-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Vc82eLSG+ytWl9Z6wqdp3mgCevzl6ExUDtJdcTbBatwhsP4ZMiAQ86IBmrsNjM2V pkpLlvYZeDxUpllz0pAakQ== 0000909012-00-000366.txt : 20000515 0000909012-00-000366.hdr.sgml : 20000515 ACCESSION NUMBER: 0000909012-00-000366 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STANDARD MOTOR PRODUCTS INC CENTRAL INDEX KEY: 0000093389 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES [3690] IRS NUMBER: 111362020 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-04743 FILM NUMBER: 629935 BUSINESS ADDRESS: STREET 1: 37 18 NORTHERN BLVD CITY: LONG ISLAND CITY STATE: NY ZIP: 11101 BUSINESS PHONE: 7183920200 MAIL ADDRESS: STREET 1: 3718 NORTHERN BLVD CITY: LONG ISLAND CITY STATE: NY ZIP: 11101 10-Q 1 QUARTERLY REPORT FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the Quarterly Period Ended MARCH 31, 2000 -------------- [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. Commission file number 1-4743 ------ STANDARD MOTOR PRODUCTS, INC. ----------------------------- (Exact name of registrant as specified in its charter) NEW YORK 11-1362020 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 37-18 NORTHERN BLVD., LONG ISLAND CITY, N.Y. 11101 -------------------------------------------------- (Address of principal executive offices) (Zip Code) (718) 392-0200 -------------- (Registrant's telephone number, including area code) NONE ---- (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: DATE CLASS SHARES OUTSTANDING ---- ----- ------------------ Common stock par April 30, 2000 value $2.00 per share 12,151,372 - -------------- --------------------- ---------- STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES INDEX TO FINANCIAL AND OTHER INFORMATION MARCH 31, 2000 PART 1 - FINANCIAL INFORMATION ITEM 1 PAGE NO. - ------ -------- CONSOLIDATED BALANCE SHEETS March 31, 2000 and December 31, 1999 3 & 4 CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS for the Three-Month periods ended March 31, 2000 and 1999 5 CONSOLIDATED STATEMENTS OF CASH FLOWS for the Three-Month periods ended March 31, 2000 and 1999 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7 - 10 ITEM 2 - ------ MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 11 - 13 ITEM 3 - ------ QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 13 PART II - OTHER INFORMATION --------------------------- ITEM 1 - ------ Legal Proceedings 14 ITEM 6 - ------ Exhibits and Reports on Form 8-K 14 Signature 14 2
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands) ASSETS March 31, December 31, 2000 1999 - -------------------------------------------------------------------------------- (Unaudited) Current assets: Cash and cash equivalents $ 3,197 $ 40,380 Accounts and notes receivable, net of allowance for doubtful accounts and discounts of $5,735 (1999 - $4,611)(Note 8) 148,471 119,635 Inventories (Note 2) 218,190 188,400 Deferred income taxes 13,830 13,830 Prepaid expenses and other current assets 12,815 12,448 -------- -------- Total current assets 396,503 374,693 -------- -------- Property, plant and equipment, net of accumulated depreciation (Note 3) 107,817 106,578 Goodwill, net 41,856 41,619 Other assets 30,870 33,131 -------- -------- Total assets $577,046 $556,021 ======== ========
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, 2000 1999 - -------------------------------------------------------------------------------- (Unaudited) Current liabilities: Notes payable (note 5) $ 32,483 $ 2,645 Current portion of long-term debt (Note 6) 14,597 28,912 Accounts payable 71,400 41,708 Sundry payables and accrued expenses 61,174 64,826 Accrued customer returns 19,924 22,698 Payroll and commissions 8,604 8,098 -------- -------- Total current liabilities 208,182 168,887 -------- -------- Long-term debt (Note 6) 153,171 163,868 Postretirement benefits other than pensions and other accrued liabilities 20,335 19,748 -------- -------- Total liabilities 381,688 352,503 -------- -------- Commitments and contingencies (Notes 5,6 and 11) Stockholders' equity (Notes 6,7 and 9): Common stock-par value $2.00 per share Authorized - 30,000,000 shares Issued - 13,324,476 shares in 2000 and 1999 (including 1,171,854 and 598,154 shares held as treasury shares in 2000 and 1999, respectively) 26,649 26,649 Capital in excess of par value 2,580 2,957 Retained earnings 183,627 184,848 Accumulated other comprehensive income 920 714 -------- -------- 213,776 215,168 Less: treasury stock-at cost 18,418 11,650 -------- -------- Total stockholders' equity 195,358 203,518 -------- -------- Total liabilities and stockholders' equity $577,046 $556,021 ======== ========
See accompanying notes to consolidated financial statements. 4
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS (Dollars in thousands, except for shares and per share data) (Unaudited) For Three Months Ended March 31, 2000 1999 - ----------------------------------------------------------------------------------------------- Net sales $ 146,759 $ 176,789 Cost of sales 99,440 123,569 ------------ ------------ Gross profit 47,319 53,220 Selling, general and administrative expenses 43,183 44,432 ------------ ------------ Operating income 4,136 8,788 Other income (expense) - net 424 (313) Interest expense 3,907 3,441 ------------ ------------ Earnings before taxes, minority interest and extraordinary item 653 5,034 Income taxes 229 1,248 Minority interest (39) (138) ------------ ------------ Earnings before extraordinary item 385 3,648 Extraordinary loss on early extinguishment of debt, net of taxes 501 -- ------------ ------------ Net (loss) earnings ($ 116) $ 3,648 Retained earnings at beginning of period 184,848 181,679 ------------ ------------ 184,732 185,327 Less: cash dividends for period 1,105 1,051 ------------ ------------ Retained earnings at end of period $ 183,627 $ 184,276 ============ ============ Per share data: Net earnings (loss) per common share - basic: Earnings per share before extraordinary item $ 0.03 $ 0.28 Extraordinary loss on early extinguishment of debt ($ 0.04) -- ------------ ------------ Net earnings (loss) per common share - basic ($ 0.01) $ 0.28 ============ ============ Net earnings (loss) per common share - diluted: Earnings per share before extraordinary item $ 0.03 $ 0.28 Extraordinary loss on early extinguishment of debt (0.04) -- ------------ ------------ Net earnings (loss) per common share - diluted ($ 0.01) $ 0.28 ============ ============ Average number of common shares 12,409,547 13,087,650 ============ ============ Average number of common and dilutive shares 12,409,547 13,183,235 ============ ============
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, -------------------------- 2000 1999 ---- ---- Cash flows from operating activities: Net (loss) earnings $ (116) $ 3,648 Adjustments to reconcile net earnings to net cash used in operating activities: Depreciation and amortization 4,729 4,473 Equity Loss (income) from joint ventures (127) 628 Employee Stock Ownership Plan Allocation 419 568 Extraordinary Loss on repayment of debt 865 -- Change in assets and liabilities, net of effects from acquisitions: Increase in accounts receivable, net (28,615) (76,540) Increase in inventories (29,013) (11,704) Decrease (increase) in other assets 1,940 (1,290) Increase in accounts payable 29,201 14,203 (Decrease) increase in other current assets and liabilities 788 (2,425) (Decrease) increase in sundry payables and accrued expenses (5,288) 10,268 -------- -------- Net cash used in operating activities (25,217) (58,171) -------- -------- Cash flows from investing activities Proceeds from the sale of property, plant & equipment 650 -- Capital expenditures, net of effects from acquisitions (6,405) (3,764) Payments for acquisitions, net of cash acquired (1,353) (15,499) -------- -------- Net cash used in investing activities (7,108) (19,263) -------- -------- Cash flows from financing activities: Net borrowings under line-of-credit agreements 29,884 56,891 Principal payments and retirement of long-term debt (25,526) (416) Proceeds from exercise of employee stock options -- 1,089 Purchase of treasury stock (8,117) (1,495) Dividends paid (1,105) (1,051) -------- -------- Net cash (used in) provided by financing activities (4,864) 55,018 -------- -------- Effect of exchange rate changes on cash 6 225 Net decrease in cash (37,183) (22,191) Cash and cash equivalents at beginning of the period 40,380 23,457 -------- -------- Cash and cash equivalents at end of the period $ 3,197 $ 1,266 ======== ======== Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 5,418 $ 3,733 ======== ======== Income taxes $ 1,371 $ (340) ======== ========
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, 1999. The consolidated financial statements include the accounts of the Company and all domestic and international companies in which the Company has more than a 50% equity ownership. The Company's investments in unconsolidated affiliates are accounted for on the equity method. All significant inter-company items have been eliminated. Management acknowledges its responsibility for the preparation of the accompanying interim consolidated financial statements which reflect all adjustments considered necessary, in the opinion of management, for a fair statement of the results of interim periods presented. The results of operations for the interim periods are not necessarily indicative of the results of operations for the entire year. Where appropriate, certain amounts in 1999 have been reclassified to conform with the 2000 presentation. NOTE 2 INVENTORIES (Dollars in Thousands) March 31, 2000 December 31, 1999 (unaudited) -------------- ------------------ Finished Goods $133,071 $110,802 Work in Process 5,471 5,393 Raw Materials 79,648 72,205 ------ ------ Total inventories $218,190 $188,400 ======== ======== NOTE 3 PROPERTY, PLANT AND EQUIPMENT (Dollars in thousands) March 31, 2000 December 31, (unaudited) 1999 -------------- ------------ Land, buildings and improvements $60,010 $ 60,046 Machinery and equipment 99,919 99,223 Tools, dies and auxiliary equipment 10,756 10,691 Furniture and fixtures 32,185 24,783 Leasehold improvements 6,638 6,247 Construction in progress 10,456 12,986 -------- -------- 219,964 213,976 Less: accumulated depreciation 112,147 107,398 -------- -------- Total property, plant and equipment - net $107,817 $106,578 ======== ======== 7 STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 4 At March 31, 2000, 869,154 shares of authorized but unissued common stock were reserved for issuance under the Company's stock option plans, of which 807,991 shares were subject to outstanding options. 507,667 of these outstanding options were vested at March 31, 2000. NOTE 5 On November 30, 1998, the Company entered into a three-year revolving credit facility with eight lending institutions, providing for an unsecured line of credit of $110,000,000. The facility allows the Company to select from two interest rate options, one based on a spread over the prime rate and the other based on a spread over LIBOR. The spread above each interest rate option is determined by the Company's ratio of Consolidated Debt to Earnings Before Interest, Taxes, Depreciation and Amortization. The terms of the revolving credit facility, as amended, include, among other provisions, the requirement for a clean-down provision where during the period from September 1 through December 31 of each year of the facility, the Company must clean down to zero for 30 consecutive days and for a 30 day period immediately prior to or immediately following the clean-down period the outstanding loans cannot exceed $10,000,000. In addition, the facility requires the maintenance of defined levels of tangible net worth, various financial performance ratios and restrictions on capital expenditures, dividend payments, acquisitions and additional indebtedness. At March 31, 2000, borrowings under the Company's aggregate revolving credit facilities amounted to $32.5 million. NOTE 6 LONG-TERM DEBT (Dollars in thousands) March 31, 2000 December 31, 1999 (unaudited) --------------- ----------------- Long Term Debt Consists of: 6.75% convertible subordinated debentures $ 90,000 $ 90,000 7.56% senior note payable 62,571 73,000 10.22% senior note payable -- 14,000 Canadian Credit Facility 6,840 6,811 5.0% Notes Payable - Honeywell 1,000 1,000 5.0% - 8.8% Facilities 4,549 4,941 7.5% - 10.5% Purchase Obligations 2,000 2,166 Other 808 862 -------- -------- 167,768 192,780 Less: current portion 14,597 28,912 -------- -------- Total non-current portion of long-term debt $153,171 $163,868 ======== ======== On July 26, 1999, the Company completed a public offering of convertible subordinated debentures amounting to $90,000,000. The Convertible Debentures carry an interest rate of 6.75%, payable semi-annually, and will mature on July 15, 2009. The Debentures are convertible into 2,796,000 shares of the Company's common stock. Under the terms of the 7.56% senior note agreement, the Company is required to repay the loan in seven equal annual installments beginning in 2000. 8 STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6 (CONTINUED) Under the terms of the $14,000,000 senior note agreement, the Company was required to repay the loan in four varying annual installments from 2000 through 2003. The Company elected to prepay the balance on March 13, 2000. In connection with this prepayment, the Company incurred an extraordinary loss for prepayment penalties and the write-off of deferred loan costs amounting to $501,000, net of taxes. Under the terms of a Canadian (CDN) credit agreement, the Company is required to repay the loan as follows: $2,000,000 CDN in 2000 and 2001 and a final payment of $6,000,000 CDN in 2002. Subject to certain restrictions, the Company can make prepayments without premium. The credit agreement has various interest rate options. Under the terms of the unsecured note agreement with Honeywell (formerly AlliedSignal), the final payment of $1,000,000 is due in 2000. The Company holds a 74.3% 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. Certain note agreements contain restrictive covenants which require the maintenance of defined levels of working capital, tangible net worth and earnings and limit, among other items, investments, indebtedness and distributions for the payment of dividends and the acquisition of capital stock. NOTE 7 Total comprehensive income was $90,000 and $4,189,000 for the three-month periods ended March 31, 2000 and 1999, respectively. NOTE 8 The Company sells certain accounts receivable to an independent financial institution, through its wholly owned subsidiary, SMP Credit Corp., a qualifying special-purpose corporation. In May 1999 SMP Credit Corp. entered into a three year agreement whereby it can sell up to a $25 million undivided ownership interest in a designated pool of certain of these eligible receivables. This agreement expires in March 2002. The terms of the agreement contain restrictive covenants, including the maintenance of defined levels of tangible net worth. At March 31, 2000, net accounts receivables amounting to $25,000,000 had been sold under this agreement. NOTE 9 Following is a reconciliation of the shares used in calculating basic and dilutive net income per common share: For the Three-Months Ended March 31, -------------------------- 2000 1999 ---- ---- Weighted average common shares outstanding 12,409,547 13,087,650 Effect of dilutive securities - options -- 95,585 ---------- ---------- Weighted average common equivalent shares outstanding assuming dilution 12,409,547 13,183,235 ========== ========== 9 NOTE 10 The Company's two reportable operating segments are Engine Management and Temperature Control. Effective with the beginning of fiscal 2000 the Company reclassified certain European operations from the Engine Management and Temperature control segments to a separate segment, which currently does not meet the criteria of a reportable segment. Amounts in 1999 have been reclassified to conform to the 2000 presentation. Industry Segment (Dollars in thousands) For the three-months ended March 31, ------------------------------------ 2000 1999 ------------------------------------------------- OPERATING OPERATING NET SALES INCOME NET SALES INCOME ------------------------------------------------- Engine Management $ 73,155 $ 7,574 $ 78,591 $ 6,933 Temperature Control 62,042 738 91,027 7,373 Other Adjustments 11,562 (4,176) 7,171 (5,518) -------- -------- -------- -------- Consolidated $146,759 $ 4,136 $176,789 $ 8,788 ======== ======== ======== ======== Other adjustments consist of items pertaining to European and Canadian operations and the corporate headquarters function which do 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, minority interest and extraordinary item: 2000 1999 ---- ---- Operating Income $4,136 $8,788 Other income (expense) 424 (313) Interest expense 3,907 3,441 ------ ------ Earnings before taxes, minority interest and extraordinary item $ 653 $5,034 ====== ====== NOTE 11 On January 28, 2000, a former significant customer of the Company currently undergoing a Chapter 7 liquidation in U.S. Bankruptcy Court, filed claims against a number of its former suppliers, including the Company. The claim against the Company alleges $19,759,000 of preferential payments in the 90 days prior to the related Chapter 11 bankruptcy petition. In addition, this former customer seeks $10,500,000 from the Company for a variety of claims including antitrust, breach of contract, breach of warranty and conversion. These latter claims arise out of allegations that this customer was entitled to various discounts, rebates and credits after it filed for bankruptcy. The Company believes that these matters will not have a material effect on the Company's consolidated financial position or results of operations. The Company is involved in various other litigation matters arising in the ordinary course of business. Although the final outcome of these matters cannot be determined, it is management's opinion that the final resolution of these matters will not have a material effect on the Company's consolidated financial position or results of operations. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL - --------------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS - ----------------------------------- THIS MANAGEMENT'S DISCUSSION AND ANALYSIS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, INCLUDED ELSEWHERE IN THIS FORM 10-Q. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- In the first quarter of 2000, cash used in operations amounted to $25.2 million, as compared to $58.2 million in the first quarter of 1999. The change is primarily attributable to the 1999 pre-season selling program for the Temperature Control segment which facilitated improvements to customer order fill rates. After giving consideration to the new Temperature Control distribution facility put in place at the end of 1999, such program was significantly curtailed in 2000. The new facility is expected to enhance the Company's shipping capabilities during the peak summer months. The curtailment of the program resulted in decreased sales over the comparative quarters, and lower trade receivable balances and higher inventory levels at March 31,2000 as compared to March 31,1999. Cash used in investing activities was $7.1 million in the first quarter of 2000, as capital expenditures and payments for acquisitions were partially offset by proceeds from the sale of property, plant and equipment. In January 2000 the Company completed the purchase of Vehicle Air Conditioning Parts, located in England, which has subsequently been renamed "Four Seasons UK, LTD." The purchase will assist in distributing components for the repair of air conditioning systems. Total acquisition price was approximately $1.4 million. Cash used in financing activities was $4.9 million in first quarter of 2000, as compared to cash provided by financing activities of $55.0 in the first quarter of 1999. Benefiting from the 1999 issuance of new convertible debt, the Company borrowed less money under its line of credit arrangements in the first quarter of 2000, as compared to the first quarter of 1999. Payments under the Company's long-term debt arrangements during the first quarter of 2000 amounted to $25.5 million and reflected a $14 million prepayment of a 10.22% senior note. In connection with this prepayment, the Company reflected an extraordinary loss of approximately $0.5 million in the first quarter of 2000 related to prepayment penalties and the write-off of deferred loan costs. Including the prepayment, the Company's long-term debt repayments in 2000 will be approximately $28.9 million. In 1998 and 1999 the Board of Directors authorized three repurchase programs under which the Company could repurchase a total of 1,050,000 shares of its common stock at a cost of up to $22 million. The stock purchased is to be used to meet present and future requirements of the Company's stock option programs and to fund the Company's ESOP. On March 2, 2000 the Board of Directors authorized an additional 500,000 share repurchase program at a cost of up to $8,000,000. During the first quarter of 2000, the Company repurchased approximately 648,700 shares at a cost of approximately $8.1 million. At March 31,2000 the Company may repurchase up to an additional 402,800 shares at a maximum cost of $7.9 million. On November 30, 1998, the Company entered into a three-year revolving credit facility with eight lending institutions, providing for an $110,000,000 unsecured line of credit. The facility allows the Company to select from two interest rate options, one based on a spread over the prime rate and the other based on a spread over LIBOR. The spread above each interest rate option is determined by the Company's ratio of Consolidated Debt to Earnings Before Interest, Taxes, Depreciation and Amortization. 11 LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) - ------------------------------------------- The terms of the revolving credit facility, as amended, include, among other provisions, the requirement for a clean-down provision where during the period from September 1 through December 31 of each year of the facility, the Company must clean down to zero for 30 consecutive days and for a 30 day period immediately prior to or immediately following the clean-down period the outstanding loans cannot exceed $10,000,000. In addition, the facility requires the maintenance of defined levels of tangible net worth, various financial performance ratios and restrictions on capital expenditures, dividend payments, acquisitions and additional indebtedness. At March 31, 2000, borrowings under the Company's aggregate revolving credit facilities amounted to $32.5 million. The Company sells certain accounts receivable to an independent financial institution, through its wholly owned subsidiary, SMP Credit Corp., a qualifying special-purpose corporation. In May 1999 SMP Credit Corp. entered into a three year agreement whereby it can sell up to a $25 million undivided ownership interest in a designated pool of certain of these eligible receivables. This agreement expires in March 2002. The terms of the agreement contain restrictive covenants, including the maintenance of defined levels of tangible net worth. At March 31, 2000, net accounts receivables amounting to $25,000,000 had been sold under this agreement. The Company's profitability and working capital requirements have become more seasonal with the increased sales mix of temperature control products. Working capital requirements usually peak near the end of the second quarter, as the inventory build-up of air conditioning products is converted to sales and payments on the receivables associated with such sales begin to be received. These increased working capital requirements are funded by borrowings from lines of credit. The Company anticipates that its present sources of funds will continue to be adequate to meet its near term needs. INTERIM RESULTS OF OPERATIONS - ----------------------------- COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2000 TO THE THREE MONTHS ENDED - ----------------------------------------------------------------------------- MARCH 31, 1999 - -------------- Net sales in the first quarter of 2000 were $146.8 million, a decrease of $30 million from the first quarter of 1999. Net Sales in Temperature Control decreased by $29 million, primarily a function of the 1999 pre-season selling program for Temperature Control, which facilitated improvements to customer order fill rates. After giving consideration to the new Temperature Control distribution facility put in place at the end of 1999, such program was significantly curtailed in 2000. The new facility is expected to enhance the Company's shipping capabilities during the peak summer months. With respect to Engine Management, net sales decreased by $5.4 million in the first quarter of 2000, as compared to the first quarter of 1999. Net sales declines in Engine Management reflect the continued weakness in the automotive aftermarket. Gross margins, as a percentage of net sales, increased to 32.2% in the first quarter of 2000 from 30.1% in the first quarter of 1999. On an overall basis, this increase reflects an increase in net pricing and a focus on cost reduction programs. Selling, general and administrative expenses (SG&A) decreased approximately $1.2 million in the first quarter of 2000, as compared to the first quarter of 1999, primarily the result of continued focus on cost reduction programs. Because of the decrease in net sales discussed above, as a percentage of net sales, SG&A increased from 25.1% to 29.4%. Operating Income decreased by $4.7 million in the first quarter of 2000, as compared to the first quarter of 1999, primarily due to the net sales decline in Temperature Control discussed above. Results of Engine Management as compared to a year ago, reflect an increase in operating income of $.6 million reflecting price increases and a continued focus on cost reduction programs. Operating Income at the Temperature Control Division decreased by $6.6 million, primarily for the reasons cited above. The Company has completed the consolidation of its distribution facilities and expects this to have a favorable impact on 2000 results going forward. Other income, net, increased in the first quarter in 2000, as compared to the first quarter of 1999, primarily due to the Company's 1999 fourth quarter decision to exit its Heat Battery joint venture in Canada. Interest expense increased by approximately $0.5 million, primarily due to aggregate average borrowings (long-term debt and line of credit facilities) increasing in the first quarter of 2000, as compared to the first quarter of 1999, and an increase in variable borrowing rates. 12 INTERIM RESULTS OF OPERATIONS - ----------------------------- COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2000 TO THE THREE MONTHS ENDED - ----------------------------------------------------------------------------- MARCH 31, 1999, CONTINUED - ------------------------- The Company's effective tax rate increased from 25% in the first quarter in 1999 to 35% in 2000, primarily due to a greater portion of the Company's consolidated earnings before taxes being derived from the United States and Canada, in relation to the Company's Puerto Rico and Hong Kong subsidiaries, which have lower tax rates than the United States statutory rate. On March 13, 2000 the Company prepaid the entire outstanding balance of the 10.22 % senior note in the amount of $14 million. In connection with this prepayment, the Company incurred an extraordinary loss of $.5 million, net of taxes, for prepayment penalties and the write-off of deferred loan costs. ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK - ------------------------------------------------------------------ As a result of principal payments on long term debt and an increase in short term borrowings during the first quarter of 2000, the Company's percentage of variable rate debt to total debt has increased from 7% at December 31, 1999 to 22% at March 31, 2000. Other than the aforementioned, there have been no significant changes to the information presented in Item 7A (Market Risk) of the Company's Annual Report on Form 10-K for the year ended December 31, 1999. 13 PART II - OTHER INFORMATION - --------------------------- ITEM 1. LEGAL PROCEEDINGS - ------------------------- On January 28, 2000, a former significant customer of the Company currently undergoing a Chapter 7 liquidation in U.S. Bankruptcy Court, filed claims against a number of its former suppliers, including the Company. The claim against the Company alleges $19,759,000 of preferential payments in the 90 days prior to the related Chapter 11 bankruptcy petition. In addition, this former customer seeks $10,500,000 from the Company for a variety of claims including antitrust, breach of contract, breach of warranty and conversion. These latter claims arise out of allegations that this customer was entitled to various discounts, rebates and credits after it filed for bankruptcy. The Company believes that these matters will not have a material effect on the Company's consolidated financial position or results of operations. The Company is involved in various other litigation matters arising in the ordinary course of business. Although the final outcome of these matters cannot be determined, it is management's opinion that the final resolution of these matters will not have a material effect on the Company's consolidated financial position or results of operations. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - ------- -------------------------------- (a) EXHIBIT ------- 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. ----------------------------- (Registrant) MAY 12, 2000 /S/ JAMES J. BURKE - ------------ ------------------ (Date) Vice President Finance, Chief Financial Officer EX-27 2 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 3,197 0 154,206 (5,735) 218,190 396,503 219,964 (112,147) 577,046 208,182 153,171 0 0 26,649 168,709 577,046 146,759 146,759 99,440 99,440 42,762 460 3,907 653 229 385 0 501 0 (116) (0.01) (0.01)
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