Company Quick10K Filing
Quick10K
Standard Motor Products
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$48.01 22 $1,070
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-07-25 Earnings, Exhibits
8-K 2019-05-16 Shareholder Vote
8-K 2019-04-30 Earnings, Exhibits
8-K 2019-04-01 Other Events, Exhibits
8-K 2019-02-12 Earnings, Officers, Exhibits
8-K 2019-01-24 Officers, Exhibits
8-K 2018-12-10 Enter Agreement, Exhibits
8-K 2018-10-26 Earnings, Exhibits
8-K 2018-07-26 Earnings, Exhibits
8-K 2018-05-17 Shareholder Vote, Other Events, Exhibits
8-K 2018-05-03 Earnings, Exhibits
8-K 2018-02-20 Earnings, Exhibits
AMGN Amgen 105,440
CTLT Catalent 6,590
GDS GDS Holdings 4,520
HQY Healthequity 4,360
SRT Startek 272
NBRV Nabriva Therapeutics 169
SURG Surge Holdings 0
EETA Eco Energy Tech Asia 0
UUP Invesco DB US Dollar Index Bullish Fund 0
AVU Vectren Utility Holdings 0
SMP 2019-06-30
Part I - Financial Information
Item 1. Consolidated Financial Statements
Note 1. Basis of Presentation
Note 2. Summary of Significant Accounting Policies
Note 3. Leases
Note 4. Business Acquisitions and Investments
Note 5. Restructuring and Integration Expenses
Note 6. Sale of Receivables
Note 7. Inventories
Note 8. Acquired Intangible Assets
Note 9. Credit Facilities and Long-Term Debt
Note 10. Stock-Based Compensation Plans
Note 11. Employee Benefits
Note 12. Fair Value Measurements
Note 13. Earnings per Share
Note 14. Industry Segments
Note 15. Net Sales
Note 16. Commitments and Contingencies
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 ex31_1.htm
EX-31.2 ex31_2.htm
EX-32.1 ex32_1.htm
EX-32.2 ex32_2.htm

Standard Motor Products Earnings 2019-06-30

SMP 10Q Quarterly Report

Balance SheetIncome StatementCash Flow



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended June 30, 2019

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

Commission file number:  001-04743

 
Standard Motor Products, Inc.
(Exact name of registrant as specified in its charter)

New York
 
11-1362020
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)

37-18 Northern Blvd., Long Island City, New York
 
11101
(Address of principal executive offices)
 
(Zip Code)

(718) 392-0200
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $2.00 per share
SMP
New York Stock Exchange LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes      No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes      No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 
Large Accelerated Filer 
Accelerated Filer
 
Non-Accelerated Filer  
Smaller reporting company  
 
Emerging growth company   
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes     No

As of the close of business on July 26, 2019 there were 22,322,341 outstanding shares of the registrant’s Common Stock, par value $2.00 per share.




Index

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

INDEX

PART I - FINANCIAL INFORMATION

 
 
Page No.
 
 
 
 
 
3
     
 
4
 
 
 
 
5
 
 
 
 
6
 
 
 
 
7
 
 
 
 
9
 
 
 
28
 
   
39
 
 
 
40
 
 
 
PART II – OTHER INFORMATION
 
 
 
41
 
 
 
41
 
 
 
42
 
 
 
43

2

Index


PART I - FINANCIAL INFORMATION

ITEM 1.
CONSOLIDATED FINANCIAL STATEMENTS

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

 
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
(In thousands, except share and per share data)
 
2019
   
2018
   
2019
   
2018
 
   
(Unaudited)
   
(Unaudited)
 
 
                       
Net sales
 
$
305,172
   
$
286,636
   
$
588,938
   
$
548,462
 
Cost of sales
   
216,267
     
205,347
     
422,070
     
394,584
 
Gross profit
   
88,905
     
81,289
     
166,868
     
153,878
 
Selling, general and administrative expenses
   
60,536
     
57,750
     
120,536
     
115,467
 
Restructuring and integration expenses
   
644
     
231
     
644
     
3,067
 
Other income (expense), net
   
3
     
42
     
(3
)
   
313
 
Operating income
   
27,728
     
23,350
     
45,685
     
35,657
 
Other non-operating income, net
   
1,411
     
480
     
2,057
     
449
 
Interest expense
   
1,722
     
1,251
     
2,811
     
1,883
 
Earnings from continuing operations before taxes
   
27,417
     
22,579
     
44,931
     
34,223
 
Provision for income taxes
   
6,862
     
5,752
     
11,272
     
8,799
 
Earnings from continuing operations
   
20,555
     
16,827
     
33,659
     
25,424
 
Loss from discontinued operations, net of income taxes
   
(1,123
)
   
(882
)
   
(2,011
)
   
(1,490
)
Net earnings
 
$
19,432
   
$
15,945
   
$
31,648
   
$
23,934
 
                                 
Per Share Data:
                               
Net earnings per common share – Basic:
                               
Earnings from continuing operations
 
$
0.92
   
$
0.75
   
$
1.50
   
$
1.13
 
Discontinued operations
   
(0.05
)
   
(0.04
)
   
(0.09
)
   
(0.07
)
Net earnings per common share – Basic
 
$
0.87
   
$
0.71
   
$
1.41
   
$
1.06
 
                                 
Net earnings per common share – Diluted:
                               
Earnings from continuing operations
 
$
0.90
   
$
0.73
   
$
1.47
   
$
1.11
 
Discontinued operations
   
(0.05
)
   
(0.04
)
   
(0.09
)
   
(0.07
)
Net earnings per common share – Diluted
 
$
0.85
   
$
0.69
   
$
1.38
   
$
1.04
 
                                 
Dividend declared per share
 
$
0.23
   
$
0.21
   
$
0.46
   
$
0.42
 
                                 
Average number of common shares
   
22,328,292
     
22,471,428
     
22,374,785
     
22,484,894
 
Average number of common shares and dilutive common shares
   
22,795,677
     
22,958,469
     
22,857,435
     
22,962,049
 

See accompanying notes to consolidated financial statements (unaudited).

3

Index
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 
 
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
(In thousands)
 
2019
   
2018
   
2019
   
2018
 
   
(Unaudited)
   
(Unaudited)
 
 
                       
Net earnings
 
$
19,432
   
$
15,945
   
$
31,648
   
$
23,934
 
Other comprehensive income (loss), net of tax:
                               
Foreign currency translation adjustments
   
398
     
(5,935
)
   
1,093
     
(3,716
)
Pension and postretirement plans
   
(5
)
   
     
(10
)
   
(5
)
Total other comprehensive income (loss), net of tax
   
393
     
(5,935
)
   
1,083
     
(3,721
)
Comprehensive income
 
$
19,825
   
$
10,010
   
$
32,731
   
$
20,213
 

See accompanying notes to consolidated financial statements (unaudited).

4

Index


STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

 
(In thousands, except share and per share data)
 
June 30,
2019
   
December 31,
2018
 
 
 
(Unaudited)
       
ASSETS
           
CURRENT ASSETS:
           
Cash and cash equivalents
 
$
17,419
   
$
11,138
 
Accounts receivable, less allowances for discounts and doubtful accounts of $6,090 and $5,687 for 2019 and 2018, respectively
   
179,386
     
157,535
 
Inventories
   
375,258
     
349,811
 
Unreturned customer inventories
   
18,677
     
20,484
 
Prepaid expenses and other current assets
   
14,972
     
7,256
 
Total current assets
   
605,712
     
546,224
 
 
               
Property, plant and equipment, net of accumulated depreciation of $192,515 and $186,135 for 2019 and 2018, respectively
   
89,197
     
90,754
 
Operating lease right-of-use assets
   
35,648
     
 
Goodwill
   
77,728
     
67,321
 
Other intangibles, net
   
69,017
     
48,411
 
Deferred income taxes
   
39,825
     
42,334
 
Investments in unconsolidated affiliates
   
34,400
     
32,469
 
Other assets
   
18,000
     
15,619
 
Total assets
 
$
969,527
   
$
843,132
 
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
CURRENT LIABILITIES:
               
Notes payable
 
$
130,000
   
$
43,689
 
Current portion of other debt
   
5,085
     
5,377
 
Accounts payable
   
89,149
     
94,357
 
Sundry payables and accrued expenses
   
34,280
     
31,033
 
Accrued customer returns
   
53,420
     
57,433
 
Accrued core liability
   
26,671
     
31,263
 
Accrued rebates
   
32,598
     
28,870
 
Payroll and commissions
   
22,737
     
20,564
 
Total current liabilities
   
393,940
     
312,586
 
 
               
Long-term debt
   
153
     
153
 
Noncurrent operating lease liabilities
   
28,613
     
 
Other accrued liabilities
   
20,452
     
18,075
 
Accrued asbestos liabilities
   
41,104
     
45,117
 
Total liabilities
   
484,262
     
375,931
 
 
               
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
   
105,347
     
102,470
 
Retained earnings
   
401,465
     
380,113
 
Accumulated other comprehensive income
   
(8,511
)
   
(9,594
)
Treasury stock – at cost (1,629,398 shares and 1,503,284 shares in 2019 and 2018, respectively)
   
(60,908
)
   
(53,660
)
Total stockholders’ equity
   
485,265
     
467,201
 
Total liabilities and stockholders’ equity
 
$
969,527
   
$
843,132
 

See accompanying notes to consolidated financial statements (unaudited).

5

Index


STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

 
(In thousands)
 
Six Months Ended
June 30,
 
 
 
2019
   
2018
 
 
 
(Unaudited)
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net earnings
 
$
31,648
   
$
23,934
 
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
               
Depreciation and amortization
   
12,744
     
11,706
 
Amortization of deferred financing cost
   
113
     
172
 
Increase to allowance for doubtful accounts
   
337
     
93
 
Increase to inventory reserves
   
1,552
     
1,553
 
Amortization of deferred gain on sale of building
   
     
(218
)
Equity (income) loss from joint ventures
   
(2,047
)
   
(125
)
Employee stock ownership plan allocation
   
1,260
     
1,278
 
Stock-based compensation
   
3,848
     
3,896
 
Decrease in deferred income taxes
   
2,547
     
502
 
Loss on discontinued operations, net of tax
   
2,011
     
1,490
 
Change in assets and liabilities:
               
Increase in accounts receivable
   
(26,622
)
   
(34,524
)
Increase in inventories
   
(19,691
)
   
(6,650
)
Increase in prepaid expenses and other current assets
   
(6,406
)
   
(2,988
)
Increase (decrease) in accounts payable
   
(6,994
)
   
15,684
 
Decrease in sundry payables and accrued expenses
   
(7,545
)
   
(9,115
)
Net change in other assets and liabilities
   
(6,261
)
   
(2,502
)
Net cash provided by (used in) operating activities
   
(19,506
)
   
4,186
 
 
               
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Acquisitions of and investments in businesses
   
(38,427
)
   
(8,572
)
Net proceeds from sale of Grapevine, Texas facility
   
4,801
     
 
Capital expenditures
   
(7,578
)
   
(11,325
)
Other investing activities
   
46
     
16
 
Net cash used in investing activities
   
(41,158
)
   
(19,881
)
 
               
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Net borrowings under line-of-credit agreements
   
86,311
     
31,529
 
Net borrowings (payments) of other debt and capital lease obligations
   
(355
)
   
758
 
Purchase of treasury stock
   
(10,738
)
   
(7,640
)
Increase in overdraft balances
   
1,691
     
1,990
 
Dividends paid
   
(10,296
)
   
(9,437
)
Net cash provided by financing activities
   
66,613
     
17,200
 
Effect of exchange rate changes on cash
   
332
     
(255
)
Net increase in cash and cash equivalents
   
6,281
     
1,250
 
CASH AND CASH EQUIVALENTS at beginning of period
   
11,138
     
17,323
 
CASH AND CASH EQUIVALENTS at end of period
 
$
17,419
   
$
18,573
 
 
               
Supplemental disclosure of cash flow information:
               
Cash paid during the period for:
               
Interest
 
$
2,516
   
$
1,656
 
Income taxes
 
$
13,785
   
$
9,622
 
Noncash investing activity:
               
Accrual for additional investment in China joint venture
 
$
   
$
1,373
 

See accompanying notes to consolidated financial statements (unaudited).

6

Index


STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

Three Months Ended June 30, 2019
(Unaudited)

 
 
Common
Stock
   
Capital in
Excess of
Par Value
   
Retained
Earnings
   
Accumulated
Other
Comprehensive
Income (Loss)
   
Treasury
Stock
   
Total
 
(In thousands)
                                   
Balance at March 31, 2019
 
$
47,872
   
$
104,467
   
$
387,170
   
$
(8,904
)
 
$
(57,565
)
 
$
473,040
 
Net earnings
   
     
     
19,432
     
     
     
19,432
 
Other comprehensive income, net of tax
   
     
     
     
393
     
     
393
 
Cash dividends paid
   
     
     
(5,137
)
   
     
     
(5,137
)
Purchase of treasury stock
   
     
     
     
     
(4,411
)
   
(4,411
)
Stock-based compensation
   
     
880
     
     
     
1,068
     
1,948
 
Employee Stock Ownership Plan
   
     
     
     
     
     
 
 
                                               
Balance at June 30, 2019
 
$
47,872
   
$
105,347
   
$
401,465
   
$
(8,511
)
 
$
(60,908
)
 
$
485,265
 


Three Months Ended June 30, 2018
(Unaudited)

 
 
Common
Stock
   
Capital in
Excess of
Par Value
   
Retained
Earnings
   
Accumulated
Other
Comprehensive
Income (Loss)
   
Treasury
Stock
   
Total
 
(In thousands)
                                   
Balance at March 31, 2018
 
$
47,872
   
$
102,646
   
$
359,232
   
$
(1,895
)
 
$
(48,346
)
 
$
459,509
 
Net earnings
   
     
     
15,945
     
     
     
15,945
 
Other comprehensive income, net of tax
   
     
     
     
(5,935
)
   
     
(5,935
)
Cash dividends paid
   
     
     
(4,716
)
   
     
     
(4,716
)
Purchase of treasury stock
   
     
     
     
     
(4,412
)
   
(4,412
)
Stock-based compensation
   
     
757
     
     
     
1,222
     
1,979
 
 
                                               
Balance at June 30, 2018
 
$
47,872
   
$
103,403
   
$
370,461
   
$
(7,830
)
 
$
(51,536
)
 
$
462,370
 

See accompanying notes to consolidated financial statements (unaudited).

7

Index

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

Six Months Ended June 30, 2019
(Unaudited)

 
 
Common
Stock
   
Capital in
Excess of
Par Value
   
Retained
Earnings
   
Accumulated
Other
Comprehensive
Income (Loss)
   
Treasury
Stock
   
Total
 
(In thousands)
                                   
Balance at December 31, 2018
 
$
47,872
   
$
102,470
   
$
380,113
   
$
(9,594
)
 
$
(53,660
)
 
$
467,201
 
Net earnings
   
     
     
31,648
     
     
     
31,648
 
Other comprehensive income, net of tax
   
     
     
     
1,083
     
     
1,083
 
Cash dividends paid
   
     
     
(10,296
)
   
     
     
(10,296
)
Purchase of treasury stock
   
     
     
     
     
(10,738
)
   
(10,738
)
Stock-based compensation
   
     
2,132
     
     
     
1,716
     
3,848
 
Employee Stock Ownership Plan
   
     
745
     
     
     
1,774
     
2,519
 
 
                                               
Balance at June 30, 2019
 
$
47,872
   
$
105,347
   
$
401,465
   
$
(8,511
)
 
$
(60,908
)
 
$
485,265
 


Six Months Ended June 30, 2018
(Unaudited)

 
 
Common
Stock
   
Capital in
Excess of
Par Value
   
Retained
Earnings
   
Accumulated
Other
Comprehensive
Income (Loss)
   
Treasury
Stock
   
Total
 
(In thousands)
                                   
Balance at December 31, 2017
 
$
47,872
   
$
100,057
   
$
357,153
   
$
(4,109
)
 
$
(47,319
)
 
$
453,654
 
Cumulative effect adjustment (Note 2)
   
     
     
(1,189
)
   
     
     
(1,189
)
Net earnings
   
     
     
23,934
     
     
     
23,934
 
Other comprehensive income, net of tax
   
     
     
     
(3,721
)
   
     
(3,721
)
Cash dividends paid
   
     
     
(9,437
)
   
     
     
(9,437
)
Purchase of treasury stock
   
     
     
     
     
(7,324
)
   
(7,324
)
Stock-based compensation
   
     
2,581
     
     
     
1,315
     
3,896
 
Employee Stock Ownership Plan
   
     
765
     
     
     
1,792
     
2,557
 
 
                                               
Balance at June 30, 2018
 
$
47,872
   
$
103,403
   
$
370,461
   
$
(7,830
)
 
$
(51,536
)
 
$
462,370
 

See accompanying notes to consolidated financial statements (unaudited).

8

Index


STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1.  Basis of Presentation

Standard Motor Products, Inc. and subsidiaries (referred to as the “Company,” “we,” “us,” or “our”) is engaged in the manufacture and distribution of premium replacement parts for motor vehicles in the automotive aftermarket industry with a complementary focus on heavy duty, industrial equipment and the original equipment market.

The accompanying unaudited financial information should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2018.  The unaudited 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.

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.  The results of operations for the interim periods are not necessarily indicative of the results of operations for the entire year.

Note 2.  Summary of Significant Accounting Policies

The preparation of consolidated annual and quarterly financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities at the date of our consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods.  We have made a number of estimates and assumptions in the preparation of these consolidated financial statements.  We can give no assurance that actual results will not differ from those estimates.  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.

There have been no material changes to our critical accounting policies and estimates from the information provided in Note 1 of the notes to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2018, except for changes made as a result of the adoption of the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Update (“ASU”) 2016-02, Leases, (“ASU 2016-02”), described under the heading, “Recently Issued Accounting Pronouncements” below and in Note 3, “Leases.”
9

Index

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)

Recently Issued Accounting Pronouncements

Standards that were adopted

Leases

Effective January 1, 2019, we adopted ASU 2016-02, Leases, (“ASU 2016-02”) using the modified retrospective approach. The modified retrospective approach provides a method for recording existing leases at adoption.  The most significant impact in adopting the new standard was the recognition of right-of-use (“ROU”) assets and lease liabilities on our consolidated balance sheet for operating leases, while the accounting for finance leases remained substantially unchanged.  The adoption of the new standard did not materially impact our consolidated statements of operations or cash flows.

In adopting ASU 2016-02, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward our historical lease identification and lease classifications.  In addition, upon adoption, we evaluated all of our leases, and in particular our real estate leases, to determine the appropriate lease term.  In evaluating our leases, we determined that the lease term for one of our leases should be lengthened, as we concluded that it is reasonably certain that we will exercise the five-year renewal option in the lease.  The lease term for all of our other leases remained unchanged.

Additionally, we elected to apply the provisions of ASU 2018-11, Targeted Improvements, which allows us to initially apply the new lease requirements as of the effective date.  Comparative financial information for the prior periods presented were not restated but instead are reported under the accounting standards in effect in those prior periods.

Adoption of the new standard resulted in the following changes in our consolidated balance sheet as of January 1, 2019 (in thousands):

 
 
Balance at
December 31,
2018
   
Adjustments
Due to
Adoption of
ASU 2016-02
   
Balance at
January 1,
2019
 
Balance Sheet
                 
Operating lease right-of-use asset
 
$
   
$
38,580
   
$
38,580
 
Sundry payables and accrued expenses
   
31,033
     
7,232
     
38,265
 
Noncurrent operating lease liabilities
   
     
31,348
     
31,348
 

See Note 3 for further information regarding our adoption of ASU 2016-02.
10

Index

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)

Standards that are not yet adopted as of June 30, 2019

The following table provides a brief description of recently issued accounting pronouncements that have not yet been adopted as of June 30, 2019, 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.

Note 3.  Leases

Significant Accounting Policy

We determine if an arrangement is a lease at inception.  For operating leases, we include and report operating lease right-of-use (“ROU”) assets, sundry payables and accrued expenses, and noncurrent operating lease liabilities on our consolidated balance sheet for leases with a term longer than twelve months.  Finance leases are reported on our consolidated balance sheets in property, plant and equipment, current portion of other debt, and long-term debt.

Operating lease ROU assets and operating lease liabilities are recognized at the lease commencement date based on the present value of the total lease payments over the lease term.  Our ROU assets represent the right to use an underlying leased asset over the existing lease term, and the corresponding lease liabilities represent our obligation to make lease payments arising from the lease agreement.  As most of our leases do not provide for an implicit rate, we use our secured incremental borrowing rate based on the information available when determining the present value of our lease payments.  Our lease terms may include options to terminate, or extend, our lease when it is reasonably certain that we will execute the option.  Lease agreements may contain lease and non-lease components, which are generally accounted for separately.  Operating lease expense is recognized on a straight-line basis over the lease term.

Quantitative Lease Disclosures

We have operating and finance leases for our manufacturing facilities, warehouses, office space, automobiles, and certain equipment.  Our leases have remaining lease terms of up to ten years, some of which may include one or more five-year renewal options.  We have included the five-year renewal option for one of our leases in our operating lease payments as we concluded that it is reasonably certain that we will exercise the option.  Leases with an initial term of twelve months or less are not recorded on the balance sheet.  Operating lease expense is recognized on a straight-line basis over the lease term.  Finance leases are not material.
11

Index

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)

The following tables provide quantitative disclosures related to our operating leases (in thousands):