquisition of
API/ADI in Cumming, Georgia, a manufacturer of steel filter dryers and
accumulators, the start up of Unimotor, and the acquisition of Hayden, a
basic manufacturer of fan clutches and transmission oil coolers located in
Corona, California, broadened the Registrant's range of temperature
control products to include powertrain cooling as well as interior climate
control products. The acquisition of Eaglemotive Corporation in March 1999
will complement Hayden's product line and ensure a leading position in
that market.
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 Registrant's temperature control
products throughout Europe, Africa, and the Middle East. A joint venture
with Valeo, SA, one of the largest European automotive equipment
manufacturers was begun in April of 1997 to remanufacture air conditioner
compressors for the developing European market.
(C) NARRATIVE DESCRIPTION OF BUSINESS
---------------------------------
SALES AND DISTRIBUTION The Registrant sells its products primarily
----------------------
throughout the United States and Canada under its proprietary brand names
and private labels to approximately 1,500 warehouse distributors and major
retailers, who distribute to approximately 15,000 jobber outlets. The
jobbers sell the Registrant's products primarily to professional
mechanics, and secondarily to consumers who perform their own automobile
repairs. The Registrant has a direct field sales force of approximately
280 persons. The acquisition of Standard Motor Products Holdings LTD., and
the opening of a Temperature Control distribution center in France offer
the Company further sales opportunities outside of North America.
The Registrant generates demand for its products by directing the major
portion of its sales effort to its customers' customers (i.E. Jobbers and
professional mechanics). In 1998 the registrant conducted approximately
4,000 instructional clinics, which teach mechanics how to diagnose and
6
repair complex new electronic ignition systems and automotive climate
control systems. The registrant also publishes and sells service manuals
to registered mechanics. In addition, the Registrant'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.
The Company continues to expand into the retail market by selling its
products to large retail chains, such as Autozone, Pep Boys, Advance and
many others. The Registrant expects continued growth in the retail market
in future years.
SEASONALITY Historically, the Registrant's operating results have
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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 Registrant's products is typically the highest. It is
anticipated that these quarterly fluctuations will become more pronounced
in the future as a result of the divestiture of the brake business and the
expansion of the more seasonal Temperature Control business.
PRODUCTION AND ENGINEERING The Registrant engineers, tools and
--------------------------
manufactures many of the components for its products, except for certain
commonly available small parts in climate control, fuel system products
and certain very low volume products in all product lines. The Company
also performs its own plastic and rubber molding operations, stamping
operations, automated electronics assembly and a wide variety of other
processes.
The Registrant has engineering departments staffed by 120 persons,
approximately 65% of whom are graduate engineers. The departments perform
product research and development and quality control and, wherever
practical, design machinery for automation of the Registrant's factories.
As new models of automobiles, trucks, tractors, buses and other equipment
are introduced, the Registrant engineers and manufactures replacement
parts for them. The Registrant employs and trains tool and die makers
needed in its manufacturing operations.
COMPETITION Although the Registrant is a leading independent manufacturer
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of automotive replacement parts and supplies, it faces substantial
competition in all markets that it serves. A number of major manufacturers
of replacement parts and supplies are divisions of companies having
greater financial resources than those of the Registrant. In addition,
automobile manufacturers supply virtually every replacement part sold by
the Registrant.
The competitive factors affecting the Registrant's products are primarily
product quality, customer service and price. The Registrant's business
requires that it maintain inventory levels sufficient for the rapid
delivery requirements of customers. Management believes that it is able to
compete effectively and that its trademarks and trade names are well known
and command respect in the industry.
BACKLOG Backlog is maintained at minimal levels by the Registrant. The
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Registrant primarily fills orders, as received, from inventory and
manufactures to maintain minimum inventory levels.
SUPPLIES The principal raw materials purchased by the Registrant consist
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of brass, electronic components, fabricated copper (primarily in the form
of magnet wire and insulated cable), ignition wire, stainless steel coils
and rods, aluminum coils and rods, lead, rubber molding compound, and
thermo-set and thermo plastic molding powders. All of these materials are
purchased in the open market and are available from a number of prime
suppliers.
Insurance the Registrant maintains basic liability coverage (general,
product and automobile) of $1 million and umbrella liability coverage of
7
$50 million. Historically, the Registrant 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 Registrant's coverage.
EMPLOYEES The Registrant employs approximately 3,700 people in the United
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States, Canada, Puerto Rico, Europe and Hong Kong. In addition, the
Registrant has joint venture operations in Canada and France. Of these,
approximately 2,300 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
Registrant's labor contract with such workers expired on such date and the
Registrant and such workers did not agree on terms of a new contract. The
workers returned to work on November 13, 1998 and have since been working
without a contract. Production has been operating satisfactorily since
their return. Discussions are continuing with the union. The Registrant is
optimistic that a new contract will be negotiated without a further work
stoppage, but is prepared to operate the facility with salaried and
temporary workers if a work stoppage occurs, as it did during the 1998
stoppage. Edwardsville, Kansas production employees are covered by a
United Auto Workers contract that expires April 7, 2000. The Registrant
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
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The Registrant 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
--------------------------------------
United States $586,044 $493,823 $474,711
Canada 25,513 25,748 24,470
Other Foreign 37,863 40,252 14,226
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Total $649,420 $559,823 $513,407
======== ======== ========
Export sales originating from the United States for the years ended December 31,
1998, 1997 and 1996 were $14,294,000, 15,843,000 and $12,243,000 respectively,
and have been included in the category, Other Foreign.
8
ITEM 2. PROPERTIES
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The registrant maintains its executive offices and a manufacturing plant at
37-18 Northern Boulevard, Long Island City, NY.
The table below describes the registrant's principal physical properties. (For
information with respect to rentals, see note 18 of Notes to Consolidated
Financial Statements on page F14.).
OWNED OR
STATE OR SQUARE LEASE
LOCATION COUNTRY PRINCIPAL BUSINESS ACTIVITY FEET EXP. DATE
-------- ------- --------------------------- ---- ---------
Corona CA Manufacturing and Distribution 65,400 2001
(Climate Control)
Ontario CA Vacated and available for sublet 250,200 2003
Bradenton FL Manufacturing (Wire) 52,000 2004
Orlando FL Manufacturing (Ignition) 50,600 2006
Cumming GA Manufacturing (Climate Control) 32,000 2000
Cumming GA Distribution (Climate Control) 30,000 2000
Melrose Park IL Manufacturing & Distribution (Climate 63,888 1999
Control)
Bensenville IL Distribution (Ignition & Wire) 14,000 2002
Edwardsville KS Administration, Manufacturing and 355,000 Owned
Distribution (Wire)
Holbrook MA Distribution (Ignition & Wire) 12,100 1999
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)
Dyersburg TN Distribution 215,000 Owned
Coppell TX Administration and Distribution 168,000 Owned
(Climate Control)
Coppell TX Distribution (Climate Control) 119,800 1999
Dallas TX Manufacturing (Climate Control) 42,700 2001
Dallas TX Distribution (Wire) 57,300 2000
Fort Worth TX Manufacturing & Distribution (Climate 204,000 Owned
Control)
Fort Worth TX Manufacturing, Distribution and 103,000 2004
Administration (Climate Control)
Grapevine TX Manufacturing (Climate Control) 180,000 Owned
Palestine TX Vacated and available for sublet 200,000 2001
Disputanta VA Distribution (Ignition) 411,000 Owned
Fajardo PR Manufacturing (Ignition) 114,000 2007
Fajardo PR Manufacturing (Ignition) 24,100 2004
Mississauga CANADA Administration and Distribution 128,400 2006
(Ignition, Wire, Climate Control)
St. Thomas CANADA Manufacturing (Climate Control) 40,000 Owned
Strasbourg FRANCE Administration and Distribution (Climate 16,146 2002
Control)
Hong Kong HK Manufacturing (Ignition) 19,300 2000
9
OWNED OR
STATE OR SQUARE LEASE
LOCATION COUNTRY PRINCIPAL BUSINESS ACTIVITY FEET EXP. DATE
-------- ------- --------------------------- ---- ---------
Nottingham ENGLAND Administration and Distribution 29,000 Owned
(Ignition and Wire)
Nottingham ENGLAND Manufacturing (Ignition and Wire) 29,400 Owned
Nottingham ENGLAND Manufacturing (Ignition) 15,700 Owned
ITEM 3. LEGAL PROCEEDING
----------------
Currently, there are no legal proceedings which management deems would have a
material economic impact on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None
PART II
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ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS:
-----------------------------------------------------------------
The Company's stock is listed on the New York Stock Exchange. The number of
Shareholders of record of Common Stock on February 28, 1999 was approximately
685, including brokers who hold approximately 7,684,000 shares in street name.
The quarterly market price and dividend information is presented in the
following chart.
Price Range of Common Stock and Dividends
The Company's Common Stock is traded on the New York Stock Exchange under the
symbol SMP. 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.
- ------- ---------- --------- --------- ------------ - --------- ---------- ---------- ---------- ---------------
1998 QUARTER HIGH LOW DIVIDEND 1997 QUARTER HIGH LOW DIVIDEND
---- ------- ---- --- -------- ---- ------- ---- --- --------
1st $23.50 $16.31 $0.00 1st $14.75 $13.13 $0.08
2nd $25.00 $19.13 $0.00 2nd $14.63 $13.13 $0.08
3rd $26.50 $21.00 $0.08 3rd $23.38 $13.56 $0.08
4th $24.69 $19.75 $0.08 4th $25.00 $19.50 $0.08
- ------- ---------- --------- --------- ------------ - --------- ---------- ---------- ---------- ---------------
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. In the first two quarters of 1998 the Company suspended the dividend
due 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.
10
PART II (CONTINUED)
-------------------
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
Years Ended December 31,
---------------------------------------------------------------------------
1998 1997 1996 1995 1994
---------------------------------------------------------------------------
(In thousands, except per share data)
Net sales $ 649,420 $ 559,823 513,407 $ 452,253 $ 434,252
Earnings (loss) from continuing operations
$ 22,257 $ (1,620) 23,866 $ 16,851 $ 21,929
Net earnings (loss) $ 22,257 $ (34,524) 14,658 $ 16,132 $ 23,665
Earnings (loss) from continuing operations
per common share $ 1.70 $ (0.12) 1.82 $ 1.28 $ 1.67
Net earnings (loss) per share $ 1.70 $ (2.63) 1.12 $ 1.23 $ 1.80
Working capital $ 178,324 $ 177,426 210,962 $ 232,173 $ 189,207
Total assets $ 521,556 $ 577,137 624,806 $ 521,230 $ 469,387
Long-term debt (excluding current portion)
$ 133,749 $ 159,109 172,387 $ 148,665 $ 109,927
Stockholders' equity $ 205,025 $ 183,782 222,576 $ 210,400 $ 195,089
Stockholders' equity per share $ 15.68 $ 14.01 16.95 $ 16.03 $ 14.82
Cash dividends per common share $ .16 $ .32 .32 $ .32 $ .32
11
PART II (CONTINUED)
-------------------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES - In 1998, cash provided by operations amounted
- -------------------------------
to $108,711,000. This compares favorably to 1997 and 1996 when cash provided by
(used in) operations was $71,692,000 and $(21,153,000) respectively. The strong
cash flow performance resulted primarily from net earnings for 1998 of
$22,257,000 and decreases in inventories and accounts receivable of $27,733,000
and $27,534,000 respectively. Cash used in investing activities in 1998 was
$21,812,000, as capital expenditures and payments related to the Cooper
transaction were partially offset by proceeds from the sale of businesses and
property, plant and equipment. For the three years ended December 31, 1998, 1997
and 1996 capital expenditures totaled $15,325,000, $15,597,000 and 21,389,000
respectively. Cash used in financing activities in 1998 of $80,141,000 was
primarily due to the repayment of $52,333,000 in borrowings from bank lines, and
$27,046,000 in principal repayments on long-term financing. Dividends paid for
the three years ended December 31, 1998, 1997 and 1996 were $2,092,000,
$4,197,000 and $4,260,000 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.
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. These rates should compare favorably with the
short term credit rates obtained by the Company during most of 1998 and as such
should result in lower interest costs in 1999 compared to 1998. Also in 1999,
the Company will explore various options for raising additional long term
capital to fund future growth opportunities and further strengthen its balance
sheet.
At December 31, 1997, the Company was not in compliance with certain covenant
requirements associated with certain long term notes payable; however the
Company received the appropriate waivers and certain amendments were made to the
note agreements. The amendments contained, among other things, provisions for
the payment of up front fees of 1.5% and an increase in the interest rates on
each note payable of 1.25%. The increased interest rate was reduced by 50 basis
points when the Company refinanced its short-term credit facility on November
30, 1998 and a further reduction is possible as the Company's balance sheet is
strengthened.
In 1999, the Company's required long term debt repayments will be approximately
$22,404,000.
Total debt (current and non-current) at December 31, 1998 decreased by
$79,671,000 as compared to December 31, 1997. This was mainly due to decreased
requirements to support inventories and accounts receivable. The Company
continues to aggressively pursue ways to reduce inventories. Significant efforts
are focusing on pack-to-order systems and improved requirements forecasting
systems. Pack-to-order systems retain parts in a bulk state until an order is
received for a specific brand of product.
12
PART II (CONTINUED)
-------------------
The Company expects capital expenditures for 1999 to be approximately
$20,000,000, primarily for new machinery and equipment. The Company anticipates
that its present sources of funds and the new multi-year facility entered into
during 1998 will continue to be adequate to meet its near term needs.
The reductions in capital employed by the Company, coupled with our increased
earnings has resulted in a significant year-over-year improvement in Economic
Value Added ("EVA"). The Company has expanded its EVA focus to ensure that
capital is invested wisely in programs that exceed our cost of capital and
improve our asset utilization.
COMPARISON OF 1998 TO 1997
- --------------------------
Net sales in 1998 were $649,420,000, an increase of $89,597,000 or 16.0% from
the comparable period in 1997. Excluding revenues from acquisitions not present
in 1997, total net sales increased by $11,597,000, 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
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 $63,463,000 from $380,335,000 to $443,798,000.
Gross margins, as a percentage of net sales, decreased from 32.1% to 31.7%. 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. The majority of this inventory
was sold in 1998 and temperature control gross margins should improve in 1999.
Selling, general and administrative expenses (SG&A) in 1998, excluding bad debt
expenses, increased by $1,604,000, 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% to 24.5%. 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 $2,420,000, primarily due to losses
related to the Company's joint ventures.
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 $2,261,000 to $16,419,000 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 $2,156,000, primarily as a result of
lower outstanding borrowings.
In 1998, the Company focused significant attention on reducing debt and
strengthening its balance sheet. Total debt was reduced by $79,671,000, and the
Company succeeded in completing a multi-year
13
PART II (CONTINUED)
-------------------
committed revolving credit line. In addition, receivables were reduced by
$29,018,000, inventories were reduced by $14,914,000 and cash and short term
investments increased by $6,648,000. The progress made in asset management and
debt reduction is reflected by a reduction in the Company's total debt to
capitalization percentage from 56.6% in 1997 to 43.8% in 1998.
Income tax expense related to continuing operations in 1998 was $3,577,000,
compared to a benefit of $2,417,000 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.
The Company has largely completed its restructuring program and is now entirely
focused on the two product lines where it is a market leader. In 1999 and into
the year 2000, it is anticipated that the full impact of our cost reduction
programs will take effect and that synergies from the consolidation of the
Cooper temperature control business and other acquisitions will begin to be
fully realized and provide further earnings benefits.
COMPARISON OF 1997 TO 1996
- --------------------------
Net sales in 1997 were $559,823,000, up 9.0% from sales of $513,407,000 in 1996.
Excluding revenues from acquisitions not present in 1996, net sales remained
relatively flat as compared to 1996. Sales increases in the Temperature Control
division, reflecting market share gains and product line expansions, were offset
by sales declines in the Engine Management division reflecting the general
weakness in the automotive aftermarket.
Cost of goods sold increased $45,223,000 from $335,112,000 to $380,335,000.
Gross margins, as a percentage of net sales, decreased from 34.7% to 32.1%. This
decline reflects a higher mix of temperature control products and
non-traditional business which have lower gross margins and reduced
manufacturing efficiencies, as production schedules were lowered to reduce
inventories.
Selling, general and administrative expenses from continuing operations in 1997,
excluding bad debt expenses, increased by 2.0% or $23,400,000 and as a
percentage of net sales from continuing operations, increased from 26.1% to
28.1%. The increase in these expenses resulted primarily from a $3,000,000
provision for severance payments related to personnel reductions, higher new
customer acquisition costs, increases in overhead costs as a result of the Filko
acquisition (these costs are reduced significantly in 1998 as Filko has been
integrated into the Company) and finally due to increases in costs to support
the Company's high technology O.E. programs. Bad debt expenses from continuing
operations, increased significantly in 1997 as a result of the bankruptcy filing
of APS, Inc., a major customer. The Company continued to supply APS, Inc. on a
limited basis in 1998, but did not subject itself to any additional exposure.
Other income (expense), net, from continuing operations decreased by $712,000
primarily due to lower interest income as available cash early in 1997 was used
to reduce short term borrowings under credit lines.
Interest expense from continuing operations, increased by $1,100,000 to
$14,200,000 resulting from higher average interest rates.
Taxes based on earnings, from continuing operations, reflect a benefit of
$2,417,000 for 1997 as compared to expense of $9,400,000 for 1996. The
significant decrease in tax expense is a result of the losses incurred by the
Company during 1997. The current year tax benefit recognized was a function of
the significant
14
PART II (CONTINUED)
-------------------
losses from the Company's U.S. operations being partially offset by earnings of
the Company's Puerto Rico and Hong Kong subsidiaries, which have lower tax rates
than the U.S. statutory rate. The combination of the foreign earnings and
domestic losses results in a favorable effective tax rate of 65.2% against
losses.
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 has completed much of its restructuring program, and is now focused on
the two industry segments in which it can become the market leader. The Company
anticipates that significant synergies will continue to develop from the
consolidation of Cooper Industries' temperature control business with the
Company's existing temperature control business. These synergies began to
develop during 1998 and should have a material favorable impact on the 1999 and
2000 results. Additional cost reductions in other areas that were implemented in
1998 should have significant benefits in 1999. These actions, coupled with the
continued focus on EVA, will ensure that the Company invests only in programs
that exceed the cost of capital and focus on improving margins and asset
utilization.
YEAR 2000 - The Company is currently working 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 of the Company's 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 has established a comprehensive response to its Year 2000 exposure.
Generally, the Company has Year 2000 exposure in two areas: (i) its information
technology ("IT") systems and (ii) its 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. During the
period ending December 1998, the Company tested each significant IT system which
is believed to be Year 2000 compliant. In some cases, Year 2000 issues will be
corrected in the development of new programs, which enhance or provide new
functionality to these financial and management operating systems. The Company
expects the cost of this effort will be approximately $1.4 million, which
includes the costs for new computers and related equipment. The Company expects
to substantially complete Year 2000 testing and remediation on its IT and non-IT
systems by June 1999.
The Company is nearly complete with its interviews of suppliers, customers,
financial institutions and others with which it conducts business to determine
the extent to which the Company would be vulnerable to these third parties'
failure to remediate their own potential year 2000 problems. The inability of
the Company or these other significant business partners to adequately address
the year 2000 issues could cause disruption of the Company's operations.
The Company does not presently anticipate that the cost to address the Year 2000
issue will have a material adverse effect on the Company's financial condition,
results of operations or liquidity.
15
PART II (CONTINUED)
-------------------
Although the Company expects its internal IT and non-IT systems to be Year 2000
compliant as described above, the Company intends to prepare a contingency plan
that will specify what it plans to do if it or important external companies are
not Year 2000 compliant in a timely manner. These contingency plans will address
the most likely worst case Year 2000 scenarios. These plans are expected to be
finalized during the second quarter of 1999.
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, 1999. 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.
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 $12
million, which includes $21 million of indebtedness of the Company, $3 million
in accounts payable and $12 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 be approximately $1.2 million. In
addition, if such a change were to be sustained, the Company's cost of financing
would increase in proportion to the change. 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.
Since consistent and simultaneous unfavorable movements in both relevant
exchange rates is unlikely, this assumption may overstate the impact of exchange
rate fluctuations on the Company's results of operations.
INTEREST RATE RISK- At December 31, 1998 the Company had approximately $160
- ------------------
million in loans and financing outstanding, of which approximately $139 million
bear interest at fixed interest rates and approximately $21 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
16
PART II (CONTINUED)
-------------------
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, 1998 would not be
expected to have a material impact on the earning or cash flows of the Company.
However, due to seasonality with respect to the Company's short-term financing,
which are 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.
17
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, 1998 and 1997, 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, 1998. 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, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally accepted
accounting principles.
KPMG LLP
New York, New York
March 2, 1999
--------------------------------
Standard Motor Products, Inc. and Subsidiaries
Consolidated Statements of Operations
(Dollars in thousands, except per share amounts)
Years Ended December 31,
-----------------------------------
1998 1997 1996
===============================================================================================================
Net sales ...................................................... $ 649,420 $ 559,823 $ 513,407
Cost of sales .................................................. 443,798 380,335 335,112
- ---------------------------------------------------------------------------------------------------------------
Gross profit ............................................... 205,622 179,488 178,295
Selling, general and administrative expenses ................... 161,691 170,033 133,561
- ---------------------------------------------------------------------------------------------------------------
Operating income ........................................... 43,931 9,455 44,734
Other income (expense), net (Note 14) .......................... (1,422) 998 1,710
- ---------------------------------------------------------------------------------------------------------------
Earnings from continuing operations
before interest, taxes and minority interest ............... 42,509 10,453 46,444
- ---------------------------------------------------------------------------------------------------------------
Interest expense (Note 3) ...................................... 16,419 14,158 13,091
- ---------------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing operations
before taxes and minority interest ......................... 26,090 (3,705) 33,353
- ---------------------------------------------------------------------------------------------------------------
Minority interest .............................................. (256) (332) (87)
- ---------------------------------------------------------------------------------------------------------------
Taxes based on earnings (Note 15)
Current:
Federal ...................................................... 308 (276) 8,403
State and local .............................................. 280 260 560
- ---------------------------------------------------------------------------------------------------------------
588 (16) 8,963
Deferred ....................................................... 2,989 (2,401) 437
Total taxes based on earnings .............................. 3,577 (2,417) 9,400
Earnings (loss) from continuing operations ..................... 22,257 (1,620) 23,866
===============================================================================================================
Discontinued operations (Note 3)
Loss from operations of discontinued Brake Group ............. -- (568) (7,506)
Estimated loss on disposal of Brake Group .................... -- (14,500) --
Loss from operations of discontinued Service Line Group ...... -- (5,336) (1,702)
Estimated loss on disposal of Service Line Group ............. -- (12,500) --
-------------------------------------------------------------------------------------------------------------
Loss from discontinued operations ........................ -- (32,904) (9,208)
---------------------------------------------------------------------------------------------------------
Net earnings (loss) ...................................... $ 22,257 $ (34,524) $ 14,658
===============================================================================================================
Net earnings (loss) from continuing operations per common share:
Basic ........................................................ $ (1.70) $ (0.12) $ 1.82
Diluted ...................................................... $ (1.69) $ (0.12) $ 1.82
=============================================================================================================
Net earnings (loss) per common share:
Basic ........................................................ $ (1.70) $ (2.63) $ 1.12
Diluted ...................................................... $ (1.69) $ (2.63) $ 1.12
=============================================================================================================
Average number of common shares ................................ 13,077,392 13,119,404 13,130,849
Average number of common shares and dilutive
common shares ................................................ 13,167,842 13,119,404 13,130,849
===============================================================================================================
See accompanying notes to consolidated financial statements.
-------------------------------
F2
----------------------
Standard Motor Products, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands)
December 31,
-------------------
1998 1997
===============================================================================================
ASSETS
Current assets:
Cash and cash equivalents .......................................... $ 23,457 $ 16,809
Accounts receivable, less allowances for discounts and
doubtful accounts of $4,525 (1997 - $18,654) (Note 4) ........... 122,008 151,026
Inventories (Note 5) ............................................... 174,092 189,006
Deferred income taxes (Note 15) .................................... 11,723 22,005
Prepaid expenses and other current assets .......................... 11,231 11,630
- -----------------------------------------------------------------------------------------------
Total current assets ............................................. 342,511 390,476
- -----------------------------------------------------------------------------------------------
Property, plant and equipment, net (Notes 6 and 9) ................... 109,404 126,024
- -----------------------------------------------------------------------------------------------
Goodwill, net ........................................................ 39,232 30,674
- -----------------------------------------------------------------------------------------------
Other assets (Note 7) ................................................ 30,409 29,963
- -----------------------------------------------------------------------------------------------
Total assets ................................................... $ 521,556 $ 577,137
===============================================================================================
LIABILITIES AND
STOCKERHOLDERS'
EQUITY
Current liabilities:
Notes payable - banks (Note 8) ..................................... $ 3,555 $ 55,897
Current portion of long-term debt (Note 9) ......................... 22,404 24,373
Accounts payable ................................................... 48,414 36,421
Sundry payables and accrued expenses ............................... 60,905 67,224
Accrued customer returns ........................................... 16,296 17,955
Payroll and commissions ............................................ 12,613 11,180
- -----------------------------------------------------------------------------------------------
Total current liabilities ........................................ 164,187 213,050
- -----------------------------------------------------------------------------------------------
Long-term debt (Note 9) .............................................. 133,749 159,109
- -----------------------------------------------------------------------------------------------
Deferred income taxes (Note 15) ...................................... -- 3,124
- -----------------------------------------------------------------------------------------------
Postretirement benefits other than pensions and
other accrued liabilities (Note 13) ................................ 18,595 18,072
- -----------------------------------------------------------------------------------------------
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 1998 and
1997 (including 268,126 and 247,781 shares held as treasury
shares in 1998 and 1997, respectively) ......................... 26,649 26,649
Capital in excess of par value ..................................... 2,951 2,763
Loan to Employee Stock Ownership Plan (ESOP) ....................... -- (1,665)
Retained earnings .................................................. 181,679 161,514
Accumulated other comprehensive income (loss) ...................... (516) (454)
- -----------------------------------------------------------------------------------------------
..................................................................... 210,763 188,807
Less: Treasury stock - at cost ....................................... 5,738 5,025
- -----------------------------------------------------------------------------------------------
Total stockholders' equity ..................................... 205,025 183,782
- -----------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity ..................... $ 521,556 $ 577,137
===============================================================================================
See accompanying notes to consolidated financial statements.
--------------------------
F3
----------------------
Standard Motor Products, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
Years Ended December 31,
1998 1997 1996
=========================================================================================================================
Net earnings (loss) ................................................................. $ 22,257 $(34,524) $ 14,658
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization ................................................... 17,274 18,980 16,326
Provision for loss on disposal of assets of discontinued operations ............. -- 27,000 --
Loss on sale of business ........................................................ 1,500 -- --
(Gain) Loss on disposal of property, plant & equipment .......................... 226 64 (509)
Proceeds from sales of trading securities ....................................... -- -- 7,646
Purchases of trading securities ................................................. -- -- (6,803)
(Increase) decrease in deferred income taxes .................................... 2,992 (2,393) (68)
Change in assets and liabilities, net of effects from acquisitions and disposals:
(Increase) decrease in accounts receivable, net ............................... 27,534 10,210 (26,025)
(Increase) decrease in inventories ............................................ 27,733 42,478 (13,303)
(Increase) decrease in other assets ........................................... 2,209 11,031 (6,396)
Increase (decrease) in accounts payable ....................................... 12,833 1,899 784
Increase (decrease) in other current assets and liabilities ................... 742 (4,808) (251)
Increase (decrease) in sundry payables and accrued expenses ................... (6,589) 1,755 (7,212)
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities ................................. 108,711 71,692 (21,153)
- -------------------------------------------------------------------------------------------------------------------------
Proceeds from held-to-maturity securities ........................................... -- -- 6,252
Purchases of held-to-maturity securities ............................................ -- -- (163)
Proceeds from the sale of property, plant and equipment ............................. 702 -- --
Capital expenditures, net of effects from acquisitions .............................. (15,325) (15,597) (21,389)
Payments for acquisitions, net of cash acquired ..................................... (13,997) (16,313) (45,060)
Proceeds from sale of business ...................................................... 6,808 -- --
- -------------------------------------------------------------------------------------------------------------------------
Net cash (used in) investing activities ............................................. (21,812) (31,910) (60,360)
- -------------------------------------------------------------------------------------------------------------------------
Net (repayments) borrowings under line-of-credit agreements ........................ (52,333) (18,671) 58,625
Proceeds from issuance of long-term debt ............................................ 700 13,096 35,469
Principal payments of long-term debt ................................................ (27,046) (17,924) (16,104)
Reduction of loan to ESOP ........................................................... 1,665 1,680 1,680
Proceeds from exercise of employee stock options .................................... 1,579 192 184
Purchase of treasury stock .......................................................... (2,614) (1,528) (147)
Dividends paid ...................................................................... (2,092) (4,197) (4,260)
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities ................................. (80,141) (27,352) 75,447
- -------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash ............................................. (110) (287) (126)
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents ................................ 6,648 12,143 (6,192)
Cash and cash equivalents at beginning of year ...................................... 16,809 4,666 10,858
- -------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year ............................................ $ 23,457 $ 16,809 $ 4,666
=========================================================================================================================
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest ........................................................................ $ 17,840 $ 20,154 $ 17,136
Income taxes .................................................................... 1,799 3,391 5,436
=========================================================================================================================
See accompanying notes to consolidated financial statements.
----------------------------
F4
----------------------
Standard Motor Products, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
(In thousands)
Years Ended December 31, 1998, 1997 and 1996
====================================================================================================================================
Accumulated
Capital in Loan Other
Common Excess of to Retained Comprehensive Treasury
Stock Par Value ESOP Earnings Income (Loss) Stock Total
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 ............ $ 26,649 $ 2,651 $(5,025) $189,837 $123 $(3,835) $210,400
Comprehensive Income: ...................
Net earnings .......................... 14,658 14,658
Minimum pension liability adjustment .. 27 27
Foreign currency translation adjustment (79) (79)
------
Total comprehensive income .......... 14,606
Cash dividends paid ..................... (4,260) (4,260)
Exercise of employee stock options ...... (59) 243 184
Tax benefits applicable to
Employee Stock Ownership Plan ......... 113 113
Employee Stock Ownership Plan ........... 1,680 1,680
Purchase of treasury stock .............. (147) (147)
===================================================================================================================================
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
===================================================================================================================================
See accompanying notes to consolidated financial statements.
-------------------------
F5
---------------------------------
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. Actual results could differ from those estimates.
Reclassifications
Where appropriate, certain amounts in 1996 and 1997 have been reclassified
to conform with the 1998 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, 1998 and 1997, 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, 1998, the held-to-maturity
securities mature within five 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, 1998 and 1997, was $5,906,000 and $4,402,000, 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.
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 common stock equivalents. Common stock
equivalents that are anti-dilutive are excluded from net income per common
share.
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):
1998 1997 1996
- --------------------------------------------------------------------------------
Weighted average common
shares outstanding 13,077,392 13,119,404 13,130,849
Effect of dilutive
securities - options 90,450 -- --
- --------------------------------------------------------------------------------
Weighted average common equivalent
shares outstanding-
assuming dilution 13,167,842 13,119,404 13,130,849
- --------------------------------------------------------------------------------
---------------------------
F6
---------------------------------
Standard Motor Products, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (cont'd)
Comprehensive Income
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 130 "Reporting Comprehensive Income," on January 1, 1998. SFAS No. 130
establishes standards for reporting and presentation of comprehensive income and
its components in a full set of financial statements. Comprehensive income
consists of net income, minimum pension liability adjustments and foreign
currency translation adjustments and is presented in the Consolidated Statements
of Changes in Stockholders' Equity. This statement requires only additional
disclosures in the consolidated financial statements; it does not affect the
Company's financial position or results of operations. Prior year financial
statements have been reclassified to conform to the requirements of SFAS No.
130.
Segment Reporting
During 1998 the Company adopted SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." This statement establishes standards
for reporting information about operating segments and for related disclosures
about products, geographic areas and major customers. (See Note 16)
Pension and Other Postretirement Plans
On January 1, 1998, the company adopted SFAS No. 132, "Employers
Disclosures about Pension and Other Postretirement Benefits." This statement
revises employers disclosures about pensions and other postretirement benefit
plans. SFAS No. 132 does not change the method of accounting for such plans.
(See notes 12 and 13.)
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 13%, 14% and 16% of consolidated net sales (including sales of
discontinued operations) for the years ended December 31, 1998, 1997 and 1996,
respectively. One individual member of this marketing group accounted for 10%,
9% and 11% of net sales for the years ended December 31, 1998, 1997 and 1996,
respectively. The Company's five largest individual customers, including the
members of this marketing group, accounted for 30%, 32% and 34% of net sales in
1998, 1997, and 1996 respectively.
2. Acquisitions
- ---------------
During 1998 and 1997, the Company acquired and accounted for as a purchase,
three businesses as follows:
In January 1997, the Company acquired the assets of the Filko Automotive
division of F&B Manufacturing Company for approximately $7,900,000. Filko
Automotive headquarters were located in Des Plaines, Illinois, when acquired but
have been subsequently merged into the Standard Division by the end of 1997. The
acquisition increased consolidated net sales by approximately $14,200,000 in
1998 and $19,000,000 in 1997 and had an immaterial effect on consolidated net
earnings for the same periods.
In September 1997, the Company acquired the oxygen sensor manufacturing
business of AlliedSignal for approximately $10,200,000 and has relocated the
manufacturing assets from AlliedSignal's plant to a new facility in North
Carolina. The acquisition had an immaterial effect on consolidated net sales and
consolidated net earnings for the years ended December 31, 1998 and 1997.
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.
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
-------------------------
(continued on following page)
F7
---------------------------------
Standard Motor Products, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (cont'd)
at the dates of acquisition. In aggregate, the excess of the purchase price over
the fair value of the net assets acquired during 1998 and 1997 was approximately
$11,650,000 and $8,500,000 respectively. The operating results of these acquired
businesses have been included in the consolidated financial statements from the
date of each respective acquisition.
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, $5,183,000 and $4,594,000 for the years ended December 31, 1998,
1997, and 1996 respectively. The Company's 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 operating results of the discontinued Brake business are summarized as
follows:
For the Years Ended December 31,
(In thousands) 1998 1997 1996
- --------------------------------------------------------------------------------
Net Sales $34,088 $164,202 $165,800
Income (loss) from operations
before income taxes -- (568) (10,573)
Income taxes -- -- (3,067)
- --------------------------------------------------------------------------------
Income (loss) from operations -- (568) (7,506)
- --------------------------------------------------------------------------------
Estimated loss on disposal -- (14,500) --
Income Taxes -- -- --
- --------------------------------------------------------------------------------
Net loss on disposal -- (14,500) --
- --------------------------------------------------------------------------------
Total loss on discontinued
operation $ -- $(15,068) $ (7,506)
- --------------------------------------------------------------------------------
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. The net assets
retained and held for sale as of December 31, 1997, were summarized as follows:
Held
(In thousands) Total Retained for Sale
- --------------------------------------------------------------------------------
Current Assets $77,266 $32,161 $45,105
Property, plant and equipment, net 28,952 465 28,487
Other non-current assets
net of amortization 1,202 -- 1,202
Current Liabilities (22,253) (18,167) (4,086)
Other Liabilities (12,447) (12,447) --
- --------------------------------------------------------------------------------
Net assets of the
discontinued Brake business $72,720 $2,012 $70,708
- --------------------------------------------------------------------------------
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 early 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, $975,000, and $1,110,000 for the years ended December 31, 1998, 1997,
and 1996 respectively. The Company's 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 operating results of the discontinued Service Line business are
summarized as follows:
For the Years Ended December 31,
(In thousands) 1998 1997 1996
- --------------------------------------------------------------------------------
Net Sales ......................... $ 23,254 $ 39,147 $ 42,598
- --------------------------------------------------------------------------------
Income (loss) from operations
before income taxes .............. -- (5,336)
Income taxes ...................... -- -- (1,233)
- --------------------------------------------------------------------------------
Loss from operations .............. -- (5,336) (1,702)
- --------------------------------------------------------------------------------
Estimated loss on disposal ........ -- (12,500) --
Income taxes ...................... -- -- --
- --------------------------------------------------------------------------------
Net loss on disposal .............. -- (12,500) --
- --------------------------------------------------------------------------------
Total loss on discontinued
operation ......................... $-- $(17,836) $ (1,702)
- --------------------------------------------------------------------------------
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. The net
assets retained and held for sale as of December 31. 1997, were summarized as
follows:
---------------------------------
F8
---------------------------------
Standard Motor Products, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (cont'd)
Held
(In thousands) Total Retained for Sale
- --------------------------------------------------------------------------------
Current Assets ........................... $ 12,933 $ 5,196 $ 7,737
Property, plant and equipment, net ....... 662 -- 662
Other non-current assets
net of amortization ..................... 184 184 --
Current Liabilities ...................... (8,020) (8,020) --
Other Liabilities ........................ -- -- --
- --------------------------------------------------------------------------------
Net assets of the discontinued
Service Line Business .................... $ 5,759 $ (2,640) $ 8,399
- --------------------------------------------------------------------------------
4. Sale of Accounts Receivable
- ------------------------------
The Company sells certain accounts receivable to its wholly-owned
subsidiary, SMP Credit Corp., a qualifying special-purpose corporation. On March
19, 1997, SMP Credit Corp., entered into a two year agreement whereby it can
sell up to a $25,000,000 undivided ownership interest in a designated pool of
certain of these eligible receivables. At December 31, 1998 and 1997, net
accounts receivables amounting to $25,000,000 had been sold under this
agreement. These sales were reflected as reductions of trade accounts receivable
in 1998 and 1997 and the related fees and discounting expense were recorded as
other expense. The Company has received an extension of this agreement until
April 30, 1999 while it completes negotiations on a three year renewal with
similar terms and conditions.
5. Inventories
- --------------
December 31,
------------------------
(In thousands) 1998 1997
- --------------------------------------------------------------------------------
Inventories consist of:
Finished goods ........................... $120,108 $124,224
Work in process .......................... 4,867 5,392
Raw materials ............................ 49,117 59,390
- --------------------------------------------------------------------------------
Total inventories ........................ $174,092 $189,006
- --------------------------------------------------------------------------------
6. Property, Plant and Equipment
- --------------------------------
December 31,
---------------------
(In thousands) 1998 1997
- --------------------------------------------------------------------------------
Property, plant and equipment consist of the following:
Land, buildings and improvements ................. $ 64,080 $ 75,752
Machinery and equipment .......................... 88,282 104,178
Tools, dies and auxiliary equipment .............. 8,412 10,029
Furniture and fixtures ........................... 21,542 22,841
Leasehold improvements ........................... 5,130 7,213
Construction in progress ......................... 18,068 8,840
-------- --------
205,514 228,853
Less accumulated depreciation
and amortization ................................. 96,110 102,829
- --------------------------------------------------------------------------------
Total property, plant and
equipment, net ................................... $109,404 $126,024
- --------------------------------------------------------------------------------
7. Other Assets
- ---------------
December 31,
----------------------
(In thousands) 1998 1997
- --------------------------------------------------------------------------------
Other assets consist of the following:
Marketable securities .............................. $37,200 $27,200
Unamortized customer supply agreements ............. 3,311 537
Equity in joint ventures ........................... 4,698 7,434
Deferred income taxes .............................. 4,169 --
Other .............................................. 11,031 14,792
- --------------------------------------------------------------------------------
Total other assets ................................. $30,409 $29,963
- --------------------------------------------------------------------------------
Included in Other is a preferred stock investment in a customer of the
Company. Net sales to such customer amounted to $72,754,000, $72,529,000, and
$76,283,000 in 1998, 1997, and 1996 respectively.
8. Notes Payable - Banks
- ------------------------
During 1997 and the first quarter of 1998, the Company's domestic
short-term facilities consisted primarily of one year uncommitted demand
revolving credit agreements negotiated separately with each of its six lending
institutions. The amount of short-term bank borrowings outstanding under those
facilities was $52,900,000 at December 31, 1997. The weighted average interest
rate at December 31, 1997 on those borrowings was 9.1%.
On March 30, 1998 the Company entered into an eight month committed
revolving credit facility with its then existing banking group and incurred
commitment fees of approximately 1.25% of the facility. This facility provided
for unsecured lines of credit in the aggregate amount of $108,500,000. On
November 30, 1998, the Company entered into a new three year revolving credit
facility. The new facility, with eight lending institutions, provides 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 terms of
this 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. There
were no outstanding borrowings under this facility at December 31, 1998. The
Company incurred commitment fees of approximately .70% of the total facility.
A foreign subsidiary of the Company had a revolving credit facility during
1998 and 1997. The amount of short-term bank borrowings outstanding under that
facility was $3,555,000 at December 31, 1998, and $2,997,000 at December 31,
1997. The weighted average interest rates on these borrowings at December 31,
1998 and 1997 were 8.4% and 7.7%, respectively.
(continued on following page)
-----------------------------
F9
---------------------------------
Standard Motor Products, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (cont'd)
9. Long-Term Debt
- -----------------
December 31,
----------------------
(In thousands) 1998 1997
- --------------------------------------------------------------------------------
Long-term debt consists of:
7.56% senior note ............................. $ 73,000 $ 73,000
8.60% senior note ............................. 37,143 46,429
10.22% senior note ............................ 21,500 30,000
Credit Facility ($17 million Canadian) ........ 10,960 13,935
7.50%-10.50% purchase obligations ............. 2,833 4,840
5.0%-8.8% Facilities .......................... 6,411 7,524
5.0% Notes Payable - AlliedSignal ............. 3,000 5,000
Credit Agreement (esop) ....................... -- 1,674
Other ......................................... 1,306 1,080
- --------------------------------------------------------------------------------
156,153 183,482
Less current portion .......................... 22,404 24,373
- --------------------------------------------------------------------------------
Total noncurrent portion of
long-term debt ................................ $133,749 $159,109
- --------------------------------------------------------------------------------
Under the terms of the $73,000,000 senior note agreement, the Company is
required to repay the loan in seven equal annual installments beginning in 2000.
Under the terms of the $37,143,000 senior note agreement, the Company is
required to repay the remaining loan in four equal annual installments from 1999
through 2002.
Under the terms of the $21,500,000 senior note agreement, the Company is
required to repay the loan in five varying annual installments beginning in
1999. Subject to certain restrictions, the Company may make prepayments without
premium.
Under the terms of the $17,000,000 CDN credit agreement, the Company is
required to repay the loan as follows: $7,000,000 CDN in 1999, $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 1998.
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 $13,390,000 at December 31, 1998.
The Company holds a 73.4% 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 the unsecured note agreement with AlliedSignal, the
Company is required to repay $2,000,000 in September 1999 with a final payment
of $1,000,000 due in 2000.
The proceeds of the Credit Agreement were loaned to the Company's Employee
Stock Ownership Plan (ESOP) to purchase 1,000,000 shares of the Company's common
stock to be distributed in accordance with the terms of the ESOP established in
1989 (see Note 12). In January 1998, the Company made the final required payment
and as such the credit agreement has been paid in full.
Maturities of long-term debt during the five years ending December 31, 1999
through 2003, are $22,404,000, $28,421,000, $27,282,000, $29,815,000 and
$16,416,000 respectively.
The senior 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.
At December 31, 1997, the Company did not comply with certain covenant
requirements for which the Company received waivers and amendments on March 27,
1998. These amendments contained provisions for the payment of up front fees of
1.5% and an increase in the interest rate on each senior note by 1.25%. The
increased interest rate was reduced by 0.50% based upon the refinancing of the
Company's revolving credit facility on November 30, 1998 (see Note 8).
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, 1998.
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
---------------------------
F10
---------------------------------
Standard Motor Products, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (cont'd)
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.
On December 22, 1998 the Board of Directors authorized the repurchase by
the Company of up to an additional 300,000 shares of its common stock at a cost
of up to $7,000,000, to be used to meet present and future requirements of its
stock option programs. As of December 31, 1998, 78,400 shares were repurchased
at a cost of $1,881,000.
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,
1998, in aggregate 969,000 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) 1998 1997 1996
- --------------------------------------------------------------------------------
Net Earnings As reported $ 22,257 $ (34,524) $ 14,658
(loss) Pro forma $ 21,610 $ (34,849) $ 14,544
Basic Earnings As reported $ 1.70 $ (2.63) $ 1.12
(loss) per share Pro forma $ 1.65 $ (2.66) $ 1.11
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 1998, 1997 and
1996 respectively: expected volatility of 33.5%, 33.5% and 25.5%, expected life
of 4.3 years, 4.4 years and 4.4 years, dividend yield of 1.5%, 1.5% and 2.0% and
risk free interest rate of 5.2%, 5.6% and 6.0% for issued options.
A summary of the status of the Company's option plans follows:
1998 1997 1996
- ----------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
(Shares in thousands) Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Outstanding at
beginning of year 636 $ 18.45 424 $ 16.50 281 $ 16.54
Granted 263 21.54 231 21.87 157 16.27
Exercised (91) 17.08 (10) 16.39 (11) 14.40
Forfeited (15) 21.50 (9) 16.36 (3) 16.39
- ----------------------------------------------------------------------------------------
Outstanding at
end of year 793 $ 19.58 636 $ 18.45 424 $ 16.50
- ----------------------------------------------------------------------------------------
Options exercisable at
end of year 335 -- 230 -- 142 --
- ----------------------------------------------------------------------------------------
Weighted-average fair value
of options granted during the year -- $ 6.30 -- $ 6.11 -- $ 4.28
Options Outstanding
- --------------------------------------------------------------------------------
Number Weighted-Average
Range of Outstanding Remaining Weighted-Average
Exercise Prices at 12/31/98 Contractual Life Exercise Price
(Years)
- --------------------------------------------------------------------------------
$13.63 - $14.50 6,000 8.3 $ 13.77
$16.00 - $16.94 314,000 3.9 $ 16.34
$20.50 - $23.72 473,000 6.2 $ 21.80
Options Exercisable
- --------------------------------------------------------------------------------
Range of Number Exercisable Weighted-Average
Exercise Prices at 12/31/98 Exercise Price
- --------------------------------------------------------------------------------
$13.63 - $23.59 334,500 $17.34
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) 1998 1997
- --------------------------------------------------------------------------------
Change in benefit obligations:
Benefit obligation at beginning of year ....... $ 10,109 $ 10,036
Service cost .................................. 97 188
Interest cost ................................. 665 672
Actuarial gain ................................ (121) (33)
Benefits paid ................................. (835) (754)
- --------------------------------------------------------------------------------
Benefit Obligation at End of Year ............. $ 9,915 $ 10,109
- --------------------------------------------------------------------------------
Change in Plan Assets
Fair value of plan assets at
beginning of year ........................... $ 11,120 $ 10,418
Actual return on plan assets .................. 1,399 1,456
Employer contributions ........................ -- --
Benefits paid ................................. (835) (754)
- --------------------------------------------------------------------------------
Fair value of plan assets at end of year ...... $11,684 $11,120
- --------------------------------------------------------------------------------
Funded status ................................. $ 1,769 $ 1,011
Unrecognized prior service cost ............... -- 263
Unrecognized net actuarial gain ............... (2,083) (1,452)
Unrecognized transition cost .................. -- 72
- --------------------------------------------------------------------------------
(Accrued)/prepaid benefit cost ................ $ (314) $ (106)
================================================================================
(continued on following page)
----------------------------
F11
---------------------------------
Standard Motor Products, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (cont'd)
December 31,
Weighted-average assumptions: 1998 1997 1996
- --------------------------------------------------------------------------------
Discount rates ................................. 6.75% 7.00% 7.00%
Expected long-term rate of return
on assets ...................................... 8.00% 8.00% 8.00%
- --------------------------------------------------------------------------------
December 31,
------------------------------
(In thousands) ................................. 1998 1997 1996
- --------------------------------------------------------------------------------
Components of Net Periodic benefit cost
Service cost ................................... 97 188 219
Interest cost .................................. 665 672 653
Return on assets ............................... (816) (1,456) (1,135)
Amortization of prior service cost ............. 19 70 70
Recognized actuarial (gain)/loss ............... (72) 655 373
- --------------------------------------------------------------------------------
Net periodic (benefit) cost .................... (107) 129 180
- --------------------------------------------------------------------------------
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, providing 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,
1998 $ 302,000 $4,350,000
1997 $ 365,000 $2,840,000
1996 $ 383,000 $2,175,000
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 (see Note 9), 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, 1997 and 1996, 106,900, 98,000, and 96,800 shares were
allocated to the employees, leaving no unallocated shares in the ESOP trust at
December 31, 1998.
Contributions to the ESOP are based on a predetermined formula which is
primarily tied into dividends earned by the ESOP and loan repayments. The
provision for expense in connection with the ESOP was approximately $1,664,000,
in 1998, $1,406,000 in 1997, and $1,391,000 in 1996. The expense was calculated
by subtracting dividend and interest income earned by the ESOP, which amounted
to approximately $1,000, $274,000, and $289,000, for the years ended December
31, 1998, 1997 and 1996, respectively, from the principal repayment on the
outstanding bank loan. Interest costs amounted to approximately $56,000,
$208,000, and $360,000 for the years ended December 31, 1998, 1997 and 1996,
respectively.
At December 31, 1997, indebtedness of the ESOP to the Company in the amount
of $1,665,000, is shown as a deduction from stockholders' equity in the
consolidated balance sheets. Dividends paid on ESOP shares are recorded as
reductions in retained earnings in the consolidated balance sheets.
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 not significant in 1998, 1997 and 1996.
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) 1998 1997
- --------------------------------------------------------------------------------
Change in benefit obligation
Benefit obligation at beginning of year .......... $ 15,783 $ 20,888
Service cost ..................................... 975 671
Interest cost .................................... 1,082 1,139
Amendments ....................................... 1,410 --
Curtailments ..................................... -- (2,120)
Actuarial (gain)/loss ............................ (844) (4,319)
Benefits paid .................................... (778) (476)
- --------------------------------------------------------------------------------
Benefit obligation at end of year ................ $ 17,628 $ 15,783
================================================================================
Funded status .................................... $(17,628) $(15,783)
Unrecognized prior service cost .................. 1,286 --
Unrecognized net actuarial
(gain)/loss ...................................... (766) --
- --------------------------------------------------------------------------------
(Accrued)/prepaid benefit cost ................... $(17,108) $(15,783)
================================================================================
Weighted-Averag Assumptions as of December 31
1998 1997
- --------------------------------------------------------------------------------
Discount rates . . . . . . . . . . . . . . . . . 6.75% 7.0%
For measurement purposes, an 8% and 9% annual rate of increase in the per
capita cost of covered medical benefits was assumed for 1998 and 1997
respectively. The rate was assumed to decrease gradually to 5% in 2002 and
remain at that level thereafter. A 6.5% annual rate of increase in the per
------------------------
F12
----------------------
Standard Motor Products, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (cont'd.)
capita cost of covered dental benefits was assumed for 1998. The rate was
assumed to decrease gradually to 5% in 2001 and remain at that level thereafter.
December 31,
---------------
(In thousands) 1998 1997 1996
- --------------------------------------------------------------------------------
Components of Net Periodic Benefit Cost
Service cost ..................... $ 975 $ 671 837
Interest cost .................... 1,082 1,139 1,419
Amortization of prior service cost 124 0 0
Recognized actuarial (gain)/loss . (78) (235) 408
- --------------------------------------------------------------------------------
Net periodic benefit cost ........ $ 2,103 $ 1,575 2,664
Curtailment (gain) ............... 0 (1,492) 0
- --------------------------------------------------------------------------------
Total benefit cost ............... $ 2,103 $ 83 2,664
- --------------------------------------------------------------------------------
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 1998:
1-Percentage- 1-Percentage-
(In thousands) Point Increase Point Decrease
- --------------------------------------------------------------------------------
Effect on total of service and
interest cost components .............. $ 327 $(274)
Effect on postretirement benefit
obligation ............................ $2,209 $(1,882)
14. Other Income (Expense), Net
- -------------------------------
(In thousands) 1998 1997 1996
- --------------------------------------------------------------------------------
Other income (expense), net consists of:
Interest and dividend income .... $ 1,856 $ 898 $ 1,668
(Loss) on sale of accounts
receivable (Note 4) ............. (1,410) (1,358) (1,266)
Income (loss) from joint ventures (2,078) 1,335 1,336
Other - net ..................... 210 123 (28)
- --------------------------------------------------------------------------------
Total other income (expense), net $(1,422) $ 998 $ 1,710
================================================================================
15. Taxes Based on Earnings
- --------------------------------------------------------------------------------
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:
- --------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------
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 ..... 0.7 4.6 1.1
Non-deductible items, net ......... 0.6 2.3 0.1
Benefits of income subject to taxes
at lower than the U.S. federal rate (18.3) (87.8) (7.4)
(Decrease) increase in valuation
allowance ......................... (4.2) 50.7 --
Other ............................. -- -- (0.6)
- --------------------------------------------------------------------------------
Effective tax rate ................ 13.8% (65.2)% 28.2%
================================================================================
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) 1998 1997
- ----------------------------------------------------------------
Deferred tax assets:
Accrued costs related to disposal of
discontinued operations ........... $ 983 7,584
Inventories ........................ 8,495 11,647
Allowance for customer returns ..... 6,023 6,733
Postretirement benefits ............ 6,725 6,825
Allowance for doubtful accounts .... 1,545 7,070
Accrued salaries and benefits ...... 3,347 4,125
Other .............................. 12,361 8,540
Valuation allowance ................ (14,171) (15,271)
- ----------------------------------------------------------------
Total .............................. $ 25,308 $ 37,253
================================================================
Deferred tax liabilities:
Depreciation ....................... $ 4,032 10,796
Promotional costs .................. 1,054 1,610
Other .............................. 4,330 5,966
- ----------------------------------------------------------------
Total .............................. 9,416 18,372
================================================================
Net deferred tax assets ............ $ 15,892 $ 18,881
================================================================
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.
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 $12,159,000 at the
end of 1998, $17,562,000 at the end of 1997, and $11,858,000 at the end of 1996.
Earnings from continuing operations, before income taxes, for foreign
operations (including Puerto Rico) amounted to approximately $19,000,000,
$16,000,000 and $14,000,000 in 1998, 1997 and 1996 respectively. Earnings of the
Puerto Rico subsidiary are not subject to United States income taxes and are
partially exempt from Puerto Rican income taxes under a tax exemption grant
expiring on December 31, 2002. The tax benefits of the exemption, reduced by a
minimum tollgate tax instituted in 1993, amounted to $.20 per share in 1998
(1997 - $.26; 1996 - $.27).
Foreign income taxes amounted to approximately $2,525,000, $2,136,000,
and $1,639,000 for 1998, 1997 and 1996, respectively.
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
--------------------------
F13
----------------------
Standard Motor Products, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (cont'd.)
competes. The Engine Management Division consists primarily of ignition and
electrical parts, emission and engine controls, on-board computers, sensors,
ignition wires, battery cables, carburetor and fuel system parts. The
Temperature Control Division consists primarily of air conditioning compressors,
clutches, accumulators, filter/driers, blower motors, heater valves, heater
cores, evaporators, condensers, hoses and fittings. 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, 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
- --------------------------------------------------------------------------------
For the year ended December 31, 1996
------------------------------------
Engine Temperature Other
(In thousands) Management Control Adjustments Consolidated
- --------------------------------------------------------------------------------
Net Sales $353,409 $156,423 $ 3,575 $513,407
- --------------------------------------------------------------------------------
Depreciation
and amortization 7,960 2,160 6,206 16,326
- --------------------------------------------------------------------------------
Operating income 43,149 13,712 (12,127) 44,734
- --------------------------------------------------------------------------------
Investment in equity
affiliates 1,144 -- 5,009 6,153
- --------------------------------------------------------------------------------
Capital expenditures 12,024 6,461 2,904 21,389
- --------------------------------------------------------------------------------
Total Assets $317,761 $120,912 $ 186,133 $624,806
- --------------------------------------------------------------------------------
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.
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) 1998 1997 1996
- --------------------------------------------------------------------------------
Operating income ................ $ 43,931 $ 9,455 $44,734
Other income (expense) .......... (1,422) 998 1,710
Interest expense ................ 16,419 14,158 13,091
- --------------------------------------------------------------------------------
Earnings (loss) from continuing
operations before taxes and
minority interest ............... $ 26,090 $ (3,705) $33,353
================================================================================
Geographic Information for the Year Ended December 31,
Revenues
---------------------
(In thousands) 1998 1997 1996
================================================================================
United States $586,044 $493,823 $474,711
Canada 25,513 25,748 24,470
Other Foreign 37,863 40,252 14,226
- --------------------------------------------------------------------------------
Total $649,420 $559,823 $513,407
================================================================================
Long Lived Assets
---------------------
(In thousands) 1998 1997 1996
================================================================================
United States $125,627 $126,854 $121,126
Canada 3,719 8,615 17,377
Other Foreign 19,290 21,229 22,833
- --------------------------------------------------------------------------------
Total $148,636 $156,698 $161,336
================================================================================
Revenues are attributed to countries based upon the location of the
customer
17. Fair Value of Financial Instruments
- ---------------------------------------
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate that value:
Cash and cash equivalents
The carrying amount approximates fair value
because of the short maturity of those instruments.
Marketable securities
The fair values of investments are estimated based on quoted market
prices for these or similar instruments.
Long-term debt
The fair value of the Company's long-term
debt is estimated based on the current rates offered
to the Company for debt of the same remaining maturities.
The estimated fair values of the Company's
financial instruments are as follows:
(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)
- ---------------------------------------------------
(In thousands)
December 31, 1997 Carrying Fair
Amount Value
- ---------------------------------------------------
Cash and cash equivalents $ 16,809 $ 16,809
Marketable securities ... 7,200 7,200
Long-term debt .......... (183,482) (175,053)
- ---------------------------------------------------
----------------------------
F14
18. Commitments and Contingencies
- -------------------------------------
Total rent expense for the three years ended December 31, 1998 was as follows:
Real
(In thousands) Total Estate Other
- --------------------------------------------------------------------------------
1998 $5,747 $3,619 $2,128
1997 7,437 4,593 2,844
1996 6,568 3,244 3,324
At December 31, 1998, 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)
1999 $ 4,525
2000 3,288
2001 3,233
2002 2,407
2003 1,844
Thereafter 3,644
- --------------------------------------------------------------------------------
$18,941
- --------------------------------------------------------------------------------
At December 31, 1998, the Company had outstanding letters of credit
aggregating approximately $2,300,000. 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.
The Company is involved in various 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 ............. 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
- --------------------------------------------------------------------------------
Earnings (loss) from
discontinued operations ... -- -- -- --
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
(In thousands, except per share amounts)
Dec. 31, Sept. 30, June 30, Mar. 31,
Quarter Ended 1997 1997 1997 1997
- --------------------------------------------------------------------------------
Net Sales ...................... $ 103,662 $155,246 $163,181 $137,734
- --------------------------------------------------------------------------------
Gross Profit ................... 32,512 49,938 53,458 43,580
- --------------------------------------------------------------------------------
Earnings (loss) from
continuing operations .......... (13,967) 6,917 5,571 (141)
- --------------------------------------------------------------------------------
Earnings (loss) from
discontinued operations (34,057) 1,000 947 (794)
- --------------------------------------------------------------------------------
Net Earnings (loss) ............ $ (48,024) $ 7,917 $ 6,518 $ (935)
- --------------------------------------------------------------------------------
Net Earnings (loss) from
continuing operations per
common share:
Basic .......................... $ (1.07) $ .53 $ .42 $ (.01)
Diluted ........................ $ (1.07) $ .53 $ .42 $ (.01)
- --------------------------------------------------------------------------------
Net Earnings (loss) per
common share:
Basic .......................... $ (3.67) $ .60 $ .50 $ (.07)
Diluted ........................ $ (3.67) $ .60 $ .50 $ (.07)
- --------------------------------------------------------------------------------
The fourth quarter of 1997 reflects several unfavorable year-end
adjustments including a $10,500,000 increase in bad debt expense for continuing
operations and a $2,500,000 increase in bad debt expense for discontinued
operations related to the bankruptcy filing of a significant customer, APS,
Inc., a $3,000,000 provision for severance payments related to personnel
reductions, and the estimated loss on disposal of $27,000,000 associated with
the Brake and Service Line businesses (see Note 3).
20. Subsequent Events (Unaudited)
- ---------------------------------
In January 1999, the Company acquired through its European subsidiary
Standard Motor Products Holding Ltd., 85% of the stock of Webcon UK Limited, and
acquired through its UK joint venture Blue Streak Europe Limited, Webcon's
affiliate Injection Correction UK Limited. The total acquisition price amounted
to approximately $3,500,000 and was funded from the Company's operating cash
flow.
In February 1999, the Company acquired 100% of the stock of Eaglemotive
Corporation for approximately $13,400,000. Located in Fort Worth, Texas,
Eaglemotive assembles and distributes fan clutches and other cooling products to
the automotive aftermarket. The acquisition was funded from operating cash and
short term borrowings.
---------------------------
F15
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
----------------------------------------------------
None.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
Information relating to Directors and Executive Officers is set forth in the
1999 Annual Proxy Statement.
ITEM 11. MANAGEMENT REMUNERATION AND TRANSACTIONS
----------------------------------------
Information relating to Management Remuneration and Transactions is set forth in
the 1999 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 1999 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 1999 Annual Proxy Statement.
18
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, 1998 and 1997
Consolidated Statements of Operations
- Years Ended December 31, 1998, 1997 & 1996
Consolidated Statements of Changes in Stockholders' Equity
- Years Ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows -
- Years Ended December 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
(2) The following financial schedule for the years 1998, 1997 and
1996 is submitted herewith:
Schedule Page
II. Valuation and Qualifying Accounts 26
Selected Quarterly Financial Data, for the Years Ended December 31,
1998 and 1997, are included herein by reference to Part II, Item 8.
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 20.
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, 1998.
19
STANDARD MOTOR PRODUCTS, INC.
EXHIBIT INDEX
EXHIBIT EXHIBIT PAGE
NUMBER NUMBER
- ------ ------
2.1 Asset Exchange Agreement dated as of March 28, 1998 *
among SMP Motor Products, LTD., Standard Motor
Products, Inc., Cooper Industries (Canada) Inc., Moog
Automotive Company and Moog Automotive Products,
Inc., filed as an Exhibit of Registrant's current
report on Form 8-K dated March 28, 1998 is
incorporated herein by reference
3.1 By-laws filed as an Exhibit of Registrant's annual *
report on Form 10-K for the year ended December 31,
1986 is incorporated herein by reference.
3.2 Restated Certificate of Incorporation, dated July 31, *
1990, filed as an Exhibit of Registrant's Annual
Report on Form 10-K for the year ended December 31,
1990 is incorporated herein by reference.
3.3 Restated Articles of Incorporation, dated February *
15, 1996, filed as an Exhibit of Registrant's
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996 is incorporated herein by reference.
3.4 Restated By-Laws dated May 23, 1996, filed as an *
Exhibit of the Registrant's annual report on Form
10-K for the year ended December 31, 1996, is
incorporated herein by reference.
4.1 Registration of Preferred Share Purchase Rights filed *
on Form 8-A on February 29, 1996 is incorporated
herein by reference.
10.1 Note Purchase Agreement dated October 15, 1989 *
between the Registrant 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 Registrant's Annual
Report on Form 10-K for the year ended December 31,
1989 is incorporated herein by reference.
20
STANDARD MOTOR PRODUCTS, INC.
EXHIBIT INDEX
EXHIBIT EXHIBIT PAGE
NUMBER NUMBER
- ------ ------
10.2 Note Agreement of November 15, 1992 between the *
Registrant and Kemper Investors Life Insurance
Company, Federal Kemper Life Assurance Company,
Lumbermens Mutual Casualty Company, Fidelity Life
Association, American Motorists Insurance Company,
American Manufacturers Mutual Insurance Company,
Allstate Life Insurance Company, Teachers Insurance &
Annuity Association of America, and Phoenix Home Life
Mutual Insurance Company filed as an Exhibit of
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1992 is incorporated herein by
reference.
10.3 Employee Stock Ownership Plan and Trust dated January *
1, 1989 filed as an Exhibit of Registrant's Annual
Report on Form 10-K for the year ended December 31,
1989 is incorporated herein by reference.
10.4 Supplemental Executive Retirement Plan dated August *
15, 1994 filed as an Exhibit of Registrant's Annual
Report on Form 10-K for the year ended December 31,
1994 is incorporated herein by reference.
10.5 1994 Omnibus Stock Option Plan of Standard Motor *
Products, Inc. is incorporated by reference to
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 Registrant 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 Registrant's
Annual Report on Form 10-K for the year ended
December 31, 1995 is incorporated herein by
reference.
10.7 Credit Agreement of May 1, 1996 between the *
Registrant and Canadian Imperial Bank of Commerce
("CIBC") filed as an Exhibit of Registrant's annual
report on Form 10-K for the year ended December 31,
1996, is incorporated herein by reference.
10.8 Letter Agreement dated September 25, 1996 amending *
the Note Agreement between the Registrant and
Canadian Imperial Bank of Commerce ("CIBC") filed as
an Exhibit of Registrant's annual report on Form 10-K
for the year ended December 31, 1996, is incorporated
herein by reference.
21
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 Registrant 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 Registrant's
annual report on Form 10-K for the year ended
December 31, 1996 is incorporated herein by
reference.
10.10 Letter Agreement of November 22, 1996 amending the *
Note Agreement between the Registrant 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
Registrant's annual report on Form 10-K for the year
ended December 31, 1996, is incorporated herein by
reference.
10.11 1996 Independent Outside Directors Stock Option Plan *
of Standard Motors Products, Inc. filed as an Exhibit
of Registrant's annual report on Form 10-K for the
year ended December 31, 1996 is incorporated herein
by reference.
10.12 Letter Agreement of March 27, 1998 amending the Note *
Agreement between the Registrant and the American
United Life Insurance Company, the Great American
Life Insurance Company, the Jefferson- Pilot Life
Insurance Company, the Ohio National Life Insurance
Company, the Crown Insurance Company, the Great-West
Life Insurance Company, the Security Mutual Life
Insurance Company, Woodmen Accident and Life
Insurance Company and Nomura Holding America, Inc.
dated October 15, 1989, filed as an Exhibit of
Registrant's current report on Form 8-K dated March
28, 1998 is incorporated herein by reference
10.13 Letter Agreement of March 27, 1998 amending the Note *
Agreement * between the Registrant and Kemper
Investors Life Insurance Company, Federal Kemper Life
Assurance Company, Lumbermens Mutual Casualty
Company, Fidelity Life Association, American
Motorists Insurance Company, American Manufacturers
Mutual Insurance Company, Allstate Life Insurance
Company, Teachers Insurance & Annuity Association of
America, and Phoenix Home Life Mutual
InsuranceCompany dated November 15, 1992, filed as an
Exhibit of Registrant's current report on Form 8-K
dated March 28, 1998 is incorporated herein by
reference
22
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 Registrant 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 Registrant's current report on
Form 8-K dated March 28, 1998 is incorporated herein
by reference
10.15 1994 Omnibus Stock Option Plan of Standard Motor *
Products, Inc., as amended, is incorporated herein by
reference to the Company's Registration Statement on
Form S-8 (333-51565), dated May 1, 1998.
10.16 Standard Motor Products, Inc. Independent Directors' *
Stock Option Plan, is incorporated herein by
reference to the Company's Registration Statement on
Form S-8 (333-51619), dated May 1, 1998.
10.17 Credit Agreement dated November 30, 1998 among E-1
Standard Motor Products, Inc., Chase Manhattan Bank
and Canadian Imperial Bank of Commerce is included as
Exhibit 10.17
21. List of Subsidiaries of Standard Motor Products, Inc.
is included on Page 27.
23 Consent of Independent Auditors KPMG LLP, is included
on Page 28.
27. Financial Data Schedule for 1998 is included on Page 29.
* Incorporated by reference.
23
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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)
/S/ LAWRENCE I. SILLS
---------------------
Lawrence I. Sills, President, Director,
Chief Operating Officer
/S/ MICHAEL J. BAILEY
---------------------
Michael J. Bailey, Senior Vice President, Administration and Finance,
Chief Financial Officer
/S/ JAMES J. BURKE
------------------
James J. Burke, Director of Finance
Chief Accounting Officer
Dated:
New York, New York
March 31, 1999
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 Registrant and
in the Capacities and on the dates indicated:
March 31, 1999 /S/ LAWRENCE I. SILLS
(Dated) ---------------------
Lawrence I. Sills, President, Director,
Chief Operating Officer
March 31, 1999 /S/ NATHANIEL L. SILLS
(Dated) ----------------------
Nathaniel L. Sills
Chairman, Director
March 31, 1999 /S/ ARTHUR D. DAVIS
(Dated) -------------------
Arthur D. Davis, Director
March 31, 1999 /S/ MARILYN F. CRAGIN
(Dated) ---------------------
Marilyn F. Cragin, Director
March 31, 1999 /S/ SUSAN F. DAVIS
(Dated) ------------------
Susan F. Davis, Director
March 31, 1999 /S/ ARTHUR S. SILLS
(Dated) -------------------
Arthur S. Sills, Director
24
The Board of Directors and Stockholders
Standard Motor Products, Inc.:
Under date of March 2, 1999, we reported on the consolidated balance sheets of
Standard Motor Products, Inc. and subsidiaries as of December 31, 1998, and
1997, 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, 1998, as contained in the annual report on Form 10-K
for the year 1998. 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
March 2, 1999
25
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
Schedule II - Valuation and Qualifying Accounts
Years ended December 31, 1998, 1997 and 1996
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, 1998:
- -----------------------------
Allowance for doubtful $ 16,187,000 $ 3,811,000 $ 31,000 $ 17,365,000 $ 2,664,000
accounts
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 $ 17,178,000 $ 1,556,000 $ 1,754,000 $ 2,267,000 $ 18,221,000
valuation
YEAR ENDED DECEMBER 31, 1997:
- -----------------------------
Allowance for doubtful $ 3,012,000 $ 16,478,000 $ 130,000 $ 3,433,000 $ 16,187,000
accounts
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 $ 14,284,000 $ 2,717,000 $ 2,228,000 $ 2,051,000 $ 17,178,000
valuation
YEAR ENDED DECEMBER 31, 1996:
- -----------------------------
Allowance for doubtful $ 3,254,000 $ 505,000 $ 405,000 $ 1,152,000 $ 3,012,000
accounts
Allowance for discounts 2,653,000 -- 23,000 189,000 2,487,000
------------- ------------ ----------- ------------ ------------
$ 5,907,000 $ 505,000 $ 428,000 $ 1,341,000 $ 5,499,000
Allowance for sales returns $ 13,446,000 $ 91,861,000 $ 189,000 $ 90,435,000 $ 15,061,000
Allowance for inventory $ 13,016,000 $ 3,046,000 $ 1,169,000 $ 2,947,000 $ 14,284,000
valuation
<FN>
(1) Includes charges reflected in operations of discontinued businesses.
</FN>
26