SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the Quarterly Period Ended MARCH 31, 1999
--------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
Commission file number 1-4743
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STANDARD MOTOR PRODUCTS, INC.
-----------------------------
(Exact name of registrant as specified in its charter)
NEW YORK 11-1362020
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
37-18 NORTHERN BLVD., LONG ISLAND CITY, N.Y. 11101
- -------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(718) 392-0200
--------------
(Registrant's telephone number, including area code)
NONE
----
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
DATE CLASS SHARES OUTSTANDING
---- ----- ------------------
Common stock par
April 30, 1999 Value $2.00 Per Share 13,134,518
-------------- --------------------- ----------
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL AND OTHER INFORMATION
MARCH 31, 1999
PART 1 - FINANCIAL INFORMATION
------------------------------
ITEM 1 PAGE NO.
- ------ --------
CONSOLIDATED BALANCE SHEETS
March 31, 1999 and December 31, 1998 3 & 4
CONSOLIDATED STATEMENTS OF OPERATIONS AND
RETAINED EARNINGS for the Three-Month
periods ended March 31, 1999 and 1998 5
CONSOLIDATED STATEMENTS OF CASH FLOWS for the
Three-Month periods ended March 31, 1999 and 1998 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7 - 11
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 12 - 15
PART II - OTHER INFORMATION
---------------------------
ITEM 6
- ------
Exhibits and Reports on Form 8-K 16
Signature 16
-2-
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS
------
MARCH 31, DECEMBER 31,
1999 1998
- ---------------------------------------------------------------------------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 1,266 $ 23,457
Accounts and notes receivable, net of
allowance for doubtful accounts and
discounts of $6,586 (1998 - $4,525)(Note 10) 205,604 122,008
Inventories (Note 2) 193,247 174,092
Deferred income taxes 11,723 11,723
Prepaid expenses and other current assets 13,110 11,231
-------- --------
Total current assets 424,950 342,511
Property, plant and equipment, net of
accumulated depreciation (Note 3) 111,596 109,404
Goodwill, net 42,507 39,232
Other assets (Note 8) 31,124 30,409
-------- --------
Total assets $ 610,177 $ 521,556
======== ========
See accompanying notes to consolidated financial statements.
-3-
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except for shares and per share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
MARCH 31, DECEMBER 31,
1999 1998
- ------------------------------------------------------------------------------
(Unaudited)
Current liabilities:
Notes payable $ 60,350 $ 3,555
Current portion of long-term debt (Note 6) 32,705 22,404
Accounts payable 65,803 48,414
Sundry payables and accrued expenses 65,127 60,905
Accrued customer returns 23,673 16,296
Payroll and commissions 11,126 12,613
------- -------
Total current liabilities 258,784 164,187
Long-term debt (Note 6) 123,091 133,749
Postretirement benefits other than pensions
and other accrued liabilities 18,806 18,595
------- -------
Total liabilities 400,681 316,531
Commitments and contingencies (Note 6)
Stockholders' equity (Notes 5 and 6):
Common stock-par value $2.00 per share
Authorized - 30,000,000 shares Issued - 13,324,476
shares in 1999 and 1998
(including 196,458 and 268,126 shares held
held as treasury shares in 1999 and
1998, respectively) 26,649 26,649
Capital in excess of par value 2,712 2,951
Retained earnings 184,276 181,679
Accumulated other comprehensive income (loss) 25 (516)
------- -------
213,662 210,763
Less: treasury stock-at cost 4,166 5,738
------- -------
Total stockholders' equity 209,496 205,025
------- -------
Total liabilities and stockholders' equity $ 610,177 $ 521,556
======== ========
See accompanying notes to consolidated financial statements.
-4-
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Dollars in thousands, except for shares and per share data)
(Unaudited)
FOR THE THREE MONTHS ENDED
MARCH 31,
--------------------------
1999 1998
---- ----
Net sales $ 176,789 $ 126,045
Cost of sales 123,569 82,255
------- ------
Gross profit 53,220 43,790
Selling, general and administrative expenses 44,432 37,505
------ ------
Operating Income 8,788 6,285
Other income (expense) - net (313) 232
------- ------
Earnings before interest, taxes and
minority interest 8,475 6,517
Interest expense 3,441 3,375
------- ------
Earnings before taxes and minority interest 5,034 3,142
Minority interest (138) (118)
Income taxes (Note 4) 1,248 371
------- ------
Net earnings 3,648 2,653
------- ------
Retained earnings at beginning of period 181,679 161,514
------- ------
185,327 164,167
Less: cash dividends for period 1,051 --
------- -------
Retained earnings at end of period $ 184,276 $ 164,167
======= =======
PER SHARE DATA:
- ---------------
Net earnings per common share:
Basic $ 0.28 $ 0.20
Diluted $ 0.28 $ 0.20
Dividends per common share $ 0.08 $ 0.00
------- ------
Average number of common shares 13,087,650 13,076,695
---------- ----------
Average number of common and
dilutive common shares 13,183,235 13,139,017
---------- ----------
See accompanying notes to consolidated financial statements.
-5-
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
FOR THE THREE MONTHS ENDED
MARCH 31,
-------------------------
1999 1998
---- ----
Cash flows from operating activities:
Net earnings $ 3,648 $ 2,653
Adjustments to reconcile net earnings to net cash used in operating
activities:
Depreciation and amortization 4,473 4,984
Change in assets and liabilities, net of effects from acquisitions:
(Increase) decrease in accounts receivable, net (76,540) (13,710)
(Increase) decrease in inventories (11,704) (317)
(Increase) decrease in other assets (662) (705)
Increase (decrease) in accounts payable 14,203 5,375
Increase (decrease) in other current assets and liabilities (1,857) (1,459)
Increase (decrease)in sundry payables and accrued expense 10,268 (2,920)
-------- --------
Net cash provided by (used in) operating activities (58,171) (6,099)
Cash flows from investing activities
Capital expenditures, net of effects from acquisitions (3,764) (1,709)
Payments for acquisitions, net of cash acquired (15,499) ---
-------- --------
Net cash provided by (used in) investing activities (19,263) (1,709)
Cash flows from financing activities:
Net borrowings under line-of-credit agreements 56,891 116
Principal payments of long-term debt (416) (3,322)
Reduction of loan to ESOP --- 1,665
Proceeds from exercise of employee stock options 1,089 ---
Purchase of treasury stock (1,495) ---
Dividends paid (1,051) ---
-------- --------
Net cash provided by (used in) financing activities 55,018 (1,541)
Effect of exchange rate changes on cash 225 88
-------- --------
Net increase (decrease) in cash (22,191) (9,261)
Cash and cash equivalents at beginning of the period 23,457 16,809
-------- --------
Cash and cash equivalents at end of the period $ 1,266 $ 7,548
======== ========
Supplemental disclosure of cash flow information: Cash paid during the period
for:
Interest $ 3,733 $ 2,925
Income taxes $ (340) $ 1,131
See accompanying notes to consolidated financial statements.
-6-
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
The accompanying unaudited financial information should be read in conjunction
with the consolidated financial statements, including the notes thereto, for the
year ended December 31, 1998.
The consolidated financial statements include the accounts of the Company and
all domestic and international companies in which the Company has more than a
50% equity ownership. The Company's investments in unconsolidated affiliates are
accounted for on the equity method. All significant inter-company items have
been eliminated.
Management acknowledges its responsibility for the preparation of the
accompanying interim consolidated financial statements which reflect all
adjustments considered necessary, in the opinion of management, for a fair
statement of the results of interim periods presented. The results of operations
for the interim periods are not necessarily indicative of the results of
operations for the entire year.
NOTE 2
INVENTORIES
-----------
(Dollars in thousands)
March 31, December 31,
1999 1998
---- ----
(Unaudited)
Finished goods $ 123,384 $ 120,108
Work in process 4,402 4,867
Raw materials 65,461 49,117
-------- --------
Total inventories $ 193,247 $ 174,092
======== ========
NOTE 3
PROPERTY, PLANT AND EQUIPMENT
-----------------------------
(Dollars in thousands)
March 31, December 31,
1999 1998
---- ----
(Unaudited)
Land, buildings and improvements $ 64,042 $ 64,080
Machinery and equipment 88,926 88,282
Tools, dies and auxiliary equipment 8,484 8,412
Furniture and fixtures 23,167 21,542
Leasehold improvements 5,682 5,130
Construction in progress 21,148 18,068
-------- -------
211,449 205,514
Less accumulated depreciation 99,853 96,110
-------- -------
Total property, plant and equipment - net $ 111,596 $ 109,404
======== =======
-7-
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4
The provision for taxes is less than the normal statutory rate primarily because
earnings of a subsidiary operating in Puerto Rico, amounting to approximately
$2,573,000 and $1,972,000 for the three months ended March 31, 1999 and 1998,
respectively, are exempt from United States income taxes and are partially
exempt from Puerto Rican income taxes.
NOTE 5
The Company granted an option to purchase 1,000 shares of common stock in
February 1999, at the stock's fair market value at the time of issuance.
At March 31, 1999, 903,000 shares of authorized but unissued common stock were
reserved for issuance under the Company's stock option plans, of which 725,000
shares were subject to outstanding options. 349,000 of these outstanding options
were vested at March 31, 1999.
NOTE 6
LONG-TERM DEBT
--------------
(Dollars in thousands)
March 31, December 31,
1999 1998
---- ----
(Unaudited)
Long-term debt consists of:
7.56% senior note payable $ 73,000 $ 73,000
8.60% senior note payable 37,143 37,143
10.22% senior note payable 21,500 21,500
Credit Facility ($17 Million Canadian) 11,230 10,960
5.0% Notes Payable - AlliedSignal 3,000 3,000
6.75% - 7.50% Facilities 6,008 6,411
5.00% - 10.5% Purchase Obligations 2,666 2,833
Other 1,249 1,306
------- -------
155,796 156,153
Less current portion 32,705 22,404
------- -------
Total noncurrent portion of
long-term debt $ 123,091 $ 133,749
======= =======
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 loan in four equal annual installments from 1999 through
2002.
-8-
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 (CONTINUED)
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.
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 Company holds a 73.4% equity interest in Standard Motor Products Holdings
Limited, formerly Intermotor Holdings Limited, which has various existing credit
facilities which mature by 2003.
The purchase obligations, due under agreements with municipalities, mature in
annual installments through 2003, and are secured by certain property, plant,
and equipment.
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.
NOTE 7
In January 1999, the Company acquired through its European subsidiary Standard
Motor Products Holdings Limited, 85% of the stock of Webcon UK Limited, and
through its UK joint venture Blue Streak Europe Limited, Webcon's affiliate
Injection Correction UK Limited. 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 short term
borrowings.
These acquisitions have been accounted for as purchases, and resulted in
goodwill of $4,041,000 which is being amortized over its estimated useful life
of 15 years.
NOTE 8
Other assets primarily consist of certain held-to-maturity securities,
unamortized customer supply agreements, equity in joint ventures and pension
assets.
-9-
NOTE 9
Total comprehensive income was $4,189,000 and $2,419,000 for the three month
periods ended March 31, 1999 and 1998, respectively.
NOTE 10
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. The Company has received an extension of this
agreement until June 30, 1999 while it completes negotiations on a three year
renewal with similar terms and conditions.
NOTE 11
Following is a reconciliation of the shares used in calculating basic and
dilutive net income per common share:
FOR THREE MONTHS ENDED
----------------------
MARCH 30,
---------
1999 1998
---- ----
Weighted average common
shares outstanding 13,087,650 13,076,695
Effect of dilutive
securities - options 95,585 62,322
---------- ----------
Weighted average common equivalent shares
outstanding assuming dilution 13,183,235 13,139,017
========== ==========
NOTE 12
The Company's two reportable operating segments, Engine Management and
Temperature Control, are the areas within the automotive aftermarket in which
the Company operates. The following tables contain financial information for
each reportable segment.
Industry Segments
(Dollars in thousands)
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
1999 1998
---- ----
OPERATING OPERATING
NET SALES INCOME NET SALES INCOME
--------- ------ --------- ------
Engine Management $ 87,423 $ 7,572 $ 90,279 $ 10,798
Temperature Control 91,304 7,385 37,008 2,435
Other Adjustments (1,938) (6,169) (1,242) (6,948)
------- ------- ------- -------
Consolidated $ 176,789 $ 8,788 $ 126,045 $ 6,285
======= ====== ======= =====
-10-
NOTE 12 (CONTINUED)
Other adjustments consist of items pertaining to the corporate headquarters
function and a Canadian business unit that does not meet the criteria of a
reportable segment.
The following table reconciles the measure of profit used in the previous
disclosure to the Company's consolidated Earnings Before Taxes:
1999 1998
------- ------
Operating Income $ 8,788 $ 6,285
Other income (expense) (313) 232
Interest expense 3,441 3,375
----- -----
Earnings before taxes
and minority interest $ 5,034 $ 3,142
===== =====
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS CONTAINS FORWARD-LOOKING STATEMENTS
WHICH INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER
SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. THE
FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, INCLUDED ELSEWHERE IN THIS
FORM 10-Q.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
During the first quarter of 1999, cash used in operations amounted to
$58,171,000, compared to $6,099,000 for the first quarter of 1998. The increase
is due primarily to higher accounts receivable and inventories resulting from a
pre-season selling program for temperature control products, that was not in
effect in 1998, partially offset by increased payables and accrued expenses.
Cash used in investing activities amounted to $19,263,000 in the first quarter
of 1999 and $1,709,000 for the comparable period in 1998. The increase is mainly
due to the acquisitions of Eaglemotive Corporation and Webcon UK Limited, as
discussed below. Capital expenditures amounted to $3,764,000 during the first
quarter of 1999 and $1,709,000 for the comparable period in 1998. Cash provided
by financing activities totaled $55,018,000 in the first quarter of 1999. In the
prior year's first quarter cash used in financing activities amounted to
$1,541,000. The change is due to increased short term borrowings to finance the
seasonal working capital needs of the Company's Temperature Control Division,
which have become more significant due to the inclusion of the Cooper Industries
temperature control business. In the first quarter of 1999, the Company paid
dividends amounting to $1,051,000. No dividends were paid in the comparable
period for 1998.
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. The facility
allows the Company to select from two interest rate options, one a function of
LIBOR, and the other a function of the U.S. 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 interest
rates available to the Company under this facility should compare favorably with
the short term interest rates obtained by the Company during most of 1998 and
should result in lower interest costs in 1999 compared to 1998. The terms of
this revolving credit facility include, among other provisions, the requirement
for a clean-down to $10,000,000, 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. The
Company has already satisfied the requirement for a clean-down to $10,000,000,
for the initial twelve month period and is presently in compliance with the
other provisions of the facility.
The Company is currently negotiating a three year renewal of its existing
agreement to sell certain of its accounts receivable. The Company presently has
$25,000,000 of accounts receivable sold under the current agreement, which has
been extended until June 1999, while it completes these negotiations.
As of March 31, 1999 the Company had stockholders' equity of $209,496,000 and
working capital of $166,166,000. Capital expenditures, primarily for new
machinery and equipment are expected to be approximately $14,000,000 for the
remainder of 1999.
In 1999, the Company will explore options for raising additional long term
capital to fund future growth opportunities and further strengthen its balance
sheet. However, the Company can provide no assurance that such financing will be
available at acceptable terms to the Company.
-12-
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
- -------------------------------------------
In January 1999, the Company acquired, through its European subsidiary Standard
Motor Products Holdings Limited, 85% of the stock of Webcon UK Limited. The
Company also acquired through its United Kingdom 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 short term
borrowings.
INTERIM RESULTS OF OPERATIONS
- -----------------------------
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1999
- ---------------------------------------------------
TO THE THREE MONTHS ENDED MARCH 31, 1998.
- -----------------------------------------
Net sales for the current quarter increased by $50,744,000 or 40.3% from the
comparable period in 1998. Excluding revenues from acquisitions not present in
the first quarter of last year, revenues increased by approximately $14,900,000
or 11.8%. This sales increase, excluding acquisitions, is primarily due to a
pre-season selling program for our temperature control products. This program
which resulted in increased sales in the first quarter may be a pull ahead from
future sales, however, the magnitude of the pull ahead will not be known until
late in the second quarter. It is anticipated that the pre-season selling
program will result in improvements to our customer order fill rates, as we
enter the peak period for our temperature control products with our distributors
fully stocked.
Gross profit for the first quarter of 1999 increased by $9,430,000 or 21.5% from
the comparable period in 1998, reflecting the strong growth of temperature
control product sales. The gross margin as a percent of net sales, however,
declined from 34.7% in the first quarter of 1998 to 30.1% in the first quarter
of 1999. The decline in the gross margin percent was primarily due to the higher
mix of temperature control product sales in relation to the Company's total
sales. Temperature control products have lower average gross margins than
products sold by the Engine Management Division and therefore result in a lower
margin percentage for the Company. The gross margin percentage also was
negatively impacted by discounts related to the pre-season selling program at
the Temperature Control Division, which were not present in 1998.
Selling, general and administrative (S.G. & A.) expenses increased by $6,927,000
or 18.5% over the comparable quarter in 1998, reflecting higher expenses to
support the growth within the Temperature Control Division. However, as a
percent of net sales S.G. & A. expenses decreased by 4.7 percentage points
(25.1% in 1999 versus 29.8% in 1998). This percentage improvement is primarily
due to the leverage achieved from higher sales and synergies which have begun to
be realized from the consolidation of the Cooper Industries temperature control
business. Additional cost reductions from the consolidation of the Cooper
Industries temperature control business will continue, with the full
implementation scheduled to be completed early in the year 2000.
-13-
INTERIM RESULTS OF OPERATIONS (CONTINUED)
- -----------------------------------------
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1999
- ---------------------------------------------------
TO THE THREE MONTHS ENDED MARCH 31, 1998.
- -----------------------------------------
Operating income increased by $2,503,000 or 39.8% over the comparable quarter in
1998, primarily due to the significant sales volume increases experienced during
the first quarter of 1999. As a percentage of net sales, operating income has
remained relatively flat at 5%. The Engine Management Division, as compared to a
year ago, reflected a reduction in operating income of $3,226,000 as a result of
lower sales, shifts in sales mix and changes in overhead absorption. The sales
decline was primarily the result of the divestiture of the fuel pump business
which occurred in the third quarter of 1998 and lower orders from certain
customers as they absorbed inventory acquired from APS Holding Corporation. The
negative impact from sales mix was a result of a shift towards second line
sales. The underabsorption of overhead experienced at certain facilities was a
result of the divestiture of the Service Line business, which shared these
facilities. Plans are currently being developed which should reduce these costs.
The Temperature Control Division improved operating income by $4,950,000,
compared to a year ago, primarily due to incremental sales volume of $54,296,000
from the Cooper Temperature control business and increases in unit volume as a
result of the pre-season selling program. Efficiencies achieved from
consolidating the Cooper Temperature Control business also improved income. The
Cooper Temperature Control business was not present in the prior year results,
as the acquisition was completed on March 28, 1998.
Other income - net for the first quarter of 1999 decreased by $545,000,
primarily due to losses recognized in connection with the Company's continuing
original equipment ventures. These losses were attributed to costs incurred in
developing and launching these projects.
Interest expense attributable to continuing operations remained flat as compared
to 1998. Including amounts related to discontinued operations in 1998, interest
expense decreased by $1,229,000 in 1999.
Taxes based on earnings increased by $877,000 primarily due to improved pre-tax
earnings. At December 31, 1998, the Company had a $14,171,000 deferred tax asset
valuation allowance. Due to the seasonal nature of the Company's business, no
adjustments to this valuation allowance were deemed necessary during the three
month period ended March 31, 1999. However, management is continuing to evaluate
the likelihood of achieving sufficient future profitability that would enable
the Company to utilize all or a portion of these deferred tax assets. If
management determines, based upon these evaluations, that it is more likely than
not that the deferred tax assets will be realized, then the valuation allowance
will be adjusted.
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.
-14-
YEAR 2000 (CONTINUED)
- ---------------------
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
estimates the cost of this effort to 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 in June 1999.
As of March 31, 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 these other significant business partners to
adequately address the Year 2000 issues could cause disruption of the Company's
operations. The Company does not believe there will be a material risk of
disruption from third party failures.
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.
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.
-15-
PART II - OTHER INFORMATION
- ---------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
(a) EXHIBIT(S)
----------
NUMBER DESCRIPTION METHOD OF FILING
------ ----------- ----------------
27 Financial Data Schedule Filed with
this Document
(b) REPORTS ON FORM 8-K
-------------------
There were no reports on Form 8-K filed for this period.
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
STANDARD MOTOR PRODUCTS, INC.
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(Registrant)
MAY 14, 1999 JAMES J. BURKE
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(Date) Director of Finance,
Chief Accounting Officer
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