ITEM 1. BUSINESS - ----------------- (a) General Development of Business ------------------------------- Registrant manufactures replacement parts for automotive ignition systems, wires and cables, fuel system parts, temperature control systems, power steering parts and hydraulic brake systems parts, and distributes a general service line of automotive related items.
In April 1993, the Company acquired, for approximately $9,000,000, substantially all of the general service line inventory and certain related other assets of APS, Inc., a national distributor of automotive parts, along with a ten-year agreement to supply this product line to APS, Inc. on an exclusive basis. The acquisition increased consolidated net sales by approximately $10,900,000 and decreased net earnings by approximately $1,500,000 in the same period primarily due to launch costs.
As of January 1, 1994 the Company entered into a Joint Venture Agreement with Autoline Industries, Inc. for the remanufacture of calipers and other brake related items. The new venture, a general partnership named Eisline Manufacturing Company, will sell the products it remanufactures exclusively to the co-venturers under a long-term supply agreement with each. The Company's initial investment for fixed assets and working capital will be approximately $250,000. The remanufacturing operations of the venture will be located at the Company's Ontario, California facility.
Replacement Parts Market. The size of the replacement parts market depends, in part, upon the average age and number of cars on the road and the number of miles driven per year. According to the Motor Vehicle Manufacturers Association and United States government sources, the average age of registered automobiles increased from 1988 through 1993 and this trend is projected to continue during the 1990's.
(b) Financial Information about Industry Segments --------------------------------------------- Distribution of Sales. The table below shows the registrant's sales by product groups. [CAPTION]
No class of products other than those listed in the chart on page 3 accounted for more than ten percent (10%) of total sales in any of such years. The business of the registrant is not dependent on any single customer. In the year ended December 31, 1993, the registrant's five largest customers accounted for approximately 28.1% of sales, or approximately one hundred and sixty-four million ($164,000,000) dollars.
Ignition Parts. Replacement parts for automotive ignition and emission systems account for about 34% of the registrant's revenues. These parts include distributor caps and rotors, electronic ignition modules, voltage regulators, coils and switches. The registrant is a basic manufacturer of most of the ignition products it markets. These products cover a wide range of applications, from 30-year old vehicles to current models, both domestic and import, including passenger car, truck, farm, off-road and marine applications.
Registrant's parts are sold under numerous brands and several levels of quality. The majority of the parts represent a level of quality equal to original equipment. The registrant also sells a premium line of parts that are better than original equipment and are priced proportionately higher. A lower priced line has been made available under the Modern Mechanic label. This line is marketed under other private labels as well.
The shift from breaker-point ignition systems to electronic ignition systems started about 20 years ago, in response to pressures from the government and environmental groups to reduce national fuel consumption as well as the level of pollutants from auto exhausts. These systems enable the engine to burn fuel more completely, which improves fuel efficiency, while reducing the amounts of harmful substances in the exhaust gases.
Electronic components comprise a portion of the registrant's total ignition sales. A major aspect of the program was the acquisition of the fixed assets, inventory and certain proprietary information of the Hybrid Products Division from Fairchild Semiconductor Corporation in 1986, which included a highly-automated electronics assembly plant in Hong Kong. This offshore facility is now producing electronic control modules and voltage regulators at costs that enable the registrant to compete effectively in the electronic parts replacement market.
Since the designation of a separate emission control parts line in 1986, the registrant's sales of such parts as sensors, valves and solenoids have increased appreciably. The registrant is a basic manufacturer of throttle position sensors, air pump check valves, coolant temperature sensors, air charge temperature sensors and MAP sensors. New government emission laws are expected to increase automotive repair activity creating an increase in parts sales.
In recent years, the registrant has significantly enhanced its position as a leading electronics manufacturer in the automotive aftermarket as demonstrated by the recent production of distributorless electronic control modules. The joint venture entered into in 1992 with Blue Streak Electronics, Inc., a rebuilder of engine management computers and MAF sensors, has positioned the registrant to take advantage of the fast growing remanufactured electronics market.
Brake System Products. As of August 31, 1986, the registrant acquired the EIS Brake Parts Division from Parker-Hannifin Corporation. In the aftermarket, brake parts represent the single largest product group in a warehouse distributor's inventory. In the registrant's view, this product group could well surpass its ignition line as the largest single source of revenue.
The division manufactures a full line of brake replacement parts and also markets many special tools and fluids used by mechanics who perform brake service. EIS has a long- established reputation in the industry for quality products and engineering excellence.
Continued sales growth rates of the EIS division is based on several factors: EIS's respected name as a supplier of reliable products; the expanded opportunities for changeovers among registrant's existing customers of their five other product lines; and the fact that, at the time of acquisition, the division had a relatively small share of the market.
Sales in 1993 represented approximately a 4% increase over 1992. EIS products account for approximately 28% of the registrant's revenues, making it the second largest producer of revenues for the registrant. A major factor for this increase has been the growth of private label business with Carquest, a major traditional aftermarket distributor.
We anticipate that EIS's growth will be enhanced in 1994 and the future as a result of its entry into the retail and other markets.
Wires and Cables. Wire and cable parts account for about 9% of the registrant's revenues. Products include ignition (spark plug) wires, battery cables and a wide range of electrical wire, terminals, connectors and tools for servicing an automobile's electrical system.
A major part of this division's business is the sale of ignition wire sets. Since 1980, the registrant has made strong advances in the aftermarket, by developing and promoting a premium brand of ignition wires. Through a variety of marketing programs and advertising campaigns, the registrant was able to capitalize on the market's new awareness of the importance of quality.
The registrant also manufactures a second line of wire and cable products, known as Modern Mechanic. In 1992, this line was expanded to include import coverage and was made available to all customers who now carry the Standard and GPS brands.
Fuel System Parts. Fuel system parts account for about 8% of the registrant's revenues. The registrant manufactures and markets over 2,000 parts for the maintenance and repair of automotive fuel systems. These parts are sold under various brand names which include parts for traditional carburetors, feedback carburetors, fuel pumps, throttle body injection units and multi-port fuel injection systems.
For several decades, the registrant's most important product was the carburetor rebuilding kit. Although these kits still represent a significant portion of the registrant's business, their sales have been declining gradually as car manufacturers change over to electronic fuel injection systems. Anticipating the eventual phase-out of carburetors, the registrant introduced in 1987 a line of fuel injection parts, including replacement fuel injectors. The injectors incorporate new disc-type design that makes them virtually immune to clogging, a known problem associated with O.E. injectors. Fuel injection parts are still a small segment of total fuel system business but rapid growth has developed over the last several years.
In 1988 the registrant introduced its fuel pump product group. By offering a full line of mechanical and electrical fuel pumps to customers, the registrant will enhance its position as a central source of replacement parts for almost every part of today's and tomorrow's fuel systems. In 1993, the registrant continued to aggressively pursue the increase in parts marketed by its fuel pump product group. The registrant is expanding its activities in the fuel systems area to include the manufacturing of electronic fuel pumps.
Temperature Control Systems & Power Steering Parts. The registrant markets a line of replacement parts for automotive temperature control systems (air conditioning and heating), under the brand name Four Seasons. Revenues from Four Seasons accounted for approximately 15% of the registrant's total sales.
Federal regulation of CFC (fluorocarbon) refrigerants is revolutionizing the climate control industry. Legislation is gradually phasing out R-12 refrigerant (DuPont's Freon and other brands) completely. This is generating wide industry demand for refrigeration recycling equipment, retrofit kits, and for training in recycling and retrofit techniques. In the near future, vehicle air conditioners needing repair or recharge become candidates for retrofit to use the new R-134a refrigerant, at a cost of several hundred dollars per car. Installers are urgently seeking training and certification in the new technology, and the Company's Four Seasons division has taken the lead in providing these services.
These major technological changes require many new parts, as well as new service equipment. As a result, our climate control division is enjoying excellent growth opportunities.
Four Seasons also markets a full line of power steering products, which currently number over 1,500 parts including replacement hose assemblies and pumps.
Champ Service Line Products. In 1993, Champ accounted for approximately 6% of the registrant's total sales. The division markets over 8,000 different automotive-related items, ranging from mirrors, window cranks and antennas to cleaning and polishing materials, specialty tools and maintenance supplies.
Champ purchases products from a wide range of manufacturers and packages them under the Champ and Big A private brand label, enabling its customers to conveniently order items in many separate product groups from a single source. Ordering efficiency and effective shipping are considered key benefits for the registrant's customers, and continue to impact favorably on the Champ division's sales and continued prospects for growth.
Early in 1993, Champ's flexibility was enhanced by the designation of its own management team and sales force.
(c) Narrative Description of Business
Sales and Distribution. The registrant sells its products throughout the United States and Canada under its proprietary brand names, to approximately 1,600 warehouse distributors, who distribute to approximately 27,000 jobber outlets. The jobbers sell the registrant's products primarily to professional mechanics, and secondarily to consumers who perform their own automobile repairs. The registrant has a direct field sales force of approximately 550 persons.
The registrant generates demand for its products by directing the major portion of its sales effort to its customers' customers (i.e. jobbers and professional mechanics). In 1993 the registrant conducted approximately 4,000 instructional clinics, which teach mechanics how to diagnose and repair complex new electronic ignition systems, including computerized ignition and emission controls, automotive brake systems and temperature control systems. The registrant also publishes and sells related service manuals and video/cassettes and provides a free technical information bulletin service to registered mechanics. In addition, our Standard Plus Club, a professional service dealer network comprising approximately 12,000 members, offers technical and business development support and has a technical service telephone hotline.
The registrant continued expansion into the retail market by selling its products to large retail chains. The registrant expects continued growth in the retail market in future years.
Production and Engineering. The registrant engineers, tools and manufactures most of the components for its products, except for the Champ Service Line, many air conditioner, brake hydraulic, brake system, fuel system and certain commonly available small parts. It also performs its own plastic and rubber molding operations, extensive screw machining and power press operations, automated electronics assembly and a wide variety of other processes.
The registrant has engineering departments staffed by 74 persons, approximately 69% of whom are graduate engineers. The departments perform product research and development and quality control and, wherever practical, design machinery for automation of the registrant's factories.
As new models of automobiles, trucks, tractors, buses and other equipment are introduced, the registrant engineers and manufactures replacement parts for them. The registrant typically has a substantial lead time to engineer and manufacture new products. The registrant employs and trains tool and die makers needed in its manufacturing operations.
Competition. Although the registrant is a leading independent manufacturer of automotive replacement parts and supplies, it faces substantial competition in all markets that it serves. A number of major manufacturers of replacement parts and supplies are divisions of companies having greater financial resources than those of the registrant. In addition, automobile manufacturers supply virtually every replacement part sold by the registrant.
The competitive factors affecting the registrant's products are primarily product quality, customer service and price. The registrant's business requires that it maintain inventory levels satisfactory for the rapid delivery requirements of customers. Management believes that it is able to compete effectively and that its trademarks and trade names are well known and command respect in the industry and the marketplace.
Backlog. Backlog is maintained at minimal levels by the registrant. The registrant fills orders, as received, from inventory and manufactures to maintain inventory levels.
Supplies. The principal raw materials purchased by the registrant consist of brass, electronic components, fabricated copper (primarily in the form of magnet wire and insulated cable), ignition wire, stainless steel coils and rods, aluminum coils and rods, lead, rubber molding compound, thermo-set and thermo plastic molding powders, cast iron castings and friction lining materials. All of these materials are purchased in the open market and are available from a number of prime suppliers.
Insurance. In 1988 and 1989 the registrant maintained basic liability coverage (general, product and automobile) of $1 million and umbrella liability coverage of $10 million. In 1990, 1991 and 1992 the umbrella coverage was increased to $20 million. In 1993 the umbrella coverage was increased to $50 million and remains at $50 million for 1994. Historically, the registrant has not experienced casualty losses in any year in excess of its coverage. Management has no reason to expect this experience to change, but can offer no assurances that liability losses in the future will not exceed the registrant's coverage.
Employees. The registrant has approximately 3,450 employees in the United States, Canada, Puerto Rico and Hong Kong. Of these, approximately 1,500 are production employees. Long Island City, New York production employees are covered by a collective bargaining agreement with the United Auto Workers, which expires on October 1, 1995. Edwardsville, Kansas production employees are covered by a United Auto Workers contract that expires April 7, 1994. Berlin, Connecticut employees are covered by a collective bargaining agreement with the United Auto Workers, which expires on June 1, 1995. The registrant believes that its facilities are in favorable labor markets with ready access to adequate numbers of skilled and unskilled workers. In the opinion of management, employee relations have been good. There have been no significant strikes or work stoppages in the last five years.
(d) Financial Information About Export Sales
The registrant sells its general line of products primarily through Canada, Latin America, Europe and the Middle East. The table below shows the registrant's export sales for the last three years:
(Dollars in thousands)
Years Ended December 31, 1993 1992 1991
Canada $32,341 $29,083 $27,438 All Others 12,746 12,209 13,729 ------- ------- ------- Total $45,087 $41,292 $41,167 ------- ------- ------- 				 ------- ------- -------
ITEM 2.
ITEM 2. PROPERTIES - ------------------- The registrant maintains its executive offices and a manufacturing plant at 37-18 Northern Boulevard, Long Island City, NY.
The table below describes the registrant's major (a) manufacturing and packaging properties and (b) warehousing properties. (For information with respect to rentals, see note 16 of Notes to Consolidated Financial Statements on page.).
[CAPTION]
-Continued-
See Notes on page 11
[CAPTION]
Product Key: A) Ignition B) Carburetor C) Wire & Cable D) Champ Service Line E) Temperature Control System Parts F) Friction - Brake Shoes & Pads G) Drums & Rotors H) Hydraulic Brake System Components I) Electronic Ignition J) Power Steering Parts
See Notes on page 11
NOTES TO PROPERTY SCHEDULE: (1) Includes executive or division offices.
(2) While owned by the registrant for accounting purposes, these properties were actually sold to local industrial development authorities and leased to the registrant under the terms of Industrial Revenue Bond ("IRB") financing agreements. Under those agreements,title to these properties passes to the registrant at maturity for little or no consideration. The rental payments made by the registrant equal the principal and interest due under each IRB.
(3) Financed with a bond issue in 1982 for $1,750,000 maturing in 1997.
(4) This property is owned subject to a mortgage held by the Massachusetts Mutual Life Insurance Company, in the original amount of $465,000, the final payment of which is due in 1995.
(5) Financed with a bond issue in 1980 for $2,670,000 fully paid off in 1993 and a bond issue in 1984 for $2,000,000 maturing through 1999.
(6) As of January 1, 1987, the registrant vacated this facility. It is now being leased by the registrant to a third party.
(7) This property was purchased on January 5, 1988.
(8) Financed with a bond issue in 1989 for $2,500,000 maturing through 1999.
(9) The manufacturing operations of the Middletown facility have been consolidated with the existing manufacturing operations at the expanded Berlin, CT facility. This facility is presently being offered for sale.
(10) Financed with a bond issue in 1990 for $1,800,000 maturing through 2000.
(11) Under terms of the lease, the registrant has an option to purchase the property for $1,000 at the expiration of the lease.
(12) The registrant uses this facility for chemical storage.
(13) During 1993, the Gardena, CA and Rancho Cucamonga, CA facilities were consolidated into the new Ontario, California facility.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS. - ---------------------------------
Currently, there are no legal proceedings which management deems would have a material economic impact on the Company.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. - ------------------------------------------------------------------- None
PART II -------
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND - ------------------------------------------------------------ RELATED STOCKHOLDER MATTERS. ----------------------------
The Company's stock is listed on the New York Stock Exchange. The number of Shareholders of record of Common stock on February 28, 1994 was approximately 1,100 including brokers who hold approximately 7,186,265 shares in street name. The quarterly market price and dividend information is presented in the following chart.
Price Range of Common Stock and Dividends
The Company's Common Stock is traded on the New York Stock Exchange under the symbol SMP. The following table shows the high and low sale prices on the composite tape of, and the dividend paid per share on, the Common Stock during the periods indicated.
1993 Quarter High Low Dividend 1992 Quarter High Low Dividend - -------------------------------------- -------------------------------------- 1st $17.38 $13.13 $.08 1st $12.25 $9.50 $.08
2nd 20.25 16.13 .08 2nd 13.25 10.38 .08
3rd 24.13 18.88 .08 3rd 13.50 11.50 .08
4th 26.88 21.00 .08 4th 13.63 11.38 .08
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The Board of Directors will consider the payment of future dividends on the basis of earnings, capital requirements and the financial condition of the Company. The Company's loan agreements limit dividends and distributions by the Company. As of December 31, 1993, approximately $8,434,000 of retained earnings was available under those agreements for payment of cash dividends and purchase of capital stock.
PART II (CONT'D) ------- ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA. - ---------------------------------------
The following summary financial information has been extracted from the audited financial statements of the Company.
[CAPTION]
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Liquidity and Capital Resources - During 1993, stockholders' equity increased $17,055,000 to $178,183,000 and working capital increased $13,336,000 to $204,232,000. Cash provided by operations in 1991 amounted to $50,573,000, primarily due to the decrease in inventories of $35,775,000. In 1992, cash provided by operations amounted to $31,550,000, primarily due to the $25,358,000 reduction in inventories. In 1993, cash provided by operations amounted to $20,105,000 primarily due to net income of $17,508,000. Cash used in investing activities in 1991 was $7,126,000 primarily due to capital expenditures partially offset by proceeds from sales of marketable securities. Cash used in investing activities, primarily due to capital expenditures, was $15,048,000 in 1992 and $11,899,000 in 1993. Cash used in financing activities, primarily due to repayment of debt and dividend payments, was $30,099,000 in 1991 and $23,519,000 in 1992. In December 1992, the Company secured $80,000,000 in long-term financing which was used to reduce short-term bank borrowings. Cash used in financing activities in 1993 was $12,879,000 which consisted primarily of repayments of debt and dividend payments. In 1993, cash provided by the exercise of employee stock options was almost entirely offset by the repurchase of treasury stock.
The Company expects capital expenditures to be approximately $14,000,000 for new machinery and equipment. At December 31, 1993, the Company had unused lines of credit aggregating approximately $105,000,000 which will be used as a source of funding capital expenditures and working capital requirements.
Comparison of 1993 to 1992 - Property, plant and equipment additions of $12,329,000 were primarily attributable to expenditures for new machinery and equipment.
PART II (CONT'D)
Short-term notes payable increased $5,100,000 primarily due to principal payments of long-term debt and capital expenditures. Long-term debt (current and non-current) decreased $16,010,000. In 1994, required long-term debt payments will be approximately $4,935,000.
Net sales increased $47,298,000 or 8.8%. The sales increase was primarily attributable to increased sales at the Standard Division, Four Seasons Division and the Champ Service Line Division. The sales increase at the Champ Service Line Division was primarily due to the acquisition of substantially all of the General Service Line inventory and certain other related assets of APS, Inc. in the second quarter of 1993 (see Note 2). Excluding the sales resulting from the acquisition, revenues increased by 6.8% in 1993 compared to a year ago.
Cost of goods sold increased $27,018,000 from $346,570,000 to $373,588,000. Cost of sales, as a percentage of net sales, decreased from 64.7% to 64.1%. The improvement was attributable to continuous cost reduction programs, and increased absorption of manufacturing overhead partially offset by the lower gross margins of the new product line acquired by the Champ Service Line Division.
Selling, general and administrative expenses increased by 1.5% or $2,460,000. This increase was primarily due to costs to support the service line expansion, higher variable costs due to increased sales, higher administrative expenses, ongoing postretirement expenses and increased employee profit sharing contributions due to the higher level of earnings. This increase was partially offset by lower new customer acquisition costs.
Restructuring charges of $2,781,000 were incurred in 1993 primarily due to the consolidation of the EIS Brake Parts operation within Connecticut and the rationalization of the Company's manufacturing operations involving the relocation of several product lines.
Other income (expense), net increased $951,000 primarily due to income from Blue Streak Electronics, Inc., a decrease on the loss on sale of receivables and realized gains on investments sold.
Interest expense was virtually unchanged versus the year earlier period. The interest expense reduction resulting from a lower level of borrowings was offset by an increase in the average maturity of borrowings resulting in a greater portion of borrowings with higher interest rates associated with such longer-term borrowings.
Taxes based on earnings increased by $6,265,000 due to increased earnings and a higher effective tax rate. The higher effective tax rate in 1993 was primarily due to an increase in tax rates resulting from the Omnibus Budget Reconciliation Act of 1993 and lower United States tax exempt earnings of the Company's Puerto Rican operation relative to the Company's Domestic operations.
Cumulative effect of changes in accounting for postretirement benefits and income taxes, net is the result of the Company adopting, as of January 1, 1993 two changes in accounting principles, Statement of Financial Accounting Standards (SFAS) No. 106 - "Employers' Accounting for Postretirement Benefits Other Than Pensions" and SFAS No. 109 - "Accounting for Income Taxes". The aftertax charge for SFAS No. 106 of $6,135,000 (after an income tax benefit of $4,090,000), combined with the tax benefit for SFAS No. 109 of $5,045,000 reduced net earnings by $1,090,000.
Comparison of 1992 to 1991 - Property, plant and equipment additions of $15,257,000 were attributable to new building construction in Connecticut and Texas and expenditures for new machinery and equipment.
PART II (CONT'D) -------
Short-term notes payable to the banks decreased $82,200,000, primarily due to refinancing and inventory reductions, partially offset by principal payments of long-term debt and capital expenditures.
Long-term debt (current and non-current) increased $61,218,000. This was attributable to the issuance of $80,000,000 in long-term financing partially offset by principal payments of $18,782,000. In 1993, required long-term debt payments will be approximately $15,348,000.
Net sales increased $745,000 or 0.1%. Sales increases in the brake parts line were offset by sales decreases in temperature control systems, fuel systems and wire and cable. Ignition parts had a modest increase while Champ Service Line was flat.
Cost of goods sold decreased $951,000, from $347,521,000 to $346,570,000. Cost of sales, as a percentage of net sales, decreased from 65.0% to 64.7%. The improvement was attributable to achieving strict cost controls and implementation of "Just in Time" manufacturing. Provisions for slow-moving and excess inventories negatively affected the cost of sales percentage in both 1992 and 1991.
Selling, general and administrative expenses increased $3,774,000. This increase was primarily due to the provisions for bad debts, marketing programs and allowances, workmen's compensation expenses and plant consolidation expenses. Offsetting these increases were lower customer acquisition costs and cost reduction programs.
Other income (expense) - net increased $221,000 primarily due to a reduction in loss on sale of receivables offset by lower returns on investments.
Interest expense decreased $4,833,000 primarily due to lower interest rates on bank loans and a lower level of borrowings.
Taxes based on earnings increased $765,000 due to higher earnings and a higher effective tax rate.
Net income increased $2,211,000 from $6,667,000 to $8,878,000.
Impact of Inflation - Although inflation is not a significant issue, the Company's management believes it will be able to continue to minimize any adverse effect of inflation on earnings. This will be achieved principally by cost reduction programs and, where competitive situations permit, selling price increases.
Future Results of Operations - The Company expects to continue the inventory reduction program initiated in 1991. From December 1990 through December 1993 inventory has been reduced approximately $50 million.
The company is facing increased price pressures in certain areas and has reduced prices in its Four Seasons Temperature Control, EIS Brake Parts and Champ Service Lines. These price reductions are expected to total approximately $7 million in 1994. Cost reduction programs are being implemented and are anticipated to offset most of the loss due to these price reductions.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. - -----------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
To the Board of Directors Standard Motor Products, Inc.
We have audited the consolidated balance sheets of Standard Motor Products, Inc. and subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of earnings, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Standard Motor Products, Inc. and subsidiaries as of December 31, 1993 and 1992, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1993 in conformity with generally accepted accounting principles.
New York, New York David Berdon & Co. February 25, 1994 Certified Public Accountants
-F1-
[CAPTION]
See accompanying notes to consolidated financial statements.
-F2-
[CAPTION]
See accompanying notes to consolidated financial statements. -F3-
[CAPTION]
See accompanying notes to consolidated financial statements. -F4-
[CAPTION]
See accompanying notes to consolidated financial statements. -F5-
Standard Motor Products, Inc. and Subsidiaries Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Principles of Consolidation The Company is engaged in the manufacture and sale of automotive replacement parts. The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries, all of which are wholly owned. As more fully described in Note 2, the Companys investment in an unconsolidated affiliate is accounted for on the equity method. All significant intercompany items have been eliminated.
Cash and Cash Equivalents The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents.
Marketable Securities Marketable securities are stated at the lower of cost or market values, determined by means of the first-in, first-out method. The valuation allowances for the excess of cost over market value was $13,000 at December 31, 1993.
Inventories Inventories are stated at the lower of cost (determined by means of the first-in, first-out method) or market values.
Property, Plant and Equipment These assets are recorded at cost and are depreciated over their respective useful lives using the straight-line method of depreciation.
Stock Options In general, no accounting is made for options until they are exercised, at which time the difference between the option price and the par value of the capital stock issued or the cost of treasury stock issued is reflected in the capital in excess of par value account.
Net Earnings Per Common and Common Equivalent Share Net earnings per common and common equivalent share are calculated using the daily weighted average number of common shares outstanding during each year and on the net additional number of shares which would be issuable upon the exercise of stock options, assuming that the Company used the proceeds received to purchase additional shares at market value. Shares held by the ESOP are considered outstanding and are included in the calculation to determine earnings per share.
Income Taxes Deferred income taxes result from timing differences in methods of recording certain revenues and expenses for financial reporting and for income tax purposes (see Note 14).
Customer Acquisition Costs Costs associated with the acquisition of new customer accounts are deferred and amortized over a twelve-month period.
Foreign Currency Translation Accounts of foreign subsidiaries are measured using local currency as the functional currency. Assets and liabilities are translated into U.S. dollars at year end exchange rates and revenues and expenses are translated at average exchange rates during the year. The resulting translation adjustments are recorded in a separate component of stockholders equity.
2. Acquisitions The Company acquired, as of September 1, 1992, 50% ownership in Blue Streak Electronics, Inc. for approximately $360,000. Blue Streak Electronics, Inc., located in Concord, Canada, is a remanufacturer of automotive on-board computers, sensors and related parts. The investment is accounted for under the equity method. The accompanying consolidated Financial Statements include the investment in subsidiary at December 31, 1993 and 1992 of approximately $597,000 and $263,000, respectively in Other assets: Sundry. The gain of approximately $352,000 in 1993 and the loss of approximately $97,000 in 1992 attributed to this investment are included in Other income (expense), net. In April 1993, the Company acquired, for approximately $9,000,000, substantially all of the general service line inventory and certain other related assets of APS, Inc., a national distributor of automotive parts, along with a ten-year agreement to supply this product line to APS, Inc. on an exclusive basis. This acquisition has been accounted for as a purchase. The acquisition increased consolidated net sales by approximately $10,900,000 in 1993 and decreased net earnings by approximately $1,500,000 in the same period primarily due to launch costs. Subsequent to year end 1993, the Company entered into a Joint Venture Agreement for the remanufacture of calipers and other brake related items. The Companys initial investment was approximately $250,000.
3. Sale of Accounts Receivables On July 10, 1990, the Company entered into a three-year agreement whereby it can sell up to a $25,000,000 undivided interest in a designated pool of certain eligible accounts receivable. On July 8, 1993, the termination date on this agreement was extended to October 10, 1993. On December 20, 1993, the Company entered into a new three-year agreement with a different lending institution. At December 31, 1993, 1992 and 1991, net receivables amounting to $25,000,000 had been sold under these agreements. As collections reduce previously sold undivided fractional interest, new receivables are customarily sold up to the $25,000,000 level. At the expiration of the agreement, the Company and the purchaser share a proportionate risk of loss as the eligible pool of accounts receivable is liquidated (see Note 13). -F6-
4. Inventories (In thousands) December 31, --------------------- 1993 1992 ---------------------------------------------------------- Inventories consist of: Finished goods $103,886 $95,418 Work in process 18,249 19,123 Raw materials 42,015 38,657 ---------------------------------------------------------- Total inventory $164,150 $153,198 ----------------------------------------------------------
5. Property, Plant and Equipment (In thousands) December 31, --------------------- 1993 1992 ---------------------------------------------------------- Property, plant and equipment consist of the following: Land and buildings $ 67,470 $ 67,045 Machinery and equipment 55,341 50,087 Tools, dies and auxiliary equipment 6,526 5,427 Furniture and fixtures 13,756 12,496 Leasehold improvements 4,622 4,714 Construction in progress 8,147 4,692 --------------------- 155,862 144,461 Less, accumulated depreciation and amortization 52,858 42,932 ---------------------------------------------------------- Total property, plant and equipment, net $103,004 $101,529 ----------------------------------------------------------
6. Other Assets Sundry (In thousands) December 31, --------------------- 1993 1992 ---------------------------------------------------------- Other assets sundry consist of the following: Unamortized customer supply agreements $ 7,558 $3,142 Long-term investments 4,560 2,600 Equity in Blue Streak Electronics, Inc. 597 263 Pension assets 713 771 Deferred charges and other 465 674 ---------------------------------------------------------- Total other assets sundry $13,893 $7,450 ----------------------------------------------------------
7. Notes Payable Banks The maximum amount of short-term bank borrowings outstanding at any month-end was $27,700,000 in 1993 and $105,800,000 in 1992, and averaged $16,958,000 and $96,100,000, respectively. The weighted average short-term interest rate was 3.99% for 1993 and 5.15% for 1992. At December 31, 1993, the Company had unused lines of credit aggregating approximately $105,000,000. As part of several of the loan arrangements, the Company has verbal agreements whereby it is expected to maintain compensating balances which amounted to $218,000 at December 31, 1993. The compensating balances are held under agreements which do not legally restrict the use of such funds and, therefore, the funds are not segregated on the face of the balance sheet. In lieu of maintaining these balances, the Company has paid fees of approximately $113,000, $132,000 and $107,000 in 1993, 1992 and 1991, respectively.
8. Long-Term Debt (In thousands) December 31, --------------------- 1993 1992 ----------------------------------------------------------------- Long-term debt consists of: 7.85% senior notes payable $ 65,000 $ 65,000 11.50%-12.00% senior notes payable 6,000 18,000 9.47% senior notes payable 30,000 30,000 6.01% senior notes payable 15,000 15,000 Credit Agreement 8,394 10,074 7.00%-13.00% purchase obligations 9,862 12,006 Floating rate purchase obligation 1,100 1,240 9.50% mortgage payable 93 139 ----------------------------------------------------------------- 135,449 151,459 Less current portion 4,935 15,348 ----------------------------------------------------------------- Total noncurrent portion of long-term debt $130,514 $136,111 -----------------------------------------------------------------
Under the terms of the $65,000,000 senior note agreement, the Company is required to repay the loan in seven equal annual installments beginning in 1996. Under the terms of the $6,000,000 senior note agreement, the Company is required to repay the remaining loan in three equal annual installments ending in 1996. An optional prepayment of $5,000,000 was made on March 1, 1993. Under the terms of the $30,000,000 senior note agreement, the Company is required to repay the loan in seven varying annual installments beginning in 1998. Subject to certain restrictions, the Company may make prepayments without premium beginning in 1998. Under the terms of the $15,000,000 senior note agreement, the Company is required to repay the loan in full in 1995. The Company also entered into an interest rate swap agreement. The swap agreement modifies the interest rate on the $15,000,000 senior note agreement, adjusted favorably or unfavorably for the spread between 5.66% and the 6-month reserve unadjusted London Interbank Offering Rate ("LIBOR"). The Credit Agreement matures in equal annual installments through 1998 and bears interest at the lower of 91% of prime rate, or 91% of the "LIBOR" plus 1.092%. The Company also entered into an interest rate swap agreement to reduce the impact of changes in interest rates on its Credit Agreement. The swap agreement modifies the interest rate on $7,762,500 of the Credit Agreement, adjusted favorably or unfavorably for the spread between 77.52% of the 3-month reserve unadjusted LIBOR and 7.69%. The proceeds of such note were loaned to the Companys Employee Stock Ownership Plan (ESOP) to purchase 1,000,000 shares of the Companys common stock to be distributed in accordance with the terms of the ESOP established in 1989 (see Note 11). The purchase obligations, due under agreements with municipalities, mature in annual installments through 2003, and are secured by properties having a net book value of approximately $23,513,000. An optional prepayment of $660,000 was made on November 1, 1993. -F7-
The floating rate purchase obligation matures in annual installments through 1999, bears interest at sixty-five percent of prime, and is secured by property having a net book value of approximately $1,390,000. The mortgage payable is due in installments through 1995. Maturities of long-term debt during the five years ending December 31, 1998 are $4,935,000, $19,987,000, $14,262,000, $12,912,000, and $16,601,000 respectively. The loan agreements require the maintenance of a specified amount of working capital and limit, among other items, investments, leases, indebtedness and distributions for the payment of dividends and the acquisition of capital stock. Effective December 31, 1993, the Company had unrestricted retained earnings of $8,434,000.
9. Stockholders Equity The Company has authority to issue 500,000 shares of preferred stock, $20 par value, and the Board of Directors is vested with the authority to establish and designate series of preferred, to fix the number of shares therein and the variations in relative rights as between series. No such shares are outstanding at December 31, 1993. The Company announced on October 18, 1993 that the Board of Directors has authorized the repurchase by the Company of up to 325,000 shares of its common stock to be used to meet present and future requirements of its stock option program. As of December 31, 1993, 195,200 shares were repurchased at a cost of $4,524,000.
10. Stock Options Under the Companys stock option plans, options are exercisable in whole or in part anytime during the five years following the date of grant and while the holder is an employee of the Company. At December 31, 1993, 82,300 options were granted but have not yet been exercised. No additional shares of common stock were available under authorized stock option plans. The changes in outstanding options were as follows: ------------------------------------------------------------------- 1993 1992 1991 ------------------------------------------------------------------ Outstanding at beginning.. 437,700 441,600 491,865 Granted 32,000 72,000 22,000 Exercised (1993 $10.13 to $16.88, 1992 and 1991 $10.13) (378,650) (2,000) (2,000) Terminated and expired (8,750) (73,900) (70,265) ------------------------------------------------------------------ Outstanding at end 82,300 437,700 441,600 ------------------------------------------------------------------ Aggregate option price $1,337,688 $5,968,938 $6,330,538 ------------------------------------------------------------------
At a price range per share of: 1993 1992 1991 --------------------------------------------------------------------- Beginning $10.13 to $16.88 $10.13 to $17.56 $10.13 to $17.56 End $10.13 to $18.56 $10.13 to $16.88 $10.13 to $17.56 ---------------------------------------------------------------------
11. Employee Benefit Plans The Company has a defined benefit pension plan covering substantially all of the unionized employees of the EIS Brake Parts Division. The benefits are based on years of service. The Companys funding policy is to contribute annually the maximum amount that can be deducted for federal income tax purposes. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. The following table sets forth the plans funded status and amounts recognized in the Companys statement of financial position at December 31, 1993 and 1992: (In thousands) December 31, --------------------- 1993 1992 --------------------------------------------------------------------- Actuarial present value of benefit obligations: Accumulated benefit obligation, including vested benefits of $9,474 ($9,011-1992) $(10,032) $(9,531) --------------------------------------------------------------------- Projected benefit obligation for service rendered to date $(10,032) $(9,805) Plan assets at fair value (primarily debt securities, commercial mortgages and listed stocks 8,738 8,095 --------------------------------------------------------------------- Plan assets (less than) projected benefit obligation (1,294) (1,710) Unrecognized net loss from past experience (different from that assumed and effects of changes in assumptions) 1,250 1,712 Unrecognized net obligation being recognized over 15 years 198 225 Adjustment required to recognize minimum liability (1,448) (1,663) --------------------------------------------------------------------- Accrued pension cost included in accrued expenses $(1,294) $(1,436) --------------------------------------------------------------------- Net pension cost for 1993 and 1992 included the following components: Service cost benefits earned during the period $ 248 $ 220 Interest cost on projected benefit obligation 613 590 Actual return on plan assets (960) (724) Net amortization and deferral 391 59 --------------------------------------------------------------------- Net periodic pension cost $ 292 $ 145 --------------------------------------------------------------------- Assumptions used in accounting for the pension plan at December 31, 1993 and 1992 were: Discount rates 6.5% 6.6% Expected long-term rate of return on assets 8.0% 8.5% ---------------------------------------------------------------------
Pension expense for the year ended December 31, 1991 was $121,000. In addition, the Company participates in several multiemployer plans which provide defined benefits to substantially all unionized -F8-
workers. The Multiemployer Pension Plan Amendments Act of 1980 imposes certain liabilities upon employers associated with multiemployer plans. The Company has not received information from the plans administrators to determine its share, if any, of unfunded vested benefits. The Company and certain of its subsidiaries also maintain various defined contribution plans providing retirement benefits for other eligible employees. The provisions for retirement expense in connection with the plans are as follows: Defined Multi- Contribution employer Plans and Other Plans -------------------------------------------------------------------------- Year-end December 31, 1993 $358,000 $4,760,000 1992 498,000 1,895,000 1991 478,000 1,729,000 --------------------------------------------------------------------------
In January 1989, the Company established an Employee Stock Ownership Plan (ESOP) and Trust for employees who are not covered by a collective bargaining agreement. The ESOP authorized the Trust to purchase up to 1,000,000 shares of the Companys common stock in the open market. In 1989, the Company entered into an agreement with a bank authorizing the Company to borrow up to $18,000,000 in connection with the ESOP. Under this agreement, the Company borrowed $16,729,000, payable in equal annual installments through 1998 (see Note 8), which was loaned on the same terms to the ESOP for the purchase of common stock. During 1989, the ESOP made open market purchases of 1,000,000 shares at an average cost of $16.78 per share. The ESOP allocated approximately 100,000 shares of common stock per annum to participants from 1989 through 1993. At December 31, 1993, the ESOP owned approximately 500,000 shares of common stock. Future company contributions plus dividends earned will be used to service the debt. Contributions to the ESOP are based on a predetermined formula which is primarily tied into dividends earned by the ESOP and loan repayments. The expense was calculated by subtracting dividend and interest income earned by the ESOP, which amounted to approximately $305,000, $313,000 and $319,000 for the years ended December 31, 1993, 1992 and 1991, respectively, from the principal repayment on the outstanding bank loan. Interest costs amounted to approximately $772,000, $756,000 and $1,149,000 for the years ended December 31, 1993, 1992 and 1991, respectively. At December 31, 1993 and 1992 indebtedness of the ESOP to the Company in the amounts of $8,385,000 and $10,065,000, respectively, are shown as deductions from shareholders equity in the consolidated balance sheet. Federal income tax benefits of $124,000 in 1993, $123,000 in 1992 and $125,000 in 1991, resulting from the deductibility of certain dividends paid by the Company to the ESOP, were credited directly to capital in excess of par. The provision for expense in connection with the ESOP was approximately $1,380,000 in 1993, $1,387,000 in 1992 and $1,378,000 in 1991.
12. Postretirement Benefits Effective January 1, 1993 the Company adopted Statement of Financial Accounting Standards (SFAS) No. 106, Employers Accounting for Postretirement Benefits Other Than Pensions. Prior years financial statements have not been restated to apply the provisions of SFAS No. 106. The Company provides certain medical and dental care benefits to eligible retired employees. Approximately 2,200 employees and retirees are eligible under this plan. Salaried employees become eligible for retiree health care benefits after reaching age 65 if they retire at age 65 or older with at least 15 years of continuous service. EIS Brake Parts unionized employees become eligible after reaching age 65 if they retire at age 65 or older with at least 10 years of continuous service. Other unionized employees are covered under union health care plans. Generally, the health care plans pay a stated percentage of most health care expenses reduced for any deductible and payments made by government programs and other group coverage. The costs of providing most of these benefits has been shared with retirees since 1991. Retiree annual contributions will increase proportionally if the Companys health care payments increase. The plans are unfunded. SFAS No. 106 requires that the expected cost of these postretirement benefits be charged to expense during the years that the employees render services. SFAS No. 106 was adopted using the immediate recognition transition option; the accumulated postretirement benefit obligation of $10,225,000, and related deferred tax benefit of $4,090,000 (net of $6,135,000), has been included in cumulative effect of changes in accounting for postretirement benefits and income taxes, net in the statement of consolidated earnings. This new accounting method has no effect on the Companys cash outlays for retiree benefits. For measuring the expected postretirement benefit obligation, a 14 percent annual rate of increase in the per capita claims cost was assumed for 1993. This rate was assumed to decrease 1 percent per year to 7 percent in 2000, then 0.5 percent per year to 6 percent in 2002 and remain at that level thereafter. The weighted-average discount rate used in determining the accumulated postretirement benefit obligation was 8 percent at January 1, 1993. The postretirement benefits expense, excluding the cumulative catch-up adjustment, was $1,472,000, $294,000 and $171,000 for 1993, 1992 and 1991, respectively. The 1993 figure includes approximately $800,000 interest charges. -F9-
13. Other Income (Expense), Net (In thousands) December 31, -------------------------------- 1993 1992 1991 ------------------------------------------------------------------ Other income (expense), net consists of: Interest and dividend income $1,648 $1,630 $2,024 Gains on investments in marketable securities 311 157 150 (Loss) on sale of accounts receivable (Note 3) (660) (997) (1,754) Income (loss) from Blue Streak Electronics, Inc. 352 (97) -- Other-net (3) 4 56 ------------------------------------------------------------------ Total other income (expense), net $1,648 $ 697 $ 476 ------------------------------------------------------------------
14. Taxes Based on Earnings The effective tax rates for 1993, 1992 and 1991 were 30.6%, 17.9% and 15.0%, respectively, which vary from the statutory federal income tax rate of 35% in 1993 and 34% in 1992 and 1991. The difference is accounted for as follows: As a Percent of Earnings Before Taxes ------------------------------------------------------------------- 1993 1992 1991 ------------------------------------------------------------------- Statutory federal income tax rates 35.0% 34.0% 34.0% Increase (decrease) in tax rate resulting from: State and local income taxes, net of federal income tax benefit 5.5 1.5 1.6 (Tax-exempt income)/ non-deductible items-net 0.2 0.2 (12.9) Benefits of foreign taxes at lower than statutory federal rate (9.7) (16.8) (6.3) Other (0.4) (1.0) (1.4) ------------------------------------------------------------------- Effective tax rate 30.6% 17.9% 15.0% ------------------------------------------------------------------- The Company has not provided for federal income taxes on the undistributed income of its foreign subsidiaries because of the availability of foreign tax credits and/or the Companys intention to permanently reinvest such undistributed income. Cumulative undistributed earnings of foreign subsidiaries on which no United States income tax has been provided were $10,011,000 at the end of 1993, $7,181,000 at the end of 1992 and $5,734,000 at the end of 1991. Earnings of a subsidiary operating in Puerto Rico, amounting to approximately $7,285,000 (1992 $6,941,000; 1991 $5,906,000), which are not subject to United States income taxes, are partially exempt from Puerto Rican income taxes under a tax exemption grant expiring on December 31, 2002. The tax benefits of the exemption, reduced by a minimum tollgate tax instituted in 1993, amounted to $.22 per share in 1993 (1992 $.23; 1991 $.18). Income earned (losses) incurred by foreign subsidiaries not eliminated in consolidation amounted to approximately $453,000, ($29,000) and ($396,000) for the years ended December 31, 1993, 1992 and 1991. Foreign income taxes amounted to approximately $838,000, $697,000 and $363,000 for 1993, 1992 and 1991, respectively. These foreign income taxes relate primarily to manufacturing facilities whose operations are eliminated in consolidation. Deferred income tax expense results from timing differences in the recognition of income and expense for tax and financial reporting purposes. The sources and tax effects of these timing differences are presented below: (In thousands) December 31, -------------------------------- 1993 1992 1991 ------------------------------------------------------------------ Installment sales $ -- $ -- $(1,679) Allowance for doubtful accounts (28) (268) 299 Allowance for customer returns (1,252) (232) (483) Accrued salaries 61 332 (187) Restructuring charges (933) -- -- Promotional costs (722) (427) (120) Postretirement benefits (488) -- -- Inventory (2,070) (14) 62 Depreciation (118) 101 96 Other net 7 (68) 163 ------------------------------------------------------------------ Total deferred tax expense $ (5,543) $ (576) $(1,849) ------------------------------------------------------------------
Effective January 1, 1993 the Company adopted Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. Prior years financial statements have not been restated to apply the provisions of SFAS No. 109. Under SFAS No. 109, deferred tax balances are stated at tax rates expected to be in effect when taxes are actually paid or recovered. The cumulative catch-up adjustment resulted in a deferred tax benefit of $5,045,000, which has been included in the statements of consolidated earnings as cumulative effect of changes in accounting for postretirement benefits and income taxes, net. The following is a summary of the components of the net deferred tax asset and liability accounts recognized in the accompanying consolidated balance sheets. (In thousands) December 31, ------------ --------------------------------------------------------------------- Differences between tax and book amounts: Deferred tax assets: Inventory $ 9,291 Allowance for customer returns 5,412 Postretirement benefits 4,581 Allowance for doubtful accounts 1,348 Accrued salaries 1,424 Restructuring charges 1,023 Other 408 --------------------------------------------------------------------- Total $23,487 --------------------------------------------------------------------- -F10-
Deferred tax liabilities: Depreciation $ 8,093 Promotional costs 728 Other 831 --------------------------------------------------------------------- Total 9,652 --------------------------------------------------------------------- Net deferred tax asset $13,835 ---------------------------------------------------------------------
15. Fair Value of Financial Instruments The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:
Cash and cash equivalents The carrying amount approximates fair value because of the short maturity of those instruments.
Long-term debt The fair value of the Corporations long-term debt is estimated based on the current rates offered to the Corporation for debt of the same remaining maturities.
Interest rate swap agreements The fair value of interest rate swaps (used for hedging purposes) is the estimated amount that the Company would receive or pay to terminate the swap agreements at the reporting dates, taking into account current interest rates. The estimated fair values of the Corporations financial instruments are as follows:
(In thousands) December 31, 1993 Carrying Fair Amount Value --------------------------------------------------------------------- Cash and cash equivalents $ 12,346 $ 12,346 Long-term debt (135,449) (151,587) Unrecognized financial instruments: Interest rate swaps: In a net receivable position -- 415 In a net payable position -- (1,146) ---------------------------------------------------------------------
(In thousands) December 31, 1992 Carrying Fair Amount Value --------------------------------------------------------------------- Cash and cash equivalents $ 17,025 $ 17,025 Long-term debt (151,459) (154,940) Unrecognized financial instruments: Interest rate swaps: In a net receivable position -- 643 In a net payable position -- (1,328) ---------------------------------------------------------------------
16. Commitments Total rent expense for the three years ended December 31, 1993 was as follows: (In thousands) Real Total Estate Other --------------------------------------------------------------------- 1993 $5,544 $2,320 $3,224 1992 5,931 2,618 3,313 1991 6,837 3,217 3,620 At December 31, 1993, the Company is obligated to make minimum rental payments (exclusive of real estate taxes and certain other charges) through 2003, under operating leases for real estate, as follows: (In thousands) 1994 $ 1,734 1995 1,377 1996 1,178 1997 965 1998 853 Thereafter 3,900 --------------------------------------------------------------------- $10,007 ---------------------------------------------------------------------
The Companys receivables are primarily from United States warehouse distributors in the automotive aftermarket industry. At December 31, 1993, the Company had letters of credit outstanding aggregating approximately $1,650,000.
17. Restructuring Charges During 1993, the company recorded a $2,781,000 provision for restructuring charges. Included in the restructuring plan are charges for the expected costs of facility consolidations, asset retirements, employee separations, relocations and related costs.
18. Quarterly Financial Data The following selected quarterly financial data have not been audited and, accordingly, the independent certified public accountants express no opinion thereon: Net Gross Net Per Sales Profit Earnings Share --------------------------------------------------------------------- (In thousands, except per share amounts) --------------------------------------------------------------------- 1993 Quarter: First $127,755 $ 45,684 $ 1,763 $ .13 Second 161,201 56,760 6,779 .51 Third 161,340 56,786 5,703 .43 Fourth 132,555 50,033 3,263 .25 --------------------------------------------------------------------- Total $582,851 $209,263 $17,508 $1.32 --------------------------------------------------------------------- 1992 Quarter: First $128,794 $ 46,250 $ 1,068 $ .08 Second 150,805 52,402 2,000 .15 Third 138,276 47,917 2,813 .22 Fourth 117,678 42,414 2,997 .23 --------------------------------------------------------------------- Total $535,553 $188,983 $ 8,878 $ .68 --------------------------------------------------------------------- Net earnings in the first quarter of 1993 were adversely impacted by $1,090,000 due to the net cumulative effect of changes in accounting for postretirement benefits and income taxes. The fourth quarter 1993 reflects an improved gross profit percentage, compared to the prior 1993 quarters, primarily due to favorable year-end inventory adjustments. The net earnings improvement in the fourth quarter 1993 as compared to the same quarter in 1992 was attributable to increased sales partially offset by restructuring charges and an increase in amortized customer acquisition costs. The fourth quarter 1992 reflects a slightly improved gross profit percentage, compared to the prior 1992 quarters, primarily due to favorable year-end inventory adjustments. -F11-
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders Standard Motor Products, Inc.
In connection with our audits of the consolidated financial statements of Standard Motor Products, Inc. and subsidiaries for the years ended December 31, 1993, 1992 and 1991, we have also audited the financial statement schedules listed in the accompanying index at Item 14(a) (2) for the years ending December 31, 1993, 1992 and 1991. Our audits of the financial statements were made for the purpose of forming an opinion on those statements taken as a whole. The financial statement schedules are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. These financial statements schedules have been subjected to the auditing procedures applied in our audit of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
DAVID BERDON & CO.
New York, New York February 25, 1994
ITEM 9.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. - -------------------------------------------------------------- None.
PART III --------
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - -------- --------------------------------------------------
Information relating to Directors and Executive Officers is set forth in the 1994 Annual Proxy Statement.
ITEM 11.
ITEM 11. MANAGEMENT REMUNERATION AND TRANSACTIONS. - -------- -----------------------------------------
Information relating to Management Remuneration and Transactions is set forth in the 1994 Annual Proxy Statement.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - -------- ----------------------------------------------------------------
Information relating to Security Ownership of Certain Beneficial Owners and Management is set forth in the 1994 Annual Proxy Statement.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------- ----------------------------------------------
Information relating to Certain Relationships and Related Transactions is set forth under "Certain Transactions" in the 1994 Annual Proxy Statement.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON - ------------------------------------------------------------------- FORM 8-K. ---------
14.(a)Document List -------------
(a)(1) Among the responses to this Item 14(a) are the following financial statements.
Report of Independent Certified Public Accountants
Financial Statements:
Consolidated Balance Sheets - December 31, 1993 and 1992
Statements of Consolidated Earnings - Years Ended December 31, 1993, 1992 and 1991
Statements of Consolidated Changes in Stockholders' Equity- Years Ended December 31, 1993, 1992 and 1991
Statements of Consolidated Cash Flows - Years Ended December 31, 1993, 1992 and 1991
Notes to Consolidated Financial Statements
(a)(2) The following financial schedules for the years 1993, 1992 and 1991 are submitted herewith:
Schedule Page -------- ----
V. Property, Plant and Equipment 24
VI. Accumulated Depreciation and 25 Amortization of Property, Plant and Equipment
VIII. Valuation and Qualifying Accounts 26
IX. Short-Term Borrowings 27
Selected Quarterly Financial Data, for the Years Ended December 31, 1993 and 1992, are included herein by reference to Part II, Item 8.
All other schedules are omitted because they are not required, inapplicable or the information is included in the financial statements or notes thereto.
(a)(3) Exhibits required by Item 601 of Securities and Exchange Commission Regulations S-K.
(A) The following such exhibits are filed as a separate section of this report.
(11)Computation of Weighted Average of Common and Common Equivalent shares Outstanding is included on Page 28.
(22)List of Subsidiaries of Standard Motor Products, Inc. is included on Page 29.
(B) The following such exhibits are incorporated herein by reference.
(3) Restated Certificate of Incorporation, dated July 25, 1984, filed as an Exhibit of Registrant's quarterly report on Form 10-Q for the quarter ended September 30, 1984 is incorporated herein by reference.
By-Laws filed as an Exhibit of Registrant's annual report on Form 10-K for the year ended December 31, 1986 is incorporated herein by reference.
Restated Certificate of Incorporation, dated July 31, 1990, filed as an Exhibit of Registrant's Annual Report on Form 10-K for the year ended December 31, 1990 is incorporated herein by reference.
(4) Note Purchase Agreement of January 15, 1987 between the Registrant and the Travelers Insurance Company, the Great-West Life Assurance Company, the Franklin Life Insurance Company, the Franklin United Life Insurance Company, and Woodmen Accident and Life Company filed as an Exhibit of Registrant's Annual Report on Form 10-K for the year ended December 31, 1986 is incorporated herein by reference.
Letter Agreement of January 25, 1989 amending the Note Agreement between the Registrant and the Travelers Insurance Company, the Great-West Life Assurance Company, the Franklin Life Insurance Company, the Franklin United Life Insurance Company, and Woodmen Accident and Life Company dated January 15, 1987 filed as an Exhibit of Registrant's Annual Report on Form 10-K for the year ended December 31, 1987 filed as an Exhibit of Registrant's Annual Report on Form 10-K for the year ended December 31, 1989 is incorporated herein by reference.
Credit Agreement dated March 10, 1989 between the Registrant and Chemical Bank filed as an Exhibit of Registrant's Annual Report on Form 10- K for the year ended December 31, 1990 is incorporated herein by reference.
Note Purchase Agreement dated October 15, 1989 between the Registrant and the American United Life Insurance Company, the General American Life Insurance Company, the Jefferson-Pilot Life Insurance Company, the Ohio National Life Insurance Company, the Crown Insurance Company, the Great-West Life Assurance Company, the Guarantee Mutual Life Company, the Security Mutual Life Insurance Company of Lincoln, Nebraska, and the Woodmen Accident and Life Company filed as an Exhibit of Registrant's Annual Report on Form 10-K for the year ended December 31, 1990 is incorporated herein by reference.
Letter Agreement of January 15, 1990 amending the Note Agreement between the Registrant and the Travelers Insurance Company dated January 15, 1987 filed as an Exhibit of Registrant's Annual Report on Form 10-K for the year ended December 31, 1987 is incorporated herein by reference.
Letter Agreement of July 20, 1990 amending the Credit Agreement between the Registrant and Chemical Bank dated March 10, 1989 filed as an Exhibit of Registrant's Annual Report on Form 10- K for the year ended December 31, 1989 is incorporated herein by reference.
Letter Agreement of September 30, 1990 amending the Note Agreement between the Registrant and the Travelers Insurance Company, the Great-West Life Assurance Company, The Franklin Life Insurance Company, The Franklin United Life Insurance Company and Woodmen Accident and Life Company January 15, 1987 filed as an Exhibit of Registrant's Annual Report on Form 10-K for the year ended December 31, 1991 is incorporated herein by reference.
Letter Agreement of March 4, 1991 amending the Credit Agreement between the Registrant and Chemical Bank dated March 10, 1989 filed as an Exhibit of Registrant's Annual Report on Form 10-K for the year ended December 31, 1991 is incorporated herein by reference.
Letter Agreement of December 20, 1991 amending the Credit Agreement between the Registrant and Chemical Bank dated March 10, 1989 filed as an Exhibit of Registrant's Annual Report on Form 10-K for the year ended December 31, 1991 is incorporated herein by reference.
Letter Agreement of February 28, 1992 amending the Note Agreement between the Registrant and the Travelers Insurance Company, the Great-West Life Assurance Insurance Company, the Franklin Life Insurance Company, the Franklin United Life Insurance Comapany and the Woodmen Accident and Life Company dated January 15, 1987 filed as an Exhibit of Registrant's Annual Report on Form 10-K for the year ended December 31, 1992 is incorporated herein by reference.
Letter Agreement of July 22, 1992 amending the Note Agreement between the Registrant and the Travelers Insurance Company, the Great-West Life Assurance Company, the Franklin Life Insurance Company, the Franklin United Life Insurance Company and Woodmen Accident and Life Company dated January 15, 1987 filed as an Exhibit of Registrant's Annual Report on Form 10-K for the year ended December 31, 1992 is incorporated herein by reference.
Letter Agreement dated October 30, 1992 amending the Credit Agreement between the Registrant and Chemical Bank, assigned to NBD Bank, N.A. with amendment dated December 20, 1991, dated March 10, 1989 filed as an Exhibit of Registrant's Annual Report on Form 10-K for the year ended December 31, 1992 is incorporated herein by reference.
Note Agreement of November 15, 1992 between the Registrant and Kemper Investors Life Insurance Company, Federal Kemper Life Assurance Company, Lumbermens Mutual Casualty Company, Fidelity Life Association, American Motorists Insurance Company, American Manufacturers Mutual Insurance Company, Allstate Life Insurance Company, Teachers Insurance & Annuity Association of America and Phoenix Home Life Mutual Insurance Company filed as an Exhibit of Registrant's Annual Report on Form 10-K for the year ended December 31, 1992 is incorporated herein by reference.
Note Agreement of November 15, 1992 between the Registrant and Principal Mutual Life Insurance Company and Principal National Life Insurance Company filed as an Exhibit of Registrant's Annual Report on Form 10-K for the year ended December 31, 1992 is incorporated herein by reference.
(5) Employee Stock Ownership Plan and Trust dated January 1, 1989 filed as an Exhibit of Registrant's Annual Report on Form 10-K for the year ended December 31, 1989 is incorporated herein by reference.
(C) The following exhibits have been included in the filing made with the SEC and are available upon request.
Letter Agreement dated December 27, 1993 amending the Credit Agreement between the Registrant and Chemical Bank, assigned to NBD Bank, N.A. with amendment dated December 20, 1991, dated March 10, 1989 is included as Exhibit A.
14(b) Reports on Form 8-K
No reports on Form 8-K were required to be filed for the three months ended December 31, 1993.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
STANDARD MOTOR PRODUCTS, INC. (Registrant)
Lawrence I. Sills ----------------------------------------------- Lawrence I. Sills, President (Chief Operating Officer)
Michael J. Bailey ----------------------------------------------- Michael J. Bailey, Vice President Finance, Chief Financial Officer
David Kerner ----------------------------------------------- David Kerner, Treasurer
Dated: New York, New York March 25, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the Capacities and on the dates indicated:
March 25, 1994 Lawrence I. Sills - -------------- ----------------------------------------------- (Dated) Lawrence I. Sills, President (Chief Operating Officer)
March 25, 1994 Bernard Fife - -------------- ----------------------------------------------- (Dated) Bernard Fife Co-Chairman, Director
March 25, 1994 Nathaniel L. Sills - -------------- ----------------------------------------------- (Dated) Nathaniel L. Sills Co-Chairman, Director
March 25, 1994 Arlene R. Fife - -------------- ----------------------------------------------- (Dated) Arlene R. Fife, Director
March 25, 1994 Ruth F. Sills - -------------- ----------------------------------------------- (Dated) Ruth F. Sills, Director
[CAPTION]
Estimated useful lives used in computing depreciation are as follows:
Estimated Life Buildings and improvements 15 to 33-1/3 years Machinery and equipment 9-1/2 years Furniture and fixtures 8 years Tools, dies and auxiliary equipment3 to 8 years Leasehold improvements Lesser of 10 years or life of lease
[CAPTION]
[CAPTION]
(a) Recoveries of accounts previously written off.
(b) Uncollectible accounts charged against the reserve.
[CAPTION]
(a) Computed using the daily outstanding principal balance during the year.
(b) Computed using the total interest expense from short-term borrowings and the average outstanding short-term borrowings during the year.
[CAPTION]
EXHIBIT 22
SUBSIDIARIES OF THE REGISTRANT
AS OF FEBRUARY 28, 1994
Percent State or of Voting Country of Securities Name Incorporation Owned - ---- ------------- ----------
Blue Streak-Hygrade Motor Products Ltd. Canada 100(1) Marathon Auto Parts and Products, Inc. New York 100 Motortronics, Inc. New York 100 Reno Standard Incorporated Nevada 100 Stanric, Inc. Delaware 100 Mardevco Credit Corp. (2) New York 100 Standard Motor Products (Hong Kong) Limited Hong Kong 100 Industrial & Automotive Associates, Inc. California 100
All of the subsidiaries are included in the consolidated financial statements.
- -------------------------------------------- (1) Except for directors' qualifying shares (2) Wholly owned subsidiary of Stanric, Inc.
INDEX TO EXHIBITS
PAGE
Exhibit A - Letter Agreement dated December 27, 1993 31 - 37 amending the Credit Agreement between the Registrant and Chemical Bank assigned to NBD Bank, N.A. with amendment dated December 20, 1991, dated March 10, 1989.
FIFTH AMENDMENT TO CREDIT AGREEMENT
THIS FIFTH AMENDMENT TO CREDIT AGREEMENT, dated as of December 27, 1993 (this "Amendment") is among Standard Motor Products, Inc., a New York corporation (the "Borrower"), Stanric, Inc., Mardevco Credit Corp., Reno Standard Incorporated, Marathon Auto Parts & Products, Inc., Industrial and Automotive Associates, Inc., Motortronics, Inc., Standard Motor Products (Hong Kong) Ltd., Blue Streak-Hygrade Motor Products, LTD. (each of which is herein referred to as a "Guarantor" and collectively as the "Guarantors") and NBD Bank, N.A., a national banking association (the "Bank").
RECITALS
WHEREAS, Chemical Bank, the Borrower and the Guarantors entered into a Credit Agreement dated as of March 10, 1989, as amended by a Conversion and Reaffirmation Agreement dated January 30, 1990, as amended by a First Amendment and Waiver Agreement dated July 20, 1990 and as amended by a Second Amendment and Waiver Agreement dated as of March 4, 1991 (as now and hereafter amended, the "Credit Agreement") pursuant to which Chemical Bank agreed to extend to the Borrower, under and subject to the conditions set forth therein, a credit facility of up to $18,000,000 (the "Credit Facility") for the purchase of approximately 1,000,000 shares of the Borrower's common stock, par value $2.00 per share, which stock is readily tradeable and is registered on the New York Stock Exchange (the Borrower's common stock is herein referred to as the "Employer's Securities" and the shares o Employer's Securities purchased by the Borrower with the proceeds of the Credit Facility are referred to herein as the "Shares"); and
WHEREAS, pursuant to the terms of the Credit Agreement, the Borrower borrowed $15,111,733 (the "Credit Facility Borrowings") and on January 30, 1990, the Borrower, the Guarantors and Chemical Bank entered into a Conversion and Reaffirmation Agreement (the "Conversion and Reaffirmation Agreement") pursuant to which (1) the Credit Facility was terminated and (2) the Credit Facility Borrowings were converted into the Term Loan (as defined in the Credit Agreement), as evidenced by a Promissory Note (the "Term Note") dated January 30, 1990 in the original principal amount of the Credit Facility Borrowings; and
WHEREAS, Chemical Bank and NBD Bank, N.A. entered into an Assignment Agreement dated as of December 20, 1991 wherein Chemical Bank assigned all of its right, title and interest in the Credit Agreement and all other documents executed in connection therewith to the Bank and the Bank assumed all of Chemical Bank's obligations under the Credit Agreement and all other documents executed in connection therewith; and
WHEREAS, the Bank and the Borrower then entered into a Third Amendment to Credit Agreement dated as of December 20, 1991 and a Fourth Amendment to Credit Agreement dated as of October 30, 1992;
WHEREAS, the Borrower has requested that the Bank waive certain provisions of the Credit Agreement to permit the Borrower to enter into an accounts receivable purchase transaction as evidenced by the Receivables Purchase Agreement (as herein defined) and the Bank is willing to do so strictly in accordance with the terms hereof.
TERMS
In consideration of the premises and of the mutual agreements herein contained, the parties agree as follows:
ARTICLE I. AMENDMENTS. Upon fulfillment of the conditions set forth in Article IV hereof, the Credit Agreement shall be amended as follows:
1.1 Article I is hereby amended as follows:
(a) The definition of "Event of Investment Ineligibility" shall be deleted in its entirety.
(b) The definition of "Sale Agreement" shall be deleted in its entirety.
(c) The following definitions shall be added in appropriate alphabetical order:
"Liquidation Event" shall have the meaning assigned such term in the Receivables Purchase Agreement.
"Receivables Purchase Agreement" shall mean the receivables purchase agreement dated as of December 20, 1993 between the Borrower as seller and initial servicer, Clipper Receivables Corporation, as purchaser, State Street Boston Capital Corporation, as administrator, and State Street Bank & Trust Company, as relationship bank, and all documents and agreements executed or delivered in connection therewith in each case as amended, supplemented, restated or otherwise modified from time to time.
1.2 Article VI shall be amended by adding a new Section 6.19 at the end thereof to read as follows:
Section 6.19 Receivables Purchase Agreement. The Borrower shall not extend the date set forth in clause (c) of the definition of "Termination Date" contained in the Receivables Purchase Agreement.
1.3 Article VII is hereby amended by deleting clause (iv) contained in Section (f) therein and inserting the following in place thereof: "(iv) the occurrence and continuance of a Liquidation Event under the Receivables Purchase Agreement".
ARTICLE II. CONSENT AND WAIVER. The Bank hereby consents to the execution, delivery and performance of the Receivables Purchase Agreement by the Borrower. Without limiting the foregoing consent, Sections 6.06, 6.07 and 6.09 of the Credit Agreement are hereby waived solely to the extent necessary to allow the Borrower to (a) sell an undivided interest in certain of its accounts receivable and related assets to Clipper Receivables Corporation for a total investment at any time outstanding of up to $25,000,000, plus earned discount on such investment, plus applicable loss, liquidation, yield, fee and other reserves, and plus all other fees, costs, expenses, indemnities and other amounts owing from time to time by the Borrower pursuant to the Receivables Purchase Agreement, (b) grant a security interest in the Borrower's retained undivided interest in such accounts receivable and related assets as security for all obligations of the Borrower under and pursuant to the Receivables Purchase Agreement, and (c) otherwise perform the Borrower's obligations under and pursuant to the Receivables Purchase Agreement.
ARTICLE III. REPRESENTATIONS. The Borrower and the Guarantors represent and warrant to the Bank that:
3.1 (a) The execution, delivery and performance of this Amendment and all agreements and documents delivered pursuant hereto by Borrower have been duly authorized by all necessary corporate action and do not and will not require any consent or approval of its stockholders, violate any provision of any law, rule, regulation, order, writ, judgement, injunction, decree, determination or award presently in effect having applicability to it or of its Articles of Incorporation or By-Laws, or result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which Borrower is a party or by which it or its properties may be bound or affected; (b) no authorization, consent, approval, license, exemption of, or filing or registration with any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, is or will be necessary to the valid execution, delivery or performance by Borrower of this Amendment and all agreements and documents delivered pursuant hereto; and (c) this Amendment and all agreements and documents delivered pursuant hereto by the Borrower are legal, valid and binding obligations of Borrower enforceable against it in accordance with the terms thereof.
3.2 The execution, delivery and performance of this Amendment by the Guarantors (a) does not and will not violate any provision of any law, rule, regulation, order, writ, judgement, injunction, decree, determination or award presently in effect having applicability to any Guarantor or result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which the Guarantor is party or by which the Guarantor or any of their properties may be bound or affected; (b) no authorization, consent, approval, license, exemption of or filing a registration with any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, is or will be necessary to the valid execution, deliverr or performance by each of the Guarantors of this Amendment; (c) this Amendment is the legal, valid and binding obligations of each of the Guarantors enforceable against each in accordance with the terms thereof; and (d) the execution of this Amendment by each of the Guarantors has been duly authorized by all necessary corporate action.
3.3 The Borrower acknowledges and warrants that (i) the ESOP and the ESOT each is in compliance in operation with all applicable requirements of the Code and ERISA; and (ii) all amendments required to be made to the ESOT and the ESOP in order for the ESOP and ESOT to continue to constitute a qualified plan and trust under Section 401(a) of the Code have been made and duly adopted.
3.4 After giving effect to the amendments contained herein and effected pursuant hereto, the representations and warranties contained in Article III of the Credit Agreement are true and correct on and as of the effective date hereof with the same force and effect as if made on and as of such effective date.
3.5 No event of default (as defined in Article VII of the Credit Agreement) and no event which would become such event of default after the lapse of time or the giving of notice, or both, shall have occurred and be continuing or will exist under the Credit Agreement as the effective date hereof after giving effect to the amendments and waivers herein.
ARTICLE IV. CONDITIONS OF EFFECTIVENESS. This Amendment shall not become effective until each of the following has been satisfied:
4.1 The Borrower shall have delivered, or caused to be delivered, to the Bank copies, certified as of the effective date hereof, of such documents evidencing necessary corporate action by the Borrower and the Guarantors with respect to this Amendment.
4.2 The Borrower and each of the Guarantors shall have executed this Amendment.
4.3 Approval by the Bank of the form and substance of the final draft of the Receivables Purchase Agreement.
4.4 Receipt by the Bank of a copy of the fully executed Receivables Purchase Agreement reflecting no material changes from the final draft thereof furnished to the Bank pursuant to Section 4.3 above.
ARTICLE V. MISCELLANEOUS.
5.1 The terms used but not defined herein shall have the respective meanings ascribed thereto in the Credit Agreement. Except as expressly amended hereby, the Credit Agreement, the Term Note and all other related certificates, instruments and other documents, are hereby ratified and confirmed and shall remain in full force and effect.
5.2 This amendment shall be governed by and construed in accordance with the laws of the State of Michigan.
5.3 The Borrower agrees to pay and save the Bank harmless from liability for the payment of all costs and expenses arising in connection with this Amendment, including reasonable fees and expenses of Dickinson, Wright, Moon, Van Dusen and Freeman, counsel to the Bank, in connection with the preparation and review of this Amendment and all related documents.
5.4 This amendment may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument any of the parties hereto may execute this Amendment by assigning any such counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the 27th day of December, 1993.
STANDARD MOTOR PRODUCTS, INC.
By: Lawrence I. Sills --------------------------------------
Its: President ---------------------------------
STANRIC, INC.
By: Lawrence I. Sills -------------------------------------- Its: President ---------------------------------
MARDEVCO CREDIT CORP.
By: Lawrence I. Sills -------------------------------------- Its: President ---------------------------------
RENO STANDARD INCORPORATED
By: Lawrence I. Sills -------------------------------------- Its: President ---------------------------------
MARATHON AUTO PARTS & PRODUCTS, INC.
By: Lawrence I. Sills -------------------------------------- Its: President ---------------------------------
INDUSTRIAL AND AUTOMOTIVE ASSOCIATES, INC.
By: Lawrence I. Sills -------------------------------------- Its: President ---------------------------------
MOTORTRONICS, INC.
By: Lawrence I. Sills -------------------------------------- Its: President ---------------------------------
STANDARD MOTOR PRODUCTS (HONG KONG) LTD.
By: Lawrence I. Sills -------------------------------------- Its: President ---------------------------------
BLUE STREAK-HYGRADE MOTOR PRODUCTS, INC. LTD.
By: Lawrence I. Sills -------------------------------------- Its: President ---------------------------------
NBD BANK, N.A.
By: Anna R. Hoffman -------------------------------------- Its: Vice President ---------------------------------