UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549




FORM
10-Q




(Mark
One)


þQUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE


SECURITIES
EXCHANGE ACT OF 1934.





For the quarterly period ended
September 30,
2009




or




o           TRANSITION REPORT PURSUANT TO SECTION
13 or 15(d) OF THE


SECURITIES EXCHANGE
ACT OF 1934.





Commission file
number:  1-4743





Standard Motor Products,
Inc.


(Exact
name of registrant as specified in its charter)





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





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





(718)
392-0200


(Registrant’s
telephone number, including area code)





Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.


Yes þ      No
o





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).


Yes o      No
o





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




Large
      Accelerated Filer o
                
                Accelerated
      Filer þNon-Accelerated
      Filer   o
                (Do
      not check if a smaller reporting company)
                Smaller
      reporting company o
  Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


Yes o      No
þ





As of the
close of business on October 22, 2009, there were 19,074,080 outstanding shares
of the registrant’s Common Stock, par value $2.00 per share.










STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES





INDEX





Page No.PART
      I - FINANCIAL INFORMATIONItem
      1.
                Consolidated
      Financial Statements:Consolidated
      Statements of Operations (Unaudited) for the Three Months and Nine Months
      Ended September 30, 2009 and 2008
                3Consolidated
      Balance Sheets as of September 30, 2009 (Unaudited) and December 31,
      2008
                4Consolidated
      Statements of Cash Flows (Unaudited) for the Nine Months Ended September
      30, 2009 and 2008
                5Consolidated
      Statement of Changes in Stockholders’ Equity (Unaudited) for the Three
      Months and Nine Months Ended September 30, 2009
                6Notes
      to Consolidated Financial Statements (Unaudited)
                7Item
      2.
                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                24Item
      3.
                Quantitative
      and Qualitative Disclosures about Market Risk
                40Item
      4.
                Controls
      and Procedures
                41PART
      II – OTHER INFORMATIONItem
      1.
                Legal
      Proceedings
                42Item
      6.
                Exhibits
                43Signatures
                43





PART
I - FINANCIAL INFORMATION




ITEM
1.     CONSOLIDATED FINANCIAL
STATEMENTS





STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES




CONSOLIDATED
STATEMENTS OF OPERATIONS





Three Months Ended
                            
                            
                            Nine Months Ended(In thousands, except share and per share data)
                            
                            September 30,
                            
                            
                            September 30,2009
                            
                            
                            2008
                            
                            
                            2009
                            
                            
                            2008(Unaudited)
                            
                            
                            (Unaudited)Net
      sales
                            
                            $
                            205,577
                            
                            
                            $
                            202,938
                            
                            
                            $
                            575,297
                            
                            
                            $
                            626,365Cost
      of sales
                            
                            
                            155,774
                            
                            
                            
                            154,166
                            
                            
                            
                            438,195
                            
                            
                            
                            477,740Gross
      profit
                            
                            
                            49,803
                            
                            
                            
                            48,772
                            
                            
                            
                            137,102
                            
                            
                            
                            148,625Selling,
      general and administrative expenses
                            
                            
                            36,775
                            
                            
                            
                            41,114
                            
                            
                            
                            109,607
                            
                            
                            
                            127,503Restructuring
      and integration expenses
                            
                            
                            3,304
                            
                            
                            
                            1,905
                            
                            
                            
                            5,677
                            
                            
                            
                            6,117Operating
      income
                            
                            
                            9,724
                            
                            
                            
                            5,753
                            
                            
                            
                            21,818
                            
                            
                            
                            15,005Other
      income, net
                            
                            
                            783
                            
                            
                            
                            1,293
                            
                            
                            
                            4,310
                            
                            
                            
                            21,665Interest
      expense
                            
                            
                            2,423
                            
                            
                            
                            3,289
                            
                            
                            
                            7,225
                            
                            
                            
                            11,005Earnings
      from continuing operations before taxes
                            
                            
                            8,084
                            
                            
                            
                            3,757
                            
                            
                            
                            18,903
                            
                            
                            
                            25,665Provision
      for income tax
                            
                            
                            3,360
                            
                            
                            
                            3,360
                            
                            
                            
                            7,754
                            
                            
                            
                            12,693Earnings
      from continuing operations
                            
                            
                            4,724
                            
                            
                            
                            397
                            
                            
                            
                            11,149
                            
                            
                            
                            12,972Loss
      from discontinued operations, net of income taxes
                            
                            
                            (1,639
                            )
                            
                            
                            (1,579
                            )
                            
                            
                            (2,221
                            )
                            
                            
                            (2,228
                            )Net
      earnings (loss)
                            
                            $
                            3,085
                            
                            
                            $
                            (1,182
                            )
                            
                            $
                            8,928
                            
                            
                            $
                            10,744Per share data:Net
      earnings (loss) per common share – Basic:Earnings
      from continuing operations
                            
                            $
                            0.25
                            
                            
                            $
                            0.02
                            
                            
                            $
                            0.59
                            
                            
                            $
                            0.70Discontinued
      operation
                            
                            
                            (0.09
                            )
                            
                            
                            (0.08
                            )
                            
                            
                            (0.11
                            )
                            
                            
                            (0.12
                            )Net
      earnings (loss) per common share – Basic
                            
                            $
                            0.16
                            
                            
                            $
                            (0.06
                            )
                            
                            $
                            0.48
                            
                            
                            $
                            0.58Net
      earnings (loss) per common share – Diluted:Earnings
      from continuing operations
                            
                            $
                            0.25
                            
                            
                            $
                            0.02
                            
                            
                            $
                            0.59
                            
                            
                            $
                            0.70Discontinued
      operation
                            
                            
                            (0.09
                            )
                            
                            
                            (0.08
                            )
                            
                            
                            (0.11
                            )
                            
                            
                            (0.12
                            )Net
      earnings (loss) per common share – Diluted
                            
                            $
                            0.16
                            
                            
                            $
                            (0.06
                            )
                            
                            $
                            0.48
                            
                            
                            $
                            0.58Average
      number of common shares
                            
                            
                            18,895,299
                            
                            
                            
                            18,558,330
                            
                            
                            
                            18,769,791
                            
                            
                            
                            18,479,817Average
      number of common shares and dilutive common shares
                            
                            
                            19,088,673
                            
                            
                            
                            18,617,724
                            
                            
                            
                            18,790,155
                            
                            
                            
                            18,512,475





See
accompanying notes to consolidated financial statements.


3


STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES




CONSOLIDATED
BALANCE SHEETS





(In thousands, except share and per share data)
              
              September 30,
                2009
              
              
              December 31,
                2008(Unaudited)ASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
              
              $
              10,456
              
              
              $
              6,608Accounts
      receivable, less allowance for discounts and doubtful accounts of $8,149
      and $10,021 for 2009 and 2008, respectively
              
              
              172,294
              
              
              
              174,401Inventories
              
              
              199,653
              
              
              
              232,435Deferred
      income taxes
              
              
              19,251
              
              
              
              20,038Assets
      held for sale
              
              
              1,291
              
              
              
              1,654Prepaid
      expenses and other current assets
              
              
              7,618
              
              
              
              12,459Total
      current assets
              
              
              410,563
              
              
              
              447,595Property,
      plant and equipment, net
              
              
              63,869
              
              
              
              66,901Goodwill,
      net
              
              
              1,437
              
              
              
              1,100Other
      intangibles, net
              
              
              14,920
              
              
              
              15,185Other
      assets
              
              
              46,955
              
              
              
              44,246Total
      assets
              
              $
              537,744
              
              
              $
              575,027LIABILITIES
      AND STOCKHOLDERS’ EQUITYCURRENT
      LIABILITIES:Notes
      payable
              
              $
              92,521
              
              
              $
              148,931Current
      portion of long-term debt
              
              
              161
              
              
              
              44,953Accounts
      payable
              
              
              77,367
              
              
              
              68,312Sundry
      payables and accrued expenses
              
              
              31,373
              
              
              
              25,745Accrued
      customer returns
              
              
              27,288
              
              
              
              19,664Accrued
      rebates
              
              
              26,108
              
              
              
              18,623Payroll
      and commissions
              
              
              24,090
              
              
              
              16,768Total
      current liabilities
              
              
              278,908
              
              
              
              342,996Long-term
      debt
              
              
              18,179
              
              
              
              273Postretirement
      medical benefits and other accrued liabilities
              
              
              42,652
              
              
              
              44,455Accrued
      asbestos liabilities
              
              
              24,860
              
              
              
              23,758Total
      liabilities
              
              
              364,599
              
              
              
              411,482Commitments
      and contingenciesStockholders’
      equity:Common
      stock – par value $2.00 per share: Authorized – 30,000,000 shares; issued
      20,486,036 shares
              
              
              40,972
              
              
              
              40,972Capital
      in excess of par value
              
              
              56,504
              
              
              
              58,841Retained
      earnings
              
              
              85,528
              
              
              
              76,600Accumulated
      other comprehensive income
              
              
              6,929
              
              
              
              7,799Treasury
      stock – at cost 1,562,491 and 1,923,491 shares in 2009 and 2008,
      respectively
              
              
              (16,788
              )
              
              
              (20,667
              )Total
      stockholders’ equity
              
              
              173,145
              
              
              
              163,545Total
      liabilities and stockholders’ equity
              
              $
              537,744
              
              
              $
              575,027





See
accompanying notes to consolidated financial statements.


4


STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES




CONSOLIDATED
STATEMENTS OF CASH FLOWS




(In thousands)
                    
                    Nine Months Ended
                      September 30,2009
                    
                    
                    2008(Unaudited)CASH
      FLOWS FROM OPERATING
      ACTIVITIES:Net
      earnings
                    
                    $
                    8,928
                    
                    
                    $
                    10,744Adjustments
      to reconcile net earnings to net cash provided by (used in) operating
      activities:Depreciation
      and amortization
                    
                    
                    10,856
                    
                    
                    
                    10,714Increase
      in allowance for doubtful accounts
                    
                    
                    758
                    
                    
                    
                    900Increase
      in inventory reserves
                    
                    
                    4,686
                    
                    
                    
                    2,104Gain
      on sale of building
                    
                    
                    (786
                    )
                    
                    
                    (21,583
                    )Loss
      on disposal of property, plant and equipment
                    
                    –
                    
                    
                    
                    468Loss
      on defeasance of mortgage loan
                    
                    –
                    
                    
                    
                    1,444Gain
      on repurchase of convertible debentures
                    
                    
                    (40
                    )
                    
                    
                    (1,570
                    )Gain
      on sale of investment
                    
                    
                    (2,336
                    )
                    
                    –Equity
      (income) loss  from joint ventures
                    
                    
                    (164
                    )
                    
                    
                    454Loss
      on impairment of assets
                    
                    –
                    
                    
                    
                    355Employee
      stock ownership plan allocation
                    
                    
                    256
                    
                    
                    
                    1,196Stock-based
      compensation
                    
                    
                    804
                    
                    
                    
                    791Decrease
      (increase) in deferred income taxes
                    
                    
                    (1,804
                    )
                    
                    
                    14,409Loss
      from discontinued operation, net of income tax
                    
                    
                    2,221
                    
                    
                    
                    2,228Change
      in assets and liabilities:Decrease
      (increase) in accounts receivable
                    
                    
                    1,350
                    
                    
                    
                    (36,450
                    )Decrease
      in inventories
                    
                    
                    37,074
                    
                    
                    
                    13,057Decrease
      (increase) in prepaid expenses and other current assets
                    
                    
                    266
                    
                    
                    
                    (326
                    )Increase
      in accounts payable
                    
                    
                    11,107
                    
                    
                    
                    4,696Increase
      in sundry payables and accrued expenses
                    
                    
                    27,934
                    
                    
                    
                    4,932Net
      changes in other assets and liabilities
                    
                    
                    (4,627
                    )
                    
                    
                    (9,271
                    )Net
      cash provided by (used in) operating activities
                    
                    
                    96,483
                    
                    
                    
                    (708
                    )CASH
      FLOWS FROM INVESTING ACTIVITIES:Proceeds
      from the sale of property, plant and equipment
                    
                    
                    69
                    
                    
                    
                    64Net
      cash received from the sale of building
                    
                    –
                    
                    
                    
                    37,341Divestiture
      of joint ventures
                    
                    
                    4,000
                    
                    
                    –Proceeds
      from sale of preferred stock investment
                    
                    
                    3,896
                    
                    
                    –Capital
      expenditures
                    
                    
                    (5,246
                    )
                    
                    
                    (8,031
                    )Acquisitions
      of businesses and assets
                    
                    
                    (12,770
                    )
                    
                    
                    (3,638
                    )Net
      cash provided by (used in) investing activities
                    
                    
                    (10,051
                    )
                    
                    
                    25,736CASH
      FLOWS FROM FINANCING ACTIVITIES:Net
      borrowings (repayments) under line-of-credit agreements
                    
                    
                    (56,410
                    )
                    
                    
                    2,154Defeasance
      of mortgage loan
                    
                    –
                    
                    
                    
                    (7,755
                    )Repurchase
      of convertible debentures
                    
                    
                    (433
                    )
                    
                    
                    (18,907
                    )Net
      repayment of long-term debt and capital lease obligations
                    
                    
                    (32,154
                    )
                    
                    
                    (318
                    )Issuance
      of unsecured promissory notes
                    
                    
                    5,370
                    
                    
                    –Proceeds
      from exercise of employee stock options
                    
                    
                    456
                    
                    
                    –Excess
      tax benefit from share-based payment arrangements
                    
                    
                    (60
                    )
                    
                    –Increase
      (decrease) in overdraft balances
                    
                    
                    (2,052
                    )
                    
                    
                    4,809Dividends
      paid
                    
                    –
                    
                    
                    
                    (4,983
                    )Net
      cash used in financing activities
                    
                    
                    (85,283
                    )
                    
                    
                    (25,000
                    )Effect
      of exchange rate changes on cash
                    
                    
                    2,699
                    
                    
                    
                    (2,266
                    )Net
      increase (decrease) in cash and cash equivalents
                    
                    
                    3,848
                    
                    
                    
                    (2,238
                    )CASH
      AND CASH EQUIVALENTS at beginning of the period
                    
                    
                    6,608
                    
                    
                    
                    13,261CASH
      AND CASH EQUIVALENTS at end of the period
                    
                    $
                    10,456
                    
                    
                    $
                    11,023Supplemental
      disclosure of cash flow information:Cash
      paid during the period for:Interest
                    
                    $
                    6,369
                    
                    
                    $
                    12,423Income
      taxes
                    
                    $
                    1,746
                    
                    
                    $
                    3,116




See
accompanying notes to consolidated financial statements.


5





STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES




CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY


Three
Months Ended September 30, 2009


(Unaudited)


(In thousands)
                
                Common
                  Stock
                
                
                Capital in
                  Excess of
                  Par Value
                
                
                Retained
                  Earnings
                
                
                Accumulated
                  Other
                  Comprehensive
                  Income
                
                
                Treasury
                  Stock
                
                
                TotalBalance
      at June 30, 2009
                
                $
                40,972
                
                
                $
                56,226
                
                
                $
                82,443
                
                
                $
                7,331
                
                
                $
                (17,176
                )
                
                $
                169,796Comprehensive
      income:Net
      earnings
                
                
                
                
                
                
                
                
                
                
                3,085
                
                
                
                
                
                
                
                
                
                
                
                3,085Foreign
      currency translation adjustment
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                965
                
                
                
                
                
                
                
                965Pension
      and retiree medical adjustment
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (1,367
                )
                
                
                
                
                
                
                (1,367
                )Total
      comprehensive income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                2,683Stock-based
      compensation and related tax benefits
                
                
                
                
                
                
                190
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                190Stock
      options and related tax benefits
                
                
                
                
                
                
                88
                
                
                
                
                
                
                
                
                
                
                
                388
                
                
                
                476Balance
      at September 30, 2009
                
                $
                40,972
                
                
                $
                56,504
                
                
                $
                85,528
                
                
                $
                6,929
                
                
                $
                (16,788
                )
                
                $
                173,145








CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY


Nine
Months Ended September 30, 2009


(Unaudited)


(In thousands)
                
                Common
                  Stock
                
                
                Capital in
                  Excess of
                  Par Value
                
                
                Retained
                  Earnings
                
                
                Accumulated
                  Other
                  Comprehensive
                  Income
                
                
                Treasury
                  Stock
                
                
                TotalBalance
      at December 31, 2008
                
                $
                40,972
                
                
                $
                58,841
                
                
                $
                76,600
                
                
                $
                7,799
                
                
                $
                (20,667
                )
                
                $
                163,545Comprehensive
      income:Net
      earnings
                
                
                
                
                
                
                
                
                
                
                8,928
                
                
                
                
                
                
                
                
                
                
                
                8,928Foreign
      currency translation adjustment
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                3,014
                
                
                
                
                
                
                
                3,014Pension
      and retiree medical adjustment
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (3,884
                )
                
                
                
                
                
                
                (3,884
                )Total
      comprehensive income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                8,058Stock-based
      compensation and related tax benefits
                
                
                
                
                
                
                (741
                )
                
                
                
                
                
                
                
                
                
                
                1,466
                
                
                
                725Stock
      options and related tax benefits
                
                
                
                
                
                
                88
                
                
                
                
                
                
                
                
                
                
                
                388
                
                
                
                476Employee
      Stock Ownership Plan
                
                
                
                
                
                
                (1,684
                )
                
                
                
                
                
                
                
                
                
                
                2,025
                
                
                
                341Balance
      at September 30, 2009
                
                $
                40,972
                
                
                $
                56,504
                
                
                $
                85,528
                
                
                $
                6,929
                
                
                $
                (16,788
                )
                
                $
                173,145




See
accompanying notes to consolidated financial statements.


6




STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)




Note
1.  Basis of Presentation




Standard
Motor Products, Inc. (referred to hereinafter in these notes to consolidated
financial statements as the “Company,” “we,” “us,” or “our”) is engaged in the
manufacture and distribution of replacement parts for motor vehicles in the
automotive aftermarket industry.





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,
2008.  The unaudited consolidated financial statements include our
accounts and all domestic and international companies in which we have more than
a 50% equity ownership.  Our investments in unconsolidated affiliates
are accounted for on the equity method.  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.





Subsequent
Events





We
evaluated events or transactions which occurred subsequent to the balance sheet
date but prior to October 27, 2009,the issuance date of the
financial statements, for recognition or disclosure.





Reclassification





Certain
prior period amounts in the accompanying consolidated financial statements and
related notes have been reclassified to conform to the 2009
presentation.





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 of inventory, goodwill
and other intangible assets, depreciation and amortization of long-lived assets,
product liability, pensions and other postretirement benefits, asbestos,
environmental and litigation matters, deferred tax asset valuation allowance and
sales return allowances.





The
impact and any associated risks related to significant accounting policies on
our business operations is discussed throughout “Management’s Discussion and
Analysis of Financial Condition and Results of Operations,” where such policies
affect our reported and expected financial results.  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,
2008.


7




STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES




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





Recently Issued Accounting
Pronouncements





Codification





In June
2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification
and the Hierarchy of Generally Accepted Accounting Principles, a replacement of
SFAS No. 162” (the Codification).  The Codification will be the single
source of authoritative nongovernmental U.S. accounting and reporting standards,
superseding existing FASB, AICPA, EITF and related literature. The Codification
eliminates the hierarchy of generally accepted accounting standards (“GAAP”)
contained in SFAS No. 162 and establishes one level of authoritative GAAP. All
other literature is considered non-authoritative. This Statement is effective
for financial statements issued for interim and annual periods ending after
September 15, 2009, which for us would be September 30, 2009.  There
was no change to our consolidated financial statements upon
adoption.  All accounting references have been updated. SFAS
references have been replaced with Accounting Standard Codification (“ASC”)
references.





Fair
Value Measurements





On
January 1, 2008, we adopted certain provisions of a new accounting standard
which defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles (“GAAP”) and expands disclosures about
fair value measurements.  On January 1, 2009, we adopted the remaining
provisions of this accounting standard as it relates to nonfinancial assets and
liabilities that are not recognized or disclosed at fair value on a recurring
basis.  The adoption of this standard as it related to certain
non-financial assets and liabilities did not impact our consolidated financial
statements in any material respect.





On June
30, 2009, we adopted the accounting pronouncement issued in April 2009 that
provides additional guidance for estimating fair value in accordance with the
accounting standard for fair value measurements when the volume and level of
activity for the asset or liability has significantly
decreased.   This pronouncement stated that when quoted market
prices may not be determinative of fair value, a reporting entity shall consider
the reasonableness of a range of fair value estimates.  The adoption
of this standard as it related to inactive markets did not impact our
consolidated financial statements in any material respect.





Business
Combinations





On
January 1, 2009, we adopted the accounting pronouncements relating to
business combinations, including assets acquired and liabilities assumed arising
from contingencies. These pronouncements established principles and requirements
for how the acquirer of a business recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, and any
non-controlling interest in the acquiree as well as provides guidance for
recognizing and measuring the goodwill acquired in the business combination and
determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination.  In addition, these pronouncements eliminate the
distinction between contractual and non-contractual contingencies, including the
initial recognition and measurement criteria and require an acquirer to develop
a systematic and rational basis for subsequently measuring and accounting for
acquired contingencies depending on their nature.  Our adoption of
these pronouncements will have an impact on the manner in which we account for
future acquisitions.


8




STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES




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





Non-Controlling
Interests in Consolidated Financial Statements





On
January 1, 2009, we adopted the accounting pronouncement on non-controlling
interests in consolidated financial statements, which establishes accounting and
reporting standards for the non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary.  It clarifies that a non-controlling
interest in a subsidiary is an ownership interest in the consolidated entity
that should be reported as equity in the consolidated financial
statements.  The adoption of this standard has not had a material
impact on our consolidated financial statements.





Subsequent
Events





As of
June 30, 2009, we adopted the accounting pronouncement regarding the general
standards of accounting for, and disclosure of, events that occur after the
balance sheet date but before the financial statements are issued or are
available to be issued.  In connection with the adoption, we have
included a disclosure to address the date through which we evaluated subsequent
events.





Fair
Value Interim Disclosures





In April
2009, the FASB extended the fair value disclosures currently required on an
annual basis for financial instruments to interim reporting
periods.  These disclosures include the methods and significant
assumptions used to estimate the fair value of financial instruments on an
interim basis as well as changes of the methods and significant assumptions from
prior periods.  We adopted the new disclosure requirements effective
as of June 30, 2009 and included the required additional interim disclosures in
these financial statements.





Note
3.  Restructuring and Integration Costs





The
aggregated liabilities relating to the restructuring and integration activities
as of December 31, 2008 and September 30, 2009, and activity for the nine months
ended September 30, 2009 consisted of the following (in thousands):





Workforce
                        Reduction
                      
                      
                      Other Exit
                        Costs
                      
                      
                      TotalExit
      activity liability at December 31, 2008
                      
                      $
                      12,751
                      
                      
                      $
                      2,956
                      
                      
                      $
                      15,707Restructuring
      and integration costs:Amounts
      provided for during 2009
                      
                      
                      2,816
                      
                      
                      
                      2,861
                      
                      
                      
                      5,677Non-cash
      usage, including asset write-downs
                      
                      
                      —
                      
                      
                      
                      (2,697
                      )
                      
                      
                      (2,697
                      )Cash payments
                      
                      
                      (5,317
                      )
                      
                      
                      (862
                      )
                      
                      
                      (6,179
                      )Exit activity liability atSeptember 30,
      2009
                      
                      $
                      10,250
                      
                      
                      $
                      2,258
                      
                      
                      $
                      12,508





Restructuring
Costs





Voluntary
Separation Program





During
2008 as part of an initiative to improve the effectiveness and efficiency of
operations, and to reduce costs in light of economic conditions, we implemented
certain organizational changes and offered eligible employees a voluntary
separation package.  The restructuring accrual relates to severance
and other retiree benefit enhancements to be paid through 2015.  Of
the original restructuring charge of $8 million, we have $4.5 million remaining
as of September 30, 2009 that is expected to be paid in the amount of $1.3
million in 2009, $1.6 million in 2010, $0.6 million in 2011, and $1 million for
the period 2012-2015.


9




STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES




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





Activity
for the nine months ended September 30, 2009 related to this program, by
segment, consisted of the following (in thousands):





Engine
                        Management
                      
                      
                      Temperature
                        Control
                      
                      
                      Other
                      
                      
                      TotalExit
      activity liability at December 31, 2008
                      
                      $
                      3,736
                      
                      
                      $
                      1,000
                      
                      
                      $
                      3,295
                      
                      
                      $
                      8,031Restructuring
      costs:Amounts
      provided for during 2009
                      
                      
                      —
                      
                      
                      
                      327
                      
                      
                      
                      —
                      
                      
                      
                      327Change
      in estimated expenses
                      
                      
                      113
                      
                      
                      
                      —
                      
                      
                      
                      (113
                      )
                      
                      
                      —Cash payments
                      
                      
                      (1,702
                      )
                      
                      
                      (766
                      )
                      
                      
                      (1,346
                      )
                      
                      
                      (3,814
                      )Exit activity liability atSeptember 30,
      2009
                      
                      $
                      2,147
                      
                      
                      $
                      561
                      
                      
                      $
                      1,836
                      
                      
                      $
                      4,544





Integration
Expenses





Overhead
Cost Reduction Program





Beginning
in 2007 in connection with our efforts to improve our operating efficiency and
reduce costs, we announced our intention to focus on company-wide overhead and
operating expense cost reduction activities, such as closing excess facilities
and reducing redundancies.  Integration expenses under this program to
date relate primarily to the integration of operations to our facilities in
Mexico, the closure and consolidation of our distribution operations in Reno,
Nevada, the closure of our production operations in Edwardsville, Kansas and
Wilson, North Carolina and consolidation of certain facilities in
Europe.  We expect that all payments related to the current liability
will be made within twelve months.  We are still evaluating further
activities under this program.





Activity
for the nine months ended September 30, 2009 related to this program consisted
of the following (in thousands):


Workforce
                      Reduction
                    
                    
                    Other Exit
                      Costs
                    
                    
                    TotalExit
      activity liability at December 31, 2008
                    
                    $
                    1,117
                    
                    
                    $
                    727
                    
                    
                    $
                    1,844Integration
      costs:Amounts
      provided for during 2009
                    
                    
                    1,522
                    
                    
                    
                    2,346
                    
                    
                    
                    3,868Non-cash
      usage, including asset write-downs
                    
                    
                    —
                    
                    
                    
                    (2,697
                    )
                    
                    
                    (2,697
                    )Cash payments
                    
                    
                    (979
                    )
                    
                    
                    (348
                    )
                    
                    
                    (1,327
                    )Exit activity liability atSeptember 30,
      2009
                    
                    $
                    1,660
                    
                    
                    $
                    28
                    
                    
                    $
                    1,688


10




STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES




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





Wire
and Cable Relocation





As a
result of our acquisition of a wire and cable business and the relocation of
certain machinery and equipment to our Reynosa, Mexico manufacturing facility,
we incurred employee severance costs of $0.8 million and equipment relocation
costs of $0.1 million during the third quarter of 2009.  As of
September 30, 2009, the reserve balance of $0.8 million relating to workforce
reductions is expected to be fully paid during the current year.





Workforce
                      Reduction
                    
                    
                    Other Exit
                      Costs
                    
                    
                    TotalExit
      activity liability at December 31, 2008
                    
                    $
                    —
                    
                    
                    $
                    —
                    
                    
                    $
                    —Integration
      costs:Amounts
      provided for during 2009
                    
                    
                    816
                    
                    
                    
                    112
                    
                    
                    
                    928Change
      in estimated expenses
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —Cash payments
                    
                    
                    —
                    
                    
                    
                    (112
                    )
                    
                    
                    (112
                    )Exit activity liability atSeptember 30,
      2009
                    
                    $
                    816
                    
                    
                    $
                    —
                    
                    
                    $
                    816





Reynosa
Integration Program





During
2006 and 2007, we announced plans for the closure of our Long Island City, New
York and Puerto Rico manufacturing facilities and integration of operations in
Reynosa, Mexico.  In connection with the shutdown of the manufacturing
operations at Long Island City that was completed in March of 2008, we incurred
severance costs and costs associated with equipment removal, capital
expenditures, and environmental clean-up.  As of September 30, 2009,
the reserve balance related to environmental clean-up at Long Island City of
$2.1 million is included in other exit costs.





In
connection with the shutdown of the manufacturing operations at Long Island
City, we entered into an agreement with the International Union, United
Automobile, Aerospace and Agricultural Implement Workers of America and its
Local 365 (“UAW”).  As part of the agreement, we incurred a withdrawal
liability from a multi-employer plan.  The pension plan withdrawal
liability is related to trust asset under-performance in a plan that covers our
former UAW employees at the Long Island City facility and is payable in 80
quarterly payments of $0.3 million, which commenced in December
2008.  As of September 30, 2009, the reserve balance related to the
pension withdrawal liability of $3.2 million is included in the workforce
reduction reserve.





Activity
for the nine months ended September 30, 2009 related to this program consisted
of the following (in thousands):





Workforce
                      Reduction
                    
                    
                    Other Exit
                      Costs
                    
                    
                    TotalExit
      activity liability at December 31, 2008
                    
                    $
                    3,603
                    
                    
                    $
                    2,229
                    
                    
                    $
                    5,832Integration
      costs:Amounts
      provided for during 2009
                    
                    
                    150
                    
                    
                    
                    404
                    
                    
                    
                    554Change
      in estimated expenses
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —Cash payments
                    
                    
                    (523
                    )
                    
                    
                    (403
                    )
                    
                    
                    (926
                    )Exit activity liability atSeptember 30,
      2009
                    
                    $
                    3,230
                    
                    
                    $
                    2,230
                    
                    
                    $
                    5,460


11




STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES




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





Activity
for the nine months ended September 30, 2009 related to our aggregate
integration programs, by segment, consisted of the following (in
thousands):





Engine
                      Management
                    
                    
                    Temperature
                      Control
                    
                    
                    European
                    
                    
                    Other
                    
                    
                    TotalExit
      activity liability at December 31, 2008
                    
                    $
                    7,363
                    
                    
                    $
                    —
                    
                    
                    $
                    15
                    
                    
                    $
                    298
                    
                    
                    $
                    7,676Integration
      costs:Amounts
      provided for during 2009
                    
                    
                    4,154
                    
                    
                    
                    33
                    
                    
                    
                    1,163
                    
                    
                    
                    —
                    
                    
                    
                    5,350Non-cash
      usage, including asset write-downs
                    
                    
                    (1,686
                    )
                    
                    
                    —
                    
                    
                    
                    (1,011
                    )
                    
                    
                    —
                    
                    
                    
                    (2,697
                    )Cash payments
                    
                    
                    (2,109
                    )
                    
                    
                    (2
                    )
                    
                    
                    (155
                    )
                    
                    
                    (99
                    )
                    
                    
                    (2,365
                    )Exit activity liability atSeptember 30,
      2009
                    
                    $
                    7,722
                    
                    
                    $
                    31
                    
                    
                    $
                    12
                    
                    
                    $
                    199
                    
                    
                    $
                    7,964





Assets
Held for Sale





As of
September 30, 2009, we have reported $1.3 million as assets held for sale on our
consolidated balance sheet related to the net book value of two closed
facilities in our European Segment and our closed Reno, Nevada and Wilson, North
Carolina facilities within our Engine Management Segment.  Following
plant closures resulting from integration activities, these facilities have been
vacant and therefore a decision to solicit bids has been made.  We are
hopeful that a negotiated sale to a third-party will occur within the next
twelve months and we will record any resulting gain in other income as
appropriate.





Note
4.  Sale of Receivables





In April
2008, we began to sell undivided interests in certain of our receivables to
financial institutions.  We entered these agreements at our discretion
when we determined that the cost of factoring was less than the cost of
servicing our receivables with existing debt.  Pursuant to these
agreements, we sold $67.2 million and $140 million of receivables during the
three months and nine months ended September 30, 2009,
respectively.  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.  A charge in the
amount of $1 million and $2 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 and nine months ended September
30, 2009, respectively.





Note
5. Inventories





Inventories,
which are stated at the lower of cost (determined by means of the first in,
first out method) or market, consist of (in thousands):





September 30,
                  2009
                
                
                December 31,
                  2008(In
      thousands)Finished
      goods, net
                
                $
                128,613
                
                
                $
                152,804Work
      in process, net
                
                
                4,850
                
                
                
                5,031Raw
      materials, net
                
                
                66,190
                
                
                
                74,600Total
      inventories, net
                
                $
                199,653
                
                
                $
                232,435


12




STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES




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





Note
6. Credit Facilities and Long-Term Debt





Total
debt outstanding is summarized as follows:





September 30,
                      2009
                    
                    
                    December 31,
                      2008(In thousands)Revolving
      credit facilities (1)
                    
                    $
                    92,521
                    
                    
                    $
                    148,9316.75%
      convertible subordinated debentures
                    
                    
                    —
                    
                    
                    
                    44,86515%
      convertible subordinated debentures
                    
                    
                    12,300
                    
                    
                    
                    —15%
      unsecured promissory notes
                    
                    
                    5,370
                    
                    
                    
                    —Other
                    
                    
                    670
                    
                    
                    
                    361Total
      debt
                    
                    $
                    110,861
                    
                    
                    $
                    194,157Current
      maturities of long-term debt
                    
                    $
                    92,682
                    
                    
                    $
                    193,884Long-term
      debt
                    
                    
                    18,179
                    
                    
                    
                    273Total
      debt
                    
                    $
                    110,861
                    
                    
                    $
                    194,157




(1)
            Consists
      of the revolving credit facility, the Canadian term loan and the European
      revolving credit facilities.





Deferred
Financing Costs





We had
deferred financing costs of $6.2 million and $3.6 million as of September 30,
2009 and December 31, 2008, respectively.  As of September 30, 2009,
these costs relate to our revolving credit facility and the 15% convertible
subordinated debentures. In connection with the amendments to our revolving
credit facility in May and June 2009, we incurred and capitalized $3.2 million
of costs related to bank fees, legal and other professional fees which are being
amortized through March 2013, the remaining term of the amended revolving credit
facility.  In addition, we incurred and capitalized costs of $0.7
million related to the 15% convertible subordinated debentures issued in May
2009 which are being amortized through April 2011, the remaining term of the 15%
convertible subordinated debentures.  Deferred financing costs as of
September 30, 2009 are being amortized, assuming no further prepayments of
principal, in the amount of $0.5 million in 2009, $2 million in 2010, $1.7
million in 2011, $1.6 million in 2012 and $0.4 million in 2013.





Revolving
Credit Facility





In March
2007, we entered into a Second Amended and Restated Credit Agreement with
General Electric Capital Corporation, as agent, and a syndicate of lenders for a
secured revolving credit facility.  This restated credit agreement
replaces our prior credit facility with General Electric Capital
Corporation.  The restated credit agreement (as amended in June 2009)
provides for a line of credit of up to $200 million (inclusive of the Canadian
term loan described below) and expires in March 2013. Direct borrowings under
the restated credit agreement bear interest at the LIBOR rate plus the
applicable margin (as defined), or floating at the index rate plus the
applicable margin, at our option. The interest rate may vary depending upon our
borrowing availability. The restated credit agreement is guaranteed by certain
of our subsidiaries and secured by certain of our assets.


13




STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES




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





In May
2009, we amended our restated credit agreement to permit the May 2009 exchange
of $12.3 million principal amount of our outstanding 6.75% convertible
subordinated debentures due 2009 for a like principal amount of our 15%
convertible subordinated debentures due 2011 and to provide that, beginning
October 15, 2010 and on a monthly basis thereafter, our borrowing availability
will be reduced by approximately $2 million for the repayment, repurchase or
redemption of the aggregate outstanding amount of our newly issued 15%
convertible subordinated debentures.





In June
2009, we further amended our restated credit agreement (1) to extend the
maturity date of our credit facility to March 20, 2013, (2) to reduce the
aggregate amount of the revolving credit facility (inclusive of the Canadian
term loan described below) from $275 million to $200 million, (3) to permit the
settlement at maturity of our 6.75% convertible subordinated debentures due July
15, 2009, our 15% convertible subordinated debentures due April 15, 2011, and
our 15% unsecured promissory notes due April 15, 2011; all with funds from our
revolving credit facility subject to borrowing availability, (4) to establish a
$10 million minimum borrowing availability requirement effective on the date of
repayment of our 6.75% convertible subordinated debentures, and (5) to provide
that, beginning October 15, 2010 and on a monthly basis thereafter, our
borrowing availability will be reduced by approximately $0.9 million for the
repayment or repurchase of the aggregate outstanding amount of our newly issued
15% unsecured promissory notes due 2011.  In addition, as of the date
of the amendment the margin added to the index rate increased to between 2.25% -
2.75% and the margin added to the LIBOR rate increased to 3.75% - 4.25%, in each
case depending upon the level of excess availability as defined in the restated
credit agreement.





Borrowings
under the restated credit agreement are collateralized by substantially all of
our assets, including accounts receivable, inventory and fixed assets, and those
of certain of our subsidiaries. After taking into account outstanding borrowings
under the restated credit agreement, there was an additional $76.3 million
available for us to borrow pursuant to the formula at September 30,
2009.  At September 30, 2009 and December 31, 2008, the interest rate
on our restated credit agreement was 4.6%. Outstanding borrowings under the
restated credit agreement (inclusive of the Canadian term loan described below),
which are classified as current liabilities, were $90 million and $143.2 million
at September 30, 2009 and December 31, 2008, respectively.





At any
time that our average borrowing availability over the previous thirty days is
less than $30 million or if our borrowing availability is $20 million or less,
and until such time that we have maintained an average borrowing availability of
$30 million or greater for a continuous period of ninety days, the terms of our
restated credit agreement provide for, among other provisions, financial
covenants requiring us, on a consolidated basis, (1) to maintain specified
levels of fixed charge coverage at the end of each fiscal quarter (rolling
twelve months), and (2) to limit capital expenditure levels. As of September 30,
2009, we were not subject to these covenants.  Availability under our
restated credit agreement is based on a formula of eligible accounts receivable,
eligible inventory and eligible fixed assets.  Our restated credit
agreement also permits dividends and distributions by us provided specific
conditions are met.





Canadian
Term Loan





In June
2009, we amended our credit agreement with GE Canada Finance Holding Company,
for itself and as agent for the lenders. The amended credit agreement provides
for a line of credit of up to $10 million, of which $7 million is currently
outstanding and which amount is part of the $200 million available for borrowing
under our restated credit agreement with General Electric Capital Corporation
(described above). The amended credit agreement is guaranteed and secured by us
and certain of our wholly-owned subsidiaries and expires in March
2013.  Direct borrowings under the amended credit agreement bear
interest at the same rate as our restated credit agreement with General Electric
Capital Corporation (described above).


14




STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES




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





Revolving
Credit Facilities—Europe





Our
European subsidiary has revolving credit facilities which, at September 30,
2009, provide for aggregate lines of credit up to $5.9 million. The amount of
short-term bank borrowings outstanding under these facilities was $2.6 million
on September 30, 2009 and $5.8 million on December 31, 2008. The weighted
average interest rate on these borrowings on September 30, 2009 was
2.7%.





Subordinated
Debentures





In July
1999, we completed a public offering of 6.75% convertible subordinated
debentures amounting to $90 million. The 6.75% convertible subordinated
debentures carried an interest rate of 6.75%, payable semi-annually, and matured
on July 15, 2009.





The $90
million principal amount of the 6.75% convertible subordinated debentures was
convertible into 2,796,120 shares of our common stock at the option of the
holder.   From time to time, we repurchased the debentures in
open market transactions, on terms that we believed to be favorable with any
gains or losses as a result of the difference between the net carrying amount
and the reacquisitionprice recognized in the
period of repurchase.  During the first six months of 2009, we
repurchased $0.5 million principal amount of the 6.75% convertible subordinated
debentures.  In 2008, we repurchased $45.1 million principal amount of
the debentures resulting in a gain on the repurchase of $3.8
million.  In May 2009, we exchanged $12.3 million aggregate principal
amount of our outstanding 6.75% convertible subordinated debentures due 2009 for
a like principal amount of newly issued 15% convertible subordinated debentures
due 2011.   In July 2009, we settled at maturity the remaining
$32.1 million outstanding principal amount of the 6.75% convertible subordinated
debentures with funds from our revolving credit facility.





The 15%
convertible subordinated debentures issued in May 2009 carry an interest rate of
15% payable semi-annually, and will mature on April 15, 2011.  As of
September 30, 2009, the $12.3 million principal amount of the 15% convertible
subordinated debentures is convertible into 820,000 shares of our common stock;
each at the option of the holder.  The convertible subordinated
debentures are subordinated in right of payment to all of our existing and
future senior indebtedness. In addition, if a change in control, as defined in
the agreement, occurs at the Company, we will be required to make an offer to
purchase the convertible subordinated debentures at a purchase price equal to
101% of their aggregate principal amount, plus accrued interest.





Unsecured
Notes





In July
2009, we issued $5.4 million aggregate principal amount of 15% unsecured
promissory notes to certain directors and executive officers and to the
trustees of our Supplemental Executive Retirement Plan on behalf of the plan
participants.  The 15% unsecured promissory notes will mature on April
15, 2011 and carry an interest rate of 15%, payable semi-annually and are not
convertible into common stock.  The 15% unsecured promissory notes are
subordinated in right of payment to all of our existing and future senior
indebtedness.





Capital
Leases





During
2009, we entered into capital lease obligations related to certain equipment for
use in our operations totaling $0.4 million.  Assets held under
capitalized leases are included in property, plant and equipment and depreciated
over the lives of the respective leases or over their economic useful lives,
whichever is less.


15




STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES




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





Note
7.  Stock-Based Compensation Plans





We
account for our five stock-based compensation plans in accordance with the
provisions of Accounting Standards Codification 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. That cost is recognized in the statement of operations over the
period during which an employee is required to provide service in exchange for
the award.





Stock Option
Grants





At
September 30, 2009, under all of our option plans there were outstanding options
to purchase an aggregate of 384,144 shares of common stock, with no shares of
common stock available for future grants.  There were no stock options
granted in the nine months ended September 30, 2009.  In addition,
there was no stock option-based compensation expense in the nine months ended
September 30, 2009, and we have no unrecognized compensation cost related to
stock options and non-vested stock options as of September 30,
2009.




The
following is a summary of the changes in outstanding stock options for the nine
months ended September 30, 2009:




Shares
                      
                      
                      Weighted
                        Average
                        Exercise
                        Price
                      
                      
                      Weighted Average
                        Remaining
                        Contractual
                        Term (Years)Outstanding
      at December 31, 2008
                      
                      
                      515,823
                      
                      
                      $
                      13.40
                      
                      
                      
                      4.1Expired
                      
                      
                      (61,071
                      )
                      
                      $
                      14.31
                      
                      
                      
                      —Exercised
                      
                      
                      (36,100
                      )
                      
                      $
                      12.64
                      
                      
                      
                      —Forfeited, other
                      
                      
                      (34,508
                      )
                      
                      $
                      13.82
                      
                      
                      
                      3.7Outstanding at September 30,
      2009
                      
                      
                      384,144
                      
                      
                      $
                      13.29
                      
                      
                      
                      3.9Options exercisable at September 30,
      2009
                      
                      
                      384,144
                      
                      
                      $
                      13.29
                      
                      
                      
                      3.9





The
aggregate intrinsic value of all outstanding stock options was $0.8 million as
of September 30, 2009.  All outstanding stock options as of September
30, 2009 are fully vested and exercisable. The total intrinsic value of options
exercised was $0.1 million during the nine months ended September 30,
2009.





Restricted and Performance
Stock Grants





As part
of our 2006 Omnibus Incentive Plan, we currently grant shares of restricted
and/or performance-based stock to eligible employees and
directors.  Selected executives and other key personnel are granted
performance awards whose vesting is contingent upon meeting various performance
measures with a retention feature.  This component of compensation is
designed to encourage the long-term retention of key executives and to tie
executive compensation directly to Company performance and the long-term
enhancement of shareholder value.  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 become fully vested
upon the third and first anniversary of the date of grant for employees and
directors, respectively.


16




STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES




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





In
determining the grant date fair value, the stock price on the date of grant, as
quoted on the New York Stock Exchange, was reduced by the present value of
dividends expected to be paid on the shares issued and outstanding during the
requisite service period, discounted at a risk-free interest
rate.  The risk-free interest rate is based on the U.S. Treasury rates
at the date of grant with maturity dates approximately equal to the restriction
or vesting period at the grant date. The fair value of the shares at the date of
grant is amortized to expense ratably over the restriction period.  An
evaluation of our historical forfeiture experience during 2009 indicated that
our current estimated forfeiture rates should be adjusted upward from 2% to 5%
for employees and remains at 0% for executives and directors.  The
impact of the change in our estimated forfeitures recorded to compensation
expense and additional paid-in capital is not material.





Our
restricted and performance-based share activity was as follows for the nine
months ended September 30,
2009:


Shares
                      
                      
                      Weighted Average
                        Grant Date Fair
                        Value Per ShareBalance
      at December 31, 2008
                      
                      
                      280,775
                      
                      
                      $
                      6.88Granted
                      
                      
                      111,475
                      
                      
                      $
                      13.78Vested
                      
                      
                      (55,350
                      )
                      
                      $
                      7.24Forfeited
                      
                      
                      (40,875
                      )
                      
                      $
                      7.18Balance at September 30, 2009
                      
                      
                      296,025
                      
                      
                      $
                      9.37





We
recorded compensation expense related to restricted shares and performance-based
shares of $421,000 ($248,400 net of tax) and $380,000 ($187,800 net of tax) for
the nine months ended September 30, 2009 and 2008, respectively.  The
unamortized compensation expense related to our restricted and performance-based
shares was $2 million at September 30, 2009, and is expected to be recognized as
they vest over a weighted average period of 2.0 and 0.6 years for employees and
directors, respectively.





Note
8.  Employee Benefits





In 2000,
we created an employee benefits trust to which we contributed 750,000 shares of
treasury stock. We are authorized to instruct the trustees to distribute such
shares toward the satisfaction of our future obligations under employee benefit
plans. The shares held in trust are not considered outstanding for purposes of
calculating earnings per share until they are committed to be released. The
trustees will vote the shares in accordance with its fiduciary
duties.  During 2009, we contributed to the trust an additional
200,000 shares from our treasury and released 188,461 shares from the trust
leaving 12,068 shares remaining in the trust as of September 30,
2009.





In August
1994, we established an unfunded Supplemental Executive Retirement Plan (SERP)
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 2008,
contributions of $113,500 were made related to calendar year 2007.  In
August 2009, contributions of $73,500 were made related to calendar year
2008.





In
October 2001, we adopted a second unfunded SERP. The SERP, as amended, is a
defined benefit plan pursuant to which we will pay supplemental pension benefits
to certain key employees upon the attainment of a contractual participant’s
payment date based upon the employees’ years of service and
compensation.  We use a December 31 measurement date for this
plan.


17




STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES




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





Our UK
pension plan is comprised of a defined benefit plan and a defined contribution
plan.  The defined benefit plan is closed to new entrants and existing
active members ceased accruing any further benefits.





We
participate in a multi-employer plan which provides defined benefits to
unionized workers at one of our manufacturing
facilities.  Contributions to the plan are determined in accordance
with the provisions of a negotiated labor contract.





In
December 2007, we entered into an agreement with the International Union, United
Automobile, Aerospace and Agricultural Implement Workers of America and its
Local 365 regarding the shut down of our manufacturing operations at Long Island
City, New York, which operations were transferred to certain of our other
facilities. As part of the agreement, effective January 5, 2008, we agreed to
withdraw from the multi-employer pension plan covering our UAW employees at the
Long Island City facility.  In December 2007, we recorded a charge of
$3.3 million related to the present value of the undiscounted $5.6 million
withdrawal liability discounted over 80 quarterly payments using a
credit-adjusted, risk-free rate.  In accordance with the terms of the
agreement, we commenced with quarterly payments of $0.3 million in December
2008.





We
provide certain medical and dental care benefits to eligible retired
employees.  Eligibility of employees who can participate in this
program is limited to employees hired before 1996.  In May 2008, we
announced that, in lieu of the then current retiree medical and dental plans
previously funded on a pay-as-you-go basis, a Health Reimbursement Account
(“HRA”) will be established beginning January 1, 2009 for each qualified U.S.
retiree.  The plan amendment effectively reduced benefits attributed
to employee services already rendered and instead credited a fixed amount into
an HRA to cover both medical and dental costs for all current and future
eligible retirees.  The remeasurement of the postretirement welfare
benefit plan as a result of these benefit modifications generated a $24.5
million reduction in the accumulated postretirement benefit obligation on June
1, 2008, which is being amortized on a straight-line basis and recognized as a
reduction in benefit costs over the remaining service to full eligibility (3.8
years) as of that date.





The
components of net periodic benefit cost for our North American and European
defined benefit plans and postretirement benefit plans for the three months and
nine months ended September 30, 2009 and 2008 were as follows (in
thousands):





Three Months Ended
                          
                          
                          Nine Months EndedSeptember 30,
                          
                          
                          September 30,2009
                          
                          
                          2008
                          
                          
                          2009
                          
                          
                          2008Pension
      BenefitsService
      cost
                          
                          $
                          22
                          
                          
                          $
                          22
                          
                          
                          $
                          65
                          
                          
                          $
                          68Interest
      cost
                          
                          
                          72
                          
                          
                          
                          72
                          
                          
                          
                          217
                          
                          
                          
                          350Amortization
      of prior service cost
                          
                          
                          28
                          
                          
                          
                          28
                          
                          
                          
                          83
                          
                          
                          
                          82Actuarial net (gain) loss
                          
                          
                          (33
                          )
                          
                          
                          (34
                          )
                          
                          
                          (98
                          )
                          
                          
                          492Net periodic benefit cost
                          
                          $
                          89
                          
                          
                          $
                          88
                          
                          
                          $
                          267
                          
                          
                          $
                          992Postretirement
      BenefitsService
      cost
                          
                          $
                          3
                          
                          
                          $
                          68
                          
                          
                          $
                          152
                          
                          
                          $
                          469Interest
      cost
                          
                          
                          287
                          
                          
                          
                          277
                          
                          
                          
                          834
                          
                          
                          
                          1,412Amortization
      of prior service cost
                          
                          
                          (2,317
                          )
                          
                          
                          (2,314
                          )
                          
                          
                          (6,951
                          )
                          
                          
                          (4,273
                          )Amortization
      of transition obligation
                          
                          
                          1
                          
                          
                          
                          1
                          
                          
                          
                          3
                          
                          
                          
                          3Actuarial net loss
                          
                          
                          218
                          
                          
                          
                          350
                          
                          
                          
                          984
                          
                          
                          
                          1,047Net periodic benefit cost
                          
                          $
                          (1,808
                          )
                          
                          $
                          (1,618
                          )
                          
                          $
                          (4,978
                          )
                          
                          $
                          (1,342
                          )


18




STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES




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





Note
9.  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
                
                
                Nine Months EndedSeptember 30,
                
                
                September 30,2009
                
                
                2008
                
                
                2009
                
                
                2008Basic
      Net Earnings (Loss) per Common Shares:Earnings
      from continuing operations
                
                $
                4,724
                
                
                $
                397
                
                
                $
                11,149
                
                
                $
                12,972Loss
      from discontinued operation
                
                
                (1,639
                )
                
                
                (1,579
                )
                
                
                (2,221
                )
                
                
                (2,228
                )Net
      earnings (loss) available to common stockholders
                
                $
                3,085
                
                
                $
                (1,182
                )
                
                $
                8,928
                
                
                $
                10,744Weighted
      average common shares outstanding
                
                
                18,895
                
                
                
                18,558
                
                
                
                18,770
                
                
                
                18,480Net
      earnings from continuing operation per common share
                
                $
                0.25
                
                
                $
                0.02
                
                
                $
                0.59
                
                
                $
                0.70Loss
      from discontinued operation per common share
                
                
                (0.09
                )
                
                
                (0.08
                )
                
                
                (0.11
                )
                
                
                (0.12
                )Basic
      net earnings (loss) per common share
                
                $
                0.16
                
                
                $
                (0.06
                )
                
                $
                0.48
                
                
                $
                0.58Diluted
      Net Earnings (Loss) per Common Share:Earnings
      from continuing operations
                
                $
                4,724
                
                
                $
                397
                
                
                $
                11,149
                
                
                $
                12,972Interest
      income on debenture conversions (net of income tax
expense)
                
                
                32
                
                
                
                –
                
                
                
                –
                
                
                
                –Earnings
      from continuing operations plus assumed conversions
                
                
                4,756
                
                
                
                397
                
                
                
                11,149
                
                
                
                12,972Loss
      from discontinued operation
                
                
                (1,639
                )
                
                
                (1,579
                )
                
                
                (2,221
                )
                
                
                (2,228
                )Net
      earnings (loss) available to common stockholders plus assumed
      conversions
                
                $
                3,117
                
                
                $
                (1,182
                )
                
                $
                8,928
                
                
                $
                10,744Weighted
      average common shares outstanding
                
                
                18,895
                
                
                
                18,558
                
                
                
                18,770
                
                
                
                18,480Plus
      incremental shares from assumed conversions:Dilutive
      effect of restricted stock
                
                
                39
                
                
                
                59
                
                
                
                20
                
                
                
                33Dilutive
      effect of stock options
                
                
                3
                
                
                
                –
                
                
                
                –
                
                
                
                –Dilutive
      effect of convertible debentures
                
                
                152
                
                
                
                –
                
                
                
                –
                
                
                
                –Weighted
      average common shares outstanding – Diluted
                
                
                19,089
                
                
                
                18,617
                
                
                
                18,790
                
                
                
                18,513Net
      earnings from continuing operations per common share
                
                $
                0.25
                
                
                $
                0.02
                
                
                $
                0.59
                
                
                $
                0.70Loss
      from discontinued operation per common share
                
                
                (0.09
                )
                
                
                (0.08
                )
                
                
                (0.11
                )
                
                
                (0.12
                )Diluted
      net earnings (loss) per common share
                
                $
                0.16
                
                
                $
                (0.06
                )
                
                $
                0.48
                
                
                $
                0.58


19




STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES




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





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
                  
                  
                  Nine Months EndedSeptember 30,
                  
                  
                  September 30,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Stock
      options
                  
                  
                  381
                  
                  
                  
                  548
                  
                  
                  
                  384
                  
                  
                  
                  548Restricted
      shares
                  
                  
                  102
                  
                  
                  
                  90
                  
                  
                  
                  144
                  
                  
                  
                  1086.75%
      convertible subordinated debentures
                  
                  
                  –
                  
                  
                  
                  2,413
                  
                  
                  
                  –
                  
                  
                  
                  2,66715%
      convertible subordinated debentures
                  
                  
                  820
                  
                  
                  
                  –
                  
                  
                  
                  445
                  
                  
                  
                  –





Note
10.  Comprehensive Income (Loss)





Comprehensive
income (loss), net of income tax expense is as follows (in
thousands):





Three Months Ended
                  
                  
                  Nine Months EndedSeptember 30,
                  
                  
                  September 30,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Net
      earnings (loss) as reported
                  
                  $
                  3,085
                  
                  
                  $
                  (1,182
                  )
                  
                  $
                  8,928
                  
                  
                  $
                  10,744Foreign
      currency translation adjustment
                  
                  
                  965
                  
                  
                  
                  (1,658
                  )
                  
                  
                  3,014
                  
                  
                  
                  (2,456
                  )Postretirement
      benefit plans:Plan
      amendment adjustment
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  14,708Reclassification
      adjustment for recognition of prior period amounts
                  
                  
                  (1,478
                  )
                  
                  
                  (1,040
                  )
                  
                  
                  (4,416
                  )
                  
                  
                  (1,376
                  )Unrecognized
      amounts
                  
                  
                  111
                  
                  
                  
                  –
                  
                  
                  
                  532
                  
                  
                  
                  (511
                  )Total
      comprehensive income (loss)
                  
                  $
                  2,683
                  
                  
                  $
                  (3,880
                  )
                  
                  $
                  8,058
                  
                  
                  $
                  21,109





Note
11.  Industry Segments





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





Three Months Ended September 30,2009
                
                2008Net Sales
                
                
                Operating
                  Income (Loss)
                
                
                Net Sales
                
                
                Operating
                  Income (Loss)Engine
      Management
                
                $
                135,793
                
                
                $
                7,424
                
                
                $
                135,502
                
                
                $
                6,900Temperature
      Control
                
                
                59,505
                
                
                
                4,728
                
                
                
                53,697
                
                
                
                1,076Europe
                
                
                7,938
                
                
                
                (391
                )
                
                
                11,536
                
                
                
                (111
                )All
      Other
                
                
                2,341
                
                
                
                (2,037
                )
                
                
                2,203
                
                
                
                (2,112
                )Consolidated
                
                $
                205,577
                
                
                $
                9,724
                
                
                $
                202,938
                
                
                $
                5,753





Nine Months Ended September 30,2009
                
                2008Net Sales
                
                
                Operating
                  Income (Loss)
                
                
                Net Sales
                
                
                Operating
                  Income (Loss)Engine
      Management
                
                $
                380,550
                
                
                $
                24,042
                
                
                $
                417,346
                
                
                $
                20,123Temperature
      Control
                
                
                165,426
                
                
                
                6,366
                
                
                
                164,759
                
                
                
                3,444Europe
                
                
                23,355
                
                
                
                (1,278
                )
                
                
                35,343
                
                
                
                758All
      Other
                
                
                5,966
                
                
                
                (7,312
                )
                
                
                8,917
                
                
                
                (9,320
                )Consolidated
                
                $
                575,297
                
                
                $
                21,818
                
                
                $
                626,365
                
                
                $
                15,005


20




STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES




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





Note
12.  Fair Value of Financial Instruments





The
following methods and assumptions were used to estimate the fair value of each
class of financial instruments for which it is practicable to estimate that
value:





Cash
and Cash Equivalents





The
carrying amount approximates fair value because of the short maturity of those
instruments.





Trade
Accounts Receivable





The
carrying amount of trade receivables reflects net recovery value and
approximates fair value because of their short outstanding terms.





Trade
Accounts Payable





The
carrying amount of trade payables approximates fair value because of their short
outstanding terms.





Short
Term Borrowings





The
carrying value of our revolving credit facilities equals fair market value
because the interest rate reflects current market rates.





Long-term
Debt





The fair
value of our long-term debt is estimated based on quoted market prices or
current rates offered to us for debt of the same remaining
maturities.





The
estimated fair values of our financial instruments are as follows (in
thousands):





September 30, 2009
                
                Carrying
      Amount
                
                
                Fair ValueCash
      and cash equivalents
                
                $
                10,456
                
                
                $
                10,456Trade
      accounts receivable
                
                
                172,294
                
                
                
                172,294Trade
      accounts payable
                
                
                77,367
                
                
                
                77,367Short
      term borrowings
                
                
                92,682
                
                
                
                92,682Long-term
      debt
                
                
                18,179
                
                
                
                20,144


21




STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES




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





Note
13.  Commitments and Contingencies





Asbestos.  In 1986,
we acquired a brake business, which we subsequently sold in March 1998 and which
is accounted for as a discontinued operation. When we originally acquired this
brake business, we assumed future liabilities relating to any alleged exposure
to asbestos-containing products manufactured by the seller of the acquired brake
business. In accordance with the related purchase agreement, we agreed to assume
the liabilities for all new claims filed on or after September 1, 2001. Our
ultimate exposure will depend upon the number of claims filed against us on or
after September 1, 2001 and the amounts paid for indemnity and defense
thereof.  At September 30, 2009, approximately 1,620 cases were
outstanding for which we were responsible for any related liabilities. We expect
the outstanding cases to increase gradually due to legislation in certain states
mandating minimum medical criteria before a case can be heard. Since inception
in September 2001 through September 30, 2009, the amounts paid for settled
claims are approximately $8.4 million. In September 2007, we entered into an
agreement with an insurance carrier to provide us with limited insurance
coverage for the defense and indemnity costs associated with certain
asbestos-related claims. We have submitted various asbestos-related claims to
the insurance carrier for coverage under this agreement, and the insurance
carrier reimbursed us $2.4 million for settlement claims and defense
costs.  We have submitted additional asbestos-related claims to the
insurance carrier for coverage.





In
evaluating our potential asbestos-related liability, we have considered various
factors including, among other things, an actuarial study performed by a leading
actuarial firm with expertise in assessing asbestos-related liabilities, our
settlement amounts and whether there are any co-defendants, the jurisdiction in
which lawsuits are filed, and the status and results of settlement discussions.
As is our accounting policy, we engage actuarial consultants with experience in
assessing asbestos-related liabilities to estimate our potential claim
liability. The methodology used to project asbestos-related liabilities and
costs in the study considered: (1) historical data available from publicly
available studies; (2) an analysis of our recent claims history to estimate
likely filing rates into the future; (3) an analysis of our currently pending
claims; and (4) an analysis of our settlements to date in order to develop
average settlement values.





The most
recent actuarial study was performed as of August 31, 2009.  The
updated study has estimated an undiscounted liability for settlement payments,
excluding legal costs and any potential recovery from insurance carriers,
ranging from $26.6 million to $66.3 million for the period through 2059. The
change from the prior year study was a $1.3 million increase for the low end of
the range and a $2.9 million decrease for the high end of the
range.  Based on the information contained in the actuarial study and
all other available information considered by us, we concluded that no amount
within the range of settlement payments was more likely than any other and,
therefore, recorded the low end of the range as the liability associated with
future settlement payments through 2059 in our consolidated financial
statements.  Accordingly, an incremental $2.2 million provision in our
discontinued operation was added to the asbestos accrual in September 2009
increasing the reserve to approximately $26.6 million. According to the updated
study, legal costs, which are expensed as incurred and reported in earnings
(loss) from discontinued operation in the accompanying statement of operations,
are estimated to range from $21.4 million to $42 million during the same
period.





We plan
to perform an annual actuarial evaluation during the third quarter of each year
for the foreseeable future. Given the uncertainties associated with projecting
such matters into the future and other factors outside our control, we can give
no assurance that additional provisions will not be required. We will continue
to monitor the circumstances surrounding these potential liabilities in
determining whether additional provisions may be necessary. At the present time,
however, we do not believe that any additional provisions would be reasonably
likely to have a material adverse effect on our liquidity or consolidated
financial position.


22




STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES




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





Antitrust
Litigation.  In November 2004, we were served with a summons
and complaint in the U.S. District Court for the Southern District of New York
by The Coalition for a Level Playing Field, which is an organization comprised
of a large number of auto parts retailers. The complaint alleges antitrust
violations by us and a number of other auto parts manufacturers and retailers
and seeks injunctive relief and unspecified monetary damages. In August 2005, we
filed a motion to dismiss the complaint, following which the plaintiff filed an
amended complaint dropping, among other things, all claims under the Sherman
Act. The remaining claims allege violations of the Robinson-Patman Act. Motions
to dismiss those claims were filed by us in February 2006. Plaintiff filed
opposition to our motions, and we subsequently filed replies in June
2006.  Oral arguments were originally scheduled for September 2006,
however the court adjourned these proceedings until a later date to be
determined. Subsequently, the judge initially assigned to the case recused
himself, and a new judge has been assigned before whom further preliminary
proceedings have been held. Although we cannot predict the ultimate outcome of
this case or estimate the range of any potential loss that may be incurred in
the litigation, we believe that the lawsuit is without merit, deny all of the
plaintiff’s allegations of
wrongdoing and believe we have meritorious defenses to the plaintiff’s claims. We intend to defend
this lawsuit vigorously.





Other
Litigation.  We are involved in various other litigation and
product liability matters arising in the ordinary course of business. Although
the final outcome of any asbestos-related matters or any other litigation or
product liability matter cannot be determined, based on our understanding and
evaluation of the relevant facts and circumstances, it is our opinion that the
final outcome of these matters will not have a material adverse effect on our
business, financial condition or results of operations.





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 September 30, 2009 and 2008, we
have accrued $12.3 million 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
                
                
                Nine Months EndedSeptember 30,
                
                
                September 30,2009
                
                
                2008
                
                
                2009
                
                
                2008Balance,
      beginning of period
                
                $
                12,005
                
                
                $
                13,115
                
                
                $
                10,162
                
                
                $
                11,317Liabilities
      accrued for current year sales
                
                
                13,872
                
                
                
                12,020
                
                
                
                36,316
                
                
                
                35,934Settlements
      of warranty claims
                
                
                (13,569
                )
                
                
                (12,818
                )
                
                
                (34,170
                )
                
                
                (34,934
                )Balance,
      end of period
                
                $
                12,308
                
                
                $
                12,317
                
                
                $
                12,308
                
                
                $
                12,317





Note
14.  Subsequent Event





On
October 27, 2009 we announced plans to offer 4,000,000 shares of our common
stock in an underwritten registered public offering.  In connection
with this offering, we intend to grant the underwriters a 30-day option to
purchase up to 600,000 additional shares.  We intend to use the net
proceeds from the offering to repay a portion of our outstanding indebtedness
under our revolving credit facility.  We then intend to borrow funds
from time to time under our revolving credit facility for general corporate
purposes.


23


ITEM
      2.
            MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS
      OF OPERATIONS





This
Report contains forward-looking statements made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements in this Report are indicated by words such as
“anticipates,” “expects,” “believes,” “intends,” “plans,” “estimates,”
“projects” 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, our substantial leverage; economic
and market conditions (including access to credit and financial markets); the
performance of the aftermarket sector; changes in business relationships with
our major customers and in the timing, size and continuation of our customers’
programs; changes in the product mix and distribution channel mix; the ability
of our customers to achieve their projected sales; competitive product and
pricing pressures; increases in production or material costs that cannot be
recouped in product pricing; successful integration of acquired businesses; our
ability to achieve cost savings from our restructuring
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 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, distributor and marketer of replacement parts
for motor vehicles in the automotive aftermarket industry, with an increasing
focus on the original equipment and original equipment service markets. We are
organized into two major operating segments, each of which focuses on a specific
line of replacement parts. Our Engine Management Segment manufactures ignition
and emission parts, ignition wires, battery cables and fuel system parts. 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. We also sell our
products in Europe through our European Segment.





We place
significant emphasis on improving our financial performance by achieving
operating efficiencies and improving asset utilization.  We intend to
continue to improve our operating efficiency, customer satisfaction and cost
position by focusing on company-wide overhead and operating expense cost
reduction programs, such as closing excess facilities and consolidating
redundant functions.





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 products during the second and third quarters of the
year may vary significantly with the summer weather and customer inventories.
For example, a cool summer may lessen the demand for our Temperature Control
products, while a hot summer may increase such demand. As a result of this
seasonality and variability in demand of our 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.


24


Inventory
Management.We face inventory management issues as a result of 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. In addition to warranty returns, we also permit our customers to
return 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. We accrue for overstock
returns as a percentage of sales, after giving consideration to recent returns
history.




In order
to better control warranty and overstock return levels, we tightened the rules
for authorized warranty returns, placed further restrictions on the amounts
customers can return and instituted a program so that our management can better
estimate potential future product returns. In addition, with respect to our air
conditioning compressors, which are our most significant customer product
warranty returns, we established procedures whereby a warranty will be voided if
a customer does not provide acceptable proof that complete air conditioning
system repair was performed.




Discounts,
Allowances and Incentives.In connection with our sales activities, 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 and different product lines purchased from us. 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.




Interim Results of
Operations:


Comparison
of Three Months Ended September 30, 2009 to Three Months Ended September 30,
2008




Sales. Consolidated net sales for
the three months ended September 30, 2009 were $205.6 million, an increase of
$2.7 million, or 1.3%, compared to $202.9 million in the same period of 2008.
The increase in consolidated net sales resulted from an increase in net sales of
$5.8 million, or 10.8%, in our Temperature Control Segment, partially offset by
a $3.6 million, or 31.2%, decline in our European Segment. Net sales in our
Engine Management Segment were essentially flat. Temperature Control sales
benefitted from incremental new customer sales volumes and increased customer
demand within our retail channel. The reduction in sales in our European Segment
is the result of a decrease in original equipment sales volumes and an
unfavorable change in foreign currency exchange rates.




Gross
margins. Gross margins, as a percentage of consolidated net sales,
increased slightly to 24.2% in the third quarter of 2009, compared to 24% in the
third quarter of 2008. Temperature Control and Engine Management margins
increased 2.2 percentage points and 0.3 percentage points, respectively, while
margins in our European Segment decreased 2.4 percentage points. The increase in
the Engine Management margins was primarily due to a reduction in our fixed
overhead costs as a result of our cost reduction programs. The Temperature
Control Segment’s increase in margins resulted from favorable manufacturing
variances compared to the same period in the prior year due to increased sales
and production volumes. The European Segment’s decrease resulted from lower
sales volumes and higher manufacturing costs due to reduced production
volumes.




Selling, general
and administrative expenses.Selling, general and administrative expenses
(SG&A) decreased by $4.3 million to $36.8 million, or 17.9%, of consolidated
net sales, in the third quarter of 2009, as compared to $41.1 million, or 20.3%
of consolidated net sales in the third quarter of 2008. The decrease in SG&A
expenses is due primarily to lower selling, marketing and distribution expenses,
and the benefit recognized from the postretirement benefit plan amendment
announced in May 2008.


25


Restructuring and
integration expenses.Restructuring and integration expenses increased to
$3.3 million in the third quarter of 2009, compared to $1.9 million in the third
quarter of 2008. During the third quarter of 2009, restructuring and integration
expenses related primarily to exit costs incurred in connection with the closure
of our Wilson, North Carolina manufacturing facility as part of our overhead
cost reduction program and a workforce reduction charge related to our
acquisition of a wire and cable business. The 2008 expenses related primarily to
charges incurred in connection with the closure of our Puerto Rico manufacturing
operations, the integration of operations to Mexico and for severance in
connection with the consolidation of our Reno distribution operations and
shutdown of our Edwardsville, Kansas manufacturing operations.





Components
of our restructuring and integration accruals, by segment, were as follows (in
thousands):





Engine
                        Management
                      
                      
                      Temperature
                        Control
                      
                      
                      European
                      
                      
                      Other
                      
                      
                      TotalExit
      activity liability at June 30, 2009
                      
                      $
                      9,133
                      
                      
                      $
                      662
                      
                      
                      $
                      17
                      
                      
                      $
                      2,624
                      
                      
                      $
                      12,436Restructuring
      and integration costs:Amounts
      provided for during 2009
                      
                      
                      3,037
                      
                      
                      
                      117
                      
                      
                      
                      150
                      
                      
                      
                      —
                      
                      
                      
                      3,304Non-cash
      usage, including asset write-downs
                      
                      
                      (1,223
                      )
                      
                      
                      —
                      
                      
                      
                      (66
                      )
                      
                      
                      —
                      
                      
                      
                      (1,289
                      )Cash payments
                      
                      
                      (1,078
                      )
                      
                      
                      (187
                      )
                      
                      
                      (89
                      )
                      
                      
                      (589
                      )
                      
                      
                      (1,943
                      )Exit activity liability atSeptember 30,
      2009
                      
                      $
                      9,869
                      
                      
                      $
                      592
                      
                      
                      $
                      12
                      
                      
                      $
                      2,035
                      
                      
                      $
                      12,508





Operating
income. Operating income was $9.7 million in the third quarter of 2009,
compared to $5.8 million in the third quarter of 2008. The increase of $3.9
million was due primarily to the higher sales volumes, the positive impact of an
increase in gross margins in our Temperature Control Segment and lower SG&A
expenses reflecting the impact of our postretirement benefit amendment and cost
reduction programs, offset by an increase in restructuring and integration
expenses related to our closure of the Wilson, North Carolina manufacturing
plant and a workforce reduction charge resulting from our wire and cable
business acquisition during the quarter.





Other income,
net.Other income, net of $0.8 million in the third quarter of 2009 was
$0.5 million lower than other income, net of $1.3 million in the same period of
2008. Other income, net in the third quarter of 2009 included the recognition of
deferred gain of $0.3 million on the sale of our Long Island City, New York
property, income from our joint ventures of $0.2 million and foreign exchange
translation gains of $0.2 million. Other income, net in the third quarter of
2008 included a $1.6 million gain on the repurchase of $20.6 million principal
amount of our 6.75% convertible subordinate debentures and the recognition of
the deferred gain of $0.3 million on the sale of our Long Island City, New York
property offset by losses from our joint ventures of $0.3 million and foreign
exchange translation losses of $0.2 million.





Interest
expense. Interest expense decreased by $0.9 million to $2.4 million in
the third quarter of 2009 compared to $3.3 million in the same period in 2008
due to a reduction in average borrowing costs as a result of our debt reduction
efforts which produced lower outstanding borrowings.





Income tax
provision. The income tax provision in both the third quarter of 2009 and
2008 was $3.4 million. The effective tax rate in the third quarter of 2009 was
41.6%. The income tax provision in the third quarter of 2008 reflects the impact
of an increase in the estimated annual effective tax rate from 42.6% projected
in the second quarter of 2008 to 49.5% projected in the third quarter of
2008.


26





Loss from
discontinued operation. Loss from discontinued operations, net of income
tax, reflects adjustments made to our indemnity liability in line with
information contained in actuarial studies obtained in August 2009 and 2008 and
other information available and considered by us, and legal expenses incurred
associated with our asbestos-related liability. During the third quarters of
2009 and 2008, we recorded a loss of $1.6 million from discontinued operations.
The loss from discontinued operations for the third quarter of 2009 and 2008
reflects a $2.2 million and $2.1 million pre-tax adjustment, respectively, to
increase our indemnity liability in line with the August 2009 and 2008 actuarial
studies, as well as legal fees incurred in litigation.As discussed more fully in
Note 13 in the notes to our consolidated financial statements, we are
responsible for certain future liabilities relating to alleged exposure to
asbestos containing products.





Comparison
of Nine Months Ended September 30, 2009 to Nine Months Ended September 30,
2008





Sales. Consolidated net sales for
the nine months ended September 30, 2009 were $575.3 million, a decrease of
$51.1 million, or 8.2%, compared to $626.4 million in the same period of 2008.
The decrease in consolidated net sales resulted from declines in Engine
Management net sales of $36.8 million, or 8.8%, European Segment net sales of
$12 million, or 33.9%, and $3 million of net sales in our Other Operating
Segment, which consists primarily of our Canadian operations. Temperature
Control Segment net sales increased $0.7 million. The Engine Management decrease
in net sales compared to the first nine months of 2008 is the result of lower
sales volumes in our traditional markets as a single large customer changed
brands to a competitor and as customers have reduced and maintained lower
inventory levels in response to the economic environment. The reduction in sales
in our European Segment resulted from a decrease in OE/OES sales volumes and an
unfavorable change in foreign currency exchange rates.





Gross
margins. Gross margins, as a percentage of consolidated net sales, has
held relatively consistent at 23.8% for the nine months ended September 30, 2009
compared to 23.7% in the same period of 2008, as a 1.1 percentage point increase
in Engine Management margins was offset by a 2.3 percentage point decrease in
margins in our European Segment. The increase in the Engine Management margins
was primarily due to a reduction in our fixed overhead costs as a result of our
cost reduction programs and the negative impact on prior year margins of
unabsorbed overhead during our closure of two manufacturing facilities and start
up and training costs at our new Mexico facility. The European Segment’s
decrease resulted from lower sales volumes due to lower OE/OES sales in response
to economic conditions. Temperature Control’s gross margins held consistent at
18.6%.





Selling, general
and administrative expenses.Selling, general and administrative expenses
(SG&A) decreased by $17.9 million to $109.6 million or 19% of consolidated
net sales in the nine months ended September 30, 2009, as compared to $127.5
million or 20.3% of consolidated net sales for the nine months ended September
30, 2008. The decrease in SG&A expenses is due primarily to lower selling,
marketing and distribution expenses, and the benefit recognized from the
postretirement benefit plan amendment announced in May 2008, partially offset by
an increase in discount fees of $1.3 million related to our customer accounts
receivable factoring program.





Restructuring and
integration expenses.Restructuring and integration expenses decreased to
$5.7 million for the nine months ended September 30, 2009, compared to $6.1
million in the same period of 2008. The 2009 expense related primarily to
severance and other exit costs incurred in connection with the closure of our
Edwardsville, Kansas and Wilson, North Carolina manufacturing operations,
building demolition costs incurred at our European properties held for sale, and
charges related to severance and other relocation costs incurred in connection
with our wire and cable business acquisition. The 2008 expenses related
primarily to charges incurred in connection with the shutdown of our Long Island
City, New York manufacturing operations, the closure of our Puerto Rico
manufacturing operations, the integration of operations to Mexico and for
severance in connection with the consolidation of our Reno distribution
operations and shutdown of our Edwardsville, Kansas manufacturing
operations.


27





Operating
income. Operating income was $21.8 million in the nine months ended
September 30, 2009, compared to $15 million in 2008. The increase of $6.8
million was due primarily to lower SG&A expenses which more than offset the
gross margin impact from a decline in net sales.





Other income,
net.Other income, net decreased to $4.3 million for the nine months
ended September 30, 2009, compared to $21.7 million in the same period of 2008.
During 2009, we redeemed our investment in the preferred stock of a third party
issuer resulting in a pretax gain of $2.3 million and recognized $0.8 million of
deferred gain related to the sale-leaseback of our Long Island City, New York
property. During 2008, we recognized a gain of $21.6 million on the sale of our
Long Island City property, offset partially by a $1.4 million charge related to
the defeasance of our mortgage on the property. In addition, other income, net
during 2008 included a $1.6 million gain related to the repurchase of $20.6
million principal amount of our 6.75% convertible subordinate
debentures.





Interest
expense. Interest expense decreased by $3.8 million to $7.2 million in
the nine months ended September 30, 2009, compared to $11 million in the same
period in 2008. The decline is due primarily to our debt reduction efforts which
resulted in lower outstanding borrowings. Lower borrowings more than offset the
increase in the interest rate on our revolving credit facility as a result of
amendments made to the credit agreement. Our accounts receivable factoring
programs initiated during the second quarter of 2008 with some of our larger
customers in order to accelerate collection of accounts receivable balances and
improved working capital management contributed to the lower year over year
borrowings for the nine months ended September 30, 2009.





Income tax
provision. The income tax provision in the nine months ended September
30, 2009 was $7.8 million at an effective tax rate of 41%, compared to $12.7
million and an effective tax rate of 49.5% for the same period in 2008. The 2008
rate was higher primarily due to the differences in the mix of domestic and
foreign earnings as a result of the gain on the sale of the Long Island City,
New York property, the tax impact of the non-deductibility of a portion of the
$5 million distribution to a participant in the unfunded supplemental executive
retirement plan, and a tollgate tax on our operations in Puerto
Rico.





Loss from
discontinued operation.Loss from
discontinued operations, net of income tax, reflects adjustments made to our
indemnity liability in line with information contained in actuarial studies
obtained in August 2009 and 2008 and other information available and considered
by us, and legal expenses incurred associated with our asbestos-related
liability. During nine months ended September 30, 2009 and 2008, we recorded a
loss of $2.2 million from discontinued operations. The loss from discontinued
operations for the nine months ended 2009 and 2008 reflects a $2.2 million and
$2.1 million pre-tax adjustment, respectively, to increase our indemnity
liability in line with the August 2009 and 2008 actuarial studies, as well as
legal fees incurred in litigation.As discussed more fully in
Note 13 in the notes to our consolidated financial statements, we are
responsible for certain future liabilities relating to alleged exposure to
asbestos containing products.





Restructuring
and Integration Costs





The
aggregated liabilities relating to the restructuring and integration activities
as of December 31, 2008 and September 30, 2009, and activity for the nine months
ended September 30, 2009 consisted of the following (in thousands):





Workforce
                        Reduction
                      
                      
                      Other Exit
                        Costs
                      
                      
                      TotalExit
      activity liability at December 31, 2008
                      
                      $
                      12,751
                      
                      
                      $
                      2,956
                      
                      
                      $
                      15,707Restructuring
      and integration costs:Amounts
      provided for during 2009
                      
                      
                      2,816
                      
                      
                      
                      2,861
                      
                      
                      
                      5,677Non-cash
      usage, including asset write-downs
                      
                      
                      —
                      
                      
                      
                      (2,697
                      )
                      
                      
                      (2,697
                      )Cash
      payments
                      
                      
                      (5,317
                      )
                      
                      
                      (862
                      )
                      
                      
                      (6,179
                      )Exit activity liability atSeptember 30,
      2009
                      
                      $
                      10,250
                      
                      
                      $
                      2,258
                      
                      
                      $
                      12,508




28




Restructuring
Costs





Voluntary
Separation Program





During
2008 as part of an initiative to improve the effectiveness and efficiency of
operations, and to reduce costs in light of economic conditions, we implemented
certain organizational changes and offered eligible employees a voluntary
separation package. The restructuring accrual relates to severance and other
retiree benefit enhancements to be paid through 2015. Of the original
restructuring charge of $8 million, we have $4.5 million remaining as of
September 30, 2009 that is expected to be paid in the amount of $1.3 million in
2009, $1.6 million in 2010, $0.6 million in 2011, and $1 million for the period
2012-2015.





Activity
for the nine months ended September 30, 2009 related to this program, by
segment, consisted of the following (in thousands):





Engine
                            Management
                          
                          
                          Temperature
                            Control
                          
                          
                          Other
                          
                          
                          TotalExit
      activity liability at December 31, 2008
                          
                          $
                          3,736
                          
                          
                          $
                          1,000
                          
                          
                          $
                          3,295
                          
                          
                          $
                          8,031Restructuring
      costs:Amounts
      provided for during 2009
                          
                          
                          —
                          
                          
                          
                          327
                          
                          
                          
                          —
                          
                          
                          
                          327Change
      in estimated expenses
                          
                          
                          113
                          
                          
                          
                          —
                          
                          
                          
                          (113
                          )
                          
                          
                          —Cash payments
                          
                          
                          (1,702
                          )
                          
                          
                          (766
                          )
                          
                          
                          (1,346
                          )
                          
                          
                          (3,814
                          )Exit activity liability atSeptember 30,
      2009
                          
                          $
                          2,147
                          
                          
                          $
                          561
                          
                          
                          $
                          1,836
                          
                          
                          $
                          4,544





Integration
Expenses





Overhead
Cost Reduction Program





Beginning
in 2007 in connection with our efforts to improve our operating efficiency and
reduce costs, we announced our intention to focus on company-wide overhead and
operating expense cost reduction activities, such as closing excess facilities
and reducing redundancies.  Integration expenses under this program to
date relate primarily to the integration of operations to our facilities in
Mexico, the closure and consolidation of our distribution operations in Reno,
Nevada, the closure of our production operations in Edwardsville, Kansas and
Wilson, North Carolina and consolidation of certain facilities in
Europe.  We expect that all payments related to the current liability
will be made within twelve months.  We are still evaluating further
activities under this program.





Activity
for the nine months ended September 30, 2009 related to this program consisted
of the following (in thousands):


Workforce
                        Reduction
                      
                      
                      Other Exit
                        Costs
                      
                      
                      TotalExit
      activity liability at December 31, 2008
                      
                      $
                      1,117
                      
                      
                      $
                      727
                      
                      
                      $
                      1,844Integration
      costs:Amounts
      provided for during 2009
                      
                      
                      1,522
                      
                      
                      
                      2,346
                      
                      
                      
                      3,868Non-cash
      usage, including asset write-downs
                      
                      
                      —
                      
                      
                      
                      (2,697
                      )
                      
                      
                      (2,697
                      )Cash payments
                      
                      
                      (979
                      )
                      
                      
                      (348
                      )
                      
                      
                      (1,327
                      )Exit activity liability atSeptember 30,
      2009
                      
                      $
                      1,660
                      
                      
                      $
                      28
                      
                      
                      $
                      1,688





Wire
and Cable Relocation





As a
result of our acquisition of a wire and cable business and the relocation of
certain machinery and equipment to our Reynosa, Mexico manufacturing facility,
we incurred employee severance costs of $0.8 million and equipment relocation
costs of $0.1 million during the third quarter of 2009.  As of
September 30, 2009 the reserve balance of $0.8 million relating to workforce
reductions is expected to be fully paid during the current
year.


29




Workforce
                            Reduction
                          
                          
                          Other Exit
                            Costs
                          
                          
                          TotalExit
      activity liability at December 31, 2008
                          
                          $
                          —
                          
                          
                          $
                          —
                          
                          
                          $
                          —Integration
      costs:Amounts
      provided for during 2009
                          
                          
                          816
                          
                          
                          
                          112
                          
                          
                          
                          928Change
      in estimated expenses
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —Cash payments
                          
                          
                          —
                          
                          
                          
                          (112
                          )
                          
                          
                          (112
                          )Exit activity liability atSeptember 30,
      2009
                          
                          $
                          816
                          
                          
                          $
                          —
                          
                          
                          $
                          816





Reynosa
Integration Program





During
2006 and 2007, we announced plans for the closure of our Long Island City, New
York and Puerto Rico manufacturing facilities and integration of operations in
Reynosa, Mexico. In connection with the shutdown of the manufacturing operations
at Long Island City that was completed in March of 2008, we incurred severance
costs and costs associated with equipment removal, capital expenditures, and
environmental clean-up. As of September 30, 2009, the reserve balance related to
environmental clean-up at Long Island City of $2.1 million is included in other
exit costs.





In
connection with the shutdown of the manufacturing operations at Long Island
City, we entered into an agreement with the International Union, United
Automobile, Aerospace and Agricultural Implement Workers of America and its
Local 365 (“UAW”). As part of the agreement, we incurred a withdrawal liability
from a multi-employer plan. The pension plan withdrawal liability is related to
trust asset under-performance in a plan that covers our former UAW employees at
the Long Island City facility and is payable in 80 quarterly payments of $0.3
million, which commenced in December 2008. As of September 30, 2009, the reserve
balance related to the pension withdrawal liability of $3.2 million is included
in the workforce reduction reserve.





Activity
for the nine months ended September 30, 2009 related to this program consisted
of the following (in thousands):





Workforce
                        Reduction
                      
                      
                      Other Exit
                        Costs
                      
                      
                      TotalExit
      activity liability at December 31, 2008
                      
                      $
                      3,603
                      
                      
                      $
                      2,229
                      
                      
                      $
                      5,832Integration
      costs:Amounts
      provided for during 2009
                      
                      
                      150
                      
                      
                      
                      404
                      
                      
                      
                      554Change
      in estimated expenses
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —Cash payments
                      
                      
                      (523
                      )
                      
                      
                      (403
                      )
                      
                      
                      (926
                      )Exit activity liability atSeptember 30,
      2009
                      
                      $
                      3,230
                      
                      
                      $
                      2,230
                      
                      
                      $
                      5,460





Activity
for the nine months ended September 30, 2009 related to our aggregate
integration programs, by segment, consisted of the following (in
thousands):





Engine
                          Management
                        
                        
                        Temperature
                          Control
                        
                        
                        European
                        
                        
                        Other
                        
                        
                        TotalExit
      activity liability at December 31, 2008
                        
                        $
                        7,363
                        
                        
                        $
                        —
                        
                        
                        $
                        15
                        
                        
                        $
                        298
                        
                        
                        $
                        7,676Integration
      costs:Amounts
      provided for during 2009
                        
                        
                        4,154
                        
                        
                        
                        33
                        
                        
                        
                        1,163
                        
                        
                        
                        —
                        
                        
                        
                        5,350Non-cash
      usage, including assetwrite-downs
                        
                        
                        (1,686
                        )
                        
                        
                        —
                        
                        
                        
                        (1,011
                        )
                        
                        
                        —
                        
                        
                        
                        (2,697
                        )Cash payments
                        
                        
                        (2,109
                        )
                        
                        
                        (2
                        )
                        
                        
                        (155
                        )
                        
                        
                        (99
                        )
                        
                        
                        (2,365
                        )Exit activity liability atSeptember 30,
      2009
                        
                        $
                        7,722
                        
                        
                        $
                        31
                        
                        
                        $
                        12
                        
                        
                        $
                        199
                        
                        
                        $
                        7,964




30




Liquidity
and Capital Resources





Operating
Activities. During the nine months of 2009, cash provided by operations
amounted to $96.5 million compared to cash used in operations of $0.7 million in
the same period of 2008. The year-over-year increase in cash provided by
operations is primarily the result of the impact of our customer accounts
receivable factoring program and improved working capital
management.





Investing
Activities. Cash
used in investing activities was $10.1 million in the nine months of 2009,
compared to cash provided by investing activities of $25.7 million in the same
period of 2008. Investing activities in 2009 included a $6 million payment to
complete our core sensor asset purchase transaction entered into in 2008, a $6.8
million payment in connection with our acquisition of a wire and cable business
offset by a $4 million cash receipt in connection with our December 2008
divestiture of certain of our joint venture equity ownerships and $3.9 million
in proceeds received in connection with the redemption of preferred stock of a
third-party issuer. Cash provided by investing activities in 2008 includes $37.3
million in net cash proceeds from the sale of the Long Island City, New York
property and $3.6 million paid relating to the purchase of certain assets from a
third party. Capital expenditures in the period ended September 30, 2009 were
$5.2 million compared to $8 million in the comparable period last
year.





Financing
Activities. Cash
used in financing activities was $85.3 million in the first nine months of 2009,
compared to $25 million in the same period of 2008. During the first nine months
of 2009, we reduced our borrowings under our revolving credit facilities by
$56.4 million and retired $32.2 million of long-term debt, including the
remaining $32.1 million balance of our 6.75% convertible subordinated debentures
reflecting the impact of the accounts receivable factoring programs and improved
working capital management. In addition, in May 2009 we exchanged $12.3 million
aggregate principal amount of our outstanding 6.75% convertible subordinated
debentures due 2009 for a like principal amount of newly issued 15% convertible
subordinated debentures due 2011. The debt reduction was partially offset by the
issuance of $5.4 million of 15% unsecured promissory notes. During the first
nine months of 2008, we defeased the remaining $7.8 million mortgage loan on our
Long Island City, New York property and repurchased $20.6 million principal
amount of our 6.75% convertible subordinated debentures. Dividends of $5 million
were paid in the first nine months of 2008. No dividends were paid in
2009.





In March
2007, we entered into a Second Amended and Restated Credit Agreement with
General Electric Capital Corporation, as agent, and a syndicate of lenders for a
secured revolving credit facility. This restated credit agreement replaces our
prior credit facility with General Electric Capital Corporation. The restated
credit agreement (as amended in June 2009) provides for a line of credit of up
to $200 million (inclusive of the Canadian term loan described below) and
expires in March 2013. Direct borrowings under the restated credit agreement
bear interest at the LIBOR rate plus the applicable margin (as defined), or
floating at the index rate plus the applicable margin, at our option. The
interest rate may vary depending upon our borrowing availability. The restated
credit agreement is guaranteed by certain of our subsidiaries and secured by
certain of our assets.





In May
2009, we amended our restated credit agreement to permit the May 2009 exchange
of $12.3 million principal amount of our outstanding 6.75% convertible
subordinated debentures due 2009 for a like principal amount of our 15%
convertible subordinated debentures due 2011 and to provide that, beginning
October 15, 2010 and on a monthly basis thereafter, our borrowing availability
will be reduced by approximately $2 million for the repayment, repurchase or
redemption of the aggregate outstanding amount of our newly issued 15%
convertible subordinated debentures.


31


In June
2009, we further amended our restated credit agreement (1) to extend the
maturity date of our credit facility to March 20, 2013, (2) to reduce the
aggregate amount of the revolving credit facility (inclusive of the Canadian
term loan described below) from $275 million to $200 million, (3) to permit the
settlement at maturity of our 6.75% convertible subordinated debentures due July
15, 2009, our 15% convertible subordinated debentures due April 15, 2011, and
our 15% unsecured promissory notes due April 15, 2011; all with funds from our
revolving credit facility subject to borrowing availability, (4) to establish a
$10 million minimum borrowing availability requirement effective on the date of
repayment of our 6.75% convertible subordinated debentures, and (5) to provide
that, beginning October 15, 2010 and on a monthly basis thereafter our borrowing
availability will be reduced by approximately $0.9 million for the repayment or
repurchase of the aggregate outstanding amount of our newly issued 15% unsecured
promissory notes due 2011. In addition, as of the date of the amendment the
margin added to the index rate increased to between 2.25% - 2.75% and the margin
added to the LIBOR rate increased to 3.75% - 4.25%, in each case depending upon
the level of excess availability as defined in the restated credit
agreement.





Borrowings
under the restated credit agreement are collateralized by substantially all of
our assets, including accounts receivable, inventory and fixed assets, and those
of certain of our subsidiaries. After taking into account outstanding borrowings
under the restated credit agreement, there was an additional $76.3 million
available for us to borrow pursuant to the formula at September 30, 2009. At
September 30, 2009 and December 31, 2008, the interest rate on our restated
credit agreement was 4.6%. Outstanding borrowings under the restated credit
agreement (inclusive of the Canadian term loan described below), which are
classified as current liabilities, were $90 million and $143.2 million at
September 30, 2009 and December 31, 2008, respectively.





At any
time that our average borrowing availability over the previous thirty days is
less than $30 million or if our borrowing availability is $20 million or less,
and until such time that we have maintained an average borrowing availability of
$30 million or greater for a continuous period of ninety days, the terms of our
restated credit agreement provide for, among other provisions, financial
covenants requiring us, on a consolidated basis, (1) to maintain specified
levels of fixed charge coverage at the end of each fiscal quarter (rolling
twelve months), and (2) to limit capital expenditure levels. As of September 30,
2009, we were not subject to these covenants. Availability under our restated
credit agreement is based on a formula of eligible accounts receivable, eligible
inventory and eligible fixed assets. Our restated credit agreement also permits
dividends and distributions by us provided specific conditions are
met.





In June
2009, we amended our credit agreement with GE Canada Finance Holding Company,
for itself and as agent for the lenders. The amended credit agreement provides
for a line of credit of up to $10 million, of which $7 million is currently
outstanding and which amount is part of the $200 million available for borrowing
under our restated credit agreement with General Electric Capital Corporation
(described above). The amended credit agreement is guaranteed and secured by us
and certain of our wholly-owned subsidiaries and expires in March 2013. Direct
borrowings under the amended credit agreement bear interest at the same rate as
our restated credit agreement with General Electric Capital Corporation
(described above).





Our
European subsidiary has revolving credit facilities which, at September 30,
2009, provide for aggregate lines of credit up to $5.9 million. The amount of
short-term bank borrowings outstanding under these facilities was $2.6 million
on September 30, 2009 and $5.8 million on December 31, 2008. The weighted
average interest rate on these borrowings on September 30, 2009 was
2.7%.





In July
1999, we completed a public offering of 6.75% convertible subordinated
debentures amounting to $90 million. The 6.75% convertible subordinated
debentures carried an interest rate of 6.75%, payable semi-annually, and matured
on July 15, 2009.





The $90
million principal amount of the 6.75% convertible subordinated debentures was
convertible into 2,796,120 shares of our common stock at the option of the
holder. From time to time, we repurchased the debentures in open market
transactions, on terms that we believed to be favorable with any gains or losses
as a result of the difference between the net carrying amount and the
reacquisitionprice
recognized in the period of repurchase. During the first six months of 2009, we
repurchased $0.5 million principal amount of the 6.75% convertible subordinated
debentures. In 2008, we repurchased $45.1 million principal amount of the
debentures resulting in a gain on the repurchase of $3.8 million. In May 2009,
we exchanged $12.3 million aggregate principal amount of our outstanding 6.75%
convertible subordinated debentures due 2009 for a like principal amount of
newly issued 15% convertible subordinated debentures due 2011. In July 2009, we
settled at maturity the remaining $32.1 million outstanding principal amount of
the 6.75% convertible subordinated debentures with funds from our revolving
credit facility.


32




The 15%
convertible subordinated debentures issued in May 2009 carry an interest rate of
15% payable semi-annually, and will mature on April 15, 2011. As of September
30, 2009, the $12.3 million principal amount of the 15% convertible subordinated
debentures is convertible into 820,000 shares of our common stock; each at the
option of the holder. The convertible subordinated debentures are subordinated
in right of payment to all of our existing and future senior indebtedness. In
addition, if a change in control, as defined in the agreement, occurs at the
Company, we will be required to make an offer to purchase the convertible
subordinated debentures at a purchase price equal to 101% of their aggregate
principal amount, plus accrued interest.





In July
2009, we issued $5.4 million aggregate principal amount of 15% unsecured
promissory notes to certain directors and executive officers and to the trustees
of our Supplemental Executive Retirement Plan on behalf of the plan
participants. The 15% unsecured promissory notes will mature on April 15, 2011
and carry an interest rate of 15%, payable semi-annually and are not convertible
into common stock. The 15% unsecured promissory notes are subordinated in right
of payment to all of our existing and future senior indebtedness.





During
2009, we entered into capital lease obligations related to certain equipment for
use in our operations totaling $0.4 million. Assets held under capitalized
leases are included in property, plant and equipment and depreciated over the
lives of the respective leases or over their economic useful lives, whichever is
less.





In order
to reduce our accounts receivable balances and improve our cash flow, we sold
undivided interests in certain of our receivables to financial institutions. We
entered these agreements at our discretion when we determined that the cost of
factoring was less than the cost of servicing our receivables with existing
debt. Pursuant to these agreements, we sold $67.2 million and $140 million of
receivables during the three months and nine months ended September 30, 2009,
respectively. 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. A charge in the amount of $1 million and $2 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 and nine months ended September 30, 2009,
respectively.





On
October 27, 2009 we announced that we are engaged in exploratory discussions
with the managers of our European business regarding their interest in acquiring
the business via a management buy-out. Proposed terms of a transaction would
include the sale of our European distribution business for £1.8 million ($2.9
million) in cash and a promissory note and approximately £1.8 million ($2.9
million) in assumed debt. In connection with the proposed sale, we would retain
our manufacturing operation in Poland, certain land available for sale in the
United Kingdom and our investment in a joint venture. If we consummate the
proposed transaction under the above terms, our estimated non-cash charges for
the transaction would range from £4 million ($6.4 million) to £4.5 million ($7.2
million). Any such transaction would require approval of our Board of Directors,
which has not yet been obtained. There can be no assurance that we will complete
a transaction under the proposed terms, or at all. (U.S. dollar equivalents are
calculated at an assumed foreign currency exchange rate of GBP
1.60.)





On
October 27, 2009 we announced plans to offer 4,000,000 shares of our common
stock in an underwritten registered public offering. In connection with this
offering, we intend to grant the underwriters a 30-day option to purchase up to
600,000 additional shares. We intend to use the net proceeds from the offering
to repay a portion of our outstanding indebtedness under our revolving credit
facility. We then intend to borrow funds from time to time under our revolving
credit facility for general corporate purposes.




33




We
anticipate that our present sources of funds, including funds from operations
and additional borrowings, will continue to be adequate to meet our financing
needs over the next twelve months. We continue to evaluate alternative sources
to further improve the liquidity of our business. The timing, terms, size and
pricing of any alternative sources of financing will depend on investor interest
and market conditions, and there can be no assurance that we will be able to
obtain any such financing. In addition, we have a significant amount of
indebtedness which could, among other things, increase our vulnerability to
general adverse economic and industry conditions, make it more difficult to
satisfy our obligations, limit our ability to pay future dividends, limit our
flexibility in planning for, or reacting to, changes in our business and the
industry in which we operate, and require that a substantial portion of our cash
flow from operations be used for the payment of interest on our indebtedness
instead of for funding working capital, capital expenditures, acquisitions or
for other corporate purposes. 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, 2008.





The
following table summarizes our contractual commitments as of September 30, 2009
and expiration dates of commitments through 2022:




(in thousands)
                                        
                                        2009
                                        
                                        
                                        2010
                                        
                                        
                                        2011
                                        
                                        
                                        2012
                                        
                                        
                                        2013
                                        
                                        
                                        
                                        2014-
                                          2022
                                        
                                        
                                        TotalPrincipal
      payments of long term debt
                                        
                                        $
                                        96
                                        
                                        
                                        $
                                        96
                                        
                                        
                                        $
                                        17,765
                                        
                                        
                                        $
                                        31
                                        
                                        
                                        $
                                        –
                                        
                                        
                                        $
                                        –
                                        
                                        
                                        $
                                        17,988Lease
      obligations
                                        
                                        
                                        2,368
                                        
                                        
                                        
                                        8,015
                                        
                                        
                                        
                                        6,305
                                        
                                        
                                        
                                        5,540
                                        
                                        
                                        
                                        5,648
                                        
                                        
                                        
                                        16,651
                                        
                                        
                                        
                                        44,527Postretirement
      benefits
                                        
                                        
                                        275
                                        
                                        
                                        
                                        1,132
                                        
                                        
                                        
                                        1,158
                                        
                                        
                                        
                                        1,212
                                        
                                        
                                        
                                        1,258
                                        
                                        
                                        
                                        13,227
                                        
                                        
                                        
                                        18,262Severance
      payments related  to restructuring and integration
                                        
                                        
                                        2,117
                                        
                                        
                                        
                                        2,118
                                        
                                        
                                        
                                        897
                                        
                                        
                                        
                                        747
                                        
                                        
                                        
                                        615
                                        
                                        
                                        
                                        2,196
                                        
                                        
                                        
                                        8,690Total
      commitments
                                        
                                        $
                                        4,856
                                        
                                        
                                        $
                                        11,361
                                        
                                        
                                        $
                                        26,125
                                        
                                        
                                        $
                                        7,530
                                        
                                        
                                        $
                                        7,521
                                        
                                        
                                        $
                                        32,074
                                        
                                        
                                        $
                                        89,467




Summary of Significant
Accounting Policies





We have
identified the policies below as critical to our business operations and the
understanding of our results of operations. The impact and any associated risks
related to these policies on our business operations is discussed throughout
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations,” where such policies affect our reported and expected financial
results. 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, 2008. You should be aware that preparation of our
consolidated quarterly financial statements in this Report requires us 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 can give no assurances that actual
results will not differ from those estimates.





Revenue
Recognition. We derive our revenue primarily from sales of replacement
parts for motor vehicles from both our Engine Management and Temperature Control
Segments. We recognize revenues when products are shipped and title has been
transferred to a customer, the sales price is fixed and determinable, and
collection is reasonably assured. For some of our sales of remanufactured
products, we also charge our customers a deposit for the return of a used core
component which we can use in our future remanufacturing activities. Such
deposit is not recognized as revenue but rather carried as a core liability. The
liability is extinguished when a core is actually returned to us. 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. As described below, significant management judgments and
estimates must be made and used in estimating sales returns and allowances
relating to revenue recognized in any accounting period.




34


Inventory
Valuation. Inventories are valued at the lower of cost or market. Cost is
determined on the first-in, first-out basis. Where appropriate, standard cost
systems are utilized for purposes of determining cost; the standards are
adjusted as necessary to ensure they approximate actual costs. Estimates of
lower of cost or market value of inventory are determined at the reporting unit
level and are based upon the inventory at that location taken as a whole. These
estimates are based upon current economic conditions, historical sales
quantities and patterns and, in some cases, the specific risk of loss on
specifically identified inventories.





We also
evaluate inventories on a regular basis to identify inventory on hand that may
be obsolete or in excess of current and future projected market demand. For
inventory deemed to be obsolete, we provide a reserve on the full value of the
inventory. Inventory that is in excess of current and projected use is reduced
by an allowance to a level that approximates our estimate of future
demand.





We
utilize cores (used parts) in our remanufacturing processes for air conditioning
compressors. The production of air conditioning compressors involves the
rebuilding of used cores, which we acquire generally either in outright
purchases or from returns pursuant to an exchange program with customers. Under
such exchange programs, we reduce our inventory, through a charge to cost of
sales, when we sell a finished good compressor, and put back to inventory at
standard cost through a credit to cost of sales the used core exchanged at the
time it is eventually received from the customer.





Sales Returns and
Other Allowances and Allowance for Doubtful Accounts. We must make
estimates of potential future product returns related to current period product
revenue. We analyze historical returns, current economic trends, and changes in
customer demand when evaluating the adequacy of the sales returns and other
allowances. Significant judgments and estimates must be made and used in
connection with establishing the sales returns and other allowances in any
accounting period. At September 30, 2009, the allowance for sales returns was
$27.3 million. Similarly, we must make estimates of the uncollectability of our
accounts receivables. We specifically analyze accounts receivable and analyze
historical bad debts, customer concentrations, customer credit-worthiness,
current economic trends and changes in our customer payment terms when
evaluating the adequacy of the allowance for doubtful accounts. At September 30,
2009, the allowance for doubtful accounts and for discounts was $8.1
million.





New Customer
Acquisition Costs. New customer acquisition
costs refer to arrangements pursuant to which we incur change-over costs to
induce a new customer to switch from a competitor’s brand. In addition,
change-over costs include the costs related to removing the new customer’s
inventory and replacing it with Standard Motor Products inventory commonly
referred to as a stocklift. New customer acquisition costs are recorded as a
reduction to revenue when incurred.





Accounting for
Income Taxes. As part of the process of preparing our consolidated
financial statements, we are required to estimate our income taxes in each of
the jurisdictions in which we operate. This process involves estimating our
actual current tax expense together with assessing temporary differences
resulting from differing treatment of items for tax and accounting purposes.
These differences result in deferred
tax assets and liabilities, which are included within our consolidated balance
sheet. We must then assess the likelihood that our deferred tax assets will be
recovered from future taxable income, and to the extent we believe that it is
more likely than not that the deferred tax assets will not be recovered, we must
establish a valuation allowance. To the extent we establish a valuation
allowance or increase or decrease this allowance in a period, we must include an
expense or recovery, respectively, within the tax provision in the statement of
operations.





Significant
management judgment is required in determining the adequacy of our provision for
income taxes, our deferred tax assets and liabilities and any valuation
allowance recorded against our net deferred tax assets. At September 30, 2009,
we had a valuation allowance of $26.7 million, due to uncertainties related to
our ability to utilize some of our deferred tax assets. The assessment of the
adequacy of our valuation allowance is based on our estimates of taxable income
by jurisdiction in which we operate and the period over which our deferred tax
assets will be recoverable.


35





In the
event that actual results differ from these estimates, or we adjust these
estimates in future periods for current trends or expected changes in our
estimating assumptions, we may need to modify the level of valuation allowance
which could materially impact our business, financial condition and results of
operations.





In
accordance with generally accepted accounting practices, we recognize in our
financial statements only those tax positions that meet the
more-likely-than-not-recognition threshold. We establish tax reserves for
uncertain tax positions that do not meet this threshold. Interest and penalties
associated with income tax matters are included in the provision for income
taxes in our consolidated statement of operations.





Valuation of
Long-Lived and Intangible Assets and Goodwill. At acquisition, we
estimate and record the fair value of purchased intangible assets, which
primarily consists of trademarks and trade names, patents and customer
relationships. The fair values of these intangible assets are estimated based on
our assessment. Goodwill is the excess of the purchase price over the fair value
of identifiable net assets acquired in business combinations. Goodwill and
certain other intangible assets having indefinite lives are not amortized to
earnings, but instead are subject to periodic testing for impairment. Intangible
assets determined to have definite lives are amortized over their remaining
useful lives.





We assess
the impairment of long-lived and identifiable intangibles assets and goodwill
whenever events or changes in circumstances indicate that the carrying value may
not be recoverable. With respect to goodwill, we test for impairment of goodwill
of a reporting unit on an annual basis or in interim periods if an event occurs
or circumstances change that would reduce the fair value of a reporting unit
below its carrying amount. Factors we consider important, which could trigger an
impairment review, include the following: (a) significant underperformance
relative to expected historical or projected future operating results; (b)
significant changes in the manner of our use of the acquired assets or the
strategy for our overall business; and (c) significant negative industry or
economic trends. We review the fair values of each of our reporting units using
the discounted cash flows method and market multiples.





To the
extent the carrying amount of a reporting unit exceeds the fair value of the
reporting unit; we are required to perform a second step, as this is an
indication that the reporting unit goodwill may be impaired. In this step, we
compare the implied fair value of the reporting unit goodwill with the carrying
amount of the reporting unit goodwill. The implied fair value of goodwill is
determined by allocating the fair value of the reporting unit to all of the
assets (recognized and unrecognized) and liabilities of the reporting unit in a
manner similar to a purchase price allocation. The residual fair value after
this allocation is the implied fair value of the reporting unit
goodwill.





Intangible
and other long-lived assets are reviewed for impairment whenever events such as
product discontinuance, plant closures, product dispositions or other changes in
circumstances indicate that the carrying amount may not be recoverable. In
reviewing for impairment, we compare the carrying value of such assets with
finite lives to the estimated undiscounted future cash flows expected from the
use of the assets and their eventual disposition. When the estimated
undiscounted future cash flows are less than their carrying amount, an
impairment loss is recognized equal to the difference between the assets fair
value and their carrying value.





There are
inherent assumptions and estimates used in developing future cash flows
requiring our judgment in applying these assumptions and estimates to the
analysis of identifiable intangibles and long-lived asset impairment including
projecting revenues, interest rates, tax rates and the cost of capital. Many of
the factors used in assessing fair value are outside our control and it is
reasonably likely that assumptions and estimates will change in future periods.
These changes can result in future impairments. In the event our planning
assumptions were modified resulting in impairment to our assets, we would be
required to include an expense in our statement of operations, which could
materially impact our business, financial condition and results of
operations.


36


Retirement and
Postretirement Medical Benefits. Each year, we calculate the costs of
providing retiree benefits under the provisions of Accounting Standards
Codification 712, “Nonretirement Postemployment Benefits” and Accounting
Standards Codification 715, “Retirement Benefits.” The determination of defined
benefit pension and postretirement plan obligations and their associated costs
requires the use of actuarial computations to estimate participant plan benefits
the employees will be entitled to. The key assumptions used in making these
calculations are the eligibility criteria of participants, the discount rate
used to value the future obligation, and expected return on plan assets. The
discount rate reflects the yields available on high-quality, fixed-rate debt
securities. The expected return on assets is based on our current review of the
long-term returns on assets held by the plans, which is influenced by historical
averages.





Share Based
Compensation.Accounting Standards Codification 718 “Stock Compensation,”
requires the measurement and recognition of compensation expense for all
share-based payment awards made to employees and directors based on estimated
fair values on the grant date using an option-pricing model. The value of the
portion of the award that is ultimately expected to vest is recognized as
expense on a straight-line basis over the requisite service periods in our
condensed consolidated statement of operations. Forfeitures are estimated at the
time of grant based on historical trends in order to estimate the amount of
share-based awards that will ultimately vest. We monitor actual forfeitures for
any subsequent adjustment to forfeiture rates to reflect actual
forfeitures.





Environmental
Reserves. We are subject to various U.S. federal and state and local
environmental laws and regulations and are involved in certain environmental
remediation efforts. We estimate and accrue our liabilities resulting from such
matters based upon a variety of factors including the assessments of
environmental engineers and consultants who provide estimates of potential
liabilities and remediation costs. Such estimates are not discounted to reflect
the time value of money due to the uncertainty in estimating the timing of the
expenditures, which may extend over several years. Potential recoveries from
insurers or other third parties of environmental remediation liabilities are
recognized independently from the recorded liability, and any asset related to
the recovery will be recognized only when the realization of the claim for
recovery is deemed probable.





Asbestos
Reserve. We are responsible for certain future liabilities relating to
alleged exposure to asbestos-containing products. In accordance with our
accounting policy, our most recent actuarial study as of August 31, 2009
estimated an undiscounted liability for settlement payments, excluding legal
costs and any potential recovery from insurance carriers, ranging from $26.6
million to $66.3 million for the period through 2059. As a result, in September
2009 an incremental $2.2 million provision in our discontinued operation was
added to the asbestos accrual increasing the reserve to approximately $26.6
million as of that date. Based on the information contained in the actuarial
study and all other available information considered by us, we concluded that no
amount within the range of settlement payments was more likely than any other
and, therefore, recorded the low end of the range as the liability associated
with future settlement payments through 2059 in our consolidated financial
statements. In addition, according to the updated study, legal costs, which are
expensed as incurred and reported in earnings (loss) from discontinued
operation, are estimated to range from $21.4 million to $42 million during the
same period. We plan to perform an annual actuarial analysis during the third
quarter of each year for the foreseeable future. Based on this analysis and all
other available information, we will continue to reassess the recorded liability
and, if deemed necessary, record an adjustment to the reserve, which will be
reflected as a loss or gain from discontinued operation. The aforementioned
estimated settlement payments and legal costs do not reflect any limited
coverage that we may obtain pursuant to an agreement with an insurance carrier
for certain asbestos-related claims. See Note 13 of notes to our consolidated
financial statements.





Other Loss
Reserves. We have other loss exposures, for such matters as product
liability and litigation. Establishing loss reserves for these matters requires
the use of estimates and judgment of risk exposure and ultimate liability. We
estimate losses using consistent and appropriate methods; however, changes to
our assumptions could materially affect our recorded liabilities for
loss.


37





Recently
Issued Accounting Pronouncements





Codification





In June
2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification
and the Hierarchy of Generally Accepted Accounting Principles, a replacement of
SFAS No. 162” (the Codification). The Codification will be the single source of
authoritative nongovernmental U.S. accounting and reporting standards,
superseding existing FASB, AICPA, EITF and related literature. The Codification
eliminates the hierarchy of generally accepted accounting standards (“GAAP”)
contained in SFAS No. 162 and establishes one level of authoritative GAAP. All
other literature is considered non-authoritative. This Statement is effective
for financial statements issued for interim and annual periods ending after
September 15, 2009, which for us would be September 30, 2009. There was no
change to our consolidated financial statements upon adoption. All accounting
references have been updated. SFAS references have been replaced with Accounting
Standard Codification (“ASC”) references.





Fair
Value Measurements





On
January 1, 2008, we adopted certain provisions of a new accounting standard
which defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles (“GAAP”) and expands disclosures about
fair value measurements. On January 1, 2009, we adopted the remaining provisions
of this accounting standard as it relates to nonfinancial assets and liabilities
that are not recognized or disclosed at fair value on a recurring basis. The
adoption of this standard as it related to certain non-financial assets and
liabilities did not impact our consolidated financial statements in any material
respect.





On June
30, 2009, we adopted the accounting pronouncement issued in April 2009 that
provides additional guidance for estimating fair value in accordance with the
accounting standard for fair value measurements when the volume and level of
activity for the asset or liability has significantly decreased. This
pronouncement stated that when quoted market prices may not be determinative of
fair value, a reporting entity shall consider the reasonableness of a range of
fair value estimates. The adoption of this standard as it related to inactive
markets did not impact our consolidated financial statements in any material
respect.





Business
Combinations





On
January 1, 2009, we adopted the accounting pronouncements relating to business
combinations, including assets acquired and liabilities assumed arising from
contingencies. These pronouncements established principles and requirements for
how the acquirer of a business recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, and any
non-controlling interest in the acquiree as well as provides guidance for
recognizing and measuring the goodwill acquired in the business combination and
determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination. In addition, these pronouncements eliminate the distinction between
contractual and non-contractual contingencies, including the initial recognition
and measurement criteria and require an acquirer to develop a systematic and
rational basis for subsequently measuring and accounting for acquired
contingencies depending on their nature. Our adoption of these pronouncements
will have an impact on the manner in which we account for future
acquisitions.





Non-Controlling
Interests in Consolidated Financial Statements





On
January 1, 2009, we adopted the accounting pronouncement on non-controlling
interests in consolidated financial statements, which establishes accounting and
reporting standards for the non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary. It clarifies that a non-controlling interest in
a subsidiary is an ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial statements. The adoption of
this standard has not had a material impact on our consolidated financial
statements.


38





Subsequent
Events





As of
June 30, 2009, we adopted the accounting pronouncement regarding the general
standards of accounting for, and disclosure of, events that occur after the
balance sheet date but before the financial statements are issued or are
available to be issued. In connection with the adoption, we have included a
disclosure to address the date through which we evaluated subsequent
events.





Fair
Value Interim Disclosures





In April
2009, the FASB extended the fair value disclosures currently required on an
annual basis for financial instruments to interim reporting periods. These
disclosures include the methods and significant assumptions used to estimate the
fair value of financial instruments on an interim basis as well as changes of
the methods and significant assumptions from prior periods. We adopted the new
disclosure requirements effective as of June 30, 2009 and included the required
additional interim disclosures in these financial statements.


39





ITEM
3.           QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK





We are
exposed to market risk, primarily related to foreign currency exchange and
interest rates. These exposures are actively monitored by management. Our
exposure to foreign exchange rate risk is due to certain costs, revenues and
borrowings being denominated in currencies other than one of our subsidiary’s
functional currency. Similarly, we are exposed to market risk as the result of
changes in interest rates, which may affect the cost of our financing. It is our
policy and practice to use derivative financial instruments only to the extent
necessary to manage exposures. We do not hold or issue derivative financial
instruments for trading or speculative purposes.





We have
exchange rate exposure, primarily, with respect to the Canadian dollar, the
British Pound, the Euro, the Polish zloty, the Mexican peso and the Hong Kong
dollar. As of September 30, 2009 and December 31, 2008, our monetary assets and
liabilities which are subject to this exposure are immaterial, therefore the
potential immediate loss to us that would result from a hypothetical 10% change
in foreign currency exchange rates would not be expected to have a material
impact on our earnings or cash flows. This sensitivity analysis assumes an
unfavorable 10% fluctuation in the exchange rates affecting the foreign
currencies in which monetary assets and liabilities are denominated and does not
take into account the offsetting effect of such a change on our foreign-currency
denominated revenues.





We manage
our exposure to interest rate risk through the proportion of fixed rate debt and
variable rate debt in our debt portfolio. To manage a portion of our exposure to
interest rate changes, we have in the past entered into interest rate swap
agreements. We invest our excess cash in highly liquid short-term investments.
Our percentage of variable rate debt to total debt was 83.7% at September 30,
2009 and 76.9% at December 31, 2008.





Other
than the aforementioned, there have been no significant changes to the
information presented in Item 7A (Market Risk) of our Annual Report on Form 10-K
for the year ended December 31, 2008.


40





ITEM
4.           CONTROLS AND
PROCEDURES




(a)      Evaluation of Disclosure
Controls and Procedures.





We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in reports we file or submit under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms, and that such information is accumulated
and communicated to our management, including our Chief Executive Officer and
Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure.





Under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we conducted an evaluation of our
disclosure controls and procedures, as such term is defined under Rule 13a-15(e)
and Rule 15d-15(e) promulgated under the Exchange Act, as of the end of the
period covered by this Report. Based upon that evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and
procedures were effective as of the end of the period covered by this
Report.





(b)      Changes in Internal Control
Over Financial Reporting.





During
the quarter ended September 30, 2009, we have not made any changes in the
Company’s internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.





We
continue to review, document and test our internal control over financial
reporting, and may from time to time make changes aimed at enhancing their
effectiveness and to ensure that our systems evolve with our business. These
efforts will lead to various changes in our internal control over financial
reporting.


41


PART II – OTHER
INFORMATION





ITEM
1.            LEGAL
PROCEEDINGS





In 1986,
we acquired a brake business, which we subsequently sold in March 1998 and which
is accounted for as a discontinued operation in the accompanying consolidated
financial statements. When we originally acquired this brake business, we
assumed future liabilities relating to any alleged exposure to
asbestos-containing products manufactured by the seller of the acquired brake
business. In accordance with the related purchase agreement, we agreed to assume
the liabilities for all new claims filed on or after September 1, 2001. Our
ultimate exposure will depend upon the number of claims filed against us on or
after September 1, 2001 and the amounts paid for indemnity and defense thereof.
At September 30, 2009, approximately 1,620 cases were outstanding for which we
were responsible for any related liabilities. We expect the outstanding cases to
increase gradually due to legislation in certain states mandating minimum
medical criteria before a case can be heard. Since inception in September 2001
through September 30, 2009, the amounts paid for settled claims are
approximately $8.4 million. In September 2007, we entered into an agreement with
an insurance carrier to provide us with limited insurance coverage for the
defense and indemnity costs associated with certain asbestos-related claims. We
have submitted various asbestos-related claims to the insurance carrier for
coverage under this agreement, and the insurance carrier reimbursed us $2.4
million for settlement claims and defense costs. We have submitted additional
asbestos-related claims to the insurance carrier for coverage.





In
November 2004, we were served with a summons and complaint in the U.S. District
Court for the Southern District of New York by The Coalition for a Level Playing
Field, which is an organization comprised of a large number of auto parts
retailers. The complaint alleges antitrust violations by us and a number of
other auto parts manufacturers and retailers and seeks injunctive relief and
unspecified monetary damages. In August 2005, we filed a motion to dismiss the
complaint, following which the plaintiff filed an amended complaint dropping,
among other things, all claims under the Sherman Act. The remaining claims
allege violations of the Robinson-Patman Act. Motions to dismiss those claims
were filed by us in February 2006. Plaintiff filed opposition to our motions,
and we subsequently filed replies in June 2006. Oral arguments were originally
scheduled for September 2006, however the court adjourned these proceedings
until a later date to be determined. Subsequently, the judge initially assigned
to the case recused himself, and a new judge has been assigned before whom
further preliminary proceedings have been held. Although we cannot predict the
ultimate outcome of this case or estimate the range of any potential loss that
may be incurred in the litigation, we believe that the lawsuit is without merit,
deny all of the plaintiff’s allegations of wrongdoing and
believe we have meritorious defenses to the plaintiff’s claims. We intend to defend
this lawsuit vigorously.





We are
involved in various other litigation and product liability matters arising in
the ordinary course of business. Although the final outcome of any
asbestos-related matters or any other litigation or product liability matter
cannot be determined, based on our understanding and evaluation of the relevant
facts and circumstances, it is our opinion that the final outcome of these
matters will not have a material adverse effect on our business, financial
condition or results of operations.


42





ITEM
6.            EXHIBITS





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.





SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.





STANDARD MOTOR PRODUCTS,
    INC.(Registrant)Date:
      October 27, 2009
                      /s/ James J. BurkeJames
      J. BurkeVice
      President Finance,Chief
      Financial Officer(Principal
      Financial andAccounting
      Officer)


43




STANDARD
MOTOR PRODUCTS, INC.




EXHIBIT
INDEX





ExhibitNumber31.1
                
                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.


44