STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Standard
|
|
Description
|
|
Date of
adoption
|
|
Effects on the financial
statements or other
significant matters
|
|
Standards that are not yet adopted as of December 31, 2017
|
|
ASU 2017-07,
Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
|
|
This standard requires employers that present operating income in their consolidated statement of operations to include only the service cost component of net periodic pension cost and net periodic postretirement benefit cost in operating expenses (together with other employee compensation costs). The other components of net benefit cost, including amortization of prior service cost/credit, and settlement and curtailment effects, are to be included in other non-operating income (expense). The new standard requires retrospective reclassification of the effects of the new standard on the statement of operations.
|
|
January 1, 2018, with early adopted permitted
|
|
The new standard will require that we retrospectively reclassify all components of net periodic pension cost and net periodic postretirement benefit cost, other than the service cost component, in our statement of operations from selling, general and administrated expenses, as presently reported, to other non-operating income (expense).
|
|
|
|
|
|
|
|
Standard
|
Description
|
Date of
adoption
|
Effects on the financial
statements or other
significant matters
|
|
Standards that were adopted
|
|
ASU
2015-17,
Balance Sheet Classification of Deferred Taxes
|
|
This standard requires entities with a classified balance sheet to present all deferred tax assets and liabilities as noncurrent. The new guidance requires entities to offset all deferred tax assets and liabilities (and valuation allowances) for each tax-paying jurisdiction within each tax-paying component. The net deferred tax must be presented as a single noncurrent amount.
|
|
January 1, 2017
|
|
The adoption of the new standard resulted in the reclassification of deferred tax assets previously reported as current deferred tax assets to noncurrent deferred tax assets in our consolidated balance sheets. We adopted the new standard retrospectively, and as such, all prior period current deferred tax assets in our consolidated balance sheets have also been reclassified to noncurrent deferred tax assets for comparative purposes.
|
ASU 2015-11,
Simplifying the Measurement of Inventory
|
|
This standard changes the measurement principle for inventory from the lower of cost or market to lower of cost and net realizable value for entities that measure inventory using first-in, first-out or average cost. In addition, this standard eliminates the requirement for these entities to consider replacement cost or net realizable value less an approximate normal profit margin when measuring inventory.
|
|
January 1, 2017
|
|
The prospective adoption of the new standard did not have a material effect on our consolidated financial statements.
|
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Standard
|
Description
|
Date of
adoption
|
Effects on the financial
statements or other
significant matters
|
|
Standards that were adopted
|
|
ASU 2016-09,
Improvements to Employee Share-Based Payment Accounting
|
|
This standard requires (1) that the tax effects related to share-based payments at settlement (or expiration) be recorded through the tax provision (benefit) in the income statement rather than in equity as permitted under prior guidance under certain circumstances; (2) that all tax-related cash flows resulting from share-based payments be reported as operating activities on the statement of cash flows, a change from the requirement to present windfall tax benefits as an inflow from financing activities and an outflow from operating activities; and (3) that when computing diluted earnings per share, the effect of “windfall” tax benefits be excluded from the hypothetical proceeds used to calculate the repurchase of shares under the treasury stock method.
|
|
January 1, 2017
|
|
We adopted the new standard prospectively. The adoption of the new standard did not have a material effect on our consolidated financial statements for the year ended December 31, 2017.
|
2.
|
Business Acquisitions and Investments
|
2017 Equity Investment
Foshan FGD SMP Automotive Compressor Co., Ltd.
In November 2017, we formed a 50/50 joint venture with Foshan Guangdong Automotive Air Conditioning Co., Ltd. (“FGD”), a China-based manufacturer of air conditioning compressors for the automotive aftermarket and the Chinese OE market. We acquired our 50% interest in the joint venture for approximately $12.5 million. We determined that due to a lack of a voting majority, and other qualitative factors, we do not control the operations of the joint venture and accordingly, our investment in the joint venture is accounted for under the equity method of accounting.
2016 Business Acquisitions
General Cable Corporation North American Automotive Ignition Wire Business Acquisition
In May 2016, we acquired the North American automotive ignition wire business of General Cable Corporation for approximately $67.5 million. The acquisition was paid for in cash funded by our revolving credit facility with JPMorgan Chase, as agent. The acquisition includes the purchase of certain assets and the assumption of certain liabilities of General Cable Corporation’s (and certain of its affiliates) automotive ignition wire business in North America as well as 100% of the equity interests of a General Cable subsidiary in Nogales, Mexico.
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table presents the allocation of the purchase price to the assets acquired and liabilities assumed, based on their fair values (in thousands):
Purchase Price
|
|
|
|
|
$
|
67,451
|
|
Assets acquired and liabilities assumed:
|
|
|
|
|
|
|
|
Receivables
|
|
$
|
3,130
|
|
|
|
|
|
Inventory
|
|
|
12,567
|
|
|
|
|
|
Other current and noncurrent assets (1)
|
|
|
334
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
2,660
|
|
|
|
|
|
Intangible assets
|
|
|
42,440
|
|
|
|
|
|
Goodwill
|
|
|
12,746
|
|
|
|
|
|
Current liabilities
|
|
|
(6,426
|
)
|
|
|
|
|
Net assets acquired
|
|
|
|
|
|
$
|
67,451
|
|
|
(1)
|
Other current and noncurrent assets includes $0.2 million of cash acquired.
|
Intangible assets acquired of $42.4 million consists of customer relationships of $39.4 million that will be amortized on a straight-line basis over the estimated useful life of 15 years; a non-compete agreement of $2.2 million that will be amortized on a straight-line basis over the estimated useful life of 5 years; and a supply agreement of $0.8 million that will be amortized on a straight-line basis over the estimated useful life of 1 year. Goodwill of $12.7 million was allocated to the Engine Management Segment and is deductible for income tax purposes. The goodwill reflects relationships, business specific knowledge and the replacement cost of an assembled workforce associated with personal reputations, as well as the value of expected synergies.
Incremental net sales from the acquisition included in our consolidated statements of operations were $38.4 million for the year ended December 31, 2017.
3.
|
Restructuring and Integration Expense (Income)
|
The aggregated liabilities included in “sundry payables and accrued expenses” and “other accrued liabilities” in the consolidated balance sheet relating to the restructuring and integration activities as of and for the years ended December 31, 2017 and 2016, consisted of the following (in thousands):
|
|
Workforce
Reduction
|
|
|
Other Exit
Costs
|
|
|
Total
|
|
Exit activity liability at December 31, 2015
|
|
$
|
270
|
|
|
$
|
591
|
|
|
$
|
861
|
|
Restructuring and integration costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts provided for during 2016
|
|
|
2,934
|
|
|
|
1,023
|
|
|
|
3,957
|
|
Cash payments
|
|
|
(392
|
)
|
|
|
(1,154
|
)
|
|
|
(1,546
|
)
|
Reclassification to ongoing accrued liabilities (1)
|
|
|
(236
|
)
|
|
|
(460
|
)
|
|
|
(696
|
)
|
Exit activity liability at December 31, 2016
|
|
$
|
2,576
|
|
|
$
|
—
|
|
|
$
|
2,576
|
|
Restructuring and integration costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts provided for during 2017
|
|
|
2,220
|
|
|
|
3,953
|
|
|
|
6,173
|
|
Cash payments
|
|
|
(1,979
|
)
|
|
|
(3,702
|
)
|
|
|
(5,681
|
)
|
Foreign currency exchange rate changes and other
|
|
|
37
|
|
|
|
(251
|
)
|
|
|
(214
|
)
|
Exit activity liability at December 31, 2017
|
|
$
|
2,854
|
|
|
$
|
—
|
|
|
$
|
2,854
|
|
|
(1)
|
Applies to liabilities associated with the prior year restructuring and integration programs which relate primarily to employee severance and other retiree benefit enhancements to be paid through 2020 and environmental clean-up costs at our Long Island City, New York location in connection with the closure of our manufacturing operations at the site. These amounts were reclassified out of the restructuring and integration liability and into ongoing accrued liabilities as of December 31, 2016.
|
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Restructuring Costs
Plant Rationalization Program
In February 2016, in connection with our ongoing efforts to improve operating efficiencies and reduce costs, we finalized our intention to implement a plant rationalization initiative. As part of the plant rationalization, certain production activities will be relocated from our Grapevine, Texas manufacturing facility to facilities in Greenville, South Carolina and Reynosa, Mexico, certain service functions will be relocated from Grapevine, Texas to our administrative offices in Lewisville, Texas, and our Grapevine, Texas facility will be closed. As of December 31, 2017, all of our Grapevine, Texas production activities have been relocated to facilities in Greenville, South Carolina and Reynosa, Mexico. In addition, as part of the program, certain production activities were relocated from our Greenville, South Carolina manufacturing facility to our manufacturing facility in Bialystok, Poland. Restructuring and integration expenses expected to be incurred throughout the program of approximately $5.8 million consists of employee severance and relocation of certain machinery and equipment. Through December 31, 2017, total restructuring and integration expenses related to the program of $5.6 million were recognized. As of December 31, 2017, the plant rationalization program is substantially completed.
Activity, by segment, for the year ended December 31, 2017 and 2016 related to our plant rationalization program consisted of the following (in thousands):
|
|
Engine
Management
|
|
|
Temperature
Control
|
|
|
Other
|
|
|
Total
|
|
Exit activity liability at December 31, 2015
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Restructuring and integration costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts provided for during 2016
|
|
|
844
|
|
|
|
2,361
|
|
|
|
—
|
|
|
|
3,205
|
|
Cash payments
|
|
|
(833
|
)
|
|
|
(318
|
)
|
|
|
—
|
|
|
|
(1,151
|
)
|
Exit activity liability at December 31, 2016
|
|
$
|
11
|
|
|
$
|
2,043
|
|
|
$
|
—
|
|
|
$
|
2,054
|
|
Restructuring and integration costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts provided for during 2017
|
|
|
631
|
|
|
|
1,774
|
|
|
|
—
|
|
|
|
2,405
|
|
Cash payments
|
|
|
(642
|
)
|
|
|
(2,341
|
)
|
|
|
—
|
|
|
|
(2,983
|
)
|
Exit activity liability at December 31, 2017
|
|
$
|
—
|
|
|
$
|
1,476
|
|
|
$
|
—
|
|
|
$
|
1,476
|
|
Orlando Plant Rationalization Program
In January 2017, to further our ongoing efforts to improve operating efficiencies and reduce costs, we finalized our intention to implement a plant rationalization initiative at our Orlando, Florida facility. As part of the plant rationalization, we will relocate production activities from our Orlando, Florida manufacturing facility to Independence, Kansas, and close our Orlando, Florida facility. In addition, certain production activities will be relocated from our Independence, Kansas manufacturing facility to our manufacturing facility in Reynosa, Mexico. Restructuring and integration expenses expected to be incurred throughout the program of approximately $2.9 million consists of employee severance and relocation of certain machinery and equipment. Through December 31, 2017, total restructuring and integration expenses related to the program of $1.8 million were recognized. We anticipate that the Orlando plant rationalization will be completed by the second half of 2018.
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Activity, by segment, for the year ended December 31, 2017 related to our Orlando plant rationalization program consisted of the following (in thousands):
|
|
Engine
Management
|
|
|
Temperature
Control
|
|
|
Other
|
|
|
Total
|
|
Exit activity liability at December 31, 2016
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Restructuring and integration costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts provided for during 2017
|
|
|
1,758
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,758
|
|
Cash payments
|
|
|
(772
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(772
|
)
|
Exit activity liability at December 31, 2017
|
|
$
|
986
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
986
|
|
Integration Costs
Wire and Cable Relocation
In connection with our acquisition of the North American automotive ignition wire business of General Cable Corporation in May 2016, we incurred certain integration expenses, including costs incurred in connection with the consolidation of the General Cable Corporation Altoona, Pennsylvania wire distribution center into our existing wire distribution center in Edwardsville, Kansas and the relocation of certain machinery and equipment. In October 2016, we further announced our plan to relocate all production from the acquired Nogales, Mexico wire set assembly operation to our existing wire assembly facility in Reynosa, Mexico and to close the Nogales, Mexico plant. Integration expenses expected to be incurred related to the closure of the Nogales, Mexico plant include employee severance and the relocation of certain machinery and equipment. Total integration expenses of $4.1 million are expected to be incurred related to the wire and cable relocation program. Through December 31, 2017, integration expenses related to the program of $2.5 million were recognized. We anticipate that the wire and cable relocation program will be completed by the second half of 2018.
Activity, by segment, for the year ended December 31, 2017 and 2016 related to our wire and cable relocation program consisted of the following (in thousands):
|
|
Engine
Management
|
|
|
Temperature
Control
|
|
|
Other
|
|
|
Total
|
|
Exit activity liability at December 31, 2015
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Restructuring and integration costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts provided for during 2016
|
|
|
714
|
|
|
|
—
|
|
|
|
—
|
|
|
|
714
|
|
Cash payments
|
|
|
(192
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(192
|
)
|
Exit activity liability at December 31, 2016
|
|
$
|
522
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
522
|
|
Restructuring and integration costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts provided for during 2017
|
|
|
1,759
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,759
|
|
Cash payments
|
|
|
(1,926
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,926
|
)
|
Foreign currency exchange rate changes
|
|
|
37
|
|
|
|
—
|
|
|
|
—
|
|
|
|
37
|
|
Exit activity liability at December 31, 2017
|
|
$
|
392
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
392
|
|
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
From time to time, we sell undivided interests in certain of our receivables to financial institutions. We enter these agreements at our discretion when we determine that the cost of factoring is less than the cost of servicing our receivables with existing debt. Under the terms of the agreements, we retain no rights or interest, have no obligations with respect to the sold receivables, and do not service the receivables after the sale. As such, these transactions are being accounted for as a sale.
Pursuant to these agreements, we sold $780.5 million and $759.2 million of receivables for the years ended December 31, 2017 and 2016, respectively. A charge in the amount of $22.6 million, $19.3 million and $14.3 million related to the sale of receivables is included in selling, general and administrative expenses in our consolidated statements of operations for the years ended December 31, 2017, 2016 and 2015, respectively. If we do not enter into these arrangements or if any of the financial institutions with which we enter into these arrangements were to experience financial difficulties or otherwise terminate these arrangements, our financial condition, results of operations and cash flows could be materially and adversely affected by delays or failures to collect future trade accounts receivable.
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(In thousands)
|
|
Finished goods
|
|
$
|
209,800
|
|
|
$
|
203,700
|
|
Work-in-process
|
|
|
7,536
|
|
|
|
6,823
|
|
Raw materials
|
|
|
109,075
|
|
|
|
101,954
|
|
Total inventories
|
|
$
|
326,411
|
|
|
$
|
312,477
|
|
6.
|
Property, Plant and Equipment
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(In thousands)
|
|
Land, buildings and improvements
|
|
$
|
46,930
|
|
|
$
|
46,447
|
|
Machinery and equipment
|
|
|
132,467
|
|
|
|
128,650
|
|
Tools, dies and auxiliary equipment
|
|
|
45,769
|
|
|
|
44,683
|
|
Furniture and fixtures
|
|
|
28,352
|
|
|
|
27,482
|
|
Leasehold improvements
|
|
|
10,348
|
|
|
|
8,369
|
|
Construction-in-progress
|
|
|
16,318
|
|
|
|
14,419
|
|
Total property, plant and equipment
|
|
|
280,184
|
|
|
|
270,050
|
|
Less accumulated depreciation
|
|
|
191,081
|
|
|
|
191,551
|
|
Total property, plant and equipment, net
|
|
$
|
89,103
|
|
|
$
|
78,499
|
|
Depreciation expense was $15.4 million in 2017, $12.8 million in 2016 and $12.1 million 2015.
7.
|
Goodwill and Other Intangible Assets
|
Goodwill
We assess the impairment of long‑lived and identifiable intangibles assets and goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable. With respect to goodwill, we test for impairment on an annual basis or in interim periods if an event occurs or circumstances change that may indicate the fair value of a reporting unit is below its carrying amount. We completed our annual impairment test of goodwill as of December 31, 2017.
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
When performing our evaluation of goodwill for impairment, if we conclude qualitatively that it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, then the two-step impairment test is not required. If we are unable to reach this conclusion, then we would perform the two-step impairment test. We elected to bypass the qualitative assessment and have decided to perform the two-step impairment test for goodwill at both the Engine Management and Temperature Control reporting units at December 31, 2017. The first step of the impairment analysis consists of a comparison of the fair value of the reporting units with their respective carrying amounts, including goodwill. If the fair value of the reporting unit exceeds the carrying amount of the reporting unit, step two of the impairment analysis is not required. The fair values of the Engine Management and Temperature Control reporting units were determined based upon the Income Approach, which estimates the fair value based on future discounted cash flows, and the Market Approach, which estimates the fair value based on market prices of comparable companies. We base our fair value estimates on projected financial information which we believe to be reasonable. We also considered our total market capitalization as of December 31, 2017. Our December 31, 2017 annual goodwill impairment analysis did not result in an impairment charge as it was determined that the fair values of our Engine Management and Temperature Control reporting units were in excess of their carrying amounts. While the fair values exceed the carrying amounts at the present time and we do not believe that impairments are probable, the performance of the business and brands require continued improvement in future periods to sustain their carrying values.
Changes in the carrying values of goodwill by operating segment during the years ended December 31, 2017 and 2016 are as follows (in thousands):
|
|
Engine
Management
|
|
|
Temperature
Control
|
|
|
Total
|
|
Balance as of December 31, 2015:
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
79,099
|
|
|
$
|
14,270
|
|
|
$
|
93,369
|
|
Accumulated impairment losses
|
|
|
(38,488
|
)
|
|
|
—
|
|
|
|
(38,488
|
)
|
|
|
$
|
40,611
|
|
|
$
|
14,270
|
|
|
$
|
54,881
|
|
Activity in 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of the North American automotive ignition wire business of General Cable Corporation.
|
|
$
|
12,746
|
|
|
$
|
—
|
|
|
$
|
12,746
|
|
Foreign currency exchange rate change
|
|
|
(396
|
)
|
|
|
—
|
|
|
|
(396
|
)
|
Balance as of December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
91,449
|
|
|
|
14,270
|
|
|
|
105,719
|
|
Accumulated impairment losses
|
|
|
(38,488
|
)
|
|
|
—
|
|
|
|
(38,488
|
)
|
|
|
$
|
52,961
|
|
|
$
|
14,270
|
|
|
$
|
67,231
|
|
Activity in 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange rate change
|
|
|
182
|
|
|
|
—
|
|
|
|
182
|
|
Balance as of December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
91,631
|
|
|
|
14,270
|
|
|
|
105,901
|
|
Accumulated impairment losses
|
|
|
(38,488
|
)
|
|
|
—
|
|
|
|
(38,488
|
)
|
|
|
$
|
53,143
|
|
|
$
|
14,270
|
|
|
$
|
67,413
|
|
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Acquired Intangible Assets
Acquired identifiable intangible assets as of December 31, 2017 and 2016 consist of:
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(In thousands)
|
|
Customer relationships
|
|
$
|
87,290
|
|
|
$
|
87,070
|
|
Trademarks and trade names
|
|
|
6,800
|
|
|
|
6,800
|
|
Non-compete agreements
|
|
|
3,193
|
|
|
|
3,189
|
|
Patents
|
|
|
723
|
|
|
|
723
|
|
Supply agreements
|
|
|
800
|
|
|
|
800
|
|
Leaseholds
|
|
|
160
|
|
|
|
160
|
|
Total acquired intangible assets
|
|
|
98,966
|
|
|
|
98,742
|
|
Less accumulated amortization (1)
|
|
|
(43,853
|
)
|
|
|
(35,830
|
)
|
Net acquired intangible assets
|
|
$
|
55,113
|
|
|
$
|
62,912
|
|
|
(1)
|
Applies to all intangible assets, except for related trademarks and trade names totaling $5.2 million, which have indefinite useful lives and, as such, are not being amortized.
|
Total amortization expense for acquired intangible assets was $8 million for the year ended December 31, 2017, $7.1 million for the year ended December 31, 2016, and $4.9 million for the year ended December 31, 2015. Based on the current estimated useful lives assigned to our intangible assets, amortization expense is estimated to be $7.6 million for 2018, $6.3 million in 2019, $5.9 million in 2020, $4.6 million in 2021 and $25.5 million in the aggregate for the years 2022 through 2031.
Other Intangible Assets
Other intangible assets include computer software. Computer software as of December 31, 2017 and 2016 totaled $17.2 million and $16.7 million. Total accumulated computer software amortization as of December 31, 2017 and 2016 was $16.1 million and $15.6 million, respectively. Computer software is amortized over its estimated useful life of 3 to 10 years. Amortization expense for computer software was $0.5 million, $0.6 million and $0.6 million for the years ended December 31, 2017, 2016 and 2015, respectively.
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(In thousands)
|
|
Equity in joint ventures
|
|
$
|
31,184
|
|
|
$
|
19,924
|
|
Deferred compensation
|
|
|
13,612
|
|
|
|
10,763
|
|
Long term receivables
|
|
|
—
|
|
|
|
1,061
|
|
Deferred financing costs, net
|
|
|
630
|
|
|
|
973
|
|
Other
|
|
|
853
|
|
|
|
842
|
|
Total other assets, net
|
|
$
|
46,279
|
|
|
$
|
33,563
|
|
Deferred compensation consists of assets held in a nonqualified defined contribution pension plan as of December 31, 2017 and 2016, respectively.
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Equity Method Investments
In November 2017, we formed a 50/50 joint venture with Foshan Guangdong Automotive Air Conditioning Co., Ltd. (“FGD”), a China-based manufacturer of air conditioning compressors for the automotive aftermarket and the Chinese OE market. We acquired our 50% interest in the joint venture for approximately $12.5 million. We determined that due to a lack of a voting majority, and other qualitative factors, we do not control the operations of the joint venture and accordingly, our investment in the joint venture is accounted for under the equity method of accounting. Purchases from FGD from the date of acquisition through December 31, 2017 were not significant.
In April 2014, we formed a 50/50 joint venture with Gwo Yng Enterprise Co., Ltd. (“Gwo Yng”), a China-based manufacturer of air conditioner accumulators, filter driers, hose assemblies and switches for the automotive aftermarket and OEM/OES markets. We acquired our 50% interest in the joint venture for $14 million. We determined that due to a lack of a voting majority and other qualitative factors, we do not control the operations of the joint venture and accordingly, our investment in the joint venture is accounted for under the equity method of accounting. During the years ended December 31, 2017 and 2016, we made purchases from Gwo Yng of approximately $15.1 million and $15.4 million, respectively.
In January 2013, we acquired an approximate 25% minority interest in Orange Electronic Co., Ltd. (“Orange”) for $6.3 million. Orange is a manufacturer of tire pressure monitoring system sensors and is located in Taiwan. As of December 31, 2017, our minority interest in Orange of 19.4% is accounted for using the equity method of accounting as we have the ability to exercise significant influence. During the fourth quarter of 2017, after a review of the recent financial performance and near term prospects for Orange, we determined that the decline in quoted market prices below the carrying amount of our investment in Orange is other than temporary and, as such, recognized a noncash impairment charge of approximately $1.8 million in the quarter. The impairment charge has been reported in our Engine Management Segment and is included in other non-operating income (expense), net in our consolidated statements of operations. Purchases from Orange during the years ended December 31, 2017 and 2016 were approximately $4.3 million and $5 million, respectively.
9.
|
Credit Facilities and Long-Term Debt
|
Total debt outstanding is summarized as follows:
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(In thousands)
|
|
Revolving credit facilities
|
|
$
|
57,000
|
|
|
$
|
54,812
|
|
Other (1)
|
|
|
4,778
|
|
|
|
163
|
|
Total debt
|
|
$
|
61,778
|
|
|
$
|
54,975
|
|
|
|
|
|
|
|
|
|
|
Current maturities of debt
|
|
$
|
61,699
|
|
|
$
|
54,855
|
|
Long-term debt
|
|
|
79
|
|
|
|
120
|
|
Total debt
|
|
$
|
61,778
|
|
|
$
|
54,975
|
|
|
(1)
|
Other includes borrowings under our Polish overdraft facility of Zloty 16.2 million (approximately $4.7 million).
|
Maturities of long-term debt are not material for the year ended December 31, 2018 and beyond.
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Revolving Credit Facility
In October 2015, we entered into a Credit Agreement with JPMorgan Chase Bank, N.A., as agent, and a syndicate of lenders for a senior secured revolving credit facility with a line of credit of up to $250 million (with an additional $50 million accordion feature) and a maturity date in October 2020. The line of credit under the agreement also allows for a $10 million line of credit to Canada as part of the $250 million available for borrowing. Direct borrowings under the credit agreement bear interest at LIBOR plus a margin ranging from 1.25% to 1.75% based on our borrowing availability, or floating at the alternate base rate plus a margin ranging from 0.25% to 0.75% based on our borrowing availability, at our option. The credit agreement is guaranteed by certain of our subsidiaries and secured by certain of our assets.
Borrowings under the credit agreement are secured by substantially all of our assets, including accounts receivable, inventory and certain fixed assets, and those of certain of our subsidiaries. Availability under the credit agreement is based on a formula of eligible accounts receivable, eligible inventory, eligible equipment and eligible fixed assets. After taking into account outstanding borrowings under the credit agreement, there was an additional $142.9 million available for us to borrow pursuant to the formula at December 31, 2017. Outstanding borrowings under the credit agreement, which are classified as current liabilities, were $57 million and $54.8 million at December 31, 2017 and 2016, respectively. Borrowings under the credit agreement have been classified as current liabilities based upon the accounting rules and certain provisions in the agreement.
At December 31, 2017, the weighted average interest rate on our credit agreement was 2.7%, which consisted of $57 million in direct borrowings. At December 31, 2016, the weighted average interest rate on our credit agreement was 2.3%, which consisted of $45 million in direct borrowings at 2% and an alternative base rate loan of $9.8 million at 4%. Our average daily alternative base rate loan balance was $3.8 million and $2.6 million during 2017 and 2016, respectively.
At any time that our borrowing availability is less than the greater of either (a) $25 million, or 10% of the commitments if fixed assets are not included in the borrowing base, or (b) $31.25 million, or 12.5% of the commitments if fixed assets are included in the borrowing base, the terms of the credit agreement provide for, among other provisions, a financial covenant requiring us, on a consolidated basis, to maintain a fixed charge coverage ratio of 1:1 at the end of each fiscal quarter (rolling four quarters). As of December 31, 2017, we were not subject to these covenants. The credit agreement permits us to pay cash dividends of $20 million and make stock repurchases of $20 million in any fiscal year subject to a minimum availability of $25 million. Provided specific conditions are met, the credit agreement also permits acquisitions, permissible debt financing, capital expenditures, and cash dividend payments and stock repurchases of greater than $20 million.
Polish Overdraft Facility
In December 2017, our Polish subsidiary, SMP Poland sp.z.o.o., entered into an overdraft facility with HSBC Bank Polska S.A. (“HSBC Poland”) for Zloty 30 million (approximately $8.2 million). The facility expires on December 2018. Borrowings under the overdraft facility will bear interest at a rate equal to WIBOR + 0.75% and are guaranteed by Standard Motor Products, Inc., the ultimate parent company. At December 31, 2017, borrowings under the overdraft facility were Zloty 16.2 million (approximately $4.7 million).
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Deferred Financing Costs
We had deferred financing costs of approximately $1 million and $1.3 million as of December 31, 2017 and 2016, respectively. Deferred financing costs as of December 31, 2017 are related to our revolving credit facility.
Scheduled amortization for future years, assuming no prepayments of principal is as follows:
(In thousands)
|
|
|
|
2018
|
|
$
|
343
|
|
2019
|
|
|
343
|
|
2020
|
|
|
287
|
|
Total amortization
|
|
$
|
973
|
|
We have authority to issue 500,000 shares of preferred stock, $20 par value, and our Board of Directors is vested with the authority to establish and designate any series of preferred, to fix the number of shares therein and the variations in relative rights as between each series. In December 1995, our 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 our 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, 2017 and 2016.
In February 2015, our Board of Directors authorized the purchase of up to $10 million of our common stock under a stock repurchase program. In July 2015, our Board of Directors authorized the purchase of up to an additional $10 million of our common stock under another stock repurchase program. Under these programs, during the year ended December 31, 2015, we repurchased 551,791 shares of our common stock at a total cost of $19.6 million. As of December 31, 2015, there was approximately $0.4 million available for future stock repurchases under the programs. In January 2016, we repurchased an additional 10,135 shares of our common stock under the programs at a total cost of $0.4 million, thereby completing the 2015 Board of Directors authorizations. Our Board of Directors did not authorize a stock repurchase program in 2016.
In February 2017, our Board of Directors authorized the purchase of up to $20 million of our common stock under a stock repurchase program. In November 2017, our Board of Directors authorized the purchase of up to an additional $10 million of our common stock under another stock repurchase program. Under these programs, during the year ended December 31, 2017, we repurchased 539,760 shares of our common stock at a total cost of $24.8 million. As of December 31, 2017, there was approximately $5.2 million available for future stock repurchases under the programs. During the period from January 1, 2018 through February 16, 2018, we repurchased an additional 35,756 shares of our common stock under the programs at a total cost of $1.7 million, thereby leaving approximately $3.5 million available for future stock purchases under the program.
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
11.
|
Accumulated Other Comprehensive Income
|
Changes in Accumulated Other Comprehensive Income by Component
|
|
Foreign
Currency
Translation
Adjustments
|
|
|
Unrecognized
Postretirement
Benefit Costs
(Credit)
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Balance at December 31, 2015
|
|
$
|
(5,958
|
)
|
|
$
|
(516
|
)
|
|
$
|
(6,474
|
)
|
Other comprehensive income before reclassifications
|
|
|
(5,294
|
)
|
|
|
332
|
|
|
|
(4,962
|
)
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
—
|
|
|
|
408
|
|
|
|
408
|
|
Other comprehensive income, net
|
|
|
(5,294
|
)
|
|
|
740
|
|
|
|
(4,554
|
)
|
Balance at December 31, 2016
|
|
$
|
(11,252
|
)
|
|
$
|
224
|
|
|
$
|
(11,028
|
)
|
Other comprehensive income before reclassifications
|
|
|
7,027
|
|
|
|
289
|
|
|
|
7,316
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
—
|
|
|
|
(397
|
)
|
|
|
(397
|
)
|
Other comprehensive income, net
|
|
|
7,027
|
|
|
|
(108
|
)
|
|
|
6,919
|
|
Balance at December 31, 2017
|
|
$
|
(4,225
|
)
|
|
$
|
116
|
|
|
$
|
(4,109
|
)
|
Reclassifications Out of Accumulated Other Comprehensive Income and into the Consolidated Statements of Operations
|
|
Year Ended December 31,
|
|
Details About Accumulated Other Comprehensive Income Components
|
|
2017
|
|
|
2016
|
|
Amortization of postretirement benefit plans:
|
|
(In thousands)
|
|
Prior service benefit (1)
|
|
$
|
—
|
|
|
$
|
(54
|
)
|
Unrecognized (gain) loss (1)
|
|
|
(661
|
)
|
|
|
763
|
|
Total before income tax
|
|
|
(661
|
)
|
|
|
709
|
|
Income tax expense
|
|
|
264
|
|
|
|
(301
|
)
|
Total reclassifications for the period
|
|
$
|
(397
|
)
|
|
$
|
408
|
|
|
(1)
|
These accumulated other comprehensive income components are included in the computation of net periodic postretirement benefit costs, which are included in selling, general and administrative expenses in our consolidated statements of operations (see Note 14 for additional information).
|
12.
|
Stock-Based Compensation Plans
|
Our stock-based compensation program is a broad-based program designed to attract and retain employees while also aligning employees’ interests with the interests of our shareholders. In addition, members of our Board of Directors participate in our stock-based compensation program in connection with their service on our board. In May 2016, our Board of Directors and Shareholders approved the 2016 Omnibus Incentive Plan. The 2016 Omnibus Incentive Plan supersedes the 2006 Omnibus Incentive Plan, which terminated in May 2016. The 2016 Omnibus Incentive Plan is the only remaining plan available to provide stock-based incentive compensation to our employees, directors and other eligible persons.
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Under the 2016 Omnibus Incentive Plan, which terminates in May 2026, we are authorized to issue, among other things, shares of restricted and performance-based stock to eligible employees and restricted stock to directors of up to 1,100,000 shares. Shares issued under the plan that are cancelled, forfeited or expire by their terms are eligible to be granted again under the 2016 Omnibus Incentive Plan. Awards previously granted under the 2006 Omnibus Incentive Plan are not affected by the plan’s termination, while shares not yet granted under the plan are not available for future issuance.
We account for our stock-based compensation plans in accordance with the provisions of FASB ASC 718,
Stock Compensation
, which requires that a company measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The service period is the period of time that the grantee must provide services to us before the stock-based compensation is fully vested.
Stock-based compensation expense under our existing plans was $7.1 million ($3.2 million, net of tax), $5.7 million ($3.6 million, net of tax), and $5 million ($3.2 million, net of tax) for the years ended December 31, 2017, 2016 and 2015, respectively.
Restricted Stock and Performance Share Grants
We currently grant shares of restricted stock to eligible employees and our independent directors and performance-based stock to eligible employees. Selected executives and other key personnel are granted performance awards whose vesting is contingent upon meeting various performance measures with a retention feature. Performance-based shares are subject to a three year measuring period and the achievement of performance targets and, depending upon the achievement of such performance targets, they may become vested on the third anniversary of the date of grant. Each period we evaluate the probability of achieving the applicable targets and we adjust our accrual accordingly. Restricted shares granted to employees become fully vested upon the third anniversary of the date of grant; and for selected key executives certain additional restricted share grants vest 25% upon the attainment of age 60, 25% upon the attainment of age 63 and become fully vested upon the attainment of age 65. Restricted shares granted to directors become fully vested upon the first anniversary of the date of grant. Commencing with the 2015 grants, restricted and performance shares issued to certain key executives and directors are subject to a one or two year holding period upon the lapse of the three year vesting period.
Prior to the time a restricted share becomes fully vested or a performance share is issued, the awardees cannot transfer, pledge, hypothecate or encumber such shares. Prior to the time a restricted share is fully vested, the awardees have all other rights of a stockholder, including the right to vote (but not receive dividends during the vesting period). Prior to the time a performance share is issued, the awardees shall have no rights as a stockholder. All shares and rights are subject to forfeiture if certain employment conditions are not met.
Under the 2016 Omnibus Incentive Plan, 1,100,000 shares are authorized to be issued. At December 31, 2017, under the plan, there were an aggregate of (a) 418,000 shares of restricted and performance-based stock grants issued, net of forfeitures, and (b) 682,000 shares of common stock available for future grants. For the year ended December 31, 2017, 207,975 restricted and performance-based shares were granted (152,975 restricted shares and 55,000 performance-based shares).
In determining the grant date fair value, the stock price on the date of grant, as quoted on the New York Stock Exchange, was reduced by the present value of dividends expected to be paid on the shares issued and outstanding during the requisite service period, discounted at a risk-free interest rate. The risk-free interest rate is based on the U.S. Treasury rates at the date of grant with maturity dates approximately equal to the restriction or vesting period at the grant date. In addition, a further discount for the lack of marketability reduced the fair value of grants issued to certain key executives and directors subject to the one or two year post vesting holding period. Assumptions used in calculating the discount for the lack of marketability include an estimate of stock volatility, risk-free interest rate, and a dividend yield.
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The fair value of the shares at the date of grant is amortized to expense ratably over the vesting period. Forfeitures on restricted stock grants are estimated at 5% for employees and 0% for executives and directors, respectively, based on evaluation of historical and expected future turnover.
As related to restricted and performance stock shares, we recorded compensation expense of $7.1 million ($3.2 million, net of tax), $5.7 million ($3.6 million, net of tax) and $5 million ($3.2 million, net of tax), for the years ended December 31, 2017, 2016 and 2015, respectively. The unamortized compensation expense related to our restricted and performance-based shares was $16.6 million and $15.6 million at December 31, 2017 and 2016, respectively and is expected to be recognized over a weighted average period of 4.8 years and 0.3 years for employees and directors, respectively, as of December 31, 2017 and over a weighted average period of 5.7 years and 0.3 years for employees and directors, respectively, as of December 31, 2016.
Our restricted and performance-based share activity was as follows for the years ended December 31, 2017 and 2016:
|
|
Shares
|
|
|
Weighted Average
Grant Date Fair
Value per Share
|
|
Balance at December 31, 2015
|
|
|
758,550
|
|
|
$
|
27.19
|
|
Granted
|
|
|
212,500
|
|
|
|
42.93
|
|
Vested
|
|
|
(138,427
|
)
|
|
|
31.55
|
|
Forfeited
|
|
|
(9,775
|
)
|
|
|
31.79
|
|
Balance at December 31, 2016
|
|
|
822,848
|
|
|
|
30.46
|
|
Granted
|
|
|
207,975
|
|
|
|
42.79
|
|
Vested
|
|
|
(169,615
|
)
|
|
|
31.26
|
|
Forfeited
|
|
|
(7,250
|
)
|
|
|
37.24
|
|
Balance at December 31, 2017
|
|
|
853,958
|
|
|
$
|
33.25
|
|
The weighted-average grant date fair value of restricted and performance-based shares outstanding as of December 31, 2017, 2016 and 2015 was $28.4 million (or $33.25 per share), $25.1 million (or $30.46 per share), and $20.6 million (or $27.19 per share), respectively.
13.
|
Retirement Benefit Plans
|
Defined Contribution Plans
We maintain various defined contribution plans, which include profit sharing and provide retirement benefits for substantially all of our employees. Matching obligations, in connection with the plans which are funded in cash and typically contributed to the plans in March of the following year, are as follows (in thousands):
|
|
U.S. Defined
Contribution
|
|
Year ended December 31,
|
|
|
|
2017
|
|
$
|
9,980
|
|
2016
|
|
|
8,625
|
|
2015
|
|
|
8,445
|
|
We maintain a defined contribution Supplemental Executive Retirement Plan for key employees. Under the plan, these employees may elect to defer a portion of their compensation and, in addition, we may at our discretion make contributions to the plan on behalf of the employees. In March 2016, contributions of $0.3 million were made related to calendar year 2015. In March 2017, contributions of $0.3 million were made related to calendar year 2016. We have recorded an obligation of $0.6 million for 2017.
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
We also have an Employee Stock Ownership Plan and Trust (“ESOP”) for employees who are not covered by a collective bargaining agreement. In connection therewith, we maintain an employee benefits trust to which we contribute shares of treasury stock. We are authorized to instruct the trustees to distribute such shares toward the satisfaction of our future obligations under the plan. The shares held in trust are not considered outstanding for purposes of calculating earnings per share until they are committed to be released. The trustees will vote the shares in accordance with its fiduciary duties. During 2017, we contributed to the trust an additional 43,300 shares from our treasury and released 43,300 shares from the trust leaving 200 shares remaining in the trust as of December 31, 2017. The provision for expense in connection with the ESOP was approximately $2.2 million in 2017, $2 million in 2016 and $2.2 million in 2015.
Defined Benefit Pension Plan
We maintain a defined benefit unfunded Supplemental Executive Retirement Plan (“SERP”). The SERP, as amended, is a defined benefit plan pursuant to which we will pay supplemental pension benefits to certain key employees upon the attainment of a contractual participant’s payment date based upon the employees’ years of service and compensation. There was no benefit obligation outstanding related to the SERP as of December 31, 2017 and 2016.
We recorded no expense related to the plan during the years ended December 31, 2017 and December 31, 2016. Net periodic benefit cost of $2.5 million was recorded related to the plan for the year ended December 31, 2015.
14.
|
Postretirement Medical Benefits
|
We provided, and continue to provide, certain medical and dental care benefits to eligible retired U.S. and Canadian employees. Under the U.S. plan, for non-union employees, a Health Reimbursement Account (“HRA”) was established beginning January 1, 2009 for each qualified U.S. retiree. Annually, and through the year ended December 31, 2016, a fixed amount was credited into the HRA to cover both medical and dental costs for all current and future eligible retirees. Under the Canadian plan, retiree medical and dental benefits were funded using insurance contracts. Premiums under the insurance contracts were funded on a pay-as-you-go basis. The postretirement medical plans to substantially all eligible U.S. and Canadian employees terminated on December 31, 2016. For U.S. plan participants, balances in the HRA accounts at December 31, 2016 will remain available for use until December 31, 2018. Any remaining balance at December 31, 2018 will be forfeited. Postretirement medical and dental benefits to eligible employees will continue to be provided to the 24 former union employees in the U.S.
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The benefit obligation, funded status, and amounts recognized in the consolidated financial statements for our postretirement medical benefit plans as of and for the years ended December 31, 2017 and 2016, were as follows (in thousands):
|
|
Postretirement Benefit Plans
|
|
|
|
U.S. Plan
|
|
|
Canadian Plan
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
1,574
|
|
|
$
|
2,928
|
|
|
$
|
—
|
|
|
$
|
74
|
|
Service cost
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Interest cost
|
|
|
8
|
|
|
|
11
|
|
|
|
—
|
|
|
|
2
|
|
Benefits paid
|
|
|
(429
|
)
|
|
|
(831
|
)
|
|
|
—
|
|
|
|
(17
|
)
|
Actuarial gain
|
|
|
(481
|
)
|
|
|
(534
|
)
|
|
|
—
|
|
|
|
(9
|
)
|
Translation adjustment & other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(50
|
)
|
Benefit obligation at end of year
|
|
$
|
672
|
|
|
$
|
1,574
|
|
|
$
|
—
|
|
|
$
|
—
|
|
(Unfunded) status of the plans
|
|
$
|
(672
|
)
|
|
$
|
(1,574
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
Postretirement Benefit Plan
|
|
|
|
U.S. Plan
|
|
|
|
2017
|
|
|
2016
|
|
Amounts recognized in the balance sheet:
|
|
|
|
|
|
|
Accrued postretirement benefit liabilities
|
|
$
|
672
|
|
|
$
|
1,574
|
|
Accumulated other comprehensive (income) loss (pre-tax) related to:
|
|
|
|
|
|
|
|
|
Unrecognized net actuarial losses (gains)
|
|
|
(194
|
)
|
|
|
(374
|
)
|
Unrecognized prior service cost (credit)
|
|
|
—
|
|
|
|
—
|
|
The estimated net gain that is expected to be amortized from accumulated other comprehensive income into postretirement medical benefits cost during 2018 is not material.
Net periodic benefit cost related to our plans includes the following components (in thousands):
|
|
December 31,
|
|
U.S. postretirement plan:
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Service cost
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest cost
|
|
|
8
|
|
|
|
11
|
|
|
|
24
|
|
Actuarial net (gain) loss
|
|
|
(661
|
)
|
|
|
809
|
|
|
|
1,548
|
|
Net periodic benefit cost (credit)
|
|
$
|
(653
|
)
|
|
$
|
820
|
|
|
$
|
1,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canadian postretirement plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest cost
|
|
|
—
|
|
|
|
2
|
|
|
|
3
|
|
Amortization of prior service cost
|
|
|
—
|
|
|
|
(54
|
)
|
|
|
(112
|
)
|
Actuarial net gain
|
|
|
—
|
|
|
|
(46
|
)
|
|
|
(22
|
)
|
Net periodic benefit cost (credit)
|
|
$
|
—
|
|
|
$
|
(98
|
)
|
|
$
|
(131
|
)
|
Total net periodic benefit cost (credit)
|
|
$
|
(653
|
)
|
|
$
|
722
|
|
|
$
|
1,441
|
|
Actuarial assumptions used to determine costs and benefit obligations related to our U.S. postretirement plan are as follows:
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Discount rate
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Actuarial assumptions used to determine costs and benefit obligations related to our Canadian postretirement plan are as follows:
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Discount rates
|
|
|
N/A
|
|
|
|
3.00
|
%
|
|
|
3.00
|
%
|
Current medical cost trend rate
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
5.71
|
%
|
Ultimate medical cost trend rate
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
5
|
%
|
Year trend rate declines to ultimate
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
2017
|
|
The Company’s discount rates are determined by considering current yield curves representing high quality, long-term fixed income instruments. We set our discount rate for the U.S. plan based on a review of the Citigroup Pension Discount Curve and the duration of expected payments in the plan. We set our discount rate for the Canadian plan based upon similar benchmarks in Canada.
The following benefit payments which reflect expected future service, as appropriate, are expected to be paid (in thousands):
2018
|
|
$
|
440
|
|
2019
|
|
|
42
|
|
2020
|
|
|
38
|
|
2021
|
|
|
33
|
|
2022
|
|
|
29
|
|
Years 2023 – 2027
|
|
|
91
|
|
A one-percentage-point change in assumed health care cost trend rates would not have a material impact on our plans for 2018.
15.
|
Other Non-Operating Income (Expense), Net
|
The components of other non-operating income (expense), net are as follows:
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
(In thousands)
|
|
Interest and dividend income
|
|
$
|
91
|
|
|
$
|
153
|
|
|
$
|
151
|
|
Equity income (loss) from joint ventures (1)
|
|
|
(602
|
)
|
|
|
2,029
|
|
|
|
976
|
|
Gain (loss) on foreign exchange
|
|
|
950
|
|
|
|
(276
|
)
|
|
|
(719
|
)
|
Write-off of deferred financing costs
|
|
|
—
|
|
|
|
—
|
|
|
|
(773
|
)
|
Other non-operating income, net
|
|
|
158
|
|
|
|
153
|
|
|
|
145
|
|
Total other non-operating income (expense), net
|
|
$
|
597
|
|
|
$
|
2,059
|
|
|
$
|
(220
|
)
|
|
(1)
|
Year ended December 31, 2017 includes a noncash impairment charge of approximately $1.8 million related to our minority interest investment in Orange Electronic Co., Ltd. (See Note 8 for additional information).
|
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
In December 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “Act”), which included a broad range of tax reform affecting businesses, including the reduction of the federal corporate tax rate from 35% to 21%, changes in the deductibility of certain business expenses, and the manner in which international operations are taxed in the U.S. Although the majority of the changes resulting from the Act are effective beginning in 2018, U.S. GAAP requires that certain impacts of the Act be recognized in the income tax provision in the period of enactment. In connection with the enactment of the Act, our income tax provision for the fourth quarter of 2017 included an increase of $17.5 million, reflecting an increase of $16.1 million for the remeasurement of our net deferred tax assets and an increase in tax of $1.4 million due to the deemed repatriation of earnings of our foreign subsidiaries.
As related to the deemed repatriation of earnings of foreign subsidiaries, the Act includes a mandatory one-time tax on accumulated earnings of foreign subsidiaries. As a result, all previously unremitted earnings for which no U.S. deferred tax liability had been accrued are now subject to U.S. tax. In accordance with the guidelines provided in the Act, we have aggregated the estimated untaxed foreign earnings and profits, and utilized participating exemption deductions and available foreign tax credits in deriving the $1.4 million repatriation tax, which will be payable currently. Notwithstanding the U.S. taxation of these amounts, we intend to continue to invest most or all of these earnings indefinitely outside of the U.S., and do not expect to incur any significant additional taxes related to such amounts.
Although we believe that the impact of the Act has been properly reflected in the fourth quarter of 2017, there may be further adjustments in the coming quarters as the relevant authorities provide further guidance on the impacts of the Act
.
The following includes the impact of the Act on the year ended December 2017 disclosures.
The income tax provision (benefit) consists of the following (in thousands):
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Current:
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
30,742
|
|
|
$
|
33,156
|
|
|
$
|
22,943
|
|
Foreign
|
|
|
3,139
|
|
|
|
3,628
|
|
|
|
4,324
|
|
Total current
|
|
|
33,881
|
|
|
|
36,784
|
|
|
|
27,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
18,833
|
|
|
|
(387
|
)
|
|
|
(1,210
|
)
|
Foreign
|
|
|
98
|
|
|
|
(239
|
)
|
|
|
(74
|
)
|
Total deferred
|
|
|
18,931
|
|
|
|
(626
|
)
|
|
|
(1,284
|
)
|
Total income tax provision
|
|
$
|
52,812
|
|
|
$
|
36,158
|
|
|
$
|
25,983
|
|
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Reconciliations between taxes at the U.S. Federal income tax rate and taxes at our effective income tax rate on earnings from continuing operations before income taxes are as follows (in thousands):
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal income tax rate of 35%
|
|
$
|
33,755
|
|
|
$
|
34,500
|
|
|
$
|
25,936
|
|
Increase (decrease) in tax rate resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
State and local income taxes, net of federal income tax benefit
|
|
|
3,138
|
|
|
|
2,944
|
|
|
|
1,857
|
|
Income tax (tax benefits) attributable to foreign income
|
|
|
(149
|
)
|
|
|
(887
|
)
|
|
|
(1,705
|
)
|
Other non-deductible items, net
|
|
|
(1,319
|
)
|
|
|
(464
|
)
|
|
|
(192
|
)
|
Impact of Tax Cuts and Jobs Act
|
|
|
17,515
|
|
|
|
—
|
|
|
|
—
|
|
Change in valuation allowance
|
|
|
(128
|
)
|
|
|
65
|
|
|
|
87
|
|
Provision for income taxes
|
|
$
|
52,812
|
|
|
$
|
36,158
|
|
|
$
|
25,983
|
|
The following is a summary of the components of the net deferred tax assets and liabilities recognized in the accompanying consolidated balance sheets (in thousands):
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Inventories
|
|
$
|
11,498
|
|
|
$
|
18,323
|
|
Allowance for customer returns
|
|
|
8,678
|
|
|
|
15,092
|
|
Postretirement benefits
|
|
|
170
|
|
|
|
607
|
|
Allowance for doubtful accounts
|
|
|
1,181
|
|
|
|
1,589
|
|
Accrued salaries and benefits
|
|
|
8,500
|
|
|
|
11,482
|
|
Capital loss
|
|
|
154
|
|
|
|
234
|
|
Tax credit carryforwards
|
|
|
272
|
|
|
|
420
|
|
Deferred gain on building sale
|
|
|
55
|
|
|
|
489
|
|
Accrued asbestos liabilities
|
|
|
8,886
|
|
|
|
12,638
|
|
|
|
|
39,394
|
|
|
|
60,874
|
|
Valuation allowance
|
|
|
(377
|
)
|
|
|
(505
|
)
|
Total deferred tax assets
|
|
|
39,017
|
|
|
|
60,369
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
5,495
|
|
|
|
7,410
|
|
Other
|
|
|
1,102
|
|
|
|
1,832
|
|
Total deferred tax liabilities
|
|
|
6,597
|
|
|
|
9,242
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
32,420
|
|
|
$
|
51,127
|
|
In assessing the realizability of the deferred tax assets, we consider whether it is more likely than not that some portion or the entire deferred tax asset will be realized. Ultimately, the realization of the deferred tax asset is dependent upon the generation of sufficient taxable income in those periods in which temporary differences become deductible and/or net operating loss carryforwards can be utilized. We consider the level of historical taxable income, scheduled reversal of temporary differences, carryback and carryforward periods, tax planning strategies and projected future taxable income in determining whether a valuation allowance is warranted. We also consider cumulative losses in recent years as well as the impact of one-time events in assessing our pre-tax earnings. Assumptions regarding future taxable income require significant judgment. Our assumptions are consistent with estimates and plans used to manage our business.
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The valuation allowance of $0.4 million as of December 31, 2017 is intended to provide for uncertainty regarding the ultimate realization of our U.S. foreign tax credit carryovers and foreign net operating loss carryovers. Based on these considerations, we believe it is more likely than not that we would realize the benefit of the net deferred tax asset of $32.4 million as of December 31, 2017, which is net of the remaining valuation allowance.
At December 31, 2017, we have foreign tax credit carryforwards of approximately $0.3 million that will expire in varying amounts by 2020.
In accordance with generally accepted accounting practices, we recognize in our financial statements only those tax positions that meet the more-likely-than-not recognition threshold. We establish tax reserves for uncertain tax positions that do not meet this threshold. During the years ended December 31, 2017, 2016 and 2015 we did not establish a liability for uncertain tax provisions.
We are subject to taxation in the U.S. and various state, local and foreign jurisdictions. As of December 31, 2017, the Company is no longer subject to U.S. Federal tax examinations for years before 2014. We remain subject to examination by state and local tax authorities for tax years 2013 through 2016. Foreign jurisdictions have statutes of limitations generally ranging from 2 to 6 years. Years still open to examination by foreign tax authorities in major jurisdictions include Canada (2013 onward), Hong Kong (2012 onward), Mexico (2013 onward) and Poland (2012 onward). We do not presently anticipate that our unrecognized tax benefits will significantly increase or decrease over the next 12 months; however, actual developments in this area could differ from those currently expected.
17.
|
Industry Segment and Geographic Data
|
We have two major reportable operating segments, each of which focuses on a specific line of replacement parts. Our Engine Management Segment manufactures and remanufactures ignition and emission parts, ignition wires, battery cables, fuel system parts and sensors for vehicle systems. Our Temperature Control Segment manufactures and remanufactures air conditioning compressors, air conditioning and heating parts, engine cooling system parts, power window accessories and windshield washer system parts.
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 (in thousands):
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Net sales (a):
|
|
|
|
|
|
|
|
|
|
Engine Management
|
|
$
|
829,413
|
|
|
$
|
765,539
|
|
|
$
|
698,021
|
|
Temperature Control
|
|
|
279,127
|
|
|
|
283,740
|
|
|
|
264,478
|
|
Other
|
|
|
7,603
|
|
|
|
9,203
|
|
|
|
9,476
|
|
Total net sales
|
|
$
|
1,116,143
|
|
|
$
|
1,058,482
|
|
|
$
|
971,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment sales (a)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Engine Management
|
|
$
|
24,995
|
|
|
$
|
22,268
|
|
|
$
|
20,178
|
|
Temperature Control
|
|
|
7,334
|
|
|
|
7,293
|
|
|
|
6,542
|
|
Other
|
|
|
(32,329
|
)
|
|
|
(29,561
|
)
|
|
|
(26,720
|
)
|
Total intersegment sales
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product Line Net Sales (a)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Engine Management
|
|
|
|
|
|
|
|
|
|
|
|
|
Ignition, Emission and Fuel System Parts
|
|
$
|
657,287
|
|
|
$
|
616,523
|
|
|
$
|
598,161
|
|
Wire and Cable
|
|
|
172,126
|
|
|
|
149,016
|
|
|
|
99,860
|
|
Total Engine Management
|
|
|
829,413
|
|
|
|
765,539
|
|
|
|
698,021
|
|
Temperature Control
|
|
|
|
|
|
|
|
|
|
|
|
|
Compressors
|
|
|
148,377
|
|
|
|
148,623
|
|
|
|
127,861
|
|
Other Climate Control Parts
|
|
|
130,750
|
|
|
|
135,117
|
|
|
|
136,617
|
|
Total Temperature Control
|
|
|
279,127
|
|
|
|
283,740
|
|
|
|
264,478
|
|
All Other
|
|
|
7,603
|
|
|
|
9,203
|
|
|
|
9,476
|
|
Total Net Sales
|
|
$
|
1,116,143
|
|
|
$
|
1,058,482
|
|
|
$
|
971,975
|
|
|
|
Depreciation and Amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Engine Management
|
|
$
|
17,981
|
|
|
$
|
15,008
|
|
|
$
|
12,256
|
|
Temperature Control
|
|
|
4,373
|
|
|
|
4,287
|
|
|
|
4,329
|
|
Other
|
|
|
1,562
|
|
|
|
1,162
|
|
|
|
1,052
|
|
Total depreciation and amortization
|
|
$
|
23,916
|
|
|
$
|
20,457
|
|
|
$
|
17,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Engine Management
|
|
$
|
97,403
|
|
|
$
|
101,529
|
|
|
$
|
88,007
|
|
Temperature Control
|
|
|
19,609
|
|
|
|
17,563
|
|
|
|
6,382
|
|
Other
|
|
|
(18,838
|
)
|
|
|
(21,025
|
)
|
|
|
(18,529
|
)
|
Total operating income
|
|
$
|
98,174
|
|
|
$
|
98,067
|
|
|
$
|
75,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in equity affiliates:
|
|
|
|
|
|
|
|
|
|
|
|
|
Engine Management
|
|
$
|
4,162
|
|
|
$
|
6,221
|
|
|
$
|
6,430
|
|
Temperature Control
|
|
|
27,022
|
|
|
|
13,703
|
|
|
|
14,192
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total investment in equity affiliates
|
|
$
|
31,184
|
|
|
$
|
19,924
|
|
|
$
|
20,622
|
|
|
|
|
|
Capital expenditures
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Engine Management
|
|
$
|
17,750
|
|
|
$
|
14,202
|
|
|
$
|
13,038
|
|
Temperature Control
|
|
|
5,151
|
|
|
|
3,652
|
|
|
|
3,027
|
|
Other
|
|
|
1,541
|
|
|
|
3,067
|
|
|
|
1,982
|
|
Total capital expenditures
|
|
$
|
24,442
|
|
|
$
|
20,921
|
|
|
$
|
18,047
|
|
Total assets
:
|
|
|
|
|
|
|
|
|
|
Engine Management
|
|
$
|
527,200
|
|
|
$
|
506,625
|
|
|
$
|
413,102
|
|
Temperature Control
|
|
|
177,006
|
|
|
|
171,136
|
|
|
|
177,201
|
|
Other
|
|
|
83,361
|
|
|
|
90,936
|
|
|
|
90,761
|
|
Total assets
|
|
$
|
787,567
|
|
|
$
|
768,697
|
|
|
$
|
681,064
|
|
a)
|
Segment and product line net sales include intersegment sales in our Engine Management and Temperature Control segments.
|
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Other consists of items pertaining to our corporate headquarters function, as well as our Canadian business unit that does not meet the criteria of a reportable operating segment.
Reconciliation of segment operating income to net earnings:
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
(In thousands)
|
|
Operating income
|
|
$
|
98,174
|
|
|
$
|
98,067
|
|
|
$
|
75,860
|
|
Other non-operating income (expense)
|
|
|
597
|
|
|
|
2,059
|
|
|
|
(220
|
)
|
Interest expense
|
|
|
2,329
|
|
|
|
1,556
|
|
|
|
1,537
|
|
Earnings from continuing operations before taxes
|
|
|
96,442
|
|
|
|
98,570
|
|
|
|
74,103
|
|
Income tax expense
|
|
|
52,812
|
|
|
|
36,158
|
|
|
|
25,983
|
|
Earnings from continuing operations
|
|
|
43,630
|
|
|
|
62,412
|
|
|
|
48,120
|
|
Discontinued operations, net of tax
|
|
|
(5,654
|
)
|
|
|
(1,982
|
)
|
|
|
(2,102
|
)
|
Net earnings
|
|
$
|
37,976
|
|
|
$
|
60,430
|
|
|
$
|
46,018
|
|
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Revenues
:
|
|
(In thousands)
|
|
United States
|
|
$
|
996,433
|
|
|
$
|
952,019
|
|
|
$
|
881,206
|
|
Canada
|
|
|
56,575
|
|
|
|
53,324
|
|
|
|
48,072
|
|
Mexico
|
|
|
24,521
|
|
|
|
24,429
|
|
|
|
14,707
|
|
Europe
|
|
|
14,088
|
|
|
|
14,703
|
|
|
|
16,305
|
|
Other foreign
|
|
|
24,526
|
|
|
|
14,007
|
|
|
|
11,685
|
|
Total revenues
|
|
$
|
1,116,143
|
|
|
$
|
1,058,482
|
|
|
$
|
971,975
|
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Long-lived assets
:
|
(In thousands)
|
|
United States
|
|
$
|
202,875
|
|
|
$
|
204,592
|
|
|
$
|
155,438
|
|
Canada
|
|
|
2,017
|
|
|
|
1,344
|
|
|
|
1,190
|
|
Mexico
|
|
|
4,449
|
|
|
|
3,877
|
|
|
|
1,012
|
|
Europe
|
|
|
18,530
|
|
|
|
13,612
|
|
|
|
12,324
|
|
Other foreign
|
|
|
31,185
|
|
|
|
19,924
|
|
|
|
20,622
|
|
Total long-lived assets
|
|
$
|
259,056
|
|
|
$
|
243,349
|
|
|
$
|
190,586
|
|
Revenues are attributed to countries based upon the location of the customer. Long-lived assets are attributed to countries based upon the location of the assets.
Our five largest individual customers accounted for approximately 70% of our consolidated net sales in 2017 and 2016, and approximately 68% of our consolidated net sales in 2015. During 2017, O’Reilly Automotive, Inc., Advance Auto Parts, Inc., NAPA Auto Parts, and AutoZone, Inc. accounted for 21%, 17%, 16% and 10% of our consolidated net sales, respectively. Net sales from each of the customers were reported in both our Engine Management and Temperature Control Segments.
18.
|
Fair Value of Financial Instruments
|
The carrying value of our financial instruments consisting of cash and cash equivalents, deferred compensation, and short term borrowings approximate their fair value. In each instance, fair value is determined after considering Level 1 inputs under the three-level fair value hierarchy. For fair value purposes, the carrying value of cash and cash equivalents approximates fair value due to the short maturity of those investments. The fair value of the assets held by the deferred compensation plan are based on the quoted market prices of the underlying funds which are held in registered investment companies. The carrying value of our revolving credit facilities, classified as short term borrowings, equals fair market value because the interest rate reflects current market rates.
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
19.
|
Commitments and Contingencies
|
Total rent expense for the three years ended December 31, 2017 was as follows (in thousands):
|
|
Total
|
|
|
Real Estate
|
|
|
Other
|
|
2017
|
|
$
|
11,954
|
|
|
$
|
8,983
|
|
|
$
|
2,971
|
|
2016
|
|
|
10,171
|
|
|
|
7,550
|
|
|
|
2,621
|
|
2015
|
|
|
9,756
|
|
|
|
7,218
|
|
|
|
2,538
|
|
At December 31, 2017, we are obligated to make minimum rental payments through 2024, under operating leases, which are as follows (in thousands):
2018
|
|
$
|
9,485
|
|
2019
|
|
|
8,078
|
|
2020
|
|
|
6,990
|
|
2021
|
|
|
6,355
|
|
2022
|
|
|
5,364
|
|
Thereafter
|
|
|
3,932
|
|
Total
|
|
$
|
40,204
|
|
Warranties
We generally warrant our products against certain manufacturing and other defects. These product warranties are provided for specific periods of time depending on the nature of the product. As of December 31, 2017 and 2016, we have accrued $20.9 million and $24.1 million, respectively, for estimated product warranty claims included in accrued customer returns. The accrued product warranty costs are based primarily on historical experience of actual warranty claims. Warranty expense for each of the years 2017, 2016 and 2015 were $94.4 million, $99.1 million and $94.6 million, respectively.
T
he following table provides the changes in our product warranties:
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(In thousands)
|
|
Balance, beginning of period
|
|
$
|
24,072
|
|
|
$
|
23,395
|
|
Liabilities accrued for current year sales
|
|
|
94,367
|
|
|
|
99,092
|
|
Settlements of warranty claims
|
|
|
(97,510
|
)
|
|
|
(98,415
|
)
|
Balance, end of period
|
|
$
|
20,929
|
|
|
$
|
24,072
|
|
Letters of Credit
At December 31, 2017, we had outstanding letters of credit with certain vendors aggregating approximately $5.3 million. These letters of credit are being maintained as security for reimbursements to insurance companies and as security to the landlord of our administrative offices in Long Island City, New York. 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.
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued
)
Change of Control Arrangements
We entered into a change in control arrangement with one key officer. In the event of a change of control (as defined in the agreement), the executive will receive severance payments and certain other benefits as provided in his agreement.
Asbestos
In 1986, we acquired a brake business, which we subsequently sold in March 1998 and which is accounted for as a discontinued operation. When we originally acquired this brake business, we assumed future liabilities relating to any alleged exposure to asbestos-containing products manufactured by the seller of the acquired brake business. In accordance with the related purchase agreement, we agreed to assume the liabilities for all new claims filed on or after September 2001. Our ultimate exposure will depend upon the number of claims filed against us on or after September 2001 and the amounts paid for indemnity and defense thereof. At December 31, 2017, approximately 1,530 cases were outstanding for which we may be responsible for any related liabilities. Since inception in September 2001 through December 31, 2017, the amounts paid for settled claims are approximately $23.8 million.
In evaluating our potential asbestos-related liability, we have considered various factors including, among other things, an actuarial study of the asbestos related liabilities performed by an independent actuarial firm, our settlement amounts and whether there are any co-defendants, the jurisdiction in which lawsuits are filed, and the status and results of settlement discussions. As is our accounting policy, we consider the advice of actuarial consultants with experience in assessing asbestos-related liabilities to estimate our potential claim liability. The methodology used to project asbestos-related liabilities and costs in our actuarial study considered: (1) historical data available from publicly available studies; (2) an analysis of our recent claims history to estimate likely filing rates into the future; (3) an analysis of our currently pending claims; and (4) an analysis of our settlements to date in order to develop average settlement values.
The most recent actuarial study was performed as of August 31, 2017. The updated study has estimated an undiscounted liability for settlement payments, excluding legal costs and any potential recovery from insurance carriers, ranging from $35.2 million to $54 million for the period through 2060. The change from the prior year study was a $4.2 million increase for the low end of the range and a $6.3 million increase for the high end of the range. The increase in the estimated undiscounted liability from the prior year study at both the low end and high end of the range reflects our actual experience over the prior twelve months, our historical data and certain assumptions with respect to events that may occur in the future. Based on the information contained in the actuarial study and all other available information considered by us, we have concluded that no amount within the range of settlement payments was more likely than any other and, therefore, in assessing our asbestos liability we compare the low end of the range to our recorded liability to determine if an adjustment is required. Based upon the results of the August 31, 2017 actuarial study, in September 2017 we increased our asbestos liability to $35.2 million, the low end of the range, and recorded an incremental pre-tax provision of $6 million in earnings (loss) from discontinued operations in the accompanying statement of operations. Future legal costs, which are expensed as incurred and reported in earnings (loss) from discontinued operations in the accompanying statement of operations, are estimated, according to the updated study, to range from $44.3 million to $79.6 million for the period through 2060.
We plan to perform an annual actuarial evaluation during the third quarter of each year for the foreseeable future. Given the uncertainties associated with projecting such matters into the future and other factors outside our control, we can give no assurance that additional provisions will not be required. We will continue to monitor the circumstances surrounding these potential liabilities in determining whether additional provisions may be necessary. At the present time, however, we do not believe that any additional provisions would be reasonably likely to have a material adverse effect on our liquidity or consolidated financial position.
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Other Litigation
We are currently involved in various other legal claims and legal proceedings (some of which may involve substantial amounts), including claims related to commercial disputes, product liability, employment, and environmental. Although these
legal claims and legal proceedings are subject to inherent uncertainties, based on our understanding and evaluation of the relevant facts and circumstances, we believe that the ultimate outcome of these matters will not, either individually or in the aggregate, have a material adverse effect on our
business, financial condition or results of operations
. We may at any time determine that settling any of these matters is in our best interests, which settlement may include substantial payments.
Although we cannot currently predict the specific amount of any liability that may ultimately arise with respect to any of these matters, we will record provisions when the liability is considered probable and reasonably estimable. Significant judgment is required in both the determination of probability and the determination as to whether an exposure can be reasonably estimated. As additional information becomes available, we reassess our potential liability related to these matters. Such revisions of the potential liabilities could have a material adverse effect on our business, financial condition or results of operations.
20.
|
Quarterly Financial Data (Unaudited)
|
|
|
2017 Quarter Ended
|
|
|
|
Dec. 31
|
|
|
Sept. 30
|
|
|
June 30
|
|
|
Mar. 31
|
|
|
|
(In thousands, except per share amounts)
|
|
Net sales
|
|
$
|
239,978
|
|
|
$
|
281,058
|
|
|
$
|
312,729
|
|
|
$
|
282,378
|
|
Gross profit
|
|
|
69,345
|
|
|
|
82,535
|
|
|
|
90,666
|
|
|
|
84,110
|
|
Earnings (loss) from continuing operations
|
|
|
(8,106
|
)
|
|
|
17,108
|
|
|
|
18,261
|
|
|
|
16,367
|
|
Loss from discontinued operations, net of taxes
|
|
|
(541
|
)
|
|
|
(3,983
|
)
|
|
|
(497
|
)
|
|
|
(633
|
)
|
Net earnings (loss)
|
|
$
|
(8,647
|
)
|
|
$
|
13,125
|
|
|
$
|
17,764
|
|
|
$
|
15,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from continuing operations per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.36
|
)
|
|
$
|
0.75
|
|
|
$
|
0.80
|
|
|
$
|
0.72
|
|
Diluted
|
|
$
|
(0.36
|
)
|
|
$
|
0.74
|
|
|
$
|
0.78
|
|
|
$
|
0.70
|
|
Net earnings (loss) per common share:
|
|
Basic
|
|
$
|
(0.38
|
)
|
|
$
|
0.58
|
|
|
$
|
0.78
|
|
|
$
|
0.69
|
|
Diluted
|
|
$
|
(0.38
|
)
|
|
$
|
0.57
|
|
|
$
|
0.76
|
|
|
$
|
0.67
|
|
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
2016 Quarter Ended
|
|
|
|
Dec. 31
|
|
|
Sept. 30
|
|
|
June 30
|
|
|
Mar. 31
|
|
|
|
(In thousands, except per share amounts)
|
|
Net sales
|
|
$
|
229,799
|
|
|
$
|
300,795
|
|
|
$
|
288,977
|
|
|
$
|
238,911
|
|
Gross profit
|
|
|
66,771
|
|
|
|
95,644
|
|
|
|
87,076
|
|
|
|
72,996
|
|
Earnings from continuing operations
|
|
|
8,839
|
|
|
|
21,055
|
|
|
|
19,862
|
|
|
|
12,656
|
|
Loss from discontinued operations, net of taxes
|
|
|
(487
|
)
|
|
|
(425
|
)
|
|
|
(618
|
)
|
|
|
(452
|
)
|
Net earnings
|
|
$
|
8,352
|
|
|
$
|
20,630
|
|
|
$
|
19,244
|
|
|
$
|
12,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings from continuing operations per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.39
|
|
|
$
|
0.93
|
|
|
$
|
0.87
|
|
|
$
|
0.56
|
|
Diluted
|
|
$
|
0.38
|
|
|
$
|
0.91
|
|
|
$
|
0.86
|
|
|
$
|
0.55
|
|
Net earnings per common share:
|
|
Basic
|
|
$
|
0.37
|
|
|
$
|
0.91
|
|
|
$
|
0.85
|
|
|
$
|
0.54
|
|
Diluted
|
|
$
|
0.36
|
|
|
$
|
0.89
|
|
|
$
|
0.84
|
|
|
$
|
0.53
|
|