Large Accelerated Filer ☑		Accelerated Filer ☐
Non-Accelerated Filer ☐	~~(Do not check if a smaller reporting company)~~	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 ~~May 1, 2018~~,April 30, 2019, there were ~~22,482,362~~22,356,695 outstanding shares of the registrant’s Common Stock, par value $2.00 per share.

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

INDEX

PART I - FINANCIAL INFORMATION

		Page No.
Item 1.	Consolidated Financial Statements:

	Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, ~~2018~~2019 and ~~2017~~2018	3

	Consolidated Statements of Comprehensive Income (Unaudited) for the Three Months Ended March 31, ~~2018~~2019 and ~~2017~~2018	4

	Consolidated Balance Sheets as of March 31, ~~2018~~2019 (Unaudited) and December 31, ~~2017~~2018	5

	Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, ~~2018~~2019 and ~~2017~~2018	6

	Consolidated ~~Statement~~Statements of Changes in Stockholders’ Equity (Unaudited) for the Three Months Ended March 31, 2019 and 2018	7

	Notes to Consolidated Financial Statements (Unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26 24

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	40 32

Item 4.	Controls and Procedures	41 33

~~PART II – OTHER INFORMATION~~


PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	42 34

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42 34

Item 6.	Exhibits	4335

Signatures		44 36

Index

PART I - FINANCIAL INFORMATION

ITEM 1.

CONSOLIDATED FINANCIAL STATEMENTS

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data)	Three Months Ended March 31,						Three Months Ended March 31,
	2018			2017			2019			2018
	(Unaudited)						(Unaudited)

Net sales	$	261,826		$	282,378		$	283,766		$	261,826
Cost of sales		189,237			198,268			205,803			189,237
Gross profit		72,589			84,110			77,963			72,589
Selling, general and administrative expenses		57,717			57,417			60,000			57,717
Restructuring and integration expenses		2,836			1,547			—			2,836
Other income, net		271			316
Other income (expense), net								(6	)		271
Operating income		12,307			25,462			17,957			12,307
Other non-operating income (expense), net		(31	)		880			646			(31	)
Interest expense		632			468			1,089			632
Earnings from continuing operations before taxes		11,644			25,874			17,514			11,644
Provision for income taxes		3,047			9,507			4,410			3,047
Earnings from continuing operations		8,597			16,367			13,104			8,597
Loss from discontinued operations, net of income taxes		(608	)		(633	)		(888	)		(608	)
Net earnings	$	7,989		$	15,734		$	12,216		$	7,989
Per Share Data:
Net earnings per common share – Basic:
Earnings from continuing operations	$	0.38		$	0.72		$	0.58		$	0.38
Discontinued operations		(0.02	)		(0.03	)		(0.04	)		(0.02	)
Net earnings per common share – Basic	$	0.36		$	0.69		$	0.54		$	0.36
Net earnings per common share – Diluted:
Earnings from continuing operations	$	0.37		$	0.70		$	0.57		$	0.37
Discontinued operations		(0.02	)		(0.03	)		(0.04	)		(0.02	)
Net earnings per common share – Diluted	$	0.35		$	0.67		$	0.53		$	0.35
Dividend declared per share	$	0.21		$	0.19		$	0.23		$	0.21

Average number of common shares		22,498,510			22,846,595			22,421,795			22,498,510
Average number of common shares and dilutive common shares		22,967,281			23,313,773			22,905,364			22,967,281

See accompanying notes to consolidated financial statements (unaudited).

Index

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Three Months Ended March 31,
(In thousands)	2019			2018
	(Unaudited)

Net earnings	$	12,216		$	7,989
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		695			2,219
Pension and postretirement plans		(5	)		(5	)
Total other comprehensive income, net of tax		690			2,214
Comprehensive income	$	12,906		$	10,203

See accompanying notes to consolidated financial statements (unaudited).

Index

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

CONSOLIDATED ~~STATEMENTS OF COMPREHENSIVE INCOME~~BALANCE SHEETS

Three Months Ended
March 31,

(In thousands) 2018 2017
(Unaudited)

Net earnings $ 7,989 $ 15,734
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments 2,219 2,723
Pension and postretirement plans:
Amortization of:
Unrecognized gain (9 ) (59 )
Income tax expense related to pension and postretirement plans 4 24
Pension and postretirement plans, net of tax (5 ) (35 )
Total other comprehensive income, net of tax 2,214 2,688
Comprehensive income $ 10,203 $ 18,422

(In thousands, except share and per share data)	March 31, 2019			December 31, 2018
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	11,746		$	11,138
Accounts receivable, less allowances for discounts and doubtful accounts of $6,643 and $5,687 for 2019 and 2018, respectively		174,164			157,535
Inventories		365,251			349,811
Unreturned customer inventories		19,784			20,484
Prepaid expenses and other current assets		9,412			7,256
Total current assets		580,357			546,224

Property, plant and equipment, net of accumulated depreciation of $187,777 and $186,135 for 2019 and 2018, respectively		88,850			90,754
Operating lease right-of-use assets		37,301			—
Goodwill		67,370			67,321
Other intangibles, net		46,581			48,411
Deferred income taxes		41,126			42,334
Investments in unconsolidated affiliates		33,703			32,469
Other assets		17,446			15,619
Total assets	$	912,734		$	843,132

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Notes payable	$	78,717		$	43,689
Current portion of other debt		5,023			5,377
Accounts payable		96,878			94,357
Sundry payables and accrued expenses		32,116			31,033
Accrued customer returns		55,318			57,433
Accrued core liability		28,260			31,263
Accrued rebates		31,357			28,870
Payroll and commissions		17,901			20,564
Total current liabilities		345,570			312,586

Long-term debt		161			153
Noncurrent operating lease liabilities		30,130			—
Other accrued liabilities		19,996			18,075
Accrued asbestos liabilities		43,837			45,117
Total liabilities		439,694			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		104,467			102,470
Retained earnings		387,170			380,113
Accumulated other comprehensive income		(8,904	)		(9,594	)
Treasury stock – at cost (1,565,916 shares and 1,503,284 shares in 2019 and 2018, respectively)		(57,565	)		(53,660	)
Total stockholders’ equity		473,040			467,201
Total liabilities and stockholders’ equity	$	912,734		$	843,132

See accompanying notes to consolidated financial statements (unaudited).

Index

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

CONSOLIDATED ~~BALANCE SHEETS~~STATEMENTS OF CASH FLOWS

(In thousands, except share and per share data)

March 31,
2018

December 31,
2017

(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 26,226 $ 17,323
Accounts receivable, less allowances for discounts and doubtful accounts of $5,243 and $4,967 for 2018 and 2017, respectively 160,573 140,057
Inventories 329,784 326,411
Unreturned customer inventories 18,674 —
Prepaid expenses and other current assets 12,672 12,300
Total current assets 547,929 496,091

Property, plant and equipment, net of accumulated depreciation of $189,147 and $191,081 for 2018 and 2017, respectively 92,237 89,103
Goodwill 67,534 67,413
Other intangibles, net 54,411 56,261
Deferred income taxes 32,469 32,420
Investments in unconsolidated affiliates 35,703 31,184
Other assets 15,917 15,095
Total assets $ 846,200 $ 787,567

(In thousands)	Three Months Ended March 31,
	2019			2018
	(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings	$	12,216		$	7,989
Adjustments to reconcile net earnings to net cash used in operating activities:
Depreciation and amortization		6,178			6,016
Amortization of deferred financing cost		56			86
Increase to allowance for doubtful accounts		920			110
Increase to inventory reserves		357			1,223
Amortization of deferred gain on sale of building		—			(218	)
Equity (income) loss from joint ventures		(661	)		171
Employee stock ownership plan allocation		630			639
Stock-based compensation		1,900			1,917
(Increase) decrease in deferred income taxes		1,213			(77	)
Loss on discontinued operations, net of tax		888			608
Change in assets and liabilities:
Increase in accounts receivable		(22,252	)		(20,367	)
Increase in inventories		(14,656	)		(3,390	)
(Increase) decrease in prepaid expenses and other current assets		(282	)		1,559
Increase in accounts payable		1,181			10,674
Decrease in sundry payables and accrued expenses		(12,911	)		(12,997	)
Net changes in other assets and liabilities		(1,503	)		(95	)
Net cash used in operating activities		(26,726	)		(6,152	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of and investments in businesses		—			(6,472	)
Net proceeds from sale of Grapevine, Texas facility		4,801			—
Capital expenditures		(3,084	)		(6,903	)
Other investing activities		29			—
Net cash provided by (used in) investing activities		1,746			(13,375	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under line-of-credit agreements		35,029			33,000
Net borrowings (payments) of other debt and capital lease obligations		(271	)		1,054
Purchase of treasury stock		(5,835	)		(3,221	)
Increase in overdraft balances		1,409			1,885
Dividends paid		(5,159	)		(4,721	)
Net cash provided by financing activities		25,173			27,997
Effect of exchange rate changes on cash		415			433
Net increase in cash and cash equivalents		608			8,903
CASH AND CASH EQUIVALENTS at beginning of period		11,138			17,323
CASH AND CASH EQUIVALENTS at end of period	$	11,746		$	26,226

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	974		$	480
Income taxes	$	2,156		$	671
Noncash investing activity:
Accrual for additional investment in China joint venture		—		$	3,473

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Notes payable $ 90,000 $ 57,000
Current portion of long-term debt 5,880 4,699
Accounts payable 90,718 77,990
Sundry payables and accrued expenses 29,741 40,012
Accrued customer returns 43,031 35,916
Accrued core liability 23,751 11,899
Accrued rebates 36,436 35,346
Payroll and commissions 18,971 23,035
Total current liabilities 338,528 285,897

Long-term debt
42

79

Other accrued liabilities 15,352 14,561
Accrued asbestos liabilities 32,769 33,376
Total liabilities 386,691 333,913

Commitments and contingencies

Stockholders’ equity:
Common stock – par value $2.00 per share:
Authorized – 30,000,000 shares; issued 23,936,036 shares 47,872 47,872
Capital in excess of par value 102,646 100,057
Retained earnings 359,232 357,153
Accumulated other comprehensive income (1,895 ) (4,109 )
Treasury stock – at cost (1,429,714 shares and 1,424,025 shares in 2018 and 2017, respectively) (48,346 ) (47,319 )
Total stockholders’ equity 459,509 453,654
Total liabilities and stockholders’ equity $ 846,200 $ 787,567

See accompanying notes to consolidated financial statements (unaudited).

Index

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands)

Three Months Ended
March 31,

2018 2017
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 7,989 $ 15,734
Adjustments to reconcile net earnings to net cash used in operating activities:
Depreciation and amortization 6,016 5,631
Amortization of deferred financing cost 86 86
Increase to allowance for doubtful accounts 110 534
Increase to inventory reserves 1,223 981
Amortization of deferred gain on sale of building (218 ) (262 )
Equity (income) loss from joint ventures 171 (718 )
Employee stock ownership plan allocation 639 540
Stock-based compensation 1,917 1,862
(Increase) decrease in deferred income taxes (77 ) 214
Loss on discontinued operations, net of tax 608 633
Change in assets and liabilities:
Increase in accounts receivable (20,367 ) (45,325 )
Increase in inventories (3,390 ) (19,344 )
Decrease in prepaid expenses and other current assets 1,559 2,065
Increase in accounts payable 10,674 13,664
Decrease in sundry payables and accrued expenses (12,997 ) (2,269 )
Net changes in other assets and liabilities (95 ) (910 )
Net cash used in operating activities (6,152 ) (26,884 )

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of and investments in businesses (6,472 ) —
Capital expenditures (6,903 ) (3,234 )
Other investing activities — 2
Net cash used in investing activities (13,375 ) (3,232 )

CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under line-of-credit agreements 33,000 27,234
Net borrowings (payments) of other debt and capital lease obligations 1,054 (10 )
Purchase of treasury stock (3,221 ) (1,267 )
Increase in overdraft balances 1,885 3,650
Dividends paid (4,721 ) (4,338 )
Net cash provided by financing activities 27,997 25,269
Effect of exchange rate changes on cash 433 632
Net increase (decrease) in cash and cash equivalents 8,903 (4,215 )
CASH AND CASH EQUIVALENTS at beginning of period 17,323 19,796
CASH AND CASH EQUIVALENTS at end of period $ 26,226 $ 15,581

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 480 $ 328
Income taxes $ 671 $ 1,407
Noncash investing activity:
Accrual for additional investment in China joint venture $ 3,473 $ —

Three Months Ended March 31, 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		—		—		12,216			—			—			12,216
Other comprehensive income, net of tax		—		—		—			690			—			690
Cash dividends paid		—		—		(5,159	)		—			—			(5,159	)
Purchase of treasury stock		—		—		—			—			(6,327	)		(6,327	)
Stock-based compensation		—		1,252		—			—			648			1,900
Employee Stock Ownership Plan		—		745		—			—			1,774			2,519

Balance at March 31, 2019	$	47,872	$	104,467	$	387,170		$	(8,904	)	$	(57,565	)	$	473,040

Three Months Ended March 31, 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		—		—		(1,189	)		—			—			(1,189	)
Net earnings		—		—		7,989			—			—			7,989
Other comprehensive income, net of tax		—		—		—			2,214			—			2,214
Cash dividends paid		—		—		(4,721	)		—			—			(4,721	)
Purchase of treasury stock		—		—		—			—			(2,912	)		(2,912	)
Stock-based compensation		—		1,824		—			—			93			1,917
Employee Stock Ownership Plan		—		765		—			—			1,792			2,557

Balance at March 31, 2018	$	47,872	$	102,646	$	359,232		$	(1,895	)	$	(48,346	)	$	459,509

See accompanying notes to consolidated financial statements (unaudited).

Index

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

~~CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY~~

~~Three Months Ended March 31, 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 — — 7,989 — — 7,989
Other comprehensive income, net of tax — — — 2,214 — 2,214
Cash dividends paid — — (4,721 ) — — (4,721 )
Purchase of treasury stock — — — — (2,912 ) (2,912 )
Stock-based compensation — 1,824 — — 93 1,917
Employee Stock Ownership Plan — 765 — — 1,792 2,557

Balance at March 31, 2018 $ 47,872 $ 102,646 $ 359,232 $ (1,895 ) $ (48,346 ) $ 459,509

~~See accompanying notes to consolidated financial statements (unaudited).~~

~~Index~~

~~STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~Note 1.~~

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 ~~service~~ 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, ~~2017.~~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.

~~Reclassification~~

~~Certain prior period amounts in the accompanying consolidated financial statements and related notes have been reclassified to conform to the 2018 presentation.~~

~~Note 2.~~

~~Summary of Significant Accounting Policies~~

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, ~~realizability~~cash discounts, valuation of inventory, valuation of long-lived assets, goodwill and other intangible assets, depreciation and amortization of long-lived assets, product liability ~~other postretirement benefits,~~exposures, asbestos, environmental and litigation matters, ~~the~~ valuation of deferred tax assets, share based compensation and sales ~~return~~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, ~~2017,~~2018, except for changes made as a result of the adoption of the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Update (“ASU”) ~~2014-09,~~2016-02, ~~Revenue from Contracts with Customers,~~ Leases, (“ASU 2016-02”), described under the heading, “Recently Issued Accounting Pronouncements” below and in Note 3, ~~“Net Sales.~~“Leases.”

Index

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

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

Recently Issued Accounting Pronouncements

Standards that were adopted

~~Revenue from Contracts with Customers~~Leases

~~In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09,~~ ~~Revenue from Contracts with Customers~~, (“ASU 2014-09”) which replaces numerous requirements in U.S. generally accepted accounting principles, including industry-specific requirements, and provide companies with a single comprehensive revenue recognition model for recognizing revenue from contracts with customers. Under the new guidance, an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The two permitted transition methods under the new standard are (1) the full retrospective method, in which case the standard would be applied to each prior reporting period presented, with the cumulative effect of applying the standard recognized at the earliest period presented, or (2) the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application.

Effective January 1, ~~2018,~~2019, we adopted ~~the requirements of~~ ASU ~~2014-09,~~2016-02, ~~Revenue from Contracts with Customers~~Leases, ,(“ASU 2016-02”) using the modified retrospective ~~method. We recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings.~~approach. The ~~comparative information has not been restated and continues to be reported under the accounting standards~~modified retrospective approach provides a method for recording existing leases at adoption. The most significant impact in ~~effect for those periods. We expect the impact of the adoption of~~adopting the new standard ~~to be immaterial to~~was the recognition of right-of-use (“ROU”) assets and lease liabilities on our ~~net income on an ongoing basis.~~

consolidated balance sheet for operating leases, while the accounting for finance leases remained substantially unchanged. The adoption of the new standard did not ~~result in a material difference between~~materially impact our consolidated statements of operations or cash flows.

In adopting ASU 2016-02, we elected the ~~recognition~~package of ~~revenue~~practical expedients permitted under ~~ASU 2014-09~~the transition guidance within the new standard, which among other things, allowed us to carry forward our historical lease identification and ~~prior accounting standards. For the majority~~lease classifications. In addition, upon adoption, we evaluated all of our ~~net sales, revenue continues~~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 ~~recognized when products are shipped from~~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 ~~distribution facilities, or when received by our customers, depending upon~~other leases remained unchanged.

Additionally, we elected to apply the ~~terms~~provisions of ASU 2018-11, Targeted Improvements, which allows us to initially apply the new lease requirements as of the ~~contract. Under~~effective date. Comparative financial information for the ~~new revenue standard, (1)~~prior periods presented were not restated but instead are reported under the ~~return of cores from customers used~~accounting standards in our manufacturing processes for air conditioning compressors, diesel injectors, and diesel pumps is estimated and recorded as unreturned customer inventories at the time of sale, and (2) overstock returns are recorded gross of expected recoveries. effect in those prior periods.

Adoption of the new standard resulted in the ~~recording of unreturned customer inventories, and an increase in accrued core liabilities and accrued customer returns, with partially offsetting~~following changes in ~~net sales and cost of sales, and no material change to our net income on an ongoing basis.~~

~~The cumulative effect of the changes made to~~ our consolidated balance sheet as of January 1, ~~2018 for the adoption of ASU 2014-09 is as follows~~2019 (in thousands):

Balance at
December 31,
2017

Adjustments
Due to
Adoption of
ASU 2014-09

Balance at
January 1,
2018

Balance Sheet
Unreturned customer inventories $ — $ 19,950 $ 19,950
Accrued customer returns 35,916 6,670 42,586
Accrued core liability 11,899 14,469 26,368
Retained earnings 357,153 (1,189 ) 355,964

~~Index~~

~~STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)~~

The adoption of ASU 2014-09 resulted in the following changes to our consolidated balance sheet as of March 31, 2018 and our consolidated statement of operations for the three months ended March 31, 2018 (in thousands):

As Reported
Balances
Without
Adoption of
ASU 2014-09

Effect of
Change

Balance Sheet
Unreturned customer inventories $ 18,674 $ — $ 18,674
Prepaid expenses and other current assets 12,672 12,810 (138 )
Accrued customer returns 43,031 35,817 7,214
Accrued core liability 23,751 11,631 12,120
Retained earnings 359,232 360,030 (798 )

Statement of Operations
Net sales $ 261,826 $ 259,478 $ 2,348
Cost of sales 189,237 187,418 1,819
Earnings from continuing operations before taxes 11,644 11,115 529
Provision for income taxes 3,047 2,909 138
Net earnings 7,989 7,598 391

	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 ~~2014-09.~~2016-02.

Standards that are not yet adopted as of March 31, 2019

The following table provides a brief description of ~~the impact of additional~~ recently ~~adopted~~issued accounting pronouncements that have not yet been adopted as of March 31, 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 2016-15,~~ ~~Statement of Cash Flows~~	~~This standard is intended to reduce diversity in practice and to provide guidance as to how certain cash receipts and cash payments are presented and classified in the statement of cash flows.~~	~~January 1, 2018~~	~~The retrospective adoption of the new standard did not result in any changes in our reporting of cash receipts and cash payments in our consolidate statement of cash flows.~~

~~ASU 2017-07,~~ ~~Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost~~	This standard requires employers that present operating income in their consolidated statement of operations to include only the service cost component of net periodic pension cost and net periodic postretirement benefit cost in operating expenses (together with other employee compensation costs). The other components of net benefit cost, including amortization of prior service cost/credit, and settlement and curtailment effects, are to be included in other non-operating income (expense). The new standard requires retrospective reclassification of the effects of the new standard on the statement of operations.	~~January 1, 2018~~	The adoption of the new standard resulted in the reclassification of all components of net periodic pension cost and net periodic postretirement benefit cost, other than the service cost component, in our statement of operations from selling, general and administrated expenses, to other non-operating income (expense). We adopted the new standard retrospectively, and as such, all prior period amounts have been reclassified for comparative purposes.

~~Index~~

~~STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)~~

~~Standards that are not yet adopted as of March 31, 2018~~

~~The following table provides a brief description of the additional recent accounting pronouncements that could have an impact on our financial statements.~~

	~~Standard~~		~~Description~~		~~Date of~~ ~~adoption~~		~~Effects on the financial~~ ~~statements or other significant~~ ~~matters~~

	~~ASU 2016-02,~~ ~~Leases~~		This standard outlines the need to recognize a right-of-use asset and a lease liability for virtually all leases (other than leases that meet the definition of a short-term lease). For income statement purposes, the FASB retained the dual model, requiring leases to be classified as either operating or financing. Operating leases will result in straight-line expense while finance leases will result in a front-loaded expense pattern.		~~January 1, 2019,~~ ~~with early adoption permitted~~		The new standard must be adopted utilizing a modified retrospective transition, and provides for certain expedients. The new standard will require that we recognize all of our leases, including our current operating leases, on the balance sheet. To date, we have taken an inventory of all of our operating leases, which consist primarily of real estate and auto leases, and are currently evaluating the appropriate discount rates to use in calculating the right to use asset. We will be continuously assessing the impact of the new standard and the impact on our systems and processes through January 1, 2019, our planned date of adoption.

	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.~~

~~Net Sales~~

Index

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

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

Note 3. Leases

Significant Accounting Policy

We ~~recognize revenues when~~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 ~~performance obligation has been satisfied~~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 ~~control~~corresponding lease liabilities represent our obligation to make lease payments arising from the lease agreement. As most of ~~products has been transferred~~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 ~~customer which typically occurs upon shipment. Revenue is measured as~~straight-line basis over the ~~amount of consideration we expect to receive in exchange for the transfer of goods or providing services.~~

~~Shipping and handling costs, as well as freight to customers, are included in distribution expenses as part of selling, general and administrative expenses.~~lease term.

~~Revenue Recognition~~Quantitative Lease Disclosures

We ~~derive~~have operating and finance leases for our ~~revenue primarily from sales~~manufacturing facilities, warehouses, office space, automobiles, and certain equipment. Our leases have remaining lease terms of ~~replacement parts~~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 ~~motor vehicles from both~~one of our ~~Engine Management and Temperature Control Segments. The amount~~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 ~~consideration we receive and revenue we recognize depends~~twelve months or less are not recorded on the ~~marketing incentives, product warranty and overstock returns we offer to our customers. For certain of our sales of remanufactured products, we also charge our customers~~balance sheet. Operating lease expense is recognized on a ~~deposit for~~straight-line basis over the ~~return of a used core component which we can use in our future remanufacturing activities. Such deposit is~~lease term. Finance leases are not recognized as revenue at the time of the sale but rather carried as a core liability. At the same time, we estimate the core expected to be returned from the customer and record the estimated return as unreturned customer inventory. The liability is extinguished when a core is actually returned to us, or at period end when we estimate and recognize revenue for the core deposits not expected to be returned. We estimate and record provisions for cash discounts, quantity rebates, sales returns and warranties in the period the sale is recorded, based upon our prior experience and current trends. Significant management judgments and estimates must be made and used in estimating sales returns and allowances relating to revenue recognized in any accounting period.material.

1110

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 as of and for the three months ended March 31, 2019:

Balance Sheet Information	March 31, 2019
Assets
Operating lease right-of-use assets	$	37,301

Liabilities
Sundry payables and accrued expenses	$	8,148
Noncurrent operating lease liabilities		30,130
Total operating lease liabilities	$	38,278

Expense and Cash Flow Information	Three Months Ended March 31, 2019
Lease Expense
Operating lease expense (a)	$	2,224

Supplemental Cash Flow Information
Cash Paid for the amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	2,161
Right-of-use assets obtained in exchange for new lease obligations:
Operating leases	$	566

(a) Excludes expenses related to non-lease components such as maintenance, property taxes, etc., and operating lease expense for leases with an initial term of 12 months or less, which is not material.


Weighted Average Remaining Lease Term
Operating leases	6.3 Years

Weighted Average Discount Rate
Operating leases		3.8	%

Minimum Lease Payments

At March 31, 2019, we are obligated to make minimum lease payments through 2028, under operating leases, which are as follows (in thousands):

2019	$	6,413
2020		7,597
2021		6,983
2022		5,785
2023		5,277
Thereafter		11,316
Total lease payments	$	43,371
Less: Interest		(5,093	)
Present value of lease liabilities	$	38,278

Index

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

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

~~Product Warranty and Overstock Returns~~

Many of our products carry a warranty ranging from a 90-day limited warranty to a lifetime limited warranty, which generally covers defects in materials or workmanship and failure to meet industry published specifications and/or the result of installation error. In addition to warranty returns, we also permit our customers to return new, undamaged products to us within customer-specific limits (which are generally limited to a specified percentage of their annual purchases from us) in the event that they have overstocked their inventories. At the time products are sold, we accrue a liability for product warranties and overstock returns as a percentage of sales based upon estimates established using historical information on the nature, frequency and average cost of the claim and the probability of the customer return. At the same time, we record an estimate of anticipated customer returns as unreturned customer inventory. Revision to these estimates is made when necessary, based upon changes in these factors. We regularly study trends of such claims.

~~Disaggregation of Net Sales~~

We disaggregate our net sales from contracts with customers by geographic area, major product group, and major sales channels for each of our segments, as we believe it best depicts how the nature, amount, timing and uncertainty of our net sales are affected by economic factors. The following tables provide disaggregation of net sales information for the three months ended March 31, 2018 and 2017 (in thousands):

Three months ended March 31, 2018 (a)
Engine
Management

Temperature
Control

Other (c)
Total
Geographic Area:
United States $ 174,584 $ 55,571 $ — $ 230,155
Canada 7,804 3,931 2,107 13,842
Mexico 8,222 212 — 8,434
Europe 3,480 164 — 3,644
Other foreign 5,398 353 — 5,751
Total $ 199,488 $ 60,231 $ 2,107 $ 261,826

Major Product Group:
Ignition, emissions and fuel system parts $ 160,732 $ — $ 1,662 $ 162,394
Wire and cable 38,756 — 191 38,947
Compressors — 29,898 (56 ) 29,842
Other climate control parts — 30,333 310 30,643
Total $ 199,488 $ 60,231 $ 2,107 $ 261,826

Major Sales Channel:
Aftermarket $ 169,310 $ 51,630 $ 2,107 $ 223,047
OE/OES 25,056 8,101 — 33,157
Export 5,122 500 — 5,622
Total $ 199,488 $ 60,231 $ 2,107 $ 261,826

~~Index~~

~~STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)~~

Three months ended March 31, 2017 (a)(b)
Engine
Management

Temperature
Control

Other (c)
Total
Geographic Area:
United States $ 185,902 $ 65,039 $ — $ 250,941
Canada 9,767 4,357 774 14,898
Mexico 7,031 224 — 7,255
Europe 3,814 204 — 4,018
Other foreign 4,800 466 — 5,266
Total $ 211,314 $ 70,290 $ 774 $ 282,378

Major Product Group:
Ignition, emissions and fuel system parts $ 165,153 $ — $ 723 $ 165,876
Wire and cable 46,161 — 227 46,388
Compressors — 37,922 (302 ) 37,620
Other climate control parts — 32,368 126 32,494
Total $ 211,314 $ 70,290 $ 774 $ 282,378

Major Sales Channel:
Aftermarket $ 179,765 $ 61,799 $ 774 $ 242,338
OE/OES 26,504 7,989 — 34,493
Export 5,045 502 — 5,547
Total $ 211,314 $ 70,290 $ 774 $ 282,378

~~(a)~~

~~Segment net sales include intersegment sales in our Engine Management and Temperature Control segments.~~

~~(b)~~

~~Amounts have not been restated and are reported under accounting standards in effect in the period presented as we adopted ASU 2014-09,~~ ~~Revenue from Contracts with Customers, using the modified retrospective method.~~

~~(c)~~

Other consists of the elimination of intersegment sales from our Engine Management and Temperature Control segments as well as sales from our Canadian business unit that does not meet the criteria of a reportable operating segment. Intersegment compressor sales for the three months ended March 31, 2018 and 2017 exceeded third party sales from our Canadian business unit.

~~Geographic Area~~

We sell our line of products primarily in the United States, with additional sales in Canada, Mexico, Europe, Asia and Latin America. Sales are attributed to countries based upon the location of the customer. Our sales are substantially denominated in U.S. dollars.

~~Index~~

~~STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)~~

~~Major Product Group~~

The Engine Management segment of the Company principally generates revenue from the sale of automotive engine replacement parts including ignition, emission and fuel system parts, and wire and cable parts. The Temperature Control segment of the Company principally generates revenue from the sale of automotive temperature control systems replacement parts including air conditioning compressors and other climate control parts.

~~Major Sales Channel~~

In the aftermarket channel, we sell our products to warehouse distributors and retailers. Our customers buy directly from us and sell directly to jobber stores, professional technicians and to “do-it-yourselfers” who perform automotive repairs on their personal vehicles. In the Original Equipment (“OE”) and Original Equipment Service (“OES”) channel, we sell our products to original equipment manufacturers who redistribute our products within their distribution network, independent dealerships and service dealer technicians. Lastly, in the Export channel, our domestic entities sell to customers outside the United States.

~~Note 4.~~

Note 4. Business Acquisitions and Investments

2018 Increase in Equity Investment

Foshan GWO YNG SMP Vehicle Climate Control & Cooling Products Co. Ltd.

In April 2014, we formed a 50/50 joint venture with Gwo Yng Enterprise Co., Ltd. (“Gwo Yng”), a China-based manufacturer of air conditioner accumulators, filter driers, hose assemblies and switches for the automotive aftermarket and OEM/OES markets. We acquired our 50% interest in the joint venture for approximately $14 million. We determined, at that time, that due to a lack of a voting majority and other qualitative factors, we do not control the operations of the joint venture and accordingly, our investment in the joint venture was accounted for under the equity method of accounting.

In March 2018, we acquired an additional 15% equity interest in the joint venture for RMB 26,475,583 (approximately $4.2 million), thereby increasing our equity interest in the joint venture to 65%. ~~Payment~~The $4.2 million payment for our additional 15% investment ~~will be~~was made in ~~six~~multiple cash installments, with $0.7 million paid in March 2018 and the balance paid on various dates ~~through May~~throughout 2018. Although we have increased our equity interest in the joint venture to 65%, the minority shareholder will maintain participating rights that will allow it to participate in certain significant financial and operating decisions that occur in the ordinary course of business. As a result of the existence of these substantive participating rights of the minority shareholder, we will continue to account for our investment in the joint venture under the equity method of accounting.

~~2017 Equity Investment~~

~~Foshan FGD SMP Automotive Compressor Co., Ltd.~~

In November 2017, we formed a 50/50 joint venture with Foshan Guangdong Automotive Air Conditioning Co., Ltd. (“FGD”), a China-based manufacturer of air conditioning compressors for the automotive aftermarket and the Chinese OE market. We acquired our 50% interest in the joint venture for approximately $12.5 million. Payment for our acquired interest in the joint venture was made in installments with approximately $6.8 million paid in 2017 and the balance of approximately $5.7 million paid in January 2018. We determined that due to a lack of a voting majority, and other qualitative factors, we do not control the operations of the joint venture and accordingly, our investment in the joint venture is accounted for under the equity method of accounting.

~~Index~~

~~STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)~~

~~Note 5.~~

Note 5. Restructuring and Integration Expenses

The aggregated liabilities included in “sundry payables and accrued expenses” and “other accrued liabilities” in the consolidated balance sheet relating to the restructuring and integration activities as of December 31, ~~2017~~2018 and March 31, ~~2018~~2019 and activity for the three months ended March 31, ~~2018~~2019 consisted of the following (in thousands):

Workforce
Reduction

Other Exit
Costs
Total
Exit activity liability at December 31, 2017 $ 2,854 $ — $ 2,854
Restructuring and integration costs:
Amounts provided for during 2018 133 2,703 2,836
Non-cash usage, including asset write-downs — (181 ) (181 )
Cash payments (950 ) (2,522 ) (3,472 )
Foreign currency exchange rate changes 26 — 26
Exit activity liability at March 31, 2018
$ 2,063 $ — $ 2,063

	Workforce Reduction			Other Exit Costs		Total
Exit activity liability at December 31, 2018	$	742		$	—	$	742
Restructuring and integration costs:
Amounts provided for during 2019		—			—		—
Cash payments		(60	)		—		(60	)
Exit activity liability at March 31, 2019	$	682		$	—	$	682

Restructuring Costs

Plant Rationalization Program

In February 2016, in connection with our ongoing efforts to improve operating efficiencies and reduce costs, we finalized our intention to implement a plant rationalization initiative. As part of the plant rationalization, all of our Grapevine, Texas production activities have been relocated to facilities in Greenville, South Carolina and Reynosa, Mexico, and certain production activities were relocated from our Greenville, South Carolina manufacturing facility to our manufacturing facility in Bialystok, Poland. In addition, certain service functions were relocated from Grapevine, Texas to our administrative offices in Lewisville, Texas and our Grapevine, Texas facility was closed. AsIn December 2018, we completed the sale of ~~March 31, 2018,~~ the property located in Grapevine, Texas. Net proceeds from the sale of $4.8 million were received in January 2019.

Index

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

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

The plant rationalization program is substantially completed. Cash payments made during the first three months of ~~2018 consisted~~2019 and the remaining aggregate liability related to the program as of March 31, 2019 consists of severance payments to former employees.

Activity, by segment, for the three months ended March 31, ~~2018~~2019 related to our plant rationalization program consisted of the following (in thousands):

Engine
Management

Temperature
Control

Other
Total
Exit activity liability at December 31, 2017
$ — $ 1,476 $ — $ 1,476
Restructuring and integration costs:
Amounts provided for during 2018 — 7 — 7
Cash payments — (647 ) — (647 )
Exit activity liability at March 31, 2018
$ — $ 836 $ — $ 836

	Engine Management		Temperature Control			Other		Total
Exit activity liability at December 31, 2018	$	—	$	304		$	—	$	304
Restructuring and integration costs:
Amounts provided for during 2019		—		—			—		—
Cash payments		—		(29	)		—		(29	)
Exit activity liability at March 31, 2019	$	—	$	275		$	—	$	275

Orlando Plant Rationalization Program

The Orlando plant rationalization program is substantially completed. Cash payments made during the first three months of 2019 and the remaining aggregate liability related to the program as of ~~approximately $3.3 million, consisting of employee severance and relocation of certain machinery and equipment, will be recognized throughout the program. Through~~ March 31, ~~2018, total restructuring and integration expenses related~~2019 consists of severance payments to ~~the program of approximately $3.2 million were recognized. We anticipate that the Orlando plant rationalization will be completed by the end of the second half of 2018.~~former employees.

~~Index~~

~~STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)~~

Activity, by segment, for the three months ended March 31, ~~2018~~2019 related to our Orlando plant rationalization program consisted of the following (in thousands):

Engine
Management

Temperature
Control

Other
Total
Exit activity liability at December 31, 2017
$ 986 $ — $ — $ 986
Restructuring and integration costs:
Amounts provided for during 2018 1,471 — — 1,471
Non-cash usage, including asset write-downs (12 ) — — (12 )
Cash payments (1,507 ) — — (1,507 )
Exit activity liability at March 31, 2018
$ 938 $ — $ — $ 938

	Engine Management			Temperature Control		Other		Total
Exit activity liability at December 31, 2018	$	438		$	—	$	—	$	438
Restructuring and integration costs:
Amounts provided for during 2019		—			—		—		—
Cash payments		(31	)		—		—		(31	)
Exit activity liability at March 31, 2019	$	407		$	—	$	—	$	407

~~Integration Costs~~

~~Wire and Cable Relocation~~

In connection with our acquisition of the North American automotive ignition wire business of General Cable Corporation in May 2016, we incurred certain integration expenses, including costs incurred in connection with the consolidation of the General Cable Corporation Altoona, Pennsylvania wire distribution center into our existing wire distribution center in Edwardsville, Kansas and the relocation of certain machinery and equipment. In October 2016, we further announced our plan to relocate all production from the acquired Nogales, Mexico wire set assembly operation to our existing wire assembly facility in Reynosa, Mexico and to close the Nogales, Mexico plant. Integration expenses expected to be incurred related to the closure of the Nogales, Mexico plant include employee severance and the relocation of certain machinery and equipment. Total integration expenses of approximately $4 million are expected to be incurred related to the wire and cable relocation program. Through March 31, 2018, integration expenses related to the program of approximately $3.8 million were recognized. We anticipate that the wire and cable relocation program will be completed by the end of the second half of 2018.

~~Activity, by segment, for the three months ended March 31, 2018 related to our wire and cable relocation program consisted of the following (in thousands):~~

Engine
Management

Temperature
Control

Other
Total
Exit activity liability at December 31, 2017
$ 392 $ — $ — $ 392
Restructuring and integration costs:
Amounts provided for during 2018 1,358 — — 1,358
Non-cash usage, including asset write-downs (169 ) — — (169 )
Cash payments (1,318 ) — — (1,318 )
Foreign currency exchange rate changes 26 — — 26
Exit activity liability at March 31, 2018
$ 289 $ — $ — $ 289

Note 6.

Sale of Receivables

From time to time, we sell undivided interests in certain of our receivables to financial institutions. We enter these agreements at our discretion when we determine that the cost of factoring is less than the cost of servicing our receivables with existing debt. Under the terms of the agreements, we retain no rights or interest, have no obligations with respect to the sold receivables, and do not service the receivables after the sale. As such, these transactions are being accounted for as a sale.

~~Index~~

~~STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)~~

Pursuant to these agreements, we sold ~~$157.5~~$171.1 million and ~~$179.7~~$157.5 million of receivables during the three months ended March 31, ~~2018~~2019 and ~~2017~~2018, respectively. A charge in the amount of ~~$5.4~~$5.7 million and ~~$5.2~~$5.4 million related to the sale of receivables is included in selling, general and administrative expense in our consolidated statements of operations for the three months ended March 31, ~~2018~~2019 and ~~2017,~~2018, respectively. If we do not enter into these arrangements or if any of the financial institutions with which we enter into these arrangements were to experience financial difficulties or otherwise terminate these arrangements, our financial condition, results of operations and cash flows could be materially and adversely affected by delays or failures to collect future trade accounts receivable.

~~Note 7.~~

~~Inventories~~

Index

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

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

Note 7. Inventories

Inventories, which are stated at the lower of cost (determined by means of the first-in, first-out method) ~~or market,~~and net realizable value, consist of the following:

	March 31, 2018		December 31, 2017		March 31, 2019		December 31, 2018
	(In thousands)				(In thousands)

Finished goods	$	215,057	$	209,800	$	239,889	$	226,802
Work in process		8,438		7,536		9,174		10,527
Raw materials		106,289		109,075		116,188		112,482
Subtotal		329,784		326,411		365,251		349,811
Unreturned customer inventories ~~(1)~~		18,674		—		19,784		20,484
Total inventories	$	348,458	$	326,411	$	385,035	$	370,295

~~(1)~~

The adoption of ASU 2014-09 using the modified retrospective method resulted in the recording of unreturned customer inventories commencing on January 1, 2018, see Note 2, “Summary of Significant Accounting Policies” for additional information.

~~Note 8.~~

Note 8. Acquired Intangible Assets

Acquired identifiable intangible assets consist of the following:

	March 31, 2018			December 31, 2017			March 31, 2019			December 31, 2018
	(In thousands)						(In thousands)
Customer relationships	$	87,462		$	87,290		$	87,256		$	87,195
Trademarks and trade names		6,800			6,800			6,800			6,800
Non-compete agreements		3,200			3,193			3,193			3,193
Patents		723			723			723			723
Supply agreements		800			800			800			800
Leaseholds		160			160			160			160
Total acquired intangible assets		99,145			98,966			98,932			98,871
Less accumulated amortization (1)		(45,787	)		(43,853	)		(53,184	)		(51,391	)
Net acquired intangible assets	$	53,358		$	55,113		$	45,748		$	47,480

(1)

Applies to all intangible assets, except for trademarks and trade names totaling $5.2 million, which have indefinite useful lives and, as such, are not being amortized.

~~Index~~

~~STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)~~

Total amortization expense for acquired intangible assets was ~~$1.9~~$1.8 million and ~~$2.1~~$1.9 million for the three months ended March 31, ~~2018~~2019 and ~~2017,~~2018, respectively. Based on the current estimated useful lives assigned to our intangible assets, amortization expense is estimated to be ~~$5.7~~$4.6 million for the remainder of ~~2018, $6.4 million in~~ 2019, $6$5.9 million in 2020, ~~$4.6~~$4.5 million in 2021, $3 million in 2022 and ~~$25.5~~$22.5 million in the aggregate for the years ~~2022~~2023 through 2031.

Index

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

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

~~Note 9.~~

Note 9. Credit Facilities and Long-Term Debt

Total debt outstanding is summarized as follows:

	March 31, 2018		December 31, 2017		March 31, 2019		December 31, 2018
	(In thousands)				(In thousands)
Revolving credit facilities	$	90,000	$	57,000	$	78,717	$	43,689
Other (1)		5,922		4,778		5,184		5,530
Total debt	$	95,922	$	61,778	$	83,901	$	49,219

Current maturities of debt	$	95,880	$	61,699	$	83,740	$	49,066
Long-term debt		42		79		161		153
Total debt	$	95,922	$	61,778	$	83,901	$	49,219

(1)

Other includes borrowings under our Polish overdraft facility of Zloty ~~19.8~~19 million (approximately ~~$5.8~~$5 million). and Zloty 19.9 million (approximately $5.3 million) as of March 31, 2019 and December 31, 2018, respectively.

Revolving Credit Facility

In ~~October 2015,~~December 2018, we ~~entered into a~~amended our Credit Agreement with JPMorgan Chase Bank, N.A., as agent, and a syndicate of ~~lenders~~lenders. The amended credit agreement provides for a senior secured revolving credit facility with a line of credit of up to $250 million (with an additional $50 million accordion feature) and aextends the maturity date ~~in October 2020.~~to December 2023. The line of credit under the amended credit agreement also allows for a $10 million line of credit to Canada as part of the $250 million available for borrowing. Direct borrowings under the amended credit agreement bear interest at LIBOR plus a margin ranging from 1.25% to 1.75% based on our borrowing availability, or floating at the alternate base rate plus a margin ranging from 0.25% to 0.75% based on our borrowing availability, at our option. The amended credit agreement is guaranteed by certain of our subsidiaries and secured by certain of our assets.

Borrowings under the amended credit agreement are secured by substantially all of our assets, including accounts receivable, inventory and certain fixed assets, and those of certain of our subsidiaries. Availability under the amended credit agreement is based on a formula of eligible accounts receivable, eligible drafts presented to the banks under our factoring agreements, eligible inventory, eligible equipment and eligible fixed assets. After taking into account outstanding borrowings under the amended credit agreement, there was an additional ~~$120.8~~$168.1 million available for us to borrow pursuant to the formula at March 31, ~~2018~~2019. Outstanding borrowings under the amended credit ~~agreements,~~agreement, which are classified as current liabilities, were ~~$90~~$78.7 million and ~~$57~~$43.7 million at March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. Borrowings under the ~~restated~~amended credit agreement have been classified as current liabilities based upon the accounting rules and certain provisions in the agreement.

At March 31, 2019, the weighted average interest rate on our amended credit agreement was 3.8%, which consisted of $75 million in direct borrowing at 3.6% and an alternative base rate loan of $3.7 million at 5.8%. At December 31, 2018, the weighted average interest rate on our amended credit agreement was 3%3.9%, which consisted of ~~$90~~$40 million in direct ~~borrowings. At~~ ~~December~~ ~~31, 2017, the weighted average interest~~borrowings at 3.4% and an alternative base rate ~~on our credit agreement was 2.7%, which consisted~~loan of ~~$57~~$3.7 million ~~in direct borrowings.~~at 5.8%. During the three months ended March 31, ~~2018,~~2019, our average daily alternative base rate loan balance was ~~$1.2~~$1.4 million compared to a balance of ~~$6.2~~$1.2 million for the three months ended March 31, ~~2017~~2018 and a balance of ~~$3.8~~$1.8 million for the year ended December 31, ~~2017.~~

182018.

~~Index~~

~~STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)~~

At any time that our borrowing availability is less than the greater of either (a) $25 million, or 10% of the commitments if fixed assets are not included in the borrowing base, or (b) $31.25 million, or 12.5% of the commitments if fixed assets are included in the borrowing base, the terms of the amended credit agreement provide for, among other provisions, a financial covenant requiring us, on a consolidated basis, to maintain a fixed charge coverage ratio of 1:1 at the end of each fiscal quarter (rolling four quarters). As of March 31, ~~2018,~~2019, we were not subject to these covenants. The amended credit agreement permits us to pay cash dividends of $20 million and make stock repurchases of $20 million in any fiscal year subject to a minimum availability of $25 million. Provided specific conditions are met, the amended credit agreement also permits acquisitions, permissible debt financing, capital expenditures, and cash dividend payments and stock repurchases of greater than $20 million.

Index

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

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

Polish Overdraft Facility

~~In December 2017, our~~Our Polish subsidiary, SMP Poland ~~sp.z.o.o.~~sp. z.o.o., has entered into an overdraft facility with HSBC Bank Polska S.A. (“HSBC Poland”) for Zloty 30 million (approximately ~~$8.8~~$7.8 million). The facility, as amended, expires in December ~~2018.~~2019. Borrowings under the overdraft facility will bear interest at a rate equal to WIBOR + 0.75% and are guaranteed by Standard Motor Products, Inc., the ultimate parent company. At March 31, 2019 and December 31, 2018, borrowings under the overdraft facility were Zloty ~~19.8~~19 million (approximately ~~$5.8~~$5 million). and Zloty 19.9 million (approximately $5.3 million), respectively.

Deferred Financing Costs

We had deferred financing costs of ~~$0.9~~$1 million and $1$1.1 million as of March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. Deferred financing costs are related to our revolving credit facility. Deferred financing costs as of March 31, ~~2018~~2019 are being amortized in the amounts of ~~$0.3~~$0.2 million for the remainder of ~~2018, $0.3~~2019, $0.2 million in ~~2019, and $0.3~~2020, $0.2 million in ~~2020.~~2021, $0.2 million in 2022 and $0.2 million in 2023.

~~Note 10.~~

~~Accumulated Other Comprehensive Income~~

~~Changes in Accumulated Other Comprehensive Income by Component (in thousands)~~

Foreign
Currency
Translation
Adjustments

Unrecognized
Postretirement
Benefit Costs
(Credit)
Total
Balance at December 31, 2017
$ (4,225 ) $ 116 $ (4,109 )
Other comprehensive income before reclassifications 2,219 — 2,219
Amounts reclassified from accumulated other comprehensive income — (5 ) (5 )
Other comprehensive income, net 2,219 (5 ) 2,214
Balance at March 31, 2018
$ (2,006 ) $ 111 $ (1,895 )

~~Reclassifications Out of Accumulated Other Comprehensive Income (in thousands)~~

Details About Accumulated Other Comprehensive Income Components
Three Months Ended
March 31, 2018

Amortization of postretirement benefit plans:
Prior service benefit (1) $ —
Unrecognized gain (1) (9 )
Total before income tax (9 )
Income tax expense 4
Total reclassifications for the period $ (5 )

~~(1)~~

These accumulated other comprehensive income components are included in the computation of net periodic postretirement benefit costs, which are included in other non-operating income, net in our consolidated statements of operations (see Note 12 for additional details).

~~Index~~

~~STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)~~

~~Note 11.~~

Note 10. Stock-Based Compensation Plans

We account for our stock-based compensation plans in accordance with the provisions of FASB ASC 718, Stock Compensation, which requires that a company measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The cost is recognized in the consolidated statement of operations over the period during which an employee is required to provide service in exchange for the award.

Restricted and Performance Stock Grants

As part of the 2016 Omnibus Incentive Plan, we currently grant shares of restricted stock to eligible employees and our independent directors and performance-based stock to eligible employees. Selected executives and other key personnel are granted performance awards whose vesting is contingent upon meeting various performance measures with a retention feature. Performance-based shares are subject to a three-year measuring period and the achievement of performance targets and, depending upon the achievement of such performance targets, they may become vested on the third anniversary of the date of grant. Each period we evaluate the probability of achieving the applicable targets, and we adjust our accrual accordingly. Restricted shares granted to employees become fully vested upon the third anniversary of the date of grant; and for selected key executives, certain additional restricted share grants vest 25% upon the attainment of age 60, 25% upon the attainment of age 63 and become fully vested upon the attainment of age 65. Restricted shares granted to directors become fully vested upon the first anniversary of the date of grant. Commencing with the 2015 grants, restricted and performance shares issued to certain key executives and directors are subject to a one or two year holding period upon the lapse of the three year vesting period. Forfeitures on restricted stock grants are estimated at 5% for employees and 0% for executives and directors, respectively, based on our evaluation of historical and expected future turnover.

Index

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

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

Our restricted and performance-based share activity was as follows for the three months ended March 31, ~~2018:~~2019:

	Shares			Weighted Average Grant Date Fair Value Per Share		Shares			Weighted Average Grant Date Fair Value Per Share
Balance at December 31, 2017		853,958		$	33.25
Balance at December 31, 2018							870,041		$	34.59
Granted		129			41.18		—			—
Vested		(2,200	)		41.71		(17,807	)		26.50
Forfeited		(1,575	)		41.44		(2,000	)		44.95
Balance at March 31, 2018		850,312		$	33.21
Balance at March 31, 2019							850,234		$	34.73

We recorded compensation expense related to restricted shares and performance-based shares of $1.9 million ($1.4 million, net of tax) and ~~$1.8~~$1.9 million ($~~1.1~~1.4 million, net of tax) for the three months ended March 31, ~~2018~~2019 and ~~2017,~~2018, respectively. The unamortized compensation expense related to our restricted and performance-based shares was ~~$14.7~~$13.8 million at March 31, ~~2018,~~2019, and is expected to be recognized as they vest over a weighted average period of ~~4.5~~4 years and ~~0.1~~0.08 years for employees and directors, respectively.

~~Index~~

~~STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)~~

~~Note 12.~~

Note 11. Employee Benefits

We provided, and continue to provide, certain medical and dental care benefits to eligible retired U.S. and Canadian employees. ~~Under~~The postretirement medical plans to eligible U.S. employees, other than to former union employees, and eligible Canadian employees terminated on December 31, 2016. As related to the U.S. ~~plan, for~~ non-union employees, ~~a Health Reimbursement Account (“HRA”) was established beginning January 1, 2009 for each qualified U.S. retiree. Annually,~~annually and through the year ended December 31, 2016, a fixed amount was credited into ~~the HRA~~a Health Reimbursement account (“HRA”) to cover both medical and dental costs for all current and future eligible retirees. Under the Canadian plan, retiree medical and dental benefits were funded using insurance contracts. Premiums under the insurance contracts were funded on a pay-as-you-go basis. The postretirement medical plans to substantially all eligible U.S. and Canadian employees terminated on December 31, 2016. For U.S. plan participants, balancesBalances in the HRA accounts upon termination of the plan at December 31, 2016 ~~will remain~~remained available for use until December 31, 2018. Any remaining balance at December 31, 2018 ~~will be~~was forfeited. Postretirement medical and dental benefits to the remaining eligible ~~employees will continue to be provided to the 39~~19 former union employees in the U.S.

will continue to be provided. The ~~components~~postretirement medical and dental benefit obligation for the former union employees in the U.S. as of March 31, 2019, and the net periodic benefit cost for our postretirement benefit plans for the three months ended March 31, 2019 and 2018 ~~and 2017~~ were ~~as follows (in thousands):~~not material.

Three Months Ended
March 31,

Postretirement benefits 2018 2017 (1)
Service cost $ — $ —
Interest cost 2 2
Amortization of prior service cost — —
Actuarial net (gain) loss (9 ) (59 )
Net periodic benefit cost (credit) $ (7 ) $ (57 )

~~(1)~~

Net periodic benefit cost (credit) has been reclassified from selling, general and administrative expenses to other non-operating income (expense), net on our consolidated statement of operations upon adoption of ASU 2017-07, ~~Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, see Note 2, “Summary of Significant Accounting Policies” for additional information.~~

We maintain a defined contribution Supplemental Executive Retirement Plan for key employees. Under the plan, these employees may elect to defer a portion of their compensation and, in addition, we may at our discretion make contributions to the plan on behalf of the employees. In March ~~2018,~~2019, we made company contributions to the plan of ~~$0.6~~$0.3 million related to calendar year ~~2017.~~2018.

We also have an Employee Stock Ownership Plan and Trust for employees who are not covered by a collective bargaining agreement. In connection therewith, we maintain an employee benefits trust to which we contribute shares of treasury stock. We are authorized to instruct the trustees to distribute such shares toward the satisfaction of our future obligations under the plan. The shares held in trust are not considered outstanding for purposes of calculating earnings per share until they are committed to be released. The trustees will vote the shares in accordance with their fiduciary duties. During the three months ended March 31, ~~2018,~~2019, we contributed to the trust an additional ~~53,300~~49,100 shares from our treasury and released ~~53,300~~49,100 shares from the trust leaving 200 shares remaining in the trust as of March 31, ~~2018.~~2019.

Index

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

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

~~Note 13.~~

Note 12. Fair Value Measurements

The carrying value of our financial instruments consisting of cash and cash equivalents, deferred compensation, and short term borrowings approximate their fair value. In each instance, fair value is determined after considering Level 1 inputs under the three-level fair value hierarchy. For fair value purposes, the carrying value of cash and cash equivalents approximates fair value due to the short maturity of those investments. The fair value of the assets held by the deferred compensation plan are based on the quoted market prices of the underlying funds which are held in registered investment companies. The carrying value of our revolving credit facilities, classified as short term borrowings, equals fair market value because the interest rate reflects current market rates.

~~Index~~

~~STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)~~

~~Note 14.~~

Note 13. Earnings Per Share

The following are reconciliations of the earnings available to common stockholders and the shares used in calculating basic and dilutive net earnings per common share (in thousands, except per share data):

	Three Months Ended March 31,						Three Months Ended March 31,
Basic Net Earnings Per Common Share:	2018			2017			2019			2018
Earnings from continuing operations	$	8,597		$	16,367		$	13,104		$	8,597
Loss from discontinued operations		(608	)		(633	)		(888	)		(608	)
Net earnings available to common stockholders	$	7,989		$	15,734		$	12,216		$	7,989

Weighted average common shares outstanding		22,499			22,847			22,422			22,499

Earnings from continuing operations per common share	$	0.38		$	0.72		$	0.58		$	0.38
Loss from discontinued operations per common share		(0.02	)		(0.03	)		(0.04	)		(0.02	)
Basic net earnings per common share	$	0.36		$	0.69		$	0.54		$	0.36

Diluted Net Earnings Per Common Share:
Earnings from continuing operations	$	8,597		$	16,367		$	13,104		$	8,597
Loss from discontinued operations		(608	)		(633	)		(888	)		(608	)
Net earnings available to common stockholders	$	7,989		$	15,734		$	12,216		$	7,989

Weighted average common shares outstanding		22,499			22,847			22,422			22,499
Plus incremental shares from assumed conversions:
Dilutive effect of restricted stock and performance stock		468			467			483			468
Weighted average common shares outstanding – Diluted		22,967			23,314			22,905			22,967

Earnings from continuing operations per common share	$	0.37		$	0.70		$	0.57		$	0.37
Loss from discontinued operations per common share		(0.02	)		(0.03	)		(0.04	)		(0.02	)
Diluted net earnings per common share	$	0.35		$	0.67		$	0.53		$	0.35

The shares listed below were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive for the periods presented or because they were excluded under the treasury method (in thousands):

Three Months Ended
March 31,

2018 2017
Restricted and performance shares 277 249

	Three Months Ended March 31,
	2019		2018
Restricted and performance shares		252		277

Index

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

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

~~Note 15.~~

Note 14. Industry Segments

We have two major reportable operating segments, each of which focuses on a specific line of replacement parts. Our Engine Management Segment manufactures and remanufactures ignition and emission parts, ignition wires, battery cables, fuel system parts and sensors for vehicle systems. Our Temperature Control Segment manufactures and remanufactures air conditioning compressors, air conditioning and heating parts, engine cooling system parts, power window accessories and windshield washer system parts.

~~Index~~

~~STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)~~

The following tables show our net sales, intersegment revenue and operating income by our operating segments (in thousands):

	Three Months Ended March 31,						Three Months Ended March 31,
	2018			2017			2019			2018
Net Sales (a)
Engine Management	$	199,488		$	211,314		$	213,189		$	199,488
Temperature Control		60,231			70,290			68,924			60,231
All Other		2,107			774			1,653			2,107
Consolidated	$	261,826		$	282,378		$	283,766		$	261,826

Intersegment Revenue (a)
Engine Management	$	5,991		$	7,312		$	5,349		$	5,991
Temperature Control		1,680			2,029			1,933			1,680
All Other		(7,671	)		(9,341	)		(7,282	)		(7,671	)
Consolidated	$	—		$	—		$	—		$	—

Operating Income
Engine Management	$	17,376		$	27,285		$	22,344		$	17,376
Temperature Control		831			3,967			2,050			831
All Other		(5,900	)		(5,790	)		(6,437	)		(5,900	)
Consolidated	$	12,307		$	25,462		$	17,957		$	12,307

a)(a)

Segment net sales include intersegment sales in our Engine Management and Temperature Control segments.

For the disaggregation of our net sales from contracts with customers by geographic area, major product group and major sales channels for each of our segments, see Note 3,15, “Net Sales.”

Note 15. Net Sales

Disaggregation of Net Sales

The following tables provide disaggregation of net sales information for the three months ended March 31, 2019 and 2018 (in thousands):

Index

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

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

Three months ended March 31, 2019 (a)	Engine Management		Temperature Control		Other (b)			Total
Geographic Area:
United States	$	187,894	$	64,851	$	—		$	252,745
Canada		7,066		3,462		1,653			12,181
Mexico		4,488		155		—			4,643
Europe		3,097		157		—			3,254
Other foreign		10,644		299		—			10,943
Total	$	213,189	$	68,924	$	1,653		$	283,766

Major Product Group:
Ignition, emission control, fuel and safety related system products	$	176,061	$	—	$	1,392		$	177,453
Wire and cable		37,128		—		80			37,208
Compressors		—		39,811		(260	)		39,551
Other climate control parts		—		29,113		441			29,554
Total	$	213,189	$	68,924	$	1,653		$	283,766

Major Sales Channel:
Aftermarket	$	178,539	$	60,541	$	1,653		$	240,733
OE/OES		29,140		7,875		—			37,015
Export		5,510		508		—			6,018
Total	$	213,189	$	68,924	$	1,653		$	283,766

Three months ended March 31, 2018 (a)	Engine Management		Temperature Control		Other (b)			Total
Geographic Area:
United States	$	176,917	$	56,201	$	—		$	233,118
Canada		7,804		3,301		2,107			13,212
Mexico		4,339		212		—			4,551
Europe		3,480		164		—			3,644
Other foreign		6,948		353		—			7,301
Total	$	199,488	$	60,231	$	2,107		$	261,826

Major Product Group:
Ignition, emission control, fuel and safety related system products	$	161,077	$	—	$	1,662		$	162,739
Wire and cable		38,411		—		191			38,602
Compressors		—		29,898		(56	)		29,842
Other climate control parts		—		30,333		310			30,643
Total	$	199,488	$	60,231	$	2,107		$	261,826

Major Sales Channel:
Aftermarket	$	169,310	$	51,630	$	2,107		$	223,047
OE/OES		25,056		8,101		—			33,157
Export		5,122		500		—			5,622
Total	$	199,488	$	60,231	$	2,107		$	261,826

(a)

Segment net sales include intersegment sales in our Engine Management and Temperature Control segments.

(b)

Other consists of the elimination of intersegment sales from our Engine Management and Temperature Control segments as well as sales from our Canadian business unit that does not meet the criteria of a reportable operating segment. Intersegment compressor sales for the three months ended March 31, 2019 and 2018 exceeded third party sales from our Canadian business unit.

Index

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

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

Geographic Area

Major Product Group

The Engine Management segment of the Company principally generates revenue from the sale of automotive engine replacement parts including ignition, emission control, fuel and safety related system products, and wire and cable parts. The Temperature Control segment of the Company principally generates revenue from the sale of automotive temperature control systems replacement parts including air conditioning compressors and other climate control parts.

Major Sales Channel

~~Note 16.~~

Note 16. Commitments and Contingencies

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

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

Warranties

We generally warrant our products against certain manufacturing and other defects. These product warranties are provided for specific periods of time of the product depending on the nature of the product. As of March 31, ~~2018~~2019 and ~~2017,~~2018, we have accrued ~~$20.6~~$22.7 million and ~~$25.6~~$20.6 million, respectively, for estimated product warranty claims included in accrued customer returns. The accrued product warranty costs are based primarily on historical experience of actual warranty claims.

The following table provides the changes in our product warranties (in thousands):

	Three Months Ended March 31,						Three Months Ended March 31,
	2018			2017			2019			2018

Balance, beginning of period	$	20,929		$	24,072		$	19,636		$	20,929
Liabilities accrued for current year sales		21,242			25,730			26,396			21,242
Settlements of warranty claims		(21,611	)		(24,193	)		(23,338	)		(21,611	)
Balance, end of period	$	20,560		$	25,609		$	22,694		$	20,560

Note 17. Subsequent Event

In April 2019, we acquired certain assets and liabilities of the Pollak business of Stoneridge, Inc. for approximately $40 million, subject to post-closing adjustments. The acquisition was funded through borrowings under our revolving credit facility with JPMorgan Chase Bank, N.A. Stoneridge’s Pollak business has manufacturing and distribution facilities in Canton, Massachusetts, El Paso, Texas, and Juarez, Mexico, and distributes a range of engine management products including sensors, switches, and connectors. The acquisition, to be reported as part of our Engine Management Segment, will enhance our growth opportunities in the OE/OES, heavy duty and commercial vehicle markets and add to our existing expertise in aftermarket distribution, product management and service. We will be relocating all production to our existing facilities, and are not acquiring any of the Pollak facilities or employees. We anticipate that the business will be fully integrated within 12 months. Revenues generated from the acquired business were approximately $45 million for the year ended December 31, 2018.

In connection with the acquired business, we have not yet completed our preliminary assessment of the fair value of the assets acquired and liabilities assumed, including the valuation of intangible assets and goodwill due to the proximity of the acquisition to the issuance of these consolidated financial statements. Accordingly, and as permitted by FASB ASC, Business Combinations, we are unable to provide further disclosures, including the allocation of the purchase price for this acquisition in this Form 10Q.

2523

Index

ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements in this Report are indicated by words such as “anticipates,” “expects,” “believes,” “intends,” “plans,” “estimates,” “projects,” “strategies” and similar expressions. These statements represent our expectations based on current information and assumptions and are inherently subject to risks and uncertainties. Our actual results could differ materially from those which are anticipated or projected as a result of certain risks and uncertainties, including, but not limited to, changes in business relationships with our major customers and in the timing, size and continuation of our customers’ programs; changes in our receivables factoring arrangements, such as changes in terms, termination of contracts and/or the impact of rising interest rates; the ability of our customers to achieve their projected sales; competitive product and pricing pressures; increases in production or material costs, including procurement costs resulting from higher tariffs, that cannot be recouped in product pricing; the performance of the aftermarket, heavy duty, industrial equipment and original equipment markets; changes in the product mix and distribution channel mix; economic and market conditions; successful integration of acquired businesses; our ability to achieve benefits from our cost savings initiatives; product liability and environmental matters (including, without limitation, those related to asbestos-related contingent liabilities and remediation costs at certain properties); as well as other risks and uncertainties, such as those described under Risk Factors, Quantitative and Qualitative Disclosures About Market Risk and those detailed herein and from time to time in the filings of the Company with the SEC. Forward-looking statements are made only as of the date hereof, and the Company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise. In addition, historical information should not be considered as an indicator of future performance. The following discussion should be read in conjunction with the unaudited consolidated financial statements, including the notes thereto, included elsewhere in this Report.

~~Business~~ Overview

We are a leading independent manufacturer and distributor of premium replacement parts for the engine management and temperature control systems of motor vehicles in the automotive aftermarket industry with a complementary focus on heavy duty, industrial equipment and the original equipment market.

We are organized into two ~~major~~ operating ~~segments, each of which~~segments. Each segment focuses on ~~specific lines~~providing our customers with full-line coverage of ~~replacement parts. Our Engine Management Segment manufactures~~premium engine management or temperature control products, and ~~remanufactures ignition~~a full suite of complimentary services that are tailored to our customers’ business needs and ~~emission parts, ignition wires, battery cables, fuel system parts and sensors~~driving end-user demand for vehicle systems. Our Temperature Control Segment manufactures and remanufactures air conditioning compressors, air conditioning and heating parts, engine cooling system parts, power window accessories, and windshield washer system parts.

our products. We sell our products primarily to ~~large retail chains,~~automotive aftermarket retailers, program distribution groups, warehouse distributors, original equipment manufacturers and original equipment service part operations in the United States, Canada, Mexico, Europe, Asia and other Latin ~~America,~~American countries.

Our Culture

Our Company was founded on the values of ethics, integrity, common decency and ~~Europe. Our customers consist~~respect for others. These values are embodied in our Code of ~~many~~Ethics, which has been adopted by the Board of Directors of the ~~leading auto parts retail chains, such~~Company to serve as ~~NAPA Auto Parts (National Automotive Parts Association, Inc.), Advance Auto Parts, Inc./CARQUEST Auto Parts, AutoZone, Inc., O’Reilly Automotive, Inc., Canadian Tire Corporation Limited~~a statement of principles to guide our decision-making and ~~The Pep Boys Manny, Moe & Jack,~~reinforce our commitment to these values in all aspects of our business. We believe that our commitment to our Company, our employees and the communities within which we operate has led to high employee satisfaction and low employee turnover, and our commitment to our customers, suppliers and business parties has resulted in high customer satisfaction, as ~~well as national program distribution groups, such as Auto Value~~evidenced by the customer awards that we routinely win, and ~~All Pro/Bumper~~decades-long customer relationships. We also seek ways to ~~Bumper (Aftermarket Auto Parts Alliance, Inc.), Automotive Distribution Network LLC, The National Pronto Association (“Pronto”), Federated Auto Parts Distributors, Inc. (“Federated”), Pronto~~positively contribute to our local communities by operating our facilities with conservation in mind, holding charitable drives, and Federated’s affiliate, the Automotive Parts Services Group or The Group, Auto Plus and specialty market distributors. We distribute parts under our own brand names, such as Standard®, Blue Streak®, BWD®, Select®, Intermotor®, GP Sorensen®, TechSmart®, Tech Expert®, OEM®, LockSmart®, Four Seasons®, EVERCO®, ACi® and Hayden® and through co-labels and private labels, such as CARQUEST®, Duralast®, Duralast Gold®, Import Direct®, Master Pro®, Omni-Spark®, Ultima Select®, Murray®, NAPA® Echlin®, NAPA Proformer™ Mileage Plus®, NAPA Temp Products™, NAPA® Belden®, Cold Power®, Driveworks^TM ~~and ToughOne.~~^TMbeing a good neighbor.

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Our goal is to grow revenues and earnings and deliver returns in excess of our cost of capital by being the best-in-class, full-line, full-service supplier of premium products to the engine management and temperature control markets. Our management places significant emphasis on improving our financial performance by achieving operating efficiencies and improving asset utilization, while maintaining product quality and high customer order fill rates. We intend to continue to improve our operating efficiency, customer satisfaction and cost position by increasing cost‑effective vertical integration in key product lines through internal development and improving our cost effectiveness and competitive responsiveness to better serve our customer base, including sourcing certain products from low cost regions such as those in Asia without compromising product quality.Seasonality

~~Seasonality.~~Historically, our operating results have fluctuated by quarter, with the greatest sales occurring in the second and third quarters of the year and revenues generally being recognized at the time of shipment. It is in these quarters that demand for our products is typically the highest, specifically in the Temperature Control Segment of our business. In addition to this seasonality, the demand for our ~~Temperature Control~~temperature control products during the second and third quarters of the year may vary significantly with the summer weather and customer inventories. For example, a ~~cool~~warm summer, as we experienced in 2018, may increase the demand for our temperature control products, while a mild summer, as we experienced in 2017, may lessen ~~the demand for our Temperature Control products, while a warm summer, as we experienced in 2016, may increase~~ such demand. As a result of this seasonality and variability in demand of our ~~Temperature Control~~temperature control products, our working capital requirements typically peak near the end of the second quarter, as the inventory build‑up of air conditioning products is converted to sales and payments on the receivables associated with such sales have yet to be received. During this period, our working capital requirements are typically funded by borrowing from our revolving credit facility.

Inventory ~~Management.~~ Management

We face inventory management issues as a result of overstock returns. We permit our customers to return new, undamaged products to us within customer-specific limits (which are generally limited to a specified percentage of their annual purchases from us) in the event that they have overstocked their inventories. In addition, the seasonality of our Temperature Control Segment requires that we increase our inventory during the winter season in preparation of the summer selling season and customers purchasing such inventory have the right to make returns. We accrue for overstock returns as a percentage of sales after giving consideration to recent returns history.

Discounts, Allowances, and ~~Incentives.~~ Incentives

We offer a variety of usual customer discounts, allowances and incentives. First, we offer cash discounts for paying invoices in accordance with the specified discount terms of the invoice. Second, we offer pricing discounts based on volume purchased from us and participation in our cost reduction initiatives. These discounts are principally in the form of “off-invoice” discounts and are immediately deducted from sales at the time of sale. For those customers that choose to receive a payment on a quarterly basis instead of “off-invoice,” we accrue for such payments as the related sales are made and reduce sales accordingly. Finally, rebates and discounts are provided to customers as advertising and sales force allowances, and allowances for warranty and overstock returns are also provided. Management analyzes historical returns, current economic trends, and changes in customer demand when evaluating the adequacy of the sales returns and other allowances. Significant management judgments and estimates must be made and used in connection with establishing the sales returns and other allowances in any accounting period. We account for these discounts and allowances as a reduction to revenues, and record them when sales are recorded.

~~Tax Cuts and Jobs Act~~Impact of Changes in U.S. Trade Policy

In December 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “Act”), which included a broad range of tax reform affecting businesses, including the reduction of the federal corporate income tax rate from 35% to 21%,2018, changes in ~~the deductibility~~U.S. trade policy, particularly as it relates to China, as with much of ~~certain business expenses, and the manner in which international operations are taxed~~our industry, have resulted in the ~~U.S. Reflecting~~assessment of increased tariffs on goods that we import into the ~~impact of the Act on~~United States. Although our ~~quarterly income tax provision, the effective income tax rate~~operating results in the first quarter of ~~2018 was 26.2% as compared~~2019 have been slightly impacted by the timing of Chinese sourced products, we have taken, and continue to ~~an effective income tax rate~~take, several actions to mitigate the impact of ~~36.7% in~~ the ~~first quarter~~increased tariffs, including but not limited to, price increases to our customers. We do not anticipate that the increased tariffs will have a significant impact on our future operating results. Although we are confident that we will be able to pass along the impact of ~~2017.~~the increased tariffs to our customers, there can be no assurances that we will be able to pass on the entire increased costs imposed by the tariffs.

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As related to the deemed repatriation of earnings of foreign subsidiaries, the Act includes a mandatory one-time tax on accumulated earnings of foreign subsidiaries. As a result, all previously unremitted earnings for which no U.S. deferred tax liability had been accrued are now subject to U.S. tax. In accordance with the guidelines provided in the Act, in the fourth quarter of 2017, we have aggregated the estimated untaxed foreign earnings and profits, and utilized participating exemption deductions and available foreign tax credits in deriving an estimated $1.4 million repatriation tax, which was recorded in the fourth quarter of 2017 and will be payable currently in 2018. Although we believe that the estimate has been properly computed, there may be an adjustment required in the coming quarters as the relevant authorities provide further guidance on the impacts of the Act. Notwithstanding the U.S. taxation of these amounts, we intend to continue to invest most or all of these earnings indefinitely outside of the U.S., and do not expect to incur any significant additional taxes related to such amounts.

Interim Results of ~~Operations:~~Operations

Comparison of the Three Months Ended March 31, ~~2018~~2019 to the Three Months Ended March 31, ~~2017~~2018

Sales. Consolidated net sales for the three months ended March 31, ~~2018~~2019 were ~~$261.8~~$283.8 million, ~~a decrease~~an increase of ~~$20.6~~$22 million, or ~~7.3%~~8.4%, compared to ~~$282.4~~$261.8 million in the same period of ~~2017.~~2018, with the majority of our net sales to customers located in the United States. Consolidated net sales ~~decreased~~increased in both our Engine Management and Temperature Control Segments.

The following table summarizes consolidated net sales by segment and by major product group within each segment for the three months ended March 31, ~~2018~~2019 and ~~2017~~2018 (in thousands):

	Three Months Ended March 31,				Three Months Ended March 31,
	2018		2017		2019		2018
Engine Management:
Ignition, Emission and Fuel System Parts	$	160,732	$	165,153
Ignition, Emission Control, Fuel and Safety Related System Products					$	176,061	$	161,077
Wire and Cable		38,756		46,161		37,128		38,411
Total Engine Management		199,488		211,314		213,189		199,488

Temperature Control:
Compressors		29,898		37,922		39,811		29,898
Other Climate Control Parts		30,333		32,368		29,113		30,333
Total Temperature Control		60,231		70,290		68,924		60,231

All Other		2,107		774		1,653		2,107

Total	$	261,826	$	282,378	$	283,766	$	261,826

Engine Management’s net sales ~~decreased $11.8~~increased $13.7 million, or ~~5.6%~~6.9%, to ~~$199.5~~$213.2 million for the three months ended March 31, ~~2018.~~2019. Net sales in ~~the~~ ignition, ~~emissions~~emission control, fuel and ~~fuel systems parts product group~~safety related system products for the three months ended March 31, ~~2018~~2019 were ~~$160.7~~$176.1 million, ~~a decrease~~an increase of ~~$4.4~~$15 million, or ~~2.7%~~9.3%, compared to ~~$165.1~~$161.1 million in the same period of ~~2017.~~2018. Net sales in the wire and cable product group for the three months ended March 31, ~~2018~~2019 were ~~$38.8~~$37.1 million, a decrease of ~~$7.4~~$1.3 million, or ~~16%~~3.3%, compared to ~~$46.2~~$38.4 million in the three months ended March 31, ~~2017.~~2018. Engine Management’s ~~decrease~~increase in net sales for the first quarter of ~~2018~~2019 compared to the same period in ~~2017~~2018 reflects the impact of ~~a strong first quarter in 2017 driven by~~ pipeline orders from certain customers ~~who were~~ in the ~~process~~first quarter of ~~increasing~~2019, incremental pricing for tariff costs passed on to customers, and a general improvement in the ~~breadth~~ignition, emission control, fuel and ~~depth of their inventories. In addition,~~safety related system products market. Engine Management’s year-over-year ~~decrease~~increase in net sales ~~reflects the impact of~~was offset, in part, by the general decline in our wire and cable business due to ~~the~~its product ~~lifecycle, which will continue to reduce overall Engine Management net sales.~~lifecycle. Overall, our customers reported ~~a sales increase in~~ Engine Management POS in the low single digits, ~~during the three months ended March 31, 2018, in line with our~~which tends to be an indicator of long-term ~~forecasts.~~trends.

Temperature Control’s net sales ~~decreased $10.1~~increased $8.7 million, or ~~14.3%~~14.4%, to ~~$60.2~~$68.9 million for the three months ended March 31, ~~2018.~~2019. Net sales in the compressors product group for the three months ended March 31, ~~2018~~2019 were ~~$29.9~~$39.8 million, ~~a decrease~~an increase of $8$9.9 million, or ~~21.2%~~33.1%, compared to ~~$37.9~~$29.9 million in the same period of ~~2017.~~2018. Net sales in the other climate control parts product group for the three months ended March 31, ~~2018~~2019 were ~~$30.3~~$29.1 million, a decrease of ~~$2.1~~$1.2 million, or ~~6.3%~~4%, compared to ~~$32.4~~$30.3 million in the three months ended March 31, ~~2017.~~2018. Temperature Control’s ~~decrease~~increase in net sales for the ~~for~~ first quarter of ~~2018~~2019 compared to the same period in ~~2017 reflects~~2018 is primarily due to strong pre-season orders as customers rebuild their inventory levels after a very strong 2018 selling season, and to a lesser extent due to incremental pricing for tariff costs passed on to customers. The decline in net sales in the other climate control parts product group results from the impact of the introduction of air conditioner repair kits, which are sold as a complete repair kit inclusive of the compressor and other climate control parts. These air conditioner repair kits have been very ~~strong first quarter~~popular and are classified as sales under the compressor product group, resulting in ~~2017 as~~a shift in reported sales from the other climate control parts product group into the compressor product group. Demand for our customers rebuilt their inventories after a hot 2016 summer season, as compared to a mild 2017 summer leaving our customers with higher than normal inventory levels going into 2018. As such, 2018 pre-season orders were significantly lower than 2017. Our Temperature Control ~~net sales for the balance of the year will be dependent on how warm a~~products may vary significantly with summer ~~season we experience.~~weather conditions and customer inventory levels.

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Gross Margins. Gross margins, as a percentage of consolidated net sales, decreased slightly to 27.5% in the first quarter of 2019, compared to 27.7% in the first quarter of ~~2018, compared to 29.8% in the first quarter of 2017.~~2018. The following table summarizes gross margins by segment for the three months ended March 31, ~~2018~~2019 and ~~2017,~~2018, respectively (in thousands):

Three Months Ended March 31,	Engine Management			Temperature Control			Other		Total			Engine Management			Temperature Control			Other		Total
2019
Net sales												$	213,189		$	68,924		$	1,653	$	283,766
Gross margins													59,693			16,191			2,079		77,963
Gross margin percentage													28	%		23.5	%		—		27.5	%

2018
Net sales	$	199,488		$	60,231		$	2,107	$	261,826		$	199,488		$	60,231		$	2,107	$	261,826
Gross margins		56,470			13,667			2,452		72,589			56,470			13,667			2,452		72,589
Gross margin percentage		28.3	%		22.7	%		—		27.7	%		28.3	%		22.7	%		—		27.7	%

2017
Net sales	$	211,314		$	70,290		$	774	$	282,378
Gross margins		64,124			17,707			2,279		84,110
Gross margin percentage		30.3	%		25.2	%		—		29.8	%

Compared to the first three months of ~~2017,~~2018, gross margins at Engine Management decreased 20.3 percentage points from ~~30.3%~~28.3% to ~~28.3%~~28%, while gross margins at Temperature Control ~~decreased 2.5~~increased 0.8 percentage points from ~~25.2%~~22.7% to ~~22.7%~~23.5%. The slight gross margin percentage decrease in Engine Management compared to the prior year reflects athe negative impact of product mix, and tariff costs passed on to customers without any markup offset, in part, by higher year-over-year ~~increase in inefficiencies and redundant costs incurred during our various planned production moves, as well as the lower~~absorption due to higher production volumes. The gross margin percentage ~~decrease~~increase in Temperature Control compared to the prior year ~~resulted~~was attributable primarily to favorable production variances carried forward from ~~lower~~2018 as compared to the prior year’s unfavorable deferred production ~~volumes following a mild~~variances carried forward from 2017 ~~summer season, resulting~~offset, in ~~lower customer pre-season orders in the first three months of 2018.~~part, by tariffs passed on to customers without any markup.

Selling, General and Administrative Expenses. Selling, general and administrative expenses (“SG&A”) increased ~~slightly~~to $60 million, or 21.1% of consolidated net sales, in the first quarter of 2019, as compared to $57.7 million, or 22% of consolidated net sales in the first quarter of ~~2018, as compared to $57.4~~2018. The $2.3 million ~~or 20.3% of consolidated net sales~~increase in ~~the first quarter of 2017.~~ SG&A expenses ~~were essentially flat when~~as compared to the first quarter of ~~2017 as the~~2018 is principally due to higher distribution expenses and higher costs incurred in our accounts receivable factoring program, ~~were offset by lower selling and marketing expenses, and lower~~all of which are associated with higher sales volumes, along with slightly higher other general and administrative ~~expenses. The higher costs incurred in our accounts receivable factoring program reflect the impact of higher discount fees resulting from the year-over-year increase in interest rates.~~costs.

Restructuring and Integration Expenses. Restructuring and integration expenses for the first three months of 2018 were $2.8 million compared to restructuring and integration expenses of $1.5 million for the first three months of 2017. Restructuring and integration expenses relate to expenses incurred in connection with the plant rationalization program that commenced in February 2016, the wire and cable relocation program announced in October 2016, and the Orlando plant rationalization program that commenced in January 2017. The year-over-year increase inWe had no restructuring and integration expenses in the first three months of ~~2018~~2019 compared to restructuring and integration expenses of $2.8 million for the first three months of ~~2017~~2018. The $2.8 million year-over-year decrease in restructuring and integration expenses reflects the impact of ~~higher expenses incurred in wire~~the completion of all our restructuring and cable relocation program and the Orlando plant rationalization program, which more than offset the lower expenses incurred in the plant rationalization program. The plant rationalization program is substantially completedintegration programs as of ~~March~~December 31, 2018. We anticipate ~~that~~new restructuring and integration expenses over the ~~remaining programs will be completed by the end~~next 12 months related to our recent acquisition of the ~~second half~~Pollak business of ~~2018.~~Stoneridge, Inc.

Other Income, Net. Other ~~income,~~expense, net was ~~$0.3 million~~$6,000 in ~~both~~ the first quarter of ~~2018 and 2017.~~2019, compared to other income, net of $0.3 million in the first quarter of 2018. During the first quarter of 2018, ~~and 2017,~~ we recognized a deferred gain of $0.2 million ~~and $0.3 million, respectively,~~ related to the sale-leaseback of our Long Island City, New York facility.

29 The recognition of the deferred gain related to the sale-leaseback of our Long Island City, New York facility ended in the first quarter of 2018 upon termination of the initial 10-year lease term for the facility.

~~Index~~

Operating Income. Operating income ~~decreased~~increased to $18 million in the first quarter of 2019, compared to $12.3 million in the first quarter of ~~2018, compared to $25.5 million in the first quarter~~2018. The increase of ~~2017. The decrease of $13.2~~$5.7 million is the result of the impact of ~~lower~~higher consolidated net sales and lower restructuring and integration expenses offset, in part, by slightly lower gross margins as a percentage of consolidated net sales ~~higher restructuring~~ and ~~integration expenses, and slightly~~ higher SG&A expenses.

Index

Other Non-Operating Income (Expense), Net. Other non-operating income, net was $0.6 million in the first quarter of 2019, compared to other non-operating expense, net ~~was~~of $31,000 in the first quarter of ~~2018, compared to other non-operating income, net of $0.8 million in the first quarter of 2017.~~2018. The year-over-year ~~decline~~increase in other non-operating income (expense), net results primarily from ~~lower~~the increase in year-over-year equity income from our joint ~~ventures.~~ ventures offset, in part, by the unfavorable impact of changes in foreign currency exchange rates.

Interest Expense. Interest expense increased to ~~$0.6~~$1.1 million in the first quarter of ~~2018~~2019 compared to ~~$0.5~~$0.6 million in the same period of ~~2017.~~2018. The year-over-year increase in interest expense reflects the impact of both higher average outstanding borrowings in ~~2018~~2019 when compared to ~~2017,~~2018, and higher year-over-year average interest rates on our revolving credit facility.

Income Tax Provision. The income tax provision in the first quarter of ~~2018~~2019 was $4.4 million at an effective tax rate of 25.2% compared to $3 million at an effective tax rate of 26.2% ~~compared to $9.5 million at an effective tax rate of 36.7%~~ for the same period in ~~2017.~~2018. The lower effective tax rate in the first quarter of ~~2018~~2019 compared to the first quarter of ~~2017 reflects~~2018 results primarily from the ~~impact of the Tax Cuts~~reduced state and ~~Jobs Act enacted~~local effective tax rate, and a change in the U.S. ~~in December 2017, which included a broad range~~and foreign mix of tax reform affecting businesses, including the reduction of the federal corporate tax rate from 35% to 21%, changes in the deductibility of certain business expenses, and the manner in which international operations are taxed in the U.S.pre-tax income.

Loss from Discontinued Operations. ~~Loss~~During the first quarter of 2019 and 2018, the loss from discontinued operations, net of tax was $0.9 million and $0.6 million, respectively. The loss from discontinued operations, net of tax reflects legal related expenses associated with our asbestos ~~related liability. We recorded a $0.6 million loss from discontinued operations~~liability, and interest accrued in ~~both~~ the first quarter of 2019 related to the November 2018 ~~and 2017.~~verdict in an asbestos case in California which we are currently appealing. As discussed more fully in Note 16, “Commitments and Contingencies” in the notes to our consolidated financial statements (unaudited), we are responsible for certain future liabilities relating to alleged exposure to asbestos containing products.

Restructuring and Integration Programs

~~Plant Rationalization Program~~

In February 2016, in connection with our ongoing efforts to improve operating efficiencies and reduce costs, we finalized our intention to implement a plant rationalization initiative. As part of the plant rationalization, all of our Grapevine, Texas production activities have been relocated to facilities in Greenville, South Carolina and Reynosa, Mexico, and certain production activities were relocated from our Greenville, South Carolina manufacturing facility to our manufacturing facility in Bialystok, Poland. In addition, certain service functions were relocated from Grapevine, Texas to our administrative offices in Lewisville, Texas and our Grapevine, Texas facility was closed. As of March 31, 2018, theThe plant rationalization program isthat commenced in February 2016, the wire and cable relocation program announced in October 2016, and the Orlando plant rationalization program that commenced in January 2017, were all substantially ~~completed.~~

~~Wire~~completed as of December 31, 2018. We anticipate new restructuring and ~~Cable Relocation~~

~~In connection with~~integration expenses over the next 12 months related to our recent acquisition of the ~~North American automotive ignition wire~~Pollak business of General Cable Corporation in May 2016, we incurred certain integration expenses, including costs incurred in connection with the consolidation of the General Cable Corporation Altoona, Pennsylvania wire distribution center into our existing wire distribution center in Edwardsville, Kansas and the relocation of certain machinery and equipment. In October 2016, we further announced our plan to relocate all production from the acquired Nogales, Mexico wire set assembly operation to our existing wire assembly facility in Reynosa, Mexico and to close the Nogales, Mexico plant.Stoneridge, Inc.

~~Index~~

~~The following table summarizes the Wire and Cable Relocation Program’s current forecast estimate through the end of the program, and the amounts incurred through March 31, 2018:~~

Forecast
Amounts Incurred Through
March 31, 2018

(In thousands)
Restructuring and integration expense $ 4,000 $ 3,831
Capital expenditures 700 550
Temporary incremental operating expense 7,300 6,806
Total $ 12,000 $ 11,187

~~Temporary incremental operating expense consists of labor and overhead inefficiencies during the program resulting from running duplicate facilities.~~

~~Orlando Plant Rationalization Program~~

Forecast
Amounts Incurred Through
March 31, 2018

(In thousands)
Restructuring and integration expense $ 3,300 $ 3,229
Capital expenditures 700 586
Temporary incremental operating expense 800 745
Total $ 4,800 $ 4,560

~~Temporary incremental operating expense consists of labor and overhead inefficiencies during the program resulting from running duplicate facilities.~~

For a detailed discussion on the restructuring and integration costs, see Note 5, “Restructuring and Integration Expenses,” of the notes to our consolidated financial statements (unaudited).

Liquidity and Capital Resources

Operating Activities. During the first three months of ~~2018,~~2019, cash used in operating activities was ~~$6.2~~$26.7 million compared to cash used in operating activities of ~~$26.9~~$6.2 million in the same period of ~~2017.~~2018. The ~~decrease~~increase in cash used in operating activities resulted primarily from the ~~smaller~~larger year-over-year increase in accounts receivable, ~~and~~ the ~~smaller~~larger year-over-year increase in inventories, ~~partially offset by a decrease in net earnings, a~~and the smaller ~~year-over-year~~ increase in accounts payable, ~~a larger year-over-year decrease~~partially offset by an increase in ~~sundry payables and accrued expenses and a smaller year-over-year decrease in prepaid expenses and other current assets.~~net earnings.

Net earnings during the first quarter of ~~2018~~2019 were $8$12.2 million compared to ~~$15.7~~$8 million in the first quarter of ~~2017.~~2018. During the first three months of ~~2018,~~2019, (1) the increase in accounts receivable was ~~$20.4~~$22.3 million compared to the year-over-year increase in accounts receivable of ~~$45.3~~$20.4 million in ~~2017;~~2018; (2) the increase in inventories was ~~$3.4~~$14.7 million compared to the year-over-year increase in inventories of ~~$19.3~~$3.4 million in ~~2017;~~2018; and (3) ~~the decrease in prepaid expenses and other current assets was $1.6 million compared to the year-over-year decrease in prepaid expenses and other current assets of $2.1 million in 2017; (4)~~ the increase in accounts payable was ~~$10.7~~$1.2 million compared to the year-over-year increase in accounts payable of ~~$13.7~~$10.7 million in ~~2017; and (5)~~2018. The inventory increase during the ~~decrease~~first quarter of 2019 reflects the impact of the inventory build-up of air conditioning products at our Temperature Control segment in ~~sundry payables and accrued expenses was $13 million compared to the year-over-year decrease in sundry payables and accrued expenses~~anticipation of ~~$2.3 million in 2017.~~a strong 2019 summer season. We continue to actively manage our working capital to maximize our operating cash flow.

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Index

Investing Activities. Cash ~~used in~~provided by investing activities was ~~$13.4~~$1.7 million in the first three months of ~~2018,~~2019, compared to ~~$3.2~~cash used in investing activities of $13.4 million in the same period of ~~2017.~~2018. Investing activities during the first ~~quarter~~three months of 2019 consisted of (1) net cash proceeds of $4.8 million received in January 2019 from the December 2018 sale of our property in Grapevine, Texas; and (2) capital expenditures of $3.1 million. Investing activities during the first three months of 2018 consisted of (1) the payment of the third and final contribution of $5.8 million for our November 2017 acquisition of a 50% interest in a joint venture with Foshan Guangdong Automotive Air Conditioning Co., Ltd., a China-based manufacturer of air conditioning compressors for the automotive aftermarket and the Chinese OE market; (2) the payment of the first installment of $0.7 million for our 15% increase in equity ownership in an joint venture with Gwo Yng Enterprise Co., Ltd., a China-based manufacturer of air conditioner accumulators, filter driers, hose assemblies and switches for the automotive aftermarket and OEM/OES markets; and (3) capital expenditures of $6.9 million. ~~Investing activities during the first quarter of 2017 consisted of capital expenditures of $3.2 million.~~

Financing Activities. Cash provided by financing activities was ~~$28~~$25.2 million in the first three months of ~~2018~~2019 as compared to ~~$25.3~~$28 million in the same period of ~~2017.~~2018. During the first three months of ~~2018,~~2019, (1) we increased borrowings under our revolving credit facility by ~~$33~~$35 million as compared to the increase in borrowings under our revolving credit facility of ~~$27.2~~$33 million in ~~2017;~~2018; (2) we made cash payments in the first three months of ~~2018~~2019 for the repurchase of shares of our common stock of ~~$3.2~~$5.8 million as compared to ~~$1.3~~$3.2 million in ~~2017;~~2018; and (3) we paid dividends of ~~$4.7~~$5.2 million in the first three months of ~~2018~~2019 as compared to ~~$4.3~~$4.7 million in the comparable period last year. In February ~~2018,~~2019, our Board of Directors voted to increase our quarterly dividend from ~~$0.19 per share in 2017 to~~ $0.21 per share in ~~2018.~~2018 to $0.23 per share in 2019.

In ~~October 2015,~~December 2018, we ~~entered into a~~amended our Credit Agreement with JPMorgan Chase Bank, N.A., as agent, and a syndicate of ~~lenders~~lenders. The amended credit agreement provides for a senior secured revolving credit facility with a line of credit of up to $250 million (with an additional $50 million accordion feature) and aextends the maturity date ~~in October 2020.~~to December 2023. The line of credit under the amended agreement also allows for a $10 million line of credit to Canada as part of the $250 million available for borrowing. Direct borrowings under the amended credit agreement bear interest at LIBOR plus a margin ranging from 1.25% to 1.75% based on our borrowing availability, or floating at the alternate base rate plus a margin ranging from 0.25% to 0.75% based on our borrowing availability, at our option. The amended credit agreement is guaranteed by certain of our subsidiaries and secured by certain of our assets.

At March 31, 2019, the weighted average interest rate on our amended credit agreement was 3.8%, which consisted of $75 million in direct borrowings at 3.6% and an alternative base rate loan of $3.7 million at 5.8%. At December 31, 2018, the weighted average interest rate on our amended credit agreement was 3%3.9%, which consisted of ~~$90~~$40 million in direct ~~borrowings. At~~ ~~December~~ ~~31, 2017, the weighted average interest~~borrowings at 3.4% and an alternative base rate ~~on our credit agreement was 2.7%, which consisted~~loan of ~~$57~~$3.7 million ~~in direct borrowings.~~at 5.8%. During the three months ended March 31, ~~2018,~~2019, our average daily alternative base rate loan balance was ~~$1.2~~$1.4 million compared to a balance of ~~$6.2~~$1.2 million for the three months ended March 31, ~~2017~~2018 and ~~our average daily alternative base rate loan~~a balance of ~~$3.8~~$1.8 million for the year ended December 31, ~~2017.~~2018.

3229

Index

~~In December 2017, our~~Our Polish subsidiary, SMP Poland ~~sp.z.o.o.~~sp. z.o.o., has entered into an overdraft facility with HSBC Bank Polska S.A. (“HSBC Poland”) for Zloty 30 million (approximately ~~$8.8~~$7.8 million). The facility, as amended, expires on December ~~2018.~~2019. Borrowings under the overdraft facility will bear interest at a rate equal to WIBOR + 0.75% and are guaranteed by Standard Motor Products, Inc., the ultimate parent company. At March 31, 2019 and December 31, 2018, borrowings under the overdraft facility were Zloty ~~19.8~~19 million (approximately ~~$5.8~~$5 million). and Zloty 19.9 million (approximately $5.3 million), respectively.

In order to reduce our accounts receivable balances and improve our cash flow, we sell undivided interests in certain of our receivables to financial institutions. We enter these agreements at our discretion when we determine that the cost of factoring is less than the cost of servicing our receivables with existing debt. Under the terms of the agreements, we retain no rights or interest, have no obligations with respect to the sold receivables, and do not service the receivables after the sale. As such, these transactions are being accounted for as a sale.

Pursuant to these agreements, we sold ~~$157.5~~$171.1 million and ~~$179.7~~$157.5 million of receivables during the three months ended March 31, ~~2018~~2019 and ~~2017,~~2018, respectively. A charge in the amount of ~~$5.4~~$5.7 million and ~~$5.2~~$5.4 million related to the sale of receivables is included in selling, general and administrative expense in our consolidated statements of operations for the three months ended March 31, ~~2018~~2019 and ~~2017,~~2018, respectively. If we do not enter into these arrangements or if any of the financial institutions with which we enter into these arrangements were to experience financial difficulties or otherwise terminate these arrangements, our financial condition, results of operations and cash flows could be materially and adversely affected by delays or failures to collect future trade accounts receivable.

During 2017, our Board of Directors authorized the purchase of up to $30 million of our common stock under stock repurchase programs. Stock will be purchased from time to time, in the open market or through private transactions as market conditions warrant. Under these programs, during the year ended December 31, 2017, we repurchased 539,760 shares of our common stock at a total cost of $24.8 million. Additionally, during the three months ended March 31, 2018, we repurchased 61,756 shares of our common stock under the programs at a total cost of $2.9 million. As of March 31, 2018, there was approximately $2.3 million available for future stock repurchases under the programs. During the remainder of 2018, shares were repurchased completing the 2017 Board of Directors authorizations.

In ~~April~~May 2018, our Board of Directors authorized the purchase of up to an additional $20 million of our common stock under a new stock repurchase program. Stock will be purchased from time to time, in the open market or through private transactions, as market conditions warrant. Under this program, during the year ended December 31, 2018, we repurchased ~~an additional~~ ~~20,900~~201,484 shares of our common stock at a total cost of $9.3 million. Additionally, during the three months ended March 31, 2019, we repurchased 129,539 shares of our common stock under the ~~programs~~program at a total cost of $1$6.3 million. As of March 31, 2019, there was approximately $4.4 million, available for future stock purchases under the program. In April 2019, we repurchased an additional 14,400 shares of our common stock under the program at a total cost of $0.7 million, thereby reducing the amount available for future stock repurchases under the Board of Directors ~~authorizations~~authorization to ~~$1.3 million~~.

In February 2016, in connection with our ongoing efforts to improve operating efficiencies and reduce costs, we finalized our intention to implement a plant rationalization initiative. As part of the plant rationalization, all of our Grapevine, Texas production activities have been relocated to facilities in Greenville, South Carolina and Reynosa, Mexico, and certain production activities were relocated from our Greenville, South Carolina manufacturing facility to our manufacturing facility in Bialystok, Poland. In addition, certain service functions were relocated from Grapevine, Texas to our administrative offices in Lewisville, Texas and our Grapevine, Texas facility was closed. As of March 31, 2018, the plant rationalization program is substantially completed.

In connection with our acquisition of the North American automotive ignition wire business of General Cable Corporation in May 2016, we incurred certain integration expenses, including costs incurred in connection with the consolidation of the General Cable Corporation Altoona, Pennsylvania wire distribution center into our existing wire distribution center in Edwardsville, Kansas and the relocation of certain machinery and equipment. In October 2016, we further announced our plan to relocate all production from the acquired Nogales, Mexico wire set assembly operation to our existing wire assembly facility in Reynosa, Mexico and to close the Nogales, Mexico plant. One-time plant rationalization costs related to the program of approximately $12 million are expected to be incurred, consisting of restructuring and integration expenses of approximately $4 million related to employee severance and relocation of certain machinery and equipment; capital expenditures of approximately $0.7 million; and temporary incremental operating expenses of approximately $7.3 million, which consists of labor and overhead inefficiencies during the program resulting from running duplicate facilities. Substantially all of the one-time rationalization costs are expected to result in future cash expenditures and will be recognized throughout the program. As of March 31, 2018, cash expenditures of approximately $10.8 million have been made related to the program. We anticipate that the wire and cable relocation program will be completed by the end of the second half of 2018.

~~Index~~

In January 2017, to further our ongoing efforts to improve operating efficiencies and reduce costs, we finalized our intention to implement a plant rationalization initiative at our Orlando, Florida facility. As part of the plant rationalization, we will relocate production activities from our Orlando, Florida manufacturing facility to Independence, Kansas, and close our Orlando, Florida facility. In addition, certain production activities will be relocated from our Independence, Kansas manufacturing facility to our manufacturing facility in Reynosa, Mexico. One-time plant rationalization costs related to the program of approximately $4.8 million are expected to be incurred, consisting of restructuring and integration expenses of approximately $3.3 million related to employee severance and relocation of certain machinery and equipment; capital expenditures of approximately $0.7 million; and temporary incremental operating expenses of approximately $0.8 million, which consists of labor and overhead inefficiencies during the program resulting from running duplicate facilities. Substantially all of the one-time rationalization costs are expected to result in future cash expenditures and will be recognized throughout the program. As of March 31, 2018, cash expenditures of approximately $3.6 million have been made related to the program. We anticipate that the Orlando plant rationalization program will be completed by the end of the second half of 2018.

$3.7 million.

We anticipate that our cash flow from operations, available cash and available borrowings under our revolving credit facility will be adequate to meet our future liquidity needs for at least the next twelve months. Significant assumptions underlie this belief, including, among other things, that there will be no material adverse developments in our business, liquidity or capital requirements. If material adverse developments were to occur in any of these areas, there can be no assurance that our business will generate sufficient cash flow from operations, or that future borrowings will be available to us under our revolving credit facility in amounts sufficient to enable us to pay the principal and interest on our indebtedness, or to fund our other liquidity needs. In addition, if we default on any of our indebtedness, or breach any financial covenant in our revolving credit facility, our business could be adversely affected. For further information regarding the risks of our business, please refer to the Risk Factors section of our Annual Report on Form 10-K for the year ending December 31, ~~2017.~~2018.

Index

The following table summarizes our contractual commitments as of March 31, ~~2018~~2019 and expiration dates of commitments through ~~2026~~2028 (a) (b) (c):

(In thousands)	2018		2019		2020		2021		2022			2023- 2026	Total		2019		2020		2021		2022		2023			2024-2028	Total
Lease obligations	$	7,114	$	8,078	$	6,990	$	6,355	$	5,364	$	3,932	$	37,833
Operating lease obligations															$	6,413	$	7,597	$	6,983	$	5,785	$	5,277	$	11,316	$	43,371
Postretirement benefits		330		42		38		33		29		91		563		31		36		32		29		25		76		229
Severance payments related to restructuring and integration		1,415		405		170		71		2		—		2,063		371		222		66		23		—		—		682
Total commitments	$	8,859	$	8,525	$	7,198	$	6,459	$	5,395	$	4,023	$	40,459	$	6,815	$	7,855	$	7,081	$	5,837	$	5,302	$	11,392	$	44,282

(a)

Indebtedness under our revolving credit facilities is not included in the table above as it is reported as a current liability in our consolidated balance sheets. As of March 31, ~~2018,~~2019, amounts outstanding under our revolving credit facilities were ~~$90~~$78.7 million.

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, N.Y.		11101
(Address of principal executive offices)		(Zip Code)

	Balance at December 31, 2017		Adjustments Due to Adoption of ASU 2014-09			Balance at January 1, 2018
Balance Sheet
Unreturned customer inventories	$	—	$	19,950		$	19,950
Accrued customer returns		35,916		6,670			42,586
Accrued core liability		11,899		14,469			26,368
Retained earnings		357,153		(1,189	)		355,964

	As Reported		Balances Without Adoption of ASU 2014-09		Effect of Change
Balance Sheet
Unreturned customer inventories	$	18,674	$	—	$	18,674
Prepaid expenses and other current assets		12,672		12,810		(138	)
Accrued customer returns		43,031		35,817		7,214
Accrued core liability		23,751		11,631		12,120
Retained earnings		359,232		360,030		(798	)

Statement of Operations
Net sales	$	261,826	$	259,478	$	2,348
Cost of sales		189,237		187,418		1,819
Earnings from continuing operations before taxes		11,644		11,115		529
Provision for income taxes		3,047		2,909		138
Net earnings		7,989		7,598		391

	Foreign Currency Translation Adjustments			Unrecognized Postretirement Benefit Costs (Credit)			Total
Balance at December 31, 2017	$	(4,225	)	$	116		$	(4,109	)
Other comprehensive income before reclassifications		2,219			—			2,219
Amounts reclassified from accumulated other comprehensive income		—			(5	)		(5	)
Other comprehensive income, net		2,219			(5	)		2,214
Balance at March 31, 2018	$	(2,006	)	$	111		$	(1,895	)

Details About Accumulated Other Comprehensive Income Components	Three Months Ended March 31, 2018
Amortization of postretirement benefit plans:
Prior service benefit (1)	$	—
Unrecognized gain (1)		(9	)
Total before income tax		(9	)
Income tax expense		4
Total reclassifications for the period	$	(5	)

	Forecast		Amounts Incurred Through March 31, 2018
	(In thousands)
Restructuring and integration expense	$	4,000	$	3,831
Capital expenditures		700		550
Temporary incremental operating expense		7,300		6,806
Total	$	12,000	$	11,187

Period	Total Number of Shares Purchased (1)		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)		Maximum Number (or Approximate Dollar Value) of Shares that may yet be Purchased Under the Plans or Programs (2)

January 1 – 31, 2018		23,756	$	46.18		23,756	$	4,124,435
February 1 – 28, 2018		17,000		47.97		17,000		3,308,953
March 1 – 31, 2018		21,000		47.59		21,000		2,309,600
Total		61,756	$	47.15		61,756	$	2,309,600

Exhibit Number
	~~10.1~~	~~Consulting Agreement, dated as of April 1, 2018, between Standard Motor Products, Inc. and John P. Gethin.~~

	31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	32.1	Certification of Chief Executive Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	32.2	Certification of Chief Financial Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


	101.INS**	XBRL Instance Document
	101.SCH**	XBRL Taxonomy Extension Schema Document
	101.CAL**	XBRL Taxonomy Extension Calculation Linkbase Document
	101.LAB**	XBRL Taxonomy Extension Label Linkbase Document
	101.PRE**	XBRL Taxonomy Extension Presentation Linkbase Document
	101.DEF**	XBRL Taxonomy Extension Definition Linkbase Document

~~Date~~: Date: May 4~~, 2018~~ 2, 2019	/s/ James J. Burke
	James J. Burke
	~~Executive Vice President Finance,~~ Chief Operating Officer and
	Chief Financial Officer
	(Principal Financial and
	Accounting Officer)