STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
(In thousands)
|
|
Net earnings
|
|
$
|
43,003
|
|
|
$
|
37,976
|
|
|
$
|
60,430
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(5,473
|
)
|
|
|
7,027
|
|
|
|
(5,294
|
)
|
Pension and postretirement plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service benefit
|
|
|
—
|
|
|
|
—
|
|
|
|
(54
|
)
|
Unrecognized (gain) loss
|
|
|
(268
|
)
|
|
|
(661
|
)
|
|
|
763
|
|
Unrecognized actuarial gains
|
|
|
247
|
|
|
|
481
|
|
|
|
542
|
|
Foreign currency exchange rate changes
|
|
|
—
|
|
|
|
—
|
|
|
|
3
|
|
Income tax related to pension and postretirement plans
|
|
|
9
|
|
|
|
72
|
|
|
|
(514
|
)
|
Pension and postretirement plans, net of tax
|
|
|
(12
|
)
|
|
|
(108
|
)
|
|
|
740
|
|
Total other comprehensive income (loss), net of tax
|
|
|
(5,485
|
)
|
|
|
6,919
|
|
|
|
(4,554
|
)
|
Comprehensive income
|
|
$
|
37,518
|
|
|
$
|
44,895
|
|
|
$
|
55,876
|
|
See accompanying notes to consolidated financial statements.
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(Dollars in thousands,
except share data)
|
|
ASSETS
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
11,138
|
|
|
$
|
17,323
|
|
Accounts receivable, less allowances for discounts and doubtful accounts of $5,687 and $4,967 in
2018 and 2017, respectively
|
|
|
157,535
|
|
|
|
140,057
|
|
Inventories
|
|
|
349,811
|
|
|
|
326,411
|
|
Unreturned customer inventories
|
|
|
20,484
|
|
|
|
—
|
|
Prepaid expenses and other current assets
|
|
|
7,256
|
|
|
|
12,300
|
|
Total current assets
|
|
|
546,224
|
|
|
|
496,091
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
90,754
|
|
|
|
89,103
|
|
Goodwill
|
|
|
67,321
|
|
|
|
67,413
|
|
Other intangibles, net
|
|
|
48,411
|
|
|
|
56,261
|
|
Deferred incomes taxes
|
|
|
42,334
|
|
|
|
32,420
|
|
Investments in unconsolidated affiliates
|
|
|
32,469
|
|
|
|
31,184
|
|
Other assets
|
|
|
15,619
|
|
|
|
15,095
|
|
Total assets
|
|
$
|
843,132
|
|
|
$
|
787,567
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Notes payable
|
|
$
|
43,689
|
|
|
$
|
57,000
|
|
Current portion of other debt
|
|
|
5,377
|
|
|
|
4,699
|
|
Accounts payable
|
|
|
94,357
|
|
|
|
77,990
|
|
Sundry payables and accrued expenses
|
|
|
31,033
|
|
|
|
40,012
|
|
Accrued customer returns
|
|
|
57,433
|
|
|
|
35,916
|
|
Accrued core liability
|
|
|
31,263
|
|
|
|
11,899
|
|
Accrued rebates
|
|
|
28,870
|
|
|
|
35,346
|
|
Payroll and commissions
|
|
|
20,564
|
|
|
|
23,035
|
|
Total current liabilities
|
|
|
312,586
|
|
|
|
285,897
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
153
|
|
|
|
79
|
|
Other accrued liabilities
|
|
|
18,075
|
|
|
|
14,561
|
|
Accrued asbestos liabilities
|
|
|
45,117
|
|
|
|
33,376
|
|
Total liabilities
|
|
|
375,931
|
|
|
|
333,913
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
Common Stock - par value $2.00 per share:
|
|
|
|
|
|
|
|
|
Authorized 30,000,000 shares, issued 23,936,036 shares
|
|
|
47,872
|
|
|
|
47,872
|
|
Capital in excess of par value
|
|
|
102,470
|
|
|
|
100,057
|
|
Retained earnings
|
|
|
380,113
|
|
|
|
357,153
|
|
Accumulated other comprehensive income
|
|
|
(9,594
|
)
|
|
|
(4,109
|
)
|
Treasury stock - at cost (1,503,284 shares and 1,424,025 shares in 2018 and 2017,
respectively)
|
|
|
(53,660
|
)
|
|
|
(47,319
|
)
|
Total stockholders’ equity
|
|
|
467,201
|
|
|
|
453,654
|
|
Total liabilities and stockholders’ equity
|
|
$
|
843,132
|
|
|
$
|
787,567
|
|
See accompanying notes to consolidated financial statements.
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
(In thousands)
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
43,003
|
|
|
$
|
37,976
|
|
|
$
|
60,430
|
|
Adjustments to reconcile net earnings to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
24,104
|
|
|
|
23,916
|
|
|
|
20,457
|
|
Amortization of deferred financing cost
|
|
|
333
|
|
|
|
343
|
|
|
|
346
|
|
Increase to allowance for doubtful accounts
|
|
|
330
|
|
|
|
972
|
|
|
|
210
|
|
Increase to inventory reserves
|
|
|
3,978
|
|
|
|
3,300
|
|
|
|
5,371
|
|
Amortization of deferred gain on sale of buildings
|
|
|
(218
|
)
|
|
|
(1,048
|
)
|
|
|
(1,048
|
)
|
Gain on sale of property, plant and equipment
|
|
|
(3,997
|
)
|
|
|
(15
|
)
|
|
|
(7
|
)
|
Equity (income) loss from joint ventures
|
|
|
768
|
|
|
|
602
|
|
|
|
(2,029
|
)
|
Employee Stock Ownership Plan allocation
|
|
|
2,557
|
|
|
|
2,159
|
|
|
|
2,021
|
|
Stock-based compensation
|
|
|
7,998
|
|
|
|
7,638
|
|
|
|
6,127
|
|
Excess tax benefits related to exercise of employee stock grants
|
|
|
—
|
|
|
|
—
|
|
|
|
(849
|
)
|
(Increase) decrease in deferred income taxes
|
|
|
(10,046
|
)
|
|
|
19,059
|
|
|
|
(691
|
)
|
Increase (decrease) in tax valuation allowance
|
|
|
22
|
|
|
|
(128
|
)
|
|
|
65
|
|
Loss on discontinued operations, net of tax
|
|
|
13,851
|
|
|
|
5,654
|
|
|
|
1,982
|
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in accounts receivable
|
|
|
(13,699
|
)
|
|
|
(5,100
|
)
|
|
|
(8,826
|
)
|
Increase in inventories
|
|
|
(30,199
|
)
|
|
|
(13,901
|
)
|
|
|
(20,155
|
)
|
(Increase) decrease in prepaid expenses and other current assets
|
|
|
4,926
|
|
|
|
(4,869
|
)
|
|
|
3,475
|
|
Increase (decrease) in accounts payable
|
|
|
16,894
|
|
|
|
(7,186
|
)
|
|
|
7,345
|
|
Increase (decrease) in sundry payables and accrued expenses
|
|
|
8,407
|
|
|
|
(6,015
|
)
|
|
|
20,990
|
|
Net changes in other assets and liabilities
|
|
|
1,246
|
|
|
|
1,260
|
|
|
|
2,591
|
|
Net cash provided by operating activities
|
|
|
70,258
|
|
|
|
64,617
|
|
|
|
97,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions of and investments in businesses
|
|
|
(9,852
|
)
|
|
|
(6,808
|
)
|
|
|
(67,289
|
)
|
Capital expenditures
|
|
|
(20,141
|
)
|
|
|
(24,442
|
)
|
|
|
(20,921
|
)
|
Other investing activities
|
|
|
107
|
|
|
|
22
|
|
|
|
192
|
|
Net cash used in investing activities
|
|
|
(29,886
|
)
|
|
|
(31,228
|
)
|
|
|
(88,018
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net borrowings (repayments) under line-of-credit agreements
|
|
|
(13,311
|
)
|
|
|
2,188
|
|
|
|
7,384
|
|
Net borrowings of other debt and capital lease obligations
|
|
|
1,115
|
|
|
|
4,065
|
|
|
|
89
|
|
Purchase of treasury stock
|
|
|
(14,886
|
)
|
|
|
(24,376
|
)
|
|
|
(377
|
)
|
Increase (decrease) in overdraft balances
|
|
|
275
|
|
|
|
(534
|
)
|
|
|
(254
|
)
|
Payments of debt issuance costs
|
|
|
(460
|
)
|
|
|
—
|
|
|
|
—
|
|
Excess tax benefits related to the exercise of employee stock grants
|
|
|
—
|
|
|
|
—
|
|
|
|
849
|
|
Dividends paid
|
|
|
(18,854
|
)
|
|
|
(17,287
|
)
|
|
|
(15,447
|
)
|
Net cash used in financing activities
|
|
|
(46,121
|
)
|
|
|
(35,944
|
)
|
|
|
(7,756
|
)
|
Effect of exchange rate changes on cash
|
|
|
(436
|
)
|
|
|
82
|
|
|
|
(1,035
|
)
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(6,185
|
)
|
|
|
(2,473
|
)
|
|
|
996
|
|
CASH AND CASH EQUIVALENTS at beginning of year
|
|
|
17,323
|
|
|
|
19,796
|
|
|
|
18,800
|
|
CASH AND CASH EQUIVALENTS at end of year
|
|
$
|
11,138
|
|
|
$
|
17,323
|
|
|
$
|
19,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
3,738
|
|
|
$
|
1,944
|
|
|
$
|
1,207
|
|
Income taxes
|
|
$
|
15,353
|
|
|
$
|
34,543
|
|
|
$
|
32,505
|
|
Noncash investing activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual for final contribution of acquired investment
|
|
$
|
—
|
|
|
$
|
5,740
|
|
|
$
|
—
|
|
Receivable related to net proceeds from sale of Grapevine, Texas facility
|
|
$
|
4,801
|
|
|
$
|
—
|
|
|
$
|
—
|
|
See accompanying notes to consolidated financial statements.
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
Years Ended December 31, 2018, 2017 and 2016
|
|
Common
Stock
|
|
|
Capital in
Excess of
Par Value
|
|
|
Retained
Earnings
|
|
|
Accumulated
Other
Comprehensive
Income
|
|
|
Treasury
Stock
|
|
|
Total
|
|
(In thousands)
|
|
|
|
BALANCE AT DECEMBER 31, 2015
|
|
$
|
47,872
|
|
|
$
|
93,247
|
|
|
$
|
291,481
|
|
|
$
|
(6,474
|
)
|
|
$
|
(34,147
|
)
|
|
$
|
391,979
|
|
Net earnings
|
|
|
—
|
|
|
|
—
|
|
|
|
60,430
|
|
|
|
—
|
|
|
|
—
|
|
|
|
60,430
|
|
Other comprehensive loss, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,554
|
)
|
|
|
—
|
|
|
|
(4,554
|
)
|
Cash dividends paid ($0.68 per share)
|
|
|
—
|
|
|
|
—
|
|
|
|
(15,447
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(15,447
|
)
|
Purchase of treasury stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(377
|
)
|
|
|
(377
|
)
|
Stock-based compensation and related tax benefits
|
|
|
—
|
|
|
|
3,148
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,828
|
|
|
|
6,976
|
|
Employee Stock Ownership Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT DECEMBER 31, 2016
|
|
|
47,872
|
|
|
|
96,850
|
|
|
|
336,464
|
|
|
|
(11,028
|
)
|
|
|
(29,130
|
)
|
|
|
441,028
|
|
Net earnings
|
|
|
—
|
|
|
|
—
|
|
|
|
37,976
|
|
|
|
—
|
|
|
|
—
|
|
|
|
37,976
|
|
Other comprehensive income, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,919
|
|
|
|
—
|
|
|
|
6,919
|
|
Cash dividends paid ($0.76 per share)
|
|
|
—
|
|
|
|
—
|
|
|
|
(17,287
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(17,287
|
)
|
Purchase of treasury stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(24,779
|
)
|
|
|
(24,779
|
)
|
Stock-based compensation
|
|
|
—
|
|
|
|
2,193
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,445
|
|
|
|
7,638
|
|
Employee Stock Ownership Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT DECEMBER 31, 2017
|
|
|
47,872
|
|
|
|
100,057
|
|
|
|
357,153
|
|
|
|
(4,109
|
)
|
|
|
(47,319
|
)
|
|
|
453,654
|
|
Cumulative effect adjustment (Note 1)
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,189
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,189
|
)
|
Net earnings
|
|
|
—
|
|
|
|
—
|
|
|
|
43,003
|
|
|
|
—
|
|
|
|
—
|
|
|
|
43,003
|
|
Other comprehensive loss, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(5,485
|
)
|
|
|
—
|
|
|
|
(5,485
|
)
|
Cash dividends paid ($0.84 per share)
|
|
|
—
|
|
|
|
—
|
|
|
|
(18,854
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(18,854
|
)
|
Purchase of treasury stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(14,483
|
)
|
|
|
(14,483
|
)
|
Stock-based compensation
|
|
|
—
|
|
|
|
1,648
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,350
|
|
|
|
7,998
|
|
Employee Stock Ownership Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT DECEMBER 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
|
Summary of Significant Accounting Policies
|
Principles of Consolidation
Standard Motor Products, Inc. and subsidiaries (referred to hereinafter in these notes to the consolidated financial statements as “we,” “us,” “our”
or the “Company”) is engaged in the manufacture and distribution of replacement parts for motor vehicles in the automotive aftermarket industry with a complementary focus on heavy duty, industrial equipment and the original equipment
service market. The consolidated financial statements include our accounts and all domestic and international companies in which we have more than a 50% equity ownership, except in instances where the minority shareholder maintains
substantive participating rights, in which case we follow the equity method of accounting. Investments in unconsolidated affiliates are accounted for on the equity method, as we do not have a controlling financial interest but have the
ability to exercise significant influence. All significant inter-company items have been eliminated.
Use of Estimates
In conformity with generally accepted accounting principles, we have made a number of estimates and assumptions relating to the reporting of assets,
liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements. Some of the more significant estimates include allowances for doubtful accounts, cash discounts,
valuation of inventory, valuation of long-lived assets, goodwill and other intangible assets, depreciation and amortization of long-lived assets, product liability exposures, asbestos, environmental and litigation matters, valuation of
deferred tax assets, share based compensation and sales returns and other allowances. We can give no assurances that actual results will not differ from those estimates. Although we do not believe that there is a reasonable likelihood
that there will be a material change in the future estimate or in the assumptions that we use in calculating the estimate, unforeseen changes in the industry, or business could materially impact the estimate and may have a material adverse
effect on our business, financial condition and results of operations.
Reclassification
Certain prior period amounts in the accompanying consolidated financial statements and related notes have been reclassified to conform to the 2018
presentation.
Cash and Cash Equivalents
We consider all highly liquid investments purchased with a maturity of three months or less to be cash equivalents.
Allowance for Doubtful Accounts and Cash Discounts
We do not generally require collateral for our trade accounts receivable. Accounts receivable have been reduced by an allowance for amounts that may
become uncollectible in the future. These allowances are established based on a combination of write-off history, aging analysis, and specific account evaluations. When a receivable balance is known to be uncollectible, it is written off
against the allowance for doubtful accounts. Cash discounts are provided based on an overall average experience rate applied to qualifying accounts receivable balances.
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Inventories
Inventories are valued at the lower of cost and net realizable value. Cost is determined on the first-in first-out basis. Where appropriate,
standard cost systems are utilized for purposes of determining cost; the standards are adjusted as necessary to ensure they approximate actual costs. Estimates of lower of cost and net realizable value of inventory are determined by
comparing the actual cost of the product to the estimated selling prices in the ordinary course of business less reasonably predictable costs of completion, disposal and transportation of the inventory.
We also evaluate inventories on a regular basis to identify inventory on hand that may be obsolete or in excess of current and future projected market
demand. For inventory deemed to be obsolete, we provide a reserve on the full value of the inventory. Inventory that is in excess of current and projected use is reduced by an allowance to a level that approximates our estimate of future
demand. Future projected demand requires management judgment and is based upon (a) our review of historical trends and (b) our estimate of projected customer specific buying patterns and trends in the industry and markets in which we do
business. Using rolling twelve month historical information, we estimate future demand on a continuous basis. As such, the historical volatility of such estimates has been minimal. We maintain provisions for inventory reserves of $44
million and $41.5 million as of December 31, 2018 and 2017, respectively.
We utilize cores (used parts) in our remanufacturing processes for air conditioning compressors, diesel injectors, and diesel pumps. The production
of air conditioning compressors, diesel injectors, and diesel pumps involves the rebuilding of used cores, which we acquire either in outright purchases from used parts brokers, or from returns pursuant to an exchange program with
customers. Under such exchange programs, at the time of sale of air conditioning compressors, diesel injectors, and diesel pumps, we estimate the core expected to be returned from the customer and record the estimated return as unreturned
customer inventory.
In addition, many of our customers can return inventory to us based upon customer warranty and overstock arrangements within customer specific
limits. At the time products are sold, we accrue a liability for product warranties and overstock returns and record as unreturned customer inventory our estimate of anticipated customer returns. Estimates are based upon historical
information on the nature, frequency and probability of the customer return. Unreturned core, warranty and overstock customer inventory is recorded at standard cost. Revision to these estimates is made when necessary, based upon changes
in these factors. We regularly study trends of such claims.
Property, Plant and Equipment
These assets are recorded at historical cost and are depreciated using the straight-line method of depreciation over the estimated useful lives as
follows:
|
Estimated Life
|
Buildings
|
25 to 33-1/2 years
|
Building improvements
|
10 to 25 years
|
Machinery and equipment
|
5 to 12 years
|
Tools, dies and auxiliary equipment
|
3 to 8 years
|
Furniture and fixtures
|
3 to 12 years
|
Leasehold improvements are depreciated over the shorter of the estimated useful life or the term of the lease. Costs related to maintenance and
repairs which do not prolong the assets useful lives are expensed as incurred. We assess our property, plant and equipment to be held and used for impairment when indicators are present that the carrying value may not be recoverable.
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Valuation of Long-Lived and Intangible Assets and Goodwill
At acquisition, we estimate and record the fair value of purchased intangible assets, which primarily consists of customer relationships, trademarks
and trade names, patents and non-compete agreements. The fair values of these intangible assets are estimated based on our assessment. Goodwill is the excess of the purchase price over the fair value of identifiable net assets acquired in
business combinations. Goodwill and certain other intangible assets having indefinite lives are not amortized to earnings, but instead are subject to periodic testing for impairment. Intangible assets determined to have definite lives are
amortized over their remaining useful lives.
We assess the impairment of long‑lived assets, identifiable intangibles assets and goodwill whenever events or changes in circumstances indicate that
the carrying value may not be recoverable. With respect to goodwill and identifiable intangible assets having indefinite lives, 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 is below its carrying amount. Factors we consider important, which could trigger an impairment review, include the following: (a) significant underperformance relative to expected historical or projected future
operating results; (b) significant changes in the manner of our use of the acquired assets or the strategy for our overall business; and (c) significant negative industry or economic trends. We review the fair values using the discounted
cash flows method and market multiples.
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. Initially, the fair value of the reporting
unit is compared to its carrying amount. To the extent the carrying amount of a reporting unit exceeds the fair value of the reporting unit; we are required to perform a second step, as this is an indication that the reporting unit
goodwill may be impaired. In this step, we compare the implied fair value of the reporting unit goodwill with the carrying amount of the reporting unit goodwill and recognize a charge for impairment to the extent the carrying value exceeds
the implied fair value. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit to all of the assets (recognized and unrecognized) and liabilities of the reporting unit in a manner similar to a
purchase price allocation. The residual fair value after this allocation is the implied fair value of the reporting unit goodwill. In addition, identifiable intangible assets having indefinite lives are reviewed for impairment on an annual
basis using a methodology similar with that used to evaluate goodwill.
Intangible assets having definite lives and other long-lived assets are reviewed for impairment whenever events such as product discontinuance, plant
closures, product dispositions or other changes in circumstances indicate that the carrying amount may not be recoverable. In reviewing for impairment, we compare the carrying value of such assets to the estimated undiscounted future cash
flows expected from the use of the assets and their eventual disposition. When the estimated undiscounted future cash flows are less than their carrying amount, an impairment loss is recognized equal to the difference between the assets
fair value and their carrying value.
There are inherent assumptions and estimates used in developing future cash flows requiring our judgment in applying these assumptions and estimates
to the analysis of identifiable intangibles and long‑lived asset impairment including projecting revenues, interest rates, tax rates and the cost of capital. Many of the factors used in assessing fair value are outside our control and it
is reasonably likely that assumptions and estimates will change in future periods. These changes can result in future impairments. In the event our planning assumptions were modified resulting in impairment to our assets, we would be
required to include an expense in our statement of operations, which could materially impact our business, financial condition and results of operations.
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Foreign Currency Translation
Assets and liabilities of our foreign operations are translated into U.S. dollars at year-end exchange rates. Income statement accounts are
translated using the average exchange rates prevailing during the year. The resulting translation adjustments are recorded as a separate component of accumulated other comprehensive income (loss) and remains there until the underlying
foreign operation is liquidated or substantially disposed of. Foreign currency transaction gains or losses are recorded in the statement of operations under the caption “other non-operating income (expense), net.”
Revenue Recognition
We derive our revenue primarily from sales of replacement parts for motor vehicles from both our Engine Management and Temperature Control Segments.
We recognize revenues when our performance obligation has been satisfied and the control of products has been transferred to a customer which typically occurs upon shipment. Revenue is measured as the amount of consideration we expect to
receive in exchange for the transfer of goods or providing services. The amount of consideration we receive and revenue we recognize depends on the marketing incentives, product warranty and overstock returns we offer to our customers. For
certain of our sales of remanufactured products, we also charge our customers a deposit for the return of a used core component which we can use in our future remanufacturing activities. Such deposit is not recognized as revenue at the
time of the sale but rather carried as a core liability. At the same time, we estimate the core expected to be returned from the customer and record the estimated return as unreturned customer inventory. The liability is extinguished when
a core is actually returned to us, or at period end when we estimate and recognize revenue for the core deposits not expected to be returned. We estimate and record provisions for cash discounts, quantity rebates, sales returns and
warranties in the period the sale is recorded, based upon our prior experience and current trends. Significant management judgments and estimates must be made and used in estimating sales returns and allowances relating to revenue
recognized in any accounting period.
Product Warranty and Overstock Returns
Many of our products carry a warranty ranging from a 90-day limited warranty to a lifetime limited warranty, which generally covers defects in
materials or workmanship and failure to meet industry published specifications and/or the result of installation error. In addition to warranty returns, we also permit our customers to return new, undamaged products to us within
customer-specific limits (which are generally limited to a specified percentage of their annual purchases from us) in the event that they have overstocked their inventories. At the time products are sold, we accrue a liability for product
warranties and overstock returns as a percentage of sales based upon estimates established using historical information on the nature, frequency and average cost of the claim and the probability of the customer return. At the same time, we
record an estimate of anticipated customer returns as unreturned customer inventory. Significant judgments and estimates must be made and used in connection with establishing the sales returns and other allowances in any accounting
period. Revision to these estimates is made when necessary, based upon changes in these factors. We regularly study trends of such claims.
New Customer Acquisition Costs
New customer acquisition costs refer to arrangements pursuant to which we incur change-over costs to induce a new customer to switch from a
competitor’s brand. In addition, change-over costs include the costs related to removing the new customer’s inventory and replacing it with our inventory commonly referred to as a stocklift. New customer acquisition costs are recorded as a
reduction to revenue when incurred.
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Selling, General and Administration Expenses
Selling, general and administration expenses include shipping costs and advertising, which are expensed as incurred. Shipping and handling charges,
as well as freight to customers, are included in distribution expenses as part of selling, general and administration expenses.
Deferred Financing Costs
Deferred financing costs represent costs incurred in conjunction with our debt financing activities. Deferred financing costs related to our
revolving credit facility are capitalized and amortized over the life of the related financing arrangement. If the debt is retired early, the related unamortized deferred financing costs are written off in the period the debt is retired
and are recorded in the statement of operations under the caption other non-operating income (expense), net.
Accounting for Income Taxes
Income taxes are calculated using the asset and liability method. Deferred tax assets and liabilities are determined based on the estimated future
tax effects of temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities, as measured by the current enacted tax rates.
We maintain valuation allowances when it is more likely than not that all or a portion of a deferred asset will not be realized. The valuation
allowance is intended to provide for the uncertainty regarding the ultimate utilization of our U.S. foreign tax credit carryovers and foreign net operating loss carryovers. In determining whether a valuation allowance is warranted, we
consider all positive and negative evidence and all sources of taxable income such as prior earnings history, expected future earnings, carryback and carryforward periods and tax strategies to estimate if sufficient future taxable income
will be generated to realize the deferred tax asset. The assessment of the adequacy of our valuation allowance is based on our estimates of taxable income by jurisdiction in which we operate and the period over which our deferred tax
assets will be recoverable. In the event that actual results differ from these estimates, or we adjust these estimates in future periods for current trends or expected changes in our estimating assumptions, we may need to modify the level
of valuation allowance which could materially impact our business, financial condition and results of operations.
The valuation allowance of $0.4 million as of December 31, 2018 is intended to provide for the 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 will realize the benefit of the net deferred tax asset of $42.3 million as of
December 31, 2018, which is net of the remaining valuation allowance.
Tax benefits are recognized for an uncertain tax position when, in management's judgment, it is more likely than not that the position will be
sustained upon examination by a taxing authority. For a tax position that meets the more-likely-than-not recognition threshold, the tax benefit is measured as the largest amount that is judged to have a greater than 50% likelihood of being
realized upon ultimate settlement with a taxing authority. The liability associated with unrecognized tax benefits is adjusted periodically due to changing circumstances and when new information becomes available. Such adjustments are
recognized entirely in the period in which they are identified. During the years ended December 31, 2018, 2017 and 2016, we did not establish a liability for uncertain tax positions.
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. For a discussion of the impact of the Act on
our consolidated financial statements, see Note 19, “Income Taxes,” of the notes to our consolidated financial statements.
Environmental Reserves
We are subject to various U.S. Federal and state and local environmental laws and regulations and are involved in certain environmental remediation
efforts. We estimate and accrue our liabilities resulting from such matters based upon a variety of factors including the assessments of environmental engineers and consultants who provide estimates of potential liabilities and remediation
costs. Such estimates are not discounted to reflect the time value of money due to the uncertainty in estimating the timing of the expenditures, which may extend over several years. Potential recoveries from insurers or other third
parties of environmental remediation liabilities are recognized independently from the recorded liability, and any asset related to the recovery will be recognized only when the realization of the claim for recovery is deemed probable.
Asbestos Litigation
In evaluating our potential asbestos-related liability, we use an actuarial study that is prepared by a leading actuarial firm with expertise in
assessing asbestos-related liabilities. We evaluate the estimate of the range of undiscounted liability to determine which amount to accrue. 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 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. Legal costs are expensed as incurred.
Loss Contingencies
We have loss contingencies, for such matters as legal claims and legal proceedings. Establishing loss reserves for these matters requires estimates,
judgment of risk exposure and ultimate liability. We record provisions when the liability is considered probable and reasonably estimable. Significant judgment is required for both the determination of probability and the determination as
to whether an exposure can be reasonably estimated. We maintain an ongoing monitoring and identification process to assess how the activities are progressing against the accrued estimated costs. As additional information becomes
available, we reassess our potential liability related to these matters. Adjustments to the liabilities are recorded in the statement of operations in the period when additional information becomes available. Such revisions of the
potential liabilities could have a material adverse effect on our business, financial condition or results of operations.
Concentrations of Credit Risk
Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash investments and accounts
receivable. We place our cash investments with high quality financial institutions and limit the amount of credit exposure to any one institution. Although we are directly affected by developments in the vehicle parts industry, management
does not believe significant credit risk exists.
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
With respect to accounts receivable, such receivables are primarily from warehouse distributors and major retailers in the automotive aftermarket
industry located in the U.S. We perform ongoing credit evaluations of our customers’ financial conditions. Our five largest individual customers accounted for approximately 70% of our consolidated net sales in 2018, 2017 and 2016. During
2018, O’Reilly, NAPA, Advance, and AutoZone accounted for 22%, 17%, 16% and 11% of our consolidated net sales, respectively. Net sales from each of the customers were reported in both our Engine Management and Temperature Control
Segments. The loss of one or more of these customers or, a significant reduction in purchases of our products from any one of them, could have a materially adverse impact on our business, financial condition and results of operations.
Substantially all of the cash and cash equivalents, including foreign cash balances, at December 31, 2018 and 2017 were uninsured. Foreign cash
balances at December 31, 2018 and 2017 were $11.1 million and $13.1 million, respectively.
Recently Issued Accounting Pronouncements
Standards that were adopted
Revenue from Contracts with Customers
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09,
Revenue from Contracts with Customers
, (“ASU 2014-09”) which replaces numerous requirements in U.S. generally accepted accounting principles, including industry-specific
requirements, and provides companies with a single comprehensive revenue recognition model for recognizing revenue from contracts with customers. Under the new guidance, an entity recognizes revenue to depict the transfer of promised goods
or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The two permitted transition methods under the new standard are (1) the full
retrospective method, in which case the standard would be applied to each prior reporting period presented, with the cumulative effect of applying the standard recognized at the earliest period presented, or (2) the modified retrospective
method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application.
Effective January 1, 2018, we adopted the requirements of ASU 2014-09,
Revenue from Contracts with Customers
, using the modified retrospective method. We recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained
earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. We expect the impact of the adoption of the new standard to be immaterial to our net
income on an ongoing basis.
The adoption of the new standard did not result in a material difference between the recognition of revenue under ASU 2014-09 and prior accounting
standards. For the majority of our net sales, revenue continues to be recognized when products are shipped from our distribution facilities, or when received by our customers, depending upon the terms of the contract. Under the new
revenue standard, (1) the return of cores from customers used in our manufacturing processes for air conditioning compressors, diesel injectors, and diesel pumps is estimated and recorded as unreturned customer inventories at the time of
sale, and (2) overstock returns are recorded gross of expected recoveries. Adoption of the new standard resulted in the recording of unreturned customer inventories, and an increase in accrued core liabilities and accrued customer returns,
with partially offsetting changes in net sales and cost of sales, and no material change to our net income on an ongoing basis.
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The cumulative effect of the changes made to our consolidated balance sheet as of January 1, 2018 for the adoption of ASU 2014-09 is as follows (in
thousands):
|
|
Balance at
December 31,
2017
|
|
|
Adjustments
Due to
Adoption of
ASU 2014-09
|
|
|
Balance at
January 1,
2018
|
|
Balance Sheet
|
|
|
|
|
|
|
|
|
|
Unreturned customer inventories
|
|
$
|
—
|
|
|
$
|
19,950
|
|
|
$
|
19,950
|
|
Accrued customer returns
|
|
|
35,916
|
|
|
|
6,670
|
|
|
|
42,586
|
|
Accrued core liability
|
|
|
11,899
|
|
|
|
14,469
|
|
|
|
26,368
|
|
Retained earnings
|
|
|
357,153
|
|
|
|
(1,189
|
)
|
|
|
355,964
|
|
The adoption of ASU 2014-09
resulted in
the following changes to our consolidated balance sheet as of December 31, 2018 and our consolidated statement of operations for the year ended December 31, 2018 (in thousands):
|
|
As Reported
|
|
|
Balances
Without
Adoption of
ASU 2014-09
|
|
|
Effect of
Change
|
|
Balance Sheet
|
|
|
|
|
|
|
|
|
|
Unreturned customer inventories
|
|
$
|
20,484
|
|
|
$
|
—
|
|
|
$
|
20,484
|
|
Prepaid expenses and other current assets
|
|
|
7,256
|
|
|
|
7,274
|
|
|
|
(18
|
)
|
Accrued customer returns
|
|
|
57,433
|
|
|
|
51,068
|
|
|
|
6,365
|
|
Accrued core liability
|
|
|
31,263
|
|
|
|
16,025
|
|
|
|
15,238
|
|
Retained earnings
|
|
|
380,113
|
|
|
|
381,250
|
|
|
|
(1,137
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,092,051
|
|
|
$
|
1,092,820
|
|
|
$
|
(769
|
)
|
Cost of sales
|
|
|
779,264
|
|
|
|
780,103
|
|
|
|
(839
|
)
|
Earnings from continuing operations before taxes
|
|
|
76,831
|
|
|
|
76,761
|
|
|
|
70
|
|
Provision for income taxes
|
|
|
19,977
|
|
|
|
19,959
|
|
|
|
18
|
|
Net earnings
|
|
|
43,003
|
|
|
|
42,951
|
|
|
|
52
|
|
See Note 2 for further information regarding our adoption of ASU 2014-09.
The following table provides a brief description of the impact of additional recently adopted accounting pronouncements on our financial statements:
Standard
|
|
Description
|
|
Date of adoption
|
|
Effects on the financial
statements or other significant
matters
|
|
ASU 2016-15,
Statement of Cash Flows
|
|
This standard is intended to reduce diversity in practice and to provide guidance as to how certain cash receipts and cash payments are
presented and classified in the statement of cash flows.
|
|
January 1, 2018
|
|
The retrospective adoption of the new standard did not result in any changes in our reporting of cash receipts and cash payments in our
consolidated statement of cash flows.
|
|
|
|
|
|
|
|
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
|
|
The adoption of the new standard resulted in the reclassification of 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 administrative expenses, to other non-operating income (expense). We adopted the new standard
retrospectively, and as such, all prior period amounts have been reclassified for comparative purposes.
|
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Standards that are not yet adopted as of December 31, 2018
Leases
In February 2016, the FASB issued ASU 2016-02,
Leases,
(“ASU 2016-02”), which outlines the need to recognize a right-of-use (“ROU”) asset and a lease liability for all leases with a term longer than twelve months. For income statement purposes, the FASB retained the dual model, requiring
leases to be classified as either operating or financing. Operating leases will result in straight-line expense while finance leases will result in a front-loaded expense pattern. The new standard is effective for annual reporting periods
beginning after December 15, 2018, which for us is January 1, 2019, and interim periods within those annual periods. The new standard will require that we recognize all of our leases, including our current operating leases, on the balance
sheet. The new standard requires adoption using a modified retrospective approach and provides a number of optional practical expedients in transition.
In July 2018, the FASB issued ASU 2018-11,
Targeted Improvements
,
(“ASU 2018-11”), which provides an alternative modified retrospective transition method. Under this new transition method, a reporting entity would initially apply the new lease requirements at the effective date and recognize a
cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Comparative financial information for the prior periods presented would not be restated but instead would continue to be reported under
accounting standards in effect in those prior periods.
To date, we have taken an inventory of all of our operating leases, which consists primarily of real estate, equipment and auto leases, have reviewed
key lease agreements, and have reviewed contracts for embedded leases. We anticipate using the alternative modified retrospective method of adoption permitted pursuant to ASU 2018-11, whereby financial information will not be updated, and
the disclosure required under the new standard will not be provided, for dates and periods before January 1, 2019. In addition, we expect to elect the “package of practical expedients,” which permits us not to reassess under the new
standard our prior conclusions about lease identification, lease classification and initial direct costs.
We do not expect that the adoption of this standard will have a material effect on our statement of operations, or our operating cash flows. While we
continue to assess all of the effects of adoption, we currently believe the most significant effects relate to the recognition of new ROU assets and lease liabilities on our balance sheet for our operating leases, and providing significant
new disclosures about our leasing activities. Upon adoption, we currently anticipate the recognition of ROU assets and lease liabilities on our balance sheet of approximately $35 million to $40 million based upon the present value of the
remaining minimum rental payments under our existing operating leases. We do not expect a significant change in our leasing activities, and will be continuously assessing the impact of the new standard on our systems, processes and
controls through January 1, 2019, our adoption date.
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
The following table provides a brief description of additional recently issued accounting pronouncements that have not yet been adopted as of December
31, 2018, and that could have an impact on our financial statements:
Standard
|
|
Description
|
|
Date of
adoption
|
|
Effects on the financial
statements or other significant
matters
|
|
ASU
2017-04,
Simplifying the Test for Goodwill Impairment
|
|
This standard is intended to simplify the accounting for goodwill impairment. ASU 2017-04 removes Step 2 of the test, which requires a
hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.
|
|
January 1, 2020, with early adoption permitted
|
|
The new standard should be applied prospectively. We will consider the new standard when performing our annual impairment test and evaluate
when we will adopt the new standard.
|
|
|
|
|
|
|
|
ASU 2016-13,
Financial Instruments –
Credit Losses
|
|
This standard creates a single model to measure impairment on financial assets, which includes trade account receivables. An estimate of
expected credit losses on trade account receivables over their contractual life will be required to be recorded at inception, based on historical information, current conditions, and reasonable and supportable forecasts.
|
|
January 1, 2020, with early adoption permitted
|
|
We do not anticipate that the adoption of this standard will have a material impact on the manner in which we estimate our allowance for
doubtful accounts on trade accounts receivable, or on our consolidated financial statements.
|
Disaggregation of Net Sales
We disaggregate our net sales from contracts with customers by geographic area, major product group, and major sales channels for each of our
segments, as we believe it best depicts how the nature, amount, timing and uncertainty of our net sales are affected by economic factors. The following tables provide disaggregation of net sales information for the years ended December 31,
2018, 2017 and 2016 (in thousands):
Year Ended December 31, 2018 (a)
|
|
Engine
Management
|
|
|
Temperature
Control
|
|
|
Other (c)
|
|
|
Total
|
|
Geographic Area:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
712,732
|
|
|
$
|
261,628
|
|
|
$
|
—
|
|
|
$
|
974,360
|
|
Canada
|
|
|
33,350
|
|
|
|
13,877
|
|
|
|
10,108
|
|
|
|
57,335
|
|
Mexico
|
|
|
22,833
|
|
|
|
817
|
|
|
|
—
|
|
|
|
23,650
|
|
Europe
|
|
|
12,948
|
|
|
|
630
|
|
|
|
—
|
|
|
|
13,578
|
|
Other foreign
|
|
|
21,624
|
|
|
|
1,504
|
|
|
|
—
|
|
|
|
23,128
|
|
Total
|
|
$
|
803,487
|
|
|
$
|
278,456
|
|
|
$
|
10,108
|
|
|
$
|
1,092,051
|
|
Major Product Group:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ignition, emission control, fuel and safety related system products
|
|
$
|
648,270
|
|
|
$
|
—
|
|
|
$
|
5,829
|
|
|
$
|
654,099
|
|
Wire and cable
|
|
|
155,217
|
|
|
|
—
|
|
|
|
454
|
|
|
|
155,671
|
|
Compressors
|
|
|
—
|
|
|
|
148,416
|
|
|
|
1,853
|
|
|
|
150,269
|
|
Other climate control parts
|
|
|
—
|
|
|
|
130,040
|
|
|
|
1,972
|
|
|
|
132,012
|
|
Total
|
|
$
|
803,487
|
|
|
$
|
278,456
|
|
|
$
|
10,108
|
|
|
$
|
1,092,051
|
|
Major Sales Channel:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aftermarket
|
|
$
|
684,242
|
|
|
$
|
246,112
|
|
|
$
|
10,108
|
|
|
$
|
940,462
|
|
OE/OES
|
|
|
97,205
|
|
|
|
30,275
|
|
|
|
—
|
|
|
|
127,480
|
|
Export
|
|
|
22,040
|
|
|
|
2,069
|
|
|
|
—
|
|
|
|
24,109
|
|
Total
|
|
$
|
803,487
|
|
|
$
|
278,456
|
|
|
$
|
10,108
|
|
|
$
|
1,092,051
|
|
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Year Ended December 31, 2017 (a)(b)
|
|
Engine
Management
|
|
|
Temperature
Control
|
|
|
Other (c)
|
|
|
Total
|
|
Geographic Area:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
737,108
|
|
|
$
|
263,895
|
|
|
$
|
—
|
|
|
$
|
1,001,003
|
|
Canada
|
|
|
32,197
|
|
|
|
12,205
|
|
|
|
7,603
|
|
|
|
52,005
|
|
Mexico
|
|
|
23,683
|
|
|
|
838
|
|
|
|
—
|
|
|
|
24,521
|
|
Europe
|
|
|
13,342
|
|
|
|
746
|
|
|
|
—
|
|
|
|
14,088
|
|
Other foreign
|
|
|
23,083
|
|
|
|
1,443
|
|
|
|
—
|
|
|
|
24,526
|
|
Total
|
|
$
|
829,413
|
|
|
$
|
279,127
|
|
|
$
|
7,603
|
|
|
$
|
1,116,143
|
|
Major Product Group:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ignition, emission control, fuel and safety related system products
|
|
$
|
657,287
|
|
|
$
|
—
|
|
|
$
|
4,403
|
|
|
$
|
661,690
|
|
Wire and cable
|
|
|
172,126
|
|
|
|
—
|
|
|
|
650
|
|
|
|
172,776
|
|
Compressors
|
|
|
—
|
|
|
|
148,377
|
|
|
|
1,233
|
|
|
|
149,610
|
|
Other climate control parts
|
|
|
—
|
|
|
|
130,750
|
|
|
|
1,317
|
|
|
|
132,067
|
|
Total
|
|
$
|
829,413
|
|
|
$
|
279,127
|
|
|
$
|
7,603
|
|
|
$
|
1,116,143
|
|
Major Sales Channel:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aftermarket
|
|
$
|
701,308
|
|
|
$
|
246,097
|
|
|
$
|
7,603
|
|
|
$
|
955,008
|
|
OE/OES
|
|
|
106,173
|
|
|
|
30,268
|
|
|
|
—
|
|
|
|
136,441
|
|
Export
|
|
|
21,932
|
|
|
|
2,762
|
|
|
|
—
|
|
|
|
24,694
|
|
Total
|
|
$
|
829,413
|
|
|
$
|
279,127
|
|
|
$
|
7,603
|
|
|
$
|
1,116,143
|
|
Year Ended December 31, 2016 (a)(b)
|
|
Engine
Management
|
|
|
Temperature
Control
|
|
|
Other (c)
|
|
|
Total
|
|
Geographic Area:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
685,898
|
|
|
$
|
266,121
|
|
|
$
|
—
|
|
|
$
|
952,019
|
|
Canada
|
|
|
31,627
|
|
|
|
12,494
|
|
|
|
9,203
|
|
|
|
53,324
|
|
Mexico
|
|
|
23,049
|
|
|
|
1,380
|
|
|
|
—
|
|
|
|
24,429
|
|
Europe
|
|
|
13,767
|
|
|
|
936
|
|
|
|
—
|
|
|
|
14,703
|
|
Other foreign
|
|
|
11,198
|
|
|
|
2,809
|
|
|
|
—
|
|
|
|
14,007
|
|
Total
|
|
$
|
765,539
|
|
|
$
|
283,740
|
|
|
$
|
9,203
|
|
|
$
|
1,058,482
|
|
Major Product Group:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ignition, emission control, fuel and safety related system products
|
|
$
|
616,523
|
|
|
$
|
—
|
|
|
$
|
5,551
|
|
|
$
|
622,074
|
|
Wire and cable
|
|
|
149,016
|
|
|
|
—
|
|
|
|
524
|
|
|
|
149,540
|
|
Compressors
|
|
|
—
|
|
|
|
148,623
|
|
|
|
1,184
|
|
|
|
149,807
|
|
Other climate control parts
|
|
|
—
|
|
|
|
135,117
|
|
|
|
1,944
|
|
|
|
137,061
|
|
Total
|
|
$
|
765,539
|
|
|
$
|
283,740
|
|
|
$
|
9,203
|
|
|
$
|
1,058,482
|
|
Major Sales Channel:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aftermarket
|
|
$
|
658,668
|
|
|
$
|
247,287
|
|
|
$
|
9,203
|
|
|
$
|
915,158
|
|
OE/OES
|
|
|
84,921
|
|
|
|
34,047
|
|
|
|
—
|
|
|
|
118,968
|
|
Export
|
|
|
21,950
|
|
|
|
2,406
|
|
|
|
—
|
|
|
|
24,356
|
|
Total
|
|
$
|
765,539
|
|
|
$
|
283,740
|
|
|
$
|
9,203
|
|
|
$
|
1,058,482
|
|
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
(a)
|
Segment net sales include intersegment sales in our Engine Management and Temperature Control segments.
|
|
(b)
|
Amounts have not been restated and are reported under accounting standards in effect in the period presented as we adopted ASU 2014-09,
Revenue from Contracts with Customers
, on January 1, 2018 using the modified retrospective method.
|
|
(c)
|
Other consists of the elimination of intersegment sales from our Engine Management and Temperature Control segments as well as sales from our Canadian business unit
that does not meet the criteria of a reportable operating segment.
|
Geographic Area
We sell our line of products primarily in the United States, with additional sales in Canada, Mexico, Europe, Asia and Latin America. Sales are
attributed to countries based upon the location of the customer. Our sales are substantially denominated in U.S. dollars.
Major Product Group
The Engine Management segment of the Company principally generates revenue from the sale of automotive engine replacement parts including ignition,
emission control, fuel and safety related system products, and wire and cable parts. The Temperature Control segment of the Company principally generates revenue from the sale of automotive temperature control systems replacement parts
including air conditioning compressors and other climate control parts.
Major Sales Channel
In the aftermarket channel, we sell our products to warehouse distributors and retailers. Our customers buy directly from us and sell directly to
jobber stores, professional technicians and to “do-it-yourselfers” who perform automotive repairs on their personal vehicles. In the Original Equipment (“OE”) and Original Equipment Service (“OES”) channel, we sell our products to original
equipment manufacturers who redistribute our products within their distribution network, independent dealerships and service dealer technicians. Lastly, in the Export channel, our domestic entities sell to customers outside the United
States.
3.
|
Business Acquisitions and Investments
|
2018 Increase in Equity Investment
Foshan GWOYNG SMP Vehicle Climate Control & Cooling Products
Co. Ltd.
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 approximately $14 million. We determined, at that time, 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 was accounted for under the equity method of accounting.
In March 2018, we acquired an additional 15% equity interest in the joint venture for RMB 26,475,583 (approximately $4.2 million), thereby increasing
our equity interest in the joint venture to 65%. The $4.2 million payment for our additional 15% investment was made in cash installments throughout 2018. Although we have increased our equity interest in the joint venture to 65%, the
minority shareholder will maintain participating rights that will allow it to participate in certain significant financial and operating decisions that occur in the ordinary course of business. As a result of the existence of these
substantive participating rights of the minority shareholder, we will continue to account for our investment in the joint venture under the equity method of accounting.
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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. Payment for our acquired interest in the joint venture was made in
installments with approximately $6.8 million paid in 2017 and the balance of approximately $5.7 million paid in January 2018. 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.
4.
|
Sale of Grapevine, Texas Property
|
In December 2018, we completed the sale of our property located in Grapevine, Texas. The net proceeds from the sale of the property of $4.8 million
was received in January 2019 and was used to reduce borrowings under our revolving credit facility. The gain on the sale of the property of $3.9 million is included in other income (expense), net in operating income on our consolidated
statement of operations.
5.
|
Restructuring and Integration Expense
|
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, 2018 and 2017, consisted of the following (in thousands):
|
|
Workforce
Reduction
|
|
|
Other Exit
Costs
|
|
|
Total
|
|
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
|
|
Restructuring and integration costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts provided for during 2018 (1)
|
|
|
9
|
|
|
|
4,501
|
|
|
|
4,510
|
|
Non-cash usage, including asset write-downs
|
|
|
—
|
|
|
|
(181
|
)
|
|
|
(181
|
)
|
Cash payments
|
|
|
(2,148
|
)
|
|
|
(3,036
|
)
|
|
|
(5,184
|
)
|
Reclassification of environmental liability (1)
|
|
|
—
|
|
|
|
(1,284
|
)
|
|
|
(1,284
|
)
|
Foreign currency exchange rate changes
|
|
|
27
|
|
|
|
—
|
|
|
|
27
|
|
Exit activity liability at December 31, 2018
|
|
$
|
742
|
|
|
$
|
—
|
|
|
$
|
742
|
|
|
(1)
|
Included in restructuring and integration costs in 2018 is a $1.3 million increase in environmental cleanup costs related to remediation in connection with the
prior closure of our manufacturing operations at our Long Island City, New York location. Due to the anticipated move from ongoing remediation to monitoring at the site in 2019, an estimate was made in the fourth quarter of
2018 of the costs related to ongoing monitoring and shutdown, resulting in the increase in anticipated costs. The environmental liability has been reclassed to accrued liabilities as of December 31, 2018.
|
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, all our Grapevine, Texas production activities have been relocated to facilities in Greenville, South Carolina and Reynosa, Mexico, and certain production activities
were relocated from our Greenville, South Carolina manufacturing facility to our manufacturing facility in Bialystok, Poland. In addition, certain service functions were relocated from Grapevine, Texas to our administrative offices in
Lewisville, Texas and our Grapevine, Texas facility was closed. In December 2018, we completed the sale of the property located in Grapevine, Texas. See Note 4, “Sale of Grapevine, Texas Property,” for additional information.
As of December 31, 2018, the plant rationalization program is substantially completed. The remaining aggregate liability related to the program as of
December 31, 2018 consists of future cash severance payments to be made to former employees.
Activity, by segment, for the year ended December 31, 2018 and 2017 related to our plant rationalization program consisted of the following (in
thousands):
|
|
Engine
Management
|
|
|
Temperature
Control
|
|
|
Other
|
|
|
Total
|
|
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
|
|
Restructuring and integration costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts provided for during 2018
|
|
|
—
|
|
|
|
353
|
|
|
|
—
|
|
|
|
353
|
|
Cash payments
|
|
|
—
|
|
|
|
(1,525
|
)
|
|
|
—
|
|
|
|
(1,525
|
)
|
Exit activity liability at December 31, 2018
|
|
$
|
—
|
|
|
$
|
304
|
|
|
$
|
—
|
|
|
$
|
304
|
|
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 Orlando plant rationalization, all of our Orlando, Florida production activities have been relocated to our Independence, Kansas manufacturing facility. In
addition, certain production activities were relocated from our Independence, Kansas manufacturing facility to our Reynosa, Mexico manufacturing facility and our Orlando, Florida facility was closed. As of December 31, 2018, the Orlando
plant rationalization program is substantially completed. The remaining aggregate liability related to the program as of December 31, 2018 consists of future cash severance payments to be made to former employees.
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Activity, by segment, for the year ended December 31, 2018 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
|
|
Restructuring and integration costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts provided for during 2018
|
|
|
1,479
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,479
|
|
Non-cash usage, including asset writedowns
|
|
|
(12
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(12
|
)
|
Cash payments
|
|
|
(2,015
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,015
|
)
|
Exit activity liability at December 31, 2018
|
|
$
|
438
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
438
|
|
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. As of December 31, 2018, the wire and cable relocation program is substantially completed. All of our Nogales, Mexico production activities have been relocated to our Reynosa, Mexico
assembly facility and our Nogales, Mexico plant was closed.
Activity, by segment, for the year ended December 31, 2018 and 2017 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, 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
|
|
Restructuring and integration costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts provided for during 2018
|
|
|
1,394
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,394
|
|
Non-cash usage, including asset write-downs
|
|
|
(169
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(169
|
)
|
Cash payments
|
|
|
(1,644
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,644
|
)
|
Foreign currency exchange rate changes
|
|
|
27
|
|
|
|
—
|
|
|
|
—
|
|
|
|
27
|
|
Exit activity liability at December 31, 2018
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
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 $720 million and $780.5 million of receivables for the years ended December 31, 2018 and 2017, respectively,
which was reflected as a reduction of accounts receivable in the consolidated balance sheet at the time of sale. A charge in the amount of $24.4 million, $22.6 million and $19.3 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, 2018, 2017 and 2016, 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,
2018
|
|
|
December 31,
2017
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Finished goods
|
|
$
|
226,802
|
|
|
$
|
209,800
|
|
Work-in-process
|
|
|
10,527
|
|
|
|
7,536
|
|
Raw materials
|
|
|
112,482
|
|
|
|
109,075
|
|
Subtotal
|
|
|
349,811
|
|
|
|
326,411
|
|
Unreturned customer inventories (1)
|
|
|
20,484
|
|
|
|
—
|
|
Total inventories
|
|
$
|
370,295
|
|
|
$
|
326,411
|
|
|
(1)
|
The adoption of ASU 2014-09 using the modified retrospective method resulted in the recording of unreturned customer inventories commencing on January 1, 2018, see
Note 1, “Summary of Significant Accounting Policies” for additional information.
|
8.
|
Property, Plant and Equipment
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(In thousands)
|
|
Land, buildings and improvements
|
|
$
|
40,126
|
|
|
$
|
46,930
|
|
Machinery and equipment
|
|
|
136,526
|
|
|
|
132,467
|
|
Tools, dies and auxiliary equipment
|
|
|
49,365
|
|
|
|
45,769
|
|
Furniture and fixtures
|
|
|
29,169
|
|
|
|
28,352
|
|
Leasehold improvements
|
|
|
11,386
|
|
|
|
10,348
|
|
Construction-in-progress
|
|
|
10,317
|
|
|
|
16,318
|
|
Total property, plant and equipment
|
|
|
276,889
|
|
|
|
280,184
|
|
Less accumulated depreciation
|
|
|
186,135
|
|
|
|
191,081
|
|
Total property, plant and equipment, net
|
|
$
|
90,754
|
|
|
$
|
89,103
|
|
Depreciation expense was $16.1 million in 2018, $15.4 million in 2017 and $12.8 million 2016.
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
9.
|
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, 2018.
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. In the first step, the fair value of the
reporting unit is compared to its carrying amount. To the extent the carrying amount of a reporting unit exceeds the fair value of the reporting unit; we are required to perform a second step, as this is an indication that the reporting
unit goodwill may be impaired. In this step, we compare the implied fair value of the reporting unit goodwill with the carrying amount of the reporting unit goodwill and recognize a charge for impairment to the extent the carrying value
exceeds the implied fair value.
As of December 31, 2018, we performed a qualitative assessment of the likelihood of a goodwill impairment for both the Engine Management and
Temperature Control reporting units. Based upon our qualitative assessment, we determined that it was not more likely than not that the fair value of the each of the Engine Management and Temperature Control reporting units were less than
their respective carrying amounts. As such, we concluded that the two-step impairment test would not be required, and that there would be no required goodwill impairment charge as of December 31, 2018 at each of the Engine Management and
Temperature Control reporting units. We did not have a goodwill impairment charge as of December 31, 2018, and we do not believe that future impairments are probable.
Changes in the carrying values of goodwill by operating segment during the years ended December 31, 2018 and 2017 are as follows (in thousands):
|
|
Engine
Management
|
|
|
Temperature
Control
|
|
|
Total
|
|
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
|
|
Activity in 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange rate change
|
|
|
(92
|
)
|
|
|
—
|
|
|
|
(92
|
)
|
Balance as of December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
91,539
|
|
|
|
14,270
|
|
|
|
105,809
|
|
Accumulated impairment losses
|
|
|
(38,488
|
)
|
|
|
—
|
|
|
|
(38,488
|
)
|
|
|
$
|
53,051
|
|
|
$
|
14,270
|
|
|
$
|
67,321
|
|
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Acquired Intangible Assets
Acquired identifiable intangible assets as of December 31, 2018 and 2017 consist of:
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(In thousands)
|
|
Customer relationships
|
|
$
|
87,195
|
|
|
$
|
87,290
|
|
Trademarks and trade names
|
|
|
6,800
|
|
|
|
6,800
|
|
Non-compete agreements
|
|
|
3,193
|
|
|
|
3,193
|
|
Patents
|
|
|
723
|
|
|
|
723
|
|
Supply agreements
|
|
|
800
|
|
|
|
800
|
|
Leaseholds
|
|
|
160
|
|
|
|
160
|
|
Total acquired intangible assets
|
|
|
98,871
|
|
|
|
98,966
|
|
Less accumulated amortization (1)
|
|
|
(51,391
|
)
|
|
|
(43,853
|
)
|
Net acquired intangible assets
|
|
$
|
47,480
|
|
|
$
|
55,113
|
|
|
(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 $7.6 million for the year ended December 31, 2018, $8 million for the year ended
December 31, 2017, and $7.1 million for the year ended December 31, 2016. Based on the current estimated useful lives assigned to our intangible assets, amortization expense is estimated to be $6.3 million for 2019, $5.9 million in 2020,
$4.6 million in 2021, $3 million in 2022 and $22.5 million in the aggregate for the years 2023 through 2031.
Other Intangible Assets
Other intangible assets include computer software. Computer software as of December 31, 2018 and 2017 totaled $17.2 million. Total accumulated
computer software amortization as of December 31, 2018 and 2017 was $16.3 million and $16.1 million, respectively. Computer software is amortized over its estimated useful life of 3 to 10 years. Amortization expense for computer software
was $0.4 million, $0.5 million and $0.6 million for the years ended December 31, 2018, 2017 and 2016, respectively.
10.
|
Investments in Unconsolidated Affiliates
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(In thousands)
|
|
Foshan GWOYNG SMP Vehicle Climate Control & Cooling Products Co. Ltd.
|
|
$
|
17,764
|
|
|
$
|
14,406
|
|
Foshan FGD SMP Automotive Compressor Co. Ltd
|
|
|
12,547
|
|
|
|
12,616
|
|
Orange Electronic Co. Ltd
|
|
|
2,158
|
|
|
|
4,162
|
|
Total
|
|
$
|
32,469
|
|
|
$
|
31,184
|
|
Investment in 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. Payment for our acquired interest in the joint venture was made in
installments with approximately $6.8 million paid in 2017 and the balance of $5.7 million paid in January 2018. 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 year ended December 31, 2018, we made purchases from FGD of approximately $5.2 million. Purchases from
FGD from the date of acquisition through December 31, 2017 were not significant.
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Investment in Foshan GWOYNG SMP Vehicle Climate Control & Cooling Products Co. Ltd.
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, at that time, 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 was accounted for under the equity method of accounting.
In March 2018, we acquired an additional 15% equity interest in the joint venture for RMB 26,475,583 (approximately $4.2 million), thereby increasing
our equity interest in the joint venture to 65%. The $4.2 million payment for our additional 15% investment was made in cash installments throughout 2018. Although we have increased our equity interest in the joint venture to 65%, the
minority shareholder will maintain participating rights that will allow it to participate in certain significant financial and operating decisions that occur in the ordinary course of business. As a result of the existence of these
substantive participating rights of the minority shareholder, we will continue to account for our investment in the joint venture under the equity method of accounting. During the years ended December 31, 2018 and 2017, we made purchases
from Gwo Yng of approximately $14.9 million and $15.1 million, respectively.
Investment in Orange Electronic Co. Ltd.
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, 2018, 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 each of the fourth quarters of 2018 and 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 was other than temporary and, as such, recognized a noncash impairment charge of approximately $1.7 million and $1.8 million, respectively, in each 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, 2018 and 2017 were approximately $4.9 million
and $4.3 million, respectively.
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(In thousands)
|
|
Deferred compensation
|
|
$
|
14,020
|
|
|
$
|
13,612
|
|
Deferred financing costs, net
|
|
|
876
|
|
|
|
630
|
|
Other
|
|
|
723
|
|
|
|
853
|
|
Total other assets, net
|
|
$
|
15,619
|
|
|
$
|
15,095
|
|
Deferred compensation consists of assets held in a nonqualified defined contribution pension plan as of December 31, 2018 and 2017, respectively.
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
12.
|
Credit Facilities and Long-Term Debt
|
Total debt outstanding is summarized as follows:
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(In thousands)
|
|
Revolving credit facilities
|
|
$
|
43,689
|
|
|
$
|
57,000
|
|
Other (1)
|
|
|
5,530
|
|
|
|
4,778
|
|
Total debt
|
|
$
|
49,219
|
|
|
$
|
61,778
|
|
|
|
|
|
|
|
|
|
|
Current maturities of debt
|
|
$
|
49,066
|
|
|
$
|
61,699
|
|
Long-term debt
|
|
|
153
|
|
|
|
79
|
|
Total debt
|
|
$
|
49,219
|
|
|
$
|
61,778
|
|
|
(1)
|
Other includes borrowings under our Polish overdraft facility of Zloty 19.9 million (approximately $5.3 million) and Zloty 16.2 million (approximately $4.7 million)
as of December 31, 2018 and 2017, respectively.
|
Maturities of long-term debt are not material for the year ended December 31, 2018 and beyond.
Revolving Credit Facility
In December 2018, we amended our Credit Agreement with JPMorgan Chase Bank, N.A., as agent, and a syndicate of lenders. The amended credit agreement
provides 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 extends the maturity date to December 2023. The line of credit under the amended
credit 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 amended 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 amended credit agreement is guaranteed by certain of our
subsidiaries and secured by certain of our assets.
Borrowings under the amended 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 amended credit agreement is based on a formula of eligible accounts receivable, eligible drafts presented to the banks under our factoring agreements, eligible
inventory, eligible equipment and eligible fixed assets. After taking into account outstanding borrowings under the amended credit agreement, there was an additional $203.1 million available for us to borrow pursuant to the formula at
December 31, 2018. Outstanding borrowings under the credit agreement, which are classified as current liabilities, were $43.7 million and $57 million at December 31, 2018 and 2017, 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, 2018, the weighted average interest rate on our amended credit agreement was 3.9%, which consisted of $40 million in direct borrowings
at 3.4% and an alternative base rate loan of $3.7 million at 5.8%. At December 31, 2017, the weighted average interest rate on our credit agreement was 2.7%, which consisted of $57 million in direct borrowings. Our average daily
alternative base rate loan balance was $1.8 million and $3.8 million during 2018 and 2017, respectively.