UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549




FORM
10-Q




(Mark
One)


þ
                QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THESECURITIES
      EXCHANGE ACT OF 1934.




For the quarterly period ended
September 30,
2010




or




o
                  TRANSITION
      REPORT PURSUANT TO SECTION 13 or 15(d) OF THESECURITIES
      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.
Employer


incorporation
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 oAccelerated
Filer þ


Non-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 31, 2010, there were 22,655,492 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, 2010 and 2009
                              3Consolidated
      Balance Sheets as of September 30, 2010 (Unaudited) and December 31,
      2009
                              4Consolidated
      Statements of Cash Flows (Unaudited) for the Nine Months Ended September
      30, 2010 and 2009
                              5Consolidated
      Statement of Changes in Stockholders’ Equity (Unaudited) for the Three
      Months and Nine Months Ended September 30, 2010
                              6Notes
      to Consolidated Financial Statements (Unaudited)
                              7Item
      2.
                              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                              22Item
      3.
                              Quantitative
      and Qualitative Disclosures about Market Risk
                              37Item
      4.
                              Controls
      and Procedures
                              38PART
      II – OTHER INFORMATIONItem
      1.
                              Legal
      Proceedings
                              39Item
      6.
                              Exhibits
                              41Signatures
                              
                              41







PART
I - FINANCIAL INFORMATION




ITEM
1.     CONSOLIDATED FINANCIAL
STATEMENTS





STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES




CONSOLIDATED
STATEMENTS OF OPERATIONS





ThreeMonthsEnded
                                                            
                                                            
                                                            NineMonthsEnded(In thousands, except share and per share data)
                                                            
                                                            September30,
                                                            
                                                            
                                                            September30,2010
                                                            
                                                            
                                                            2009
                                                            
                                                            
                                                            2010
                                                            
                                                            
                                                            2009(Unaudited)
                                                            
                                                            
                                                            (Unaudited)Net
      sales
                                                            
                                                            $
                                                            227,540
                                                            
                                                            
                                                            $
                                                            205,577
                                                            
                                                            
                                                            $
                                                            637,939
                                                            
                                                            
                                                            $
                                                            575,297Cost
      of sales
                                                            
                                                            
                                                            167,526
                                                            
                                                            
                                                            
                                                            155,774
                                                            
                                                            
                                                            
                                                            475,718
                                                            
                                                            
                                                            
                                                            438,195Gross
      profit
                                                            
                                                            
                                                            60,014
                                                            
                                                            
                                                            
                                                            49,803
                                                            
                                                            
                                                            
                                                            162,221
                                                            
                                                            
                                                            
                                                            137,102Selling,
      general and administrative expenses
                                                            
                                                            
                                                            41,991
                                                            
                                                            
                                                            
                                                            36,775
                                                            
                                                            
                                                            
                                                            120,459
                                                            
                                                            
                                                            
                                                            109,607Restructuring
      and integration expenses
                                                            
                                                            
                                                            1,388
                                                            
                                                            
                                                            
                                                            3,304
                                                            
                                                            
                                                            
                                                            3,430
                                                            
                                                            
                                                            
                                                            5,677Operating
      income
                                                            
                                                            
                                                            16,635
                                                            
                                                            
                                                            
                                                            9,724
                                                            
                                                            
                                                            
                                                            38,332
                                                            
                                                            
                                                            
                                                            21,818Other
      income, net
                                                            
                                                            
                                                            1,736
                                                            
                                                            
                                                            
                                                            783
                                                            
                                                            
                                                            
                                                            2,432
                                                            
                                                            
                                                            
                                                            4,310Interest
      expense
                                                            
                                                            
                                                            1,844
                                                            
                                                            
                                                            
                                                            2,423
                                                            
                                                            
                                                            
                                                            5,710
                                                            
                                                            
                                                            
                                                            7,225Earnings
      from continuing operations before taxes
                                                            
                                                            
                                                            16,527
                                                            
                                                            
                                                            
                                                            8,084
                                                            
                                                            
                                                            
                                                            35,054
                                                            
                                                            
                                                            
                                                            18,903Provision
      for income taxes
                                                            
                                                            
                                                            5,430
                                                            
                                                            
                                                            
                                                            3,360
                                                            
                                                            
                                                            
                                                            13,029
                                                            
                                                            
                                                            
                                                            7,754Earnings
      from continuing operations
                                                            
                                                            
                                                            11,097
                                                            
                                                            
                                                            
                                                            4,724
                                                            
                                                            
                                                            
                                                            22,025
                                                            
                                                            
                                                            
                                                            11,149Loss
      from discontinued operations, net of income taxes
                                                            
                                                            
                                                            (1,441
                                                            )
                                                            
                                                            
                                                            (1,639
                                                            )
                                                            
                                                            
                                                            (2,309
                                                            )
                                                            
                                                            
                                                            (2,221
                                                            )Net
      earnings
                                                            
                                                            $
                                                            9,656
                                                            
                                                            
                                                            $
                                                            3,085
                                                            
                                                            
                                                            $
                                                            19,716
                                                            
                                                            
                                                            $
                                                            8,928Per share data:Net
      earnings per common share – Basic:Earnings
      from continuing operations
                                                            
                                                            $
                                                            0.49
                                                            
                                                            
                                                            $
                                                            0.25
                                                            
                                                            
                                                            $
                                                            0.98
                                                            
                                                            
                                                            $
                                                            0.59Discontinued
      operations
                                                            
                                                            
                                                            (0.06
                                                            )
                                                            
                                                            
                                                            (0.09
                                                            )
                                                            
                                                            
                                                            (0.10
                                                            )
                                                            
                                                            
                                                            (0.11
                                                            )Net
      earnings per common share – Basic
                                                            
                                                            $
                                                            0.43
                                                            
                                                            
                                                            $
                                                            0.16
                                                            
                                                            
                                                            $
                                                            0.88
                                                            
                                                            
                                                            $
                                                            0.48Net
      earnings per common share – Diluted:Earnings
      from continuing operations
                                                            
                                                            $
                                                            0.48
                                                            
                                                            
                                                            $
                                                            0.25
                                                            
                                                            
                                                            $
                                                            0.97
                                                            
                                                            
                                                            $
                                                            0.59Discontinued
      operations
                                                            
                                                            
                                                            (0.06
                                                            )
                                                            
                                                            
                                                            (0.09
                                                            )
                                                            
                                                            
                                                            (0.10
                                                            )
                                                            
                                                            
                                                            (0.11
                                                            )Net
      earnings per common share – Diluted
                                                            
                                                            $
                                                            0.42
                                                            
                                                            
                                                            $
                                                            0.16
                                                            
                                                            
                                                            $
                                                            0.87
                                                            
                                                            
                                                            $
                                                            0.48Average
      number of common shares
                                                            
                                                            
                                                            22,597,117
                                                            
                                                            
                                                            
                                                            18,895,299
                                                            
                                                            
                                                            
                                                            22,528,108
                                                            
                                                            
                                                            
                                                            18,769,791Average
      number of common shares and dilutive common shares
                                                            
                                                            
                                                            23,472,411
                                                            
                                                            
                                                            
                                                            19,088,673
                                                            
                                                            
                                                            
                                                            22,604,344
                                                            
                                                            
                                                            
                                                            18,790,155





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,
                                            2010
                                          
                                          
                                          December 31,
                                            2009(Unaudited)ASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
                                          
                                          $
                                          13,407
                                          
                                          
                                          $
                                          10,618Accounts
      receivable, less allowance for discounts and doubtful accounts of $8,026
      and $6,962 for 2010 and 2009, respectively
                                          
                                          
                                          171,212
                                          
                                          
                                          
                                          124,823Inventories,
      net
                                          
                                          
                                          231,578
                                          
                                          
                                          
                                          199,752Deferred
      income taxes
                                          
                                          
                                          17,346
                                          
                                          
                                          
                                          18,129Assets
      held for sale
                                          
                                          
                                          216
                                          
                                          
                                          
                                          1,405Prepaid
      expenses and other current assets
                                          
                                          
                                          8,675
                                          
                                          
                                          
                                          9,487Total
      current assets
                                          
                                          
                                          442,434
                                          
                                          
                                          
                                          364,214Property,
      plant and equipment, net
                                          
                                          
                                          62,104
                                          
                                          
                                          
                                          61,478Goodwill
                                          
                                          
                                          1,437
                                          
                                          
                                          
                                          1,437Other
      intangibles, net
                                          
                                          
                                          11,500
                                          
                                          
                                          
                                          12,368Deferred
      income taxes
                                          
                                          
                                          24,781
                                          
                                          
                                          
                                          29,542Other
      assets
                                          
                                          
                                          14,096
                                          
                                          
                                          
                                          15,420Total
      assets
                                          
                                          $
                                          556,352
                                          
                                          
                                          $
                                          484,459LIABILITIES
      AND STOCKHOLDERS’ EQUITYCURRENT
      LIABILITIES:Notes
      payable
                                          
                                          $
                                          61,657
                                          
                                          
                                          $
                                          58,430Current
      portion of long-term debt
                                          
                                          
                                          12,385
                                          
                                          
                                          
                                          67Accounts
      payable
                                          
                                          
                                          85,690
                                          
                                          
                                          
                                          54,381Sundry
      payables and accrued expenses
                                          
                                          
                                          30,176
                                          
                                          
                                          
                                          24,114Accrued
      customer returns
                                          
                                          
                                          35,419
                                          
                                          
                                          
                                          20,442Accrued
      rebates
                                          
                                          
                                          28,720
                                          
                                          
                                          
                                          25,276Payroll
      and commissions
                                          
                                          
                                          24,265
                                          
                                          
                                          
                                          21,913Total
      current liabilities
                                          
                                          
                                          278,312
                                          
                                          
                                          
                                          204,623Long-term
      debt
                                          
                                          
                                          262
                                          
                                          
                                          
                                          17,908Post-retirement
      medical benefits
                                          
                                          
                                          21,091
                                          
                                          
                                          
                                          19,355Other
      accrued liabilities
                                          
                                          
                                          22,706
                                          
                                          
                                          
                                          23,821Accrued
      asbestos liabilities
                                          
                                          
                                          24,722
                                          
                                          
                                          
                                          24,874Total
      liabilities
                                          
                                          
                                          347,093
                                          
                                          
                                          
                                          290,581Commitments
      and contingenciesStockholders’
      equity:Common
      stock – par value $2.00 per share: Authorized – 30,000,000 shares; issued
      23,936,036 shares
                                          
                                          
                                          47,872
                                          
                                          
                                          
                                          47,872Capital
      in excess of par value
                                          
                                          
                                          77,759
                                          
                                          
                                          
                                          77,238Retained
      earnings
                                          
                                          
                                          96,423
                                          
                                          
                                          
                                          80,083Accumulated
      other comprehensive income
                                          
                                          
                                          1,591
                                          
                                          
                                          
                                          5,475Treasury
      stock – at cost 1,338,919 and 1,562,649 shares in2010
      and 2009, respectively
                                          
                                          
                                          (14,386
                                          )
                                          
                                          
                                          (16,790
                                          )Total
      stockholders’ equity
                                          
                                          
                                          209,259
                                          
                                          
                                          
                                          193,878Total
      liabilities and stockholders’ equity
                                          
                                          $
                                          556,352
                                          
                                          
                                          $
                                          484,459





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 30,2010
                  
                  
                  2009(Unaudited)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      earnings
                  
                  $
                  19,716
                  
                  
                  $
                  8,928Adjustments
      to reconcile net earnings to net cash provided by (used in) operating
      activities:Depreciation
      and amortization
                  
                  
                  10,030
                  
                  
                  
                  10,856Increase
      in allowance for doubtful accounts
                  
                  
                  778
                  
                  
                  
                  758Increase
      in inventory reserves
                  
                  
                  4,801
                  
                  
                  
                  4,686Amortization
      of deferred gain on sale of building
                  
                  
                  (786
                  )
                  
                  
                  (786
                  )Gain
      on disposal of property, plant and equipment
                  
                  
                  (1,615
                  )
                  
                  —Gain
      on sale of investment
                  
                  —
                  
                  
                  
                  (2,336
                  )Equity
      income from joint ventures
                  
                  
                  (116
                  )
                  
                  
                  (164
                  )Employee
      stock ownership plan allocation
                  
                  
                  1,225
                  
                  
                  
                  256Stock-based
      compensation
                  
                  
                  1,256
                  
                  
                  
                  804Decrease
      (increase) in deferred income taxes
                  
                  
                  5,585
                  
                  
                  
                  (1,804
                  )Decrease
      in unrecognized tax benefit
                  
                  
                  (1,084
                  )
                  
                  —Loss
      from discontinued operations, net of income taxes
                  
                  
                  2,309
                  
                  
                  
                  2,221Change
      in assets and liabilities:Decrease
      (increase) in accounts receivable
                  
                  
                  (47,166
                  )
                  
                  
                  1,350Decrease
      (increase) in inventories
                  
                  
                  (35,769
                  )
                  
                  
                  37,074Decrease
      in prepaid expenses and other current assets
                  
                  
                  481
                  
                  
                  
                  266Increase
      in accounts payable
                  
                  
                  20,683
                  
                  
                  
                  11,107Increase
      in sundry payables and accrued expenses
                  
                  
                  26,932
                  
                  
                  
                  27,934Net
      changes in other assets and liabilities
                  
                  
                  (2,324
                  )
                  
                  
                  (912
                  )Net
      cash provided by operating activities
                  
                  
                  4,936
                  
                  
                  
                  100,238CASH
      FLOWS FROM INVESTING ACTIVITIES:Proceeds
      from the sale of property, plant and equipment
                  
                  
                  11
                  
                  
                  
                  69Net
      cash received from the sale of land and buildings
                  
                  
                  2,559
                  
                  
                  —Divestiture
      of joint ventures
                  
                  
                  1,000
                  
                  
                  
                  4,000Proceeds
      from sale of preferred stock investment
                  
                  —
                  
                  
                  
                  3,896Capital
      expenditures
                  
                  
                  (9,112
                  )
                  
                  
                  (5,246
                  )Acquisitions
      of businesses and assets
                  
                  
                  (2,024
                  )
                  
                  
                  (12,770
                  )Net
      cash used in investing activities
                  
                  
                  (7,566
                  )
                  
                  
                  (10,051
                  )CASH
      FLOWS FROM FINANCING ACTIVITIES:Net
      borrowings (repayments) under line-of-credit agreements
                  
                  
                  3,228
                  
                  
                  
                  (56,410
                  )Repurchase
      of convertible debentures
                  
                  —
                  
                  
                  
                  (433
                  )Net
      repayment of long-term debt
                  
                  
                  (5,399
                  )
                  
                  
                  (32,154
                  )Issuance
      of unsecured promissory notes
                  
                  —
                  
                  
                  
                  5,370Proceeds
      from exercise of employee stock options
                  
                  —
                  
                  
                  
                  456Excess
      tax benefit from share-based payments arrangements
                  
                  —
                  
                  
                  
                  (60
                  )Increase
      (decrease) in overdraft balances
                  
                  
                  10,625
                  
                  
                  
                  (2,052
                  )Adjustment
      to costs related to issuance of common stock
                  
                  
                  36
                  
                  
                  —Payments
      of debt issuance cost
                  
                  
                  (56
                  )
                  
                  
                  (3,755
                  )Dividends
      paid
                  
                  
                  (3,376
                  )
                  
                  —Net
      cash provided by (used in) financing activities
                  
                  
                  5,058
                  
                  
                  
                  (89,038
                  )Effect
      of exchange rate changes on cash
                  
                  
                  361
                  
                  
                  
                  2,699Net
      increase in cash and cash equivalents
                  
                  
                  2,789
                  
                  
                  
                  3,848CASH
      AND CASH EQUIVALENTS at beginning of the period
                  
                  
                  10,618
                  
                  
                  
                  6,608CASH
      AND CASH EQUIVALENTS at end of the period
                  
                  $
                  13,407
                  
                  
                  $
                  10,456Supplemental
      disclosure of cash flow information:Cash
      paid during the period for:Interest
                  
                  $
                  3,919
                  
                  
                  $
                  6,369Income
      taxes
                  
                  $
                  1,529
                  
                  
                  $
                  1,746




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, 2010


(Unaudited)




(In thousands)
                
                Common
                  Stock
                
                
                Capital in
                  Excess of
                  Par Value
                
                
                Retained
                  Earnings
                
                
                Accumulated
                  Other
                  Comprehensive
                  Income
                
                
                Treasury
                  Stock
                
                
                TotalBalance
      at June 30, 2010
                
                $
                47,872
                
                
                $
                77,424
                
                
                $
                87,897
                
                
                $
                2,465
                
                
                $
                (14,386
                )
                
                $
                201,272Comprehensive
      income:Net
      earnings
                
                
                
                
                
                
                
                
                
                
                9,656
                
                
                
                
                
                
                
                
                
                
                
                9,656Foreign
      currency translation adjustment
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                1,060
                
                
                
                
                
                
                
                1,060Pension
      and retiree medical adjustment, net of tax
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (1,934
                )
                
                
                
                
                
                
                (1,934
                )Total
      comprehensive income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                8,782Cash
      dividends paid
                
                
                
                
                
                
                
                
                
                
                (1,130
                )
                
                
                
                
                
                
                
                
                
                
                (1,130
                )Stock-based
      compensation
                
                
                
                
                
                
                335
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                335Balance
      at September 30, 2010
                
                $
                47,872
                
                
                $
                77,759
                
                
                $
                96,423
                
                
                $
                1,591
                
                
                $
                (14,386
                )
                
                $
                209,259




CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY


Nine
Months Ended September 30, 2010


(Unaudited)




(In thousands)
              
              Common
                Stock
              
              
              Capital in
                Excess of
                Par Value
              
              
              Retained
                Earnings
              
              
              Accumulated
                Other
                Comprehensive
                Income
              
              
              Treasury
                Stock
              
              
              TotalBalance
      at December 31, 2009
              
              $
              47,872
              
              
              $
              77,238
              
              
              $
              80,083
              
              
              $
              5,475
              
              
              $
              (16,790
              )
              
              $
              193,878Comprehensive
      income:Net
      earnings
              
              
              
              
              
              
              
              
              
              
              19,716
              
              
              
              
              
              
              
              
              
              
              
              19,716Foreign
      currency translation adjustment
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              337
              
              
              
              
              
              
              
              337Pension
      and retiree medical adjustment, net of tax
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (4,221
              )
              
              
              
              
              
              
              (4,221
              )Total
      comprehensive income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              15,832Cash
      dividends paid
              
              
              
              
              
              
              
              
              
              
              (3,376
              )
              
              
              
              
              
              
              
              
              
              
              (3,376
              )Adjustment
      to costs related to issuance of common stock
              
              
              
              
              
              
              36
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              36Stock-based
      compensation
              
              
              
              
              
              
              734
              
              
              
              
              
              
              
              
              
              
              
              522
              
              
              
              1,256Employee
      Stock Ownership Plan
              
              
              
              
              
              
              (249
              )
              
              
              
              
              
              
              
              
              
              
              1,882
              
              
              
              1,633Balance
      at September 30, 2010
              
              $
              47,872
              
              
              $
              77,759
              
              
              $
              96,423
              
              
              $
              1,591
              
              
              $
              (14,386
              )
              
              $
              209,259




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 with an increasing focus on the original
equipment service market.





The
accompanying unaudited financial information should be read in conjunction with
the audited consolidated financial statements and the notes thereto included in
our Annual Report on Form 10-K for the year ended December 31, 2009. 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, as we do not have controlling financial interest. All significant
inter-company items have been eliminated.





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





Reclassification





Certain
prior period amounts in the accompanying consolidated financial statements and
related notes have been reclassified to conform to the 2010
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, the
valuation of deferred tax assets 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,
2009.


7




STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES




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




Recently Issued Accounting
Pronouncements





Fair
Value Measurements





On March
31, 2010, we adopted Accounting Standards Update (“ASU”) 2010-06, Improving Disclosures about Fair
Value Measurementsthat requires companies to enhance the usefulness of
fair value measurements by requiring both the disaggregation of information in
certain existing disclosures, as well as the inclusion of more robust
disclosures about valuation techniques and inputs to recurring and nonrecurring
fair value measurements. The adoption of this standard will impact how we
disclose in the future any material transfers into and out of Level 1
(measurements based on quoted prices in active markets) and Level 2 inputs
(measurements based on other observable inputs) of the fair value hierarchy.
There were no such transfers in the nine months of 2010.





Revenue
Arrangements with Multiple Deliverables





In
October 2009, the FASB issued ASU 2009-13, which will update Accounting Standard
Codification (“ASC”) 605, Revenue Recognition, and
changes the accounting for certain revenue arrangements. The new standard sets
forth requirements that must be met for an entity to recognize revenue from the
sale of a delivered item that is part of a multiple-element arrangement when
other items have not yet been delivered and requires the allocation of
arrangement consideration to each deliverable to be based on the relative
selling price. ASU 2009-13 is effective prospectively for revenue arrangements
entered into or materially modified in the fiscal years beginning on or after
June 15, 2010, which for us is January 1, 2011. The adoption of these provisions
is not expected to have a material impact on our consolidated financial
position, results of operations and cash flows.





Note
3. Restructuring and Integration Costs





The
aggregate liabilities relating to the restructuring and integration activities
as of December 31, 2009 and September 30, 2010 and activity for the nine months
ended September 30, 2010 consisted of the following (in thousands):





Workforce
                    Reduction
                  
                  
                  Other Exit
                    Costs
                  
                  
                  TotalExit
      activity liability at December 31, 2009
                  
                  $
                  8,774
                  
                  
                  $
                  1,971
                  
                  
                  $
                  10,745Restructuring
      and integration costs:Amounts
      provided for during 2010
                  
                  
                  1,847
                  
                  
                  
                  1,583
                  
                  
                  
                  3,430Non-cash
      usage, including asset write-downs
                  
                  
                  —
                  
                  
                  
                  (99
                  )
                  
                  
                  (99
                  )Cash
      payments
                  
                  
                  (3,274
                  )
                  
                  
                  (454
                  )
                  
                  
                  (3,728
                  )Exit
      activity liability at September 30, 2010
                  
                  $
                  7,347
                  
                  
                  $
                  3,001
                  
                  
                  $
                  10,348





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 $2.2 million remaining as of
September 30, 2010 that is expected to be paid in the amounts of $0.5 million in
2010, $0.6 million in 2011, and $1.1 million for the period
2012-2015.





8




STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES




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




Activity,
by segment, for the nine months ended September 30, 2010 related to the
voluntary separation program consisted of the following (in
thousands):





Engine
                    Management
                  
                  
                  Temperature
                    Control
                  
                  
                  Other
                  
                  
                  TotalExit
      activity liability at December 31, 2009
                  
                  $
                  1,395
                  
                  
                  $
                  385
                  
                  
                  $
                  1,422
                  
                  
                  $
                  3,202Restructuring
      costs:Amounts
      provided for during 2010
                  
                  
                  105
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  105Cash
      payments
                  
                  
                  (557
                  )
                  
                  
                  (38
                  )
                  
                  
                  (463
                  )
                  
                  
                  (1,058
                  )Exit
      activity liability at September 30, 2010
                  
                  $
                  943
                  
                  
                  $
                  347
                  
                  
                  $
                  959
                  
                  
                  $
                  2,249





Integration
Expenses





Overhead
Cost Reduction Program





Beginning
in 2007 in connection with our efforts to improve our operating efficiency and
reduce costs, we have focused 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, and the closure of
our production operations in Corona, California and Hong Kong, China. We expect
that all payments related to the current liability will be made within twelve
months.





Activity
for the nine months ended September 30, 2010 related to our overhead cost
reduction program, consisted of the following (in thousands):





Workforce
                    Reduction
                  
                  
                  Other Exit
                    Costs
                  
                  
                  TotalExit
      activity liability at December 31, 2009
                  
                  $
                  1,347
                  
                  
                  $
                  —
                  
                  
                  $
                  1,347Integration
      costs:Amounts
      provided for during 2010
                  
                  
                  1,769
                  
                  
                  
                  1,426
                  
                  
                  
                  3,195Non-cash
      usage, including asset write-downs
                  
                  
                  —
                  
                  
                  
                  (99
                  )
                  
                  
                  (99
                  )Cash
      payments
                  
                  
                  (1,402
                  )
                  
                  
                  (230
                  )
                  
                  
                  (1,632
                  )Exit
      activity liability at September 30, 2010
                  
                  $
                  1,714
                  
                  
                  $
                  1,097
                  
                  
                  $
                  2,811





Wire
and Cable Relocation





As a
result of our acquisition during 2009 of a wire and cable business and the
relocation of certain machinery and equipment to our Reynosa, Mexico
manufacturing facility, integration costs were incurred related to employee
severance and equipment relocation. As of September 30, 2010, all such costs
have been fully paid.





Workforce
                    Reduction
                  
                  
                  Other Exit
                    Costs
                  
                  
                  TotalExit
      activity liability at December 31, 2009
                  
                  $
                  532
                  
                  
                  $
                  —
                  
                  
                  $
                  532Integration
      costs:Amounts
      provided for during 2010
                  
                  
                  —
                  
                  
                  
                  131
                  
                  
                  
                  131Cash
      payments
                  
                  
                  (532
                  )
                  
                  
                  (131
                  )
                  
                  
                  (663
                  )Exit
      activity liability at September 30, 2010
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  —




9




STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES




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




Reynosa
Integration Program





During
2008, we closed our Long Island City, New York and Puerto Rico manufacturing
facilities and integrated these operations in Reynosa, Mexico. In connection
with the shutdown of the manufacturing operations at Long Island City, we
incurred severance costs and costs associated with equipment removal, capital
expenditures and environmental clean-up. As of September 30, 2010, the reserve
balance related to environmental clean-up at Long Island City of $1.9 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 quarterly for 20 years at $0.3
million per year, which commenced in December 2008. As of September 30, 2010,
the reserve balance related to the pension withdrawal liability of $3.1 million
is included in the workforce reduction reserve.





Activity
for the nine months ended September 30, 2010 related to the Reynosa integration
program, consisted of the following (in thousands):





Workforce
                    Reduction
                  
                  
                  Other Exit
                    Costs
                  
                  
                  TotalExit
      activity liability at December 31, 2009
                  
                  $
                  3,693
                  
                  
                  $
                  1,971
                  
                  
                  $
                  5,664Integration
      costs:Amounts
      provided for during 2010
                  
                  
                  (27
                  )
                  
                  
                  26
                  
                  
                  
                  (1
                  )Cash
      payments
                  
                  
                  (282
                  )
                  
                  
                  (93
                  )
                  
                  
                  (375
                  )Exit
      activity liability at September 30, 2010
                  
                  $
                  3,384
                  
                  
                  $
                  1,904
                  
                  
                  $
                  5,288




Integration
activity, by segment, for the nine months ended September 30, 2010 related to
our aggregate integration programs consisted of the following (in
thousands):





Engine
                            Management
                          
                          
                          Temperature
                            Control
                          
                          
                          Other
                          
                          
                          TotalExit
      activity liability at December 31, 2009
                          
                          $
                          7,017
                          
                          
                          $
                          364
                          
                          
                          $
                          162
                          
                          
                          $
                          7,543Integration
      costs:Amounts
      provided for during 2010
                          
                          
                          1,664
                          
                          
                          
                          1,661
                          
                          
                          
                          —
                          
                          
                          
                          3,325Non-cash
      usage, including asset write-downs
                          
                          
                          (99
                          )
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          (99
                          )Cash
      payments
                          
                          
                          (2,126
                          )
                          
                          
                          (382
                          )
                          
                          
                          (162
                          )
                          
                          
                          (2,670
                          )Exit
      activity liability at September 30, 2010
                          
                          $
                          6,456
                          
                          
                          $
                          1,643
                          
                          
                          $
                          —
                          
                          
                          $
                          8,099





Assets
Held for Sale





As of
September 30, 2010, we have reported $0.2 million as assets held for sale on our
consolidated balance sheet related to the net book value of vacant land located
in the U.K. Following plant closures resulting from integration activities, this
facility had been vacant, and we have solicited bids for the sale of such
property. We will record any resulting gain or loss in other income, net as
appropriate, when a sale occurs. In January 2010, we sold our Wilson, North
Carolina property; in February 2010, we sold vacant land at one of our locations
in the U.K.; and in September 2010, we sold our Reno, Nevada
property.


10




STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES




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





Note
4. Sale of Receivables





From time
to time, we sell undivided interests in certain of our receivables to financial
institutions. We enter these agreements at our discretion when we determine that
the cost of factoring is less than the cost of servicing our receivables with
existing debt. Pursuant to these agreements, we sold $113.7 million and $307.9
million of receivables during the three months and nine months ended September
30, 2010, 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 $1.8 million and $4.8
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, 2010, respectively, and $1
million and $2 million for the comparable periods in 2009.





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,
                  
                  
                  December
      31,2010
                  
                  
                  2009(In
      thousands)Finished
      goods, net
                  
                  $
                  153,277
                  
                  
                  $
                  130,054Work
      in process, net
                  
                  
                  5,624
                  
                  
                  
                  4,472Raw
      materials, net
                  
                  
                  72,677
                  
                  
                  
                  65,226Total
      inventories, net
                  
                  $
                  231,578
                  
                  
                  $
                  199,752





Note
6. Credit Facilities and Long-Term Debt





Total
debt outstanding is summarized as follows:





September
      30,
                      
                      
                      December
      31,2010
                      
                      
                      2009(In
      thousands)Revolving
      credit facilities
                      
                      $
                      61,657
                      
                      
                      $
                      58,43015%
      convertible subordinated debentures
                      
                      
                      12,300
                      
                      
                      
                      12,30015%
      unsecured promissory notes (1)
                      
                      
                      —
                      
                      
                      
                      5,339Other
                      
                      
                      347
                      
                      
                      
                      336Total
      debt
                      
                      $
                      74,304
                      
                      
                      $
                      76,405Current
      maturities of debt
                      
                      $
                      74,042
                      
                      
                      $
                      58,497Long-term
      debt
                      
                      
                      262
                      
                      
                      
                      17,908Total
      debt
                      
                      $
                      74,304
                      
                      
                      $
                      76,405




(1)
            The
      15% unsecured promissory notes were repaid in full in July 2010 with funds
      from our revolving credit
facility.


11




STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES




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





Deferred
Financing Costs





We had
deferred financing costs of $4.2 million and $5.6 million as of September 30,
2010 and December 31, 2009, respectively. These costs relate to our revolving
credit facility and the 15% convertible subordinated debentures. Deferred
financing costs as of September 30, 2010 are being amortized, assuming no
further prepayments of principal, in the amount of $0.5 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 replaced our
prior credit facility with General Electric Capital Corporation. The restated
credit agreement (as amended) provides for a line of credit of up to $200
million (inclusive of the Canadian revolving credit facility 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.





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 $117 million
available for us to borrow pursuant to the formula at September 30, 2010. At
September 30, 2010 and December 31, 2009, the interest rate on our restated
credit agreement was 4.1%. Outstanding borrowings under the restated credit
agreement (inclusive of the Canadian revolving credit facility described below),
which are classified as current liabilities, were $61.7 million and $58.4
million at September 30, 2010 and December 31, 2009, 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,
2010, 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. Based upon amounts outstanding as of
September 30, 2010, 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 15% convertible subordinated debentures due April 15, 2011. In
July 2010, we prepaid the remaining outstanding principal amount of our 15%
unsecured promissory notes due April 15, 2011. As a result of the prepayment,
the reduction of our borrowing availability beginning October 15, 2010 was
reduced on a monthly basis from $2.9 million to $2 million. Our restated credit
agreement also permits dividends and distributions by us provided specific
conditions are met.


12




STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES




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




Canadian
Revolving Credit Facility





In May
2010, we amended our credit agreement with GE Canada Finance Holding Company,
for itself and as agent for the lenders. The amended Canadian Credit Agreement
provides for the conversion of the then existing $10 million line of credit into
a revolving credit facility. The amendment also modifies certain provisions of
the amended Canadian Credit Agreement to parallel the revolving credit
provisions of our restated credit agreement with General Electric Capital
Corporation (described above). As of September 30, 2010, we have no outstanding
borrowings under the Canadian line of credit. The Canadian $10 million line of
credit is part of the $200 million available for borrowing under our restated
credit agreement with General Electric Capital Corporation. 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.





Subordinated
Debentures





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 15%
convertible subordinated debentures carry an interest rate of 15% payable
semi-annually, and will mature on April 15, 2011. As of September 30, 2010, 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
Promissory Notes to Related Parties





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. In July 2010, we prepaid the remaining outstanding principal
amount with funds from our revolving credit facility. The 15% unsecured
promissory notes would have matured on April 15, 2011, carried an interest rate
of 15%, payable semi-annually, and were not convertible into common stock. The
15% unsecured promissory notes were subordinated in right of payment to all of
our existing and future senior indebtedness. Prepayments of the principal amount
had been made to fund annual or quarterly unfunded Supplemental Executive
Retirement Plan distributions to participants, as required.





Capital
Leases





During
2010 and 2009, we entered into capital lease obligations related to certain
equipment for use in our operations of $0.1 million and $0.4 million,
respectively. As of September 30, 2010, our remaining capital lease obligations
totaled $0.3 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.


13




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




The
following is a summary of the changes in outstanding stock options for the nine
months ended September 30, 2010:




Weighted
                                
                                
                                Weighted
      AverageAverage
                                
                                
                                RemainingExercise
                                
                                
                                ContractualShares
                                
                                
                                Price
                                
                                
                                Term
      (Years)Outstanding
      at December 31, 2009
                                
                                
                                378,095
                                
                                
                                $
                                13.26
                                
                                
                                
                                3.7Expired
                                
                                
                                (52,671
                                )
                                
                                $
                                14.33
                                
                                
                                
                                —Exercised
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —Forfeited,
      other
                                
                                
                                (8,900
                                )
                                
                                $
                                12.75
                                
                                
                                
                                5.5Outstanding
      at September 30, 2010
                                
                                
                                316,524
                                
                                
                                $
                                13.10
                                
                                
                                
                                3.2Options
      exercisable at September 30, 2010
                                
                                
                                316,524
                                
                                
                                $
                                13.10
                                
                                
                                
                                3.2





There was
no aggregate intrinsic value of all outstanding stock options as of September
30, 2010. All outstanding stock options as of September 30, 2010 are fully
vested and exercisable. There were no stock options granted in the nine months
ended September 30, 2010 and 2009, and for the period ended September 30, 2010,
we had no unrecognized compensation cost related to stock options and non-vested
stock options. There were no options exercised during the nine months of
2010.





Restricted and Performance
Stock Grants





As part
of the 2006 Omnibus Incentive Plan, we currently grant shares of restricted and
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.
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. Forfeitures on restricted stock grants are
estimated at 5% for employees and 0% for executives and directors, respectively,
based on our evaluation of historical and expected future
turnover.


14




STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES




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





Our
restricted and performance-based share activity was as follows for the nine
months ended September 30, 2010:


Weighted
      AverageGrant
      Date FairShares
                            
                            
                            Value Per ShareBalance
      at December 31, 2009
                            
                            
                            288,425
                            
                            
                            $
                            9.40Granted
                            
                            
                            114,025
                            
                            
                            $
                            9.71Vested
                            
                            
                            (6,000
                            )
                            
                            $
                            4.70Forfeited
                            
                            
                            (2,425
                            )
                            
                            $
                            10.43Balance
      at September 30, 2010
                            
                            
                            394,025
                            
                            
                            $
                            9.56





We
recorded compensation expense related to restricted shares and performance-based
shares of $874,000 ($550,000 net of tax) and $421,000 ($248,400 net of tax) for
the nine months ended September 30, 2010 and 2009, respectively. The unamortized
compensation expense related to our restricted and performance-based shares was
$2.2 million at September 30, 2010, and is expected to be recognized as they
vest over a weighted average period of 1.5 and 0.6 years for employees and
directors, respectively.





Note
8. Employee Benefits





The
components of net periodic benefit cost for our defined benefit plans and post
retirement benefit plans for the three months and nine months ended September
30, 2010 and 2009 were as follows (in thousands):





Three Months Ended
                                    
                                    
                                    Nine Months EndedSeptember 30,
                                    
                                    
                                    September 30,2010
                                    
                                    
                                    2009
                                    
                                    
                                    2010
                                    
                                    
                                    2009Pension
      Benefits (1)Service
      cost
                                    
                                    $
                                    22
                                    
                                    
                                    $
                                    22
                                    
                                    
                                    $
                                    67
                                    
                                    
                                    $
                                    65Interest
      cost
                                    
                                    
                                    36
                                    
                                    
                                    
                                    72
                                    
                                    
                                    
                                    109
                                    
                                    
                                    
                                    217Amortization
      of prior service cost
                                    
                                    
                                    40
                                    
                                    
                                    
                                    28
                                    
                                    
                                    
                                    120
                                    
                                    
                                    
                                    83Actuarial
      net (gain) loss
                                    
                                    
                                    —
                                    
                                    
                                    
                                    (33
                                    )
                                    
                                    
                                    —
                                    
                                    
                                    
                                    (98
                                    )Net
      periodic benefit cost
                                    
                                    $
                                    98
                                    
                                    
                                    $
                                    89
                                    
                                    
                                    $
                                    296
                                    
                                    
                                    $
                                    267Postretirement
      BenefitsService
      cost
                                    
                                    $
                                    47
                                    
                                    
                                    $
                                    3
                                    
                                    
                                    $
                                    143
                                    
                                    
                                    $
                                    152Interest
      cost
                                    
                                    
                                    290
                                    
                                    
                                    
                                    287
                                    
                                    
                                    
                                    903
                                    
                                    
                                    
                                    834Amortization
      of prior service cost
                                    
                                    
                                    (2,257
                                    )
                                    
                                    
                                    (2,317
                                    )
                                    
                                    
                                    (6,772
                                    )
                                    
                                    
                                    (6,951
                                    )Amortization
      of transition obligation
                                    
                                    
                                    1
                                    
                                    
                                    
                                    1
                                    
                                    
                                    
                                    3
                                    
                                    
                                    
                                    3Actuarial
      net loss
                                    
                                    
                                    315
                                    
                                    
                                    
                                    218
                                    
                                    
                                    
                                    1,001
                                    
                                    
                                    
                                    984Net
      periodic benefit cost
                                    
                                    $
                                    (1,604
                                    )
                                    
                                    $
                                    (1,808
                                    )
                                    
                                    $
                                    (4,722
                                    )
                                    
                                    $
                                    (4,978
                                    )





(1)
            The
      components of net periodic benefit costs for the three and nine months
      ended September 30, 2009 include the cost related to the U.K. pension plan
      which was disposed of in November 2009 in connection with the sale of our
      European distribution business.





For the
nine months ended September 30, 2010, we made employee benefit contributions of
$0.5 million related to our postretirement plans. Based on current
actuarial estimates, we believe we will be required to make approximately
$0.8 million in contributions for 2010.





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 August 2009,
contributions of $73,500 were made related to calendar year 2008. In March 2010,
contributions of $67,000 were made related to calendar year
2009.


15




STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES




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





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 their fiduciary duties. During
2010, we contributed to the trust an additional 170,000 shares from our treasury
and released 175,075 shares from the trust leaving 6,930 shares remaining in the
trust as of September 30, 2010.





Note
9. Fair Value Measurements





We follow
a three-level fair value hierarchy that prioritizes the inputs to measure fair
value. This hierarchy requires entities to maximize the use of “observable
inputs” and minimize the use of “unobservable inputs.” The three levels of
inputs used to measure fair value are as follows:





Level 1:
Quoted prices (unadjusted) for identical assets or liabilities in active markets
as of the measurement date.




Level 2:
Significant other observable inputs other than Level 1 prices such as quoted
prices for similar assets or liabilities; quoted prices in markets that are not
active; or other inputs that are observable or can be corroborated by observable
market data.




Level 3:
Significant unobservable inputs that reflect assumptions that market
participants would use in pricing an asset or liability.




The
following is a summary of the carrying amounts and estimated fair values of our
financial instruments at September 30, 2010 and December 31, 2009 (in
thousands):




September 30, 2010
                
                
                December 31, 2009Carrying
                  Amount
                
                
                Fair Value
                
                
                Carrying
                  Amount
                
                
                Fair ValueCash
      and cash equivalents
                
                $
                13,407
                
                
                $
                13,407
                
                
                $
                10,618
                
                
                $
                10,618Deferred
      compensation
                
                
                5,838
                
                
                
                5,838
                
                
                
                5,319
                
                
                
                5,319Short
      term borrowings
                
                
                74,042
                
                
                
                74,042
                
                
                
                58,497
                
                
                
                58,497Long-term
      debt
                
                
                262
                
                
                
                262
                
                
                
                17,908
                
                
                
                17,908





For fair
value purposes the carrying value of cash and cash equivalents approximates fair
value due to the short maturity of those investments. The fair value of the
underlying assets held by the deferred compensation plan are based on the quoted
market prices of the funds in registered investment companies, which are
considered Level 1 inputs. The carrying value of our revolving credit
facilities, classified as short term borrowings, equals fair market value
because the interest rate reflects current market rates. The fair value of our
15% convertible subordinated debentures, classified as current borrowings, is
based upon the quoted market price, which is considered a Level 1
input.




16




STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES




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





Note
10. 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 30,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009Basic
      Net Earnings per Common Shares:Earnings
      from continuing operations
                  
                  $
                  11,097
                  
                  
                  $
                  4,724
                  
                  
                  $
                  22,025
                  
                  
                  $
                  11,149Loss
      from discontinued operations
                  
                  
                  (1,441
                  )
                  
                  
                  (1,639
                  )
                  
                  
                  (2,309
                  )
                  
                  
                  (2,221
                  )Net
      earnings available to common stockholders
                  
                  $
                  9,656
                  
                  
                  $
                  3,085
                  
                  
                  $
                  19,716
                  
                  
                  $
                  8,928Weighted
      average common shares outstanding
                  
                  
                  22,597
                  
                  
                  
                  18,895
                  
                  
                  
                  22,528
                  
                  
                  
                  18,770Net
      earnings from continuing operations per common share
                  
                  $
                  0.49
                  
                  
                  $
                  0.25
                  
                  
                  $
                  0.98
                  
                  
                  $
                  0.59Loss
      from discontinued operations per common share
                  
                  
                  (0.06
                  )
                  
                  
                  (0.09
                  )
                  
                  
                  (0.10
                  )
                  
                  
                  (0.11
                  )Basic
      net earnings per common share
                  
                  $
                  0.43
                  
                  
                  $
                  0.16
                  
                  
                  $
                  0.88
                  
                  
                  $
                  0.48Diluted
      Net Earnings per Common Share:Earnings
      from continuing operations
                  
                  $
                  11,097
                  
                  
                  $
                  4,724
                  
                  
                  $
                  22,025
                  
                  
                  $
                  11,149Interest
      income on debenture conversions (net of income tax
expense)
                  
                  
                  277
                  
                  
                  
                  32
                  
                  
                  
                  –
                  
                  
                  
                  –Earnings
      from continuing operations plus assumed conversions
                  
                  
                  11,374
                  
                  
                  
                  4,756
                  
                  
                  
                  22,025
                  
                  
                  
                  11,149Loss
      from discontinued operations
                  
                  
                  (1,441
                  )
                  
                  
                  (1,639
                  )
                  
                  
                  (2,309
                  )
                  
                  
                  (2,221
                  )Net
      earnings available to common stockholders plus assumed
      conversions
                  
                  $
                  9,933
                  
                  
                  $
                  3,117
                  
                  
                  $
                  19,716
                  
                  
                  $
                  8,928Weighted
      average common shares outstanding
                  
                  
                  22,597
                  
                  
                  
                  18,895
                  
                  
                  
                  22,528
                  
                  
                  
                  18,770Plus
      incremental shares from assumed conversions:Dilutive
      effect of restricted stock
                  
                  
                  55
                  
                  
                  
                  39
                  
                  
                  
                  76
                  
                  
                  
                  20Dilutive
      effect of stock options
                  
                  
                  –
                  
                  
                  
                  3
                  
                  
                  
                  –
                  
                  
                  
                  –Dilutive
      effect of convertible debentures
                  
                  
                  820
                  
                  
                  
                  152
                  
                  
                  
                  –
                  
                  
                  
                  –Weighted
      average common shares outstanding – Diluted
                  
                  
                  23,472
                  
                  
                  
                  19,089
                  
                  
                  
                  22,604
                  
                  
                  
                  18,790Net
      earnings from continuing operations per common share
                  
                  $
                  0.48
                  
                  
                  $
                  0.25
                  
                  
                  $
                  0.97
                  
                  
                  $
                  0.59Loss
      from discontinued operations per common share
                  
                  
                  (0.06
                  )
                  
                  
                  (0.09
                  )
                  
                  
                  (0.10
                  )
                  
                  
                  (0.11
                  )Diluted
      net earnings per common share
                  
                  $
                  0.42
                  
                  
                  $
                  0.16
                  
                  
                  $
                  0.87
                  
                  
                  $
                  0.48




17




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 30,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009Stock
      options
                  
                  
                  317
                  
                  
                  
                  381
                  
                  
                  
                  317
                  
                  
                  
                  384Restricted
      shares
                  
                  
                  152
                  
                  
                  
                  102
                  
                  
                  
                  126
                  
                  
                  
                  14415%
      convertible subordinated debentures
                  
                  
                  —
                  
                  
                  
                  820
                  
                  
                  
                  820
                  
                  
                  
                  445





Note
11. Comprehensive Income





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





Three Months Ended
                  
                  
                  Nine Months EndedSeptember 30,
                  
                  
                  September 30,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009Net
      earnings as reported
                  
                  $
                  9,656
                  
                  
                  $
                  3,085
                  
                  
                  $
                  19,716
                  
                  
                  $
                  8,928Foreign
      currency translation adjustment
                  
                  
                  1,060
                  
                  
                  
                  965
                  
                  
                  
                  337
                  
                  
                  
                  3,014Postretirement
      benefit plans:Reclassification
      adjustment for recognition of prior period amounts
                  
                  
                  (2,123
                  )
                  
                  
                  (1,478
                  )
                  
                  
                  (4,822
                  )
                  
                  
                  (4,416
                  )Unrecognized
      amounts
                  
                  
                  189
                  
                  
                  
                  111
                  
                  
                  
                  601
                  
                  
                  
                  532Total
      comprehensive income
                  
                  $
                  8,782
                  
                  
                  $
                  2,683
                  
                  
                  $
                  15,832
                  
                  
                  $
                  8,058





Note
12. Industry Segments





In
November 2009, we sold our European distribution business to the managers of the
business for £1.8 million ($3 million) in cash and a promissory note and
approximately £1.4 million ($2.3 million) in assumed debt. In connection with
the sale, we retained our manufacturing operation in Poland, certain land
available for sale in the United Kingdom, and a small investment in a joint
venture. The third-party owned European operations will continue to buy
manufactured product from our facility in Poland and from our domestic
operations through two separate supply agreements. As such, we are expected to
receive significant continuing cash flows as a result of a continuation of
activities between us and the disposed business (the European operations), and
therefore the European operation’s results of operations have not been presented
as a discontinued operation.





Effective
January 1, 2010, as a result of the sale of our European distribution business,
we realigned our business segments to more clearly reflect our evolving business
model. The realignment consisted of moving the results of our Poland
manufacturing facility within the Engine Management Segment to reflect the
change in responsibility for the operating activities, financial results,
forecasts, and strategic plans for the facility to the management of this
segment. Results for the three months and nine months ended September 30, 2009
have been reclassified to reflect this realignment.




18




STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES




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





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





Three Months Ended
                    
                    
                    Nine Months EndedSeptember 30,
                    
                    
                    September 30,2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009Net
      SalesEngine
      Management
                    
                    $
                    153,577
                    
                    
                    $
                    136,971
                    
                    
                    $
                    443,489
                    
                    
                    $
                    384,270Temperature
      Control
                    
                    
                    71,774
                    
                    
                    
                    59,505
                    
                    
                    
                    185,714
                    
                    
                    
                    165,426Europe
                    
                    
                    –
                    
                    
                    
                    7,213
                    
                    
                    
                    –
                    
                    
                    
                    21,259All
      Other
                    
                    
                    2,189
                    
                    
                    
                    1,888
                    
                    
                    
                    8,736
                    
                    
                    
                    4,342Consolidated
                    
                    $
                    227,540
                    
                    
                    $
                    205,577
                    
                    
                    $
                    637,939
                    
                    
                    $
                    575,297Intersegment
      RevenueEngine
      Management
                    
                    $
                    5,016
                    
                    
                    $
                    5,404
                    
                    
                    $
                    14,024
                    
                    
                    $
                    16,610Temperature
      Control
                    
                    
                    898
                    
                    
                    
                    999
                    
                    
                    
                    2,821
                    
                    
                    
                    2,819Europe
                    
                    
                    –
                    
                    
                    
                    141
                    
                    
                    
                    –
                    
                    
                    
                    233All
      Other
                    
                    
                    (5,914
                    )
                    
                    
                    (6,544
                    )
                    
                    
                    (16,845
                    )
                    
                    
                    (19,662
                    )Consolidated
                    
                    $
                    –
                    
                    
                    $
                    –
                    
                    
                    $
                    –
                    
                    
                    $
                    –Operating
      ProfitEngine
      Management
                    
                    $
                    13,845
                    
                    
                    $
                    7,115
                    
                    
                    $
                    33,734
                    
                    
                    $
                    23,493Temperature
      Control
                    
                    
                    5,443
                    
                    
                    
                    4,728
                    
                    
                    
                    12,747
                    
                    
                    
                    6,366Europe
                    
                    
                    –
                    
                    
                    
                    (82
                    )
                    
                    
                    –
                    
                    
                    
                    (729
                    )All
      Other
                    
                    
                    (2,653
                    )
                    
                    
                    (2,037
                    )
                    
                    
                    (8,149
                    )
                    
                    
                    (7,312
                    )Consolidated
                    
                    $
                    16,635
                    
                    
                    $
                    9,724
                    
                    
                    $
                    38,332
                    
                    
                    $
                    21,818





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, 2010, approximately 1,530 cases were outstanding for which we
were responsible for any related liabilities. Since inception in September 2001
through September 30, 2010, the amounts paid for settled claims are
approximately $11.2 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 for coverage under this
agreement, and received approximately $2.5 million in reimbursement for
settlement claims and defense costs. We have submitted additional
asbestos-related claims to such insurance carrier for coverage. In addition, in
May 2010 we entered into an agreement with an excess insurance carrier to
provide us with limited insurance coverage for defense and indemnity costs
associated with asbestos-related claims. We will submit claims to this carrier
after we have exhausted our coverage under the agreement with the primary
insurance carrier discussed above.




19




STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES




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





In
evaluating our potential asbestos-related liability, we have considered various
factors including, among other things, an actuarial study performed by an
independent 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, 2010. The updated study
has estimated an undiscounted liability for settlement payments, excluding legal
costs and any potential recovery from insurance carriers, ranging from $25.7
million to $66.9 million for the period through 2059. The change from the prior
year study was a $0.9 million decrease for the low end of the range and a $0.6
million increase 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 $1.8 million
provision in our discontinued operation was added to the asbestos accrual in
September 2010 increasing the reserve to approximately $25.7 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 $20.3 million to $61.3 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.





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 culminating
in a decision and order dated September 16, 2010 granting the motion to dismiss
and, in view of an intervening change in pleading standards, deferring decision
on whether to grant plaintiff leave to amend to allow an opportunity to propose
curative amendments. On October 18, 2010, the plaintiff filed an amended
complaint changing certain alleged claims relating to the Robinson-Patman Act.
By Order dated October 26, 2010, the court directed that the Third Amended
Complaint be deemed withdrawn and gave plaintiffs until November 9, 2010 to file
a motion for leave to amend identifying the curative amendments to the Second
Amended Complaint setting forth why the amendments accord with the rules.
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.


20




STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES




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





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, 2010 and 2009, we
have accrued $14.4 million and $12.3 million, respectively, for estimated
product warranty claims included in accrued customer returns. The accrued
product warranty costs are based primarily on historical experience of actual
warranty claims.





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




Three Months Ended
                
                
                Nine Months EndedSeptember 30,
                
                
                September 30,2010
                
                
                2009
                
                
                2010
                
                
                2009Balance,
      beginning of period
                
                $
                13,823
                
                
                $
                12,005
                
                
                $
                10,476
                
                
                $
                10,162Liabilities
      accrued for current year sales
                
                
                14,757
                
                
                
                13,872
                
                
                
                39,361
                
                
                
                36,316Settlements
      of warranty claims
                
                
                (14,179
                )
                
                
                (13,569
                )
                
                
                (35,436
                )
                
                
                (34,170
                )Balance,
      end of period
                
                $
                14,401
                
                
                $
                12,308
                
                
                $
                14,401
                
                
                $
                12,308




21


ITEM
      2.
            MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 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 and original equipment service markets; 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 and distributor of replacement parts for motor
vehicles in the automotive aftermarket industry, with an increasing focus on the
original equipment service market. 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.





In 2010,
as a result of the sale of our European distribution business, we realigned our
business segments to more clearly reflect our evolving business model. The
realignment consisted of moving the results of our Poland manufacturing facility
within the Engine Management Segment to reflect the change in responsibility for
the operating activities, financial results, forecasts, and strategic plans for
the facility to the management of this segment.





We sell
our products primarily to warehouse distributors, large retail chains,original equipment
manufacturers and original equipment service part operations in the United
States, Canada and Latin America. Our customers consist of many of the leading
warehouse distributors, such as CARQUEST and NAPA Auto Parts, as well as many of
the leading auto parts retail chains, such as Advance Auto Parts, AutoZone,
O’Reilly Automotive/CSK Auto, Canadian Tire and Pep Boys. Our customers also
include national program distribution groups and specialty market distributors.
We distribute parts under our own brand names, such as Standard, BWD,
Intermotor, Four Seasons, Factory Air, ACi, Imperial and Hayden and through
private labels, such as CARQUEST, NAPA Echlin, NAPA Temp Products and NAPA
Belden.




22


Our goal
is to grow revenues and earnings and deliver returns in excess of our cost of
capital by providing high quality original equipment and replacement products to
the engine management and temperature control markets. Our management places
significant emphasis on improving our financial performance by achieving
operating efficiencies and improving asset utilization, while maintaining
product quality and high customer order fill rates. We intend to continue to
improve our operating efficiency, customer satisfaction and cost position by
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.





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.




23


Interim Results of
Operations:





Comparison
of Three Months Ended September 30, 2010 to Three Months Ended September 30,
2009





Sales.  Consolidated net
sales for the three months ended September 30, 2010 were $227.5 million, an
increase of $21.9 million, or 10.7%, compared to $205.6 million in the same
period of 2009. The increase in net sales is due to higher sales in our Engine
Management and Temperature Control segments, offset by a $7.2 million decrease
related to the sale of our European distribution business.





The
following table summarizes net sales and gross margins by segment for the
quarters ended September 30, 2010 and 2009, respectively:





Three
      Months Ended
                              September
      30,
                            
                            Engine
                              Management
                            
                            
                            Temperature
                              Control
                            
                            
                            Europe
                            
                            
                            Other
                            
                            
                            Total2010Net
      sales
                            
                            $
                            153,577
                            
                            
                            $
                            71,774
                            
                            
                            $
                            —
                            
                            
                            $
                            2,189
                            
                            
                            $
                            227,540Gross
      margins
                            
                            
                            39,785
                            
                            
                            
                            17,157
                            
                            
                            
                            —
                            
                            
                            
                            3,072
                            
                            
                            
                            60,014Gross
      margin percentage
                            
                            
                            25.9
                            %
                            
                            
                            23.9
                            %
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            26.4
                            %2009Net
      sales
                            
                            $
                            136,971
                            
                            
                            $
                            59,505
                            
                            
                            $
                            7,213
                            
                            
                            $
                            1,888
                            
                            
                            $
                            205,577Gross
      margins
                            
                            
                            32,770
                            
                            
                            
                            13,056
                            
                            
                            
                            1,802
                            
                            
                            
                            2,175
                            
                            
                            
                            49,803Gross
      margin percentage
                            
                            
                            23.9
                            %
                            
                            
                            21.9
                            %
                            
                            
                            25.0
                            %
                            
                            
                            —
                            
                            
                            
                            24.2
                            %





Engine
Management’s net sales increased $16.6 million, or 12.1%, to $153.6 million for
the third quarter of 2010.  The sales growth was driven by increased
traditional sales volumes as a result of incremental sales from our acquisition
of Federal Mogul’s wire and cable business, which began shipping in September
2009 and increased demand from our retail and OE / OES market
channels.





Temperature
Control’s net sales increased $12.3 million, or 20.6%, to $71.8 million for the
third quarter of 2010.  The increase in sales primarily reflects
incremental new business in our retail market and an increase in demand in both
the retail and traditional markets in response to warmer
temperatures.





Gross
margins.  Gross margins, as a percentage of consolidated net
sales, increased to 26.4% in the third quarter of 2010, compared to 24.2% in the
third quarter of 2009.  The increase resulted from a 2 percentage
point improvement in both Temperature Control and Engine Management
margins.  The gross margin percentage increase in Temperature Control
compared to the prior year was primarily the result of increased production
which improved fixed overhead absorption, and the benefits of production at our
Mexico manufacturing operations.  The Engine Management gross margin
percentage was positively impacted by price increases and improving fixed
overhead absorption resulting from increased production and the benefits of
production at our Mexico manufacturing operations.





Selling, general
and administrative expenses.Selling, general and
administrative expenses (SG&A) increased by $5.2 million to $42 million or
18.5% of consolidated net sales, in the third quarter of 2010, as compared to
$36.8 million, or 17.9% of consolidated net sales in the third quarter of
2009.  The increase in SG&A expenses is due primarily to sales
volume related increases in selling, marketing and distribution
expenses.  Expenses related to the sale of receivables, which are
included in SG&A, were $1.8 million in the third quarter of 2010 compared to
$0.9 million in the same period of last year.





Restructuring and
integration expenses.Restructuring and integration expenses
decreased slightly to $1.4 million in the third quarter of 2010, compared to
$3.3 million in the third quarter of 2009.  The 2010 expense related
primarily to severance and lease termination costs incurred in connection with
the announced closures of our Corona, California and Hong Kong, China
manufacturing facilities.  The 2009 expense 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.


24





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





Engine
                        Management
                      
                      
                      Temperature
                        Control
                      
                      
                      Other
                      
                      
                      TotalExit
      activity liability at June 30, 2010
                      
                      $
                      7,493
                      
                      
                      $
                      1,192
                      
                      
                      $
                      1,063
                      
                      
                      $
                      9,748Restructuring
      and integration costs:Amounts
      provided for during 2010
                      
                      
                      473
                      
                      
                      
                      915
                      
                      
                      
                      —
                      
                      
                      
                      1,388Non-cash
      usage, including asset write-downs
                      
                      
                      (99
                      )
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      (99
                      )Cash
      payments
                      
                      
                      (468
                      )
                      
                      
                      (117
                      )
                      
                      
                      (104
                      )
                      
                      
                      (689
                      )Exit
      activity liability at September 30, 2010
                      
                      $
                      7,399
                      
                      
                      $
                      1,990
                      
                      
                      $
                      959
                      
                      
                      $
                      10,348





Operating
income.  Operating income was $16.6 million in the third
quarter of 2010, compared to $9.7 million in the third quarter of
2009.  The increase of $6.9 million was primarily due to the higher
net sales and an increase in gross margins in both our Engine Management Segment
and Temperature Control Segments, partially offset by increased SG&A
expenses.





Other income,
net.Other income, net increased to $1.7 million in the third quarter of
2010 compared to $0.8 million in the same period in 2009.  In the
third quarter of 2010, other income, net included a gain of $1.5 million on the
sale of our Reno, Nevada distribution facility.





Interest
expense.  Interest expense decreased by $0.6 million in the
third quarter of 2010 compared to the same period in 2009 due to lower average
borrowings.





Income tax
provision. The income tax provision
in the third quarter of 2010 was $5.4 million at an effective tax rate of 32.9%
compared to $3.4 million and an effective tax rate of 41.6% for the same period
in 2009.  The 2010 effective tax rate was lower primarily due to the
reversal of previously established reserves related to certain business
combinations and foreign transfer pricing as a result of the expiration of the
statue of limitations for the 2006 and prior tax years.





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 2010 and 2009 and
other information available and considered by us, and legal expenses incurred
associated with our asbestos-related liability.  During the third
quarters of 2010 and 2009, we recorded a loss of $1.4 million and $1.6 million
from discontinued operations, respectively.  The loss from
discontinued operations for the third quarter of 2010 and 2009 reflects a $1.8
million and $2.2 million pre-tax adjustment, respectively, to increase our
indemnity liability in line with the August 2010 and 2009 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, 2010 to Nine Months Ended September 30,
2009





Sales.  Consolidated net
sales for the nine months ended September 30, 2010 were $637.9 million, an
increase of $62.6 million, or 10.9%, compared to $575.3 million in the same
period of 2009. The increase in net sales is due to higher sales in our Engine
Management and Temperature Control Segments offset by a $21.3 million decrease
related to the sale of our European distribution
business.


25


The
following table summarizes net sales and gross margins by segment for the nine
months ended September 30, 2010 and 2009, respectively:





Nine
      Months Ended
                          September
      30,
                        
                        Engine
                          Management
                        
                        
                        Temperature
                          Control
                        
                        
                        Europe
                        
                        
                        Other
                        
                        
                        Total2010Net
      sales
                        
                        $
                        443,489
                        
                        
                        $
                        185,714
                        
                        
                        $
                        —
                        
                        
                        $
                        8,736
                        
                        
                        $
                        637,939Gross
      margins
                        
                        
                        110,407
                        
                        
                        
                        43,117
                        
                        
                        
                        —
                        
                        
                        
                        8,697
                        
                        
                        
                        162,221Gross
      margin percentage
                        
                        
                        24.9
                        %
                        
                        
                        23.2
                        %
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        25.4
                        %2009Net
      sales
                        
                        $
                        384,270
                        
                        
                        $
                        165,426
                        
                        
                        $
                        21,259
                        
                        
                        $
                        4,342
                        
                        
                        $
                        575,297Gross
      margins
                        
                        
                        94,372
                        
                        
                        
                        30,765
                        
                        
                        
                        5,501
                        
                        
                        
                        6,464
                        
                        
                        
                        137,102Gross
      margin percentage
                        
                        
                        24.6
                        %
                        
                        
                        18.6
                        %
                        
                        
                        25.9
                        %
                        
                        
                        —
                        
                        
                        
                        23.8
                        %





Engine
Management’s net sales increased $59.2 million, or 15.4%, to $443.5 million for
the nine months of 2010.  Engine Management’s revenue growth was
driven by overall strong demand for our products across all market channels
including inventory increases on the part of several customers as they returned
to more normalized stocking levels.  In addition, incremental sales
from our acquisition of Federal Mogul’s wire and cable business, which began
shipping in September 2009, contributed to the increase in our traditional sales
volumes.





Temperature
Control’s net sales increased $20.3 million, or 12.3%, to $185.7 million for the
nine months of 2010.  The increase in sales primarily reflects
incremental new business in our retail market and continued demand in our
traditional business.





Gross
margins.  Gross margins, as a percentage of consolidated net
sales, for the nine months ended September 30, 2010 increased to 25.4% compared
to 23.8% the same period of 2009.  The increase resulted from a 4.6
percentage point increase in Temperature Control margins and a 0.3 percentage
point increase in Engine Management margins.  Temperature Control’s
gross margin increase resulted primarily from favorable manufacturing and
purchase price variances as sales volumes increased due to stronger demand,
incremental new sales and increased production at our low cost Mexico
facility.  The increase in the Engine Management margins was the
result of improving fixed overhead absorption resulting from increased
production and the benefit of operational integration initiatives, offset in
part, by a higher mix of OE/OES sales volumes and mix of lower margin
products.





Selling, general
and administrative expenses.Selling, general and
administrative expenses (SG&A) increased by $10.9 million to $120.5 million
or 18.9% of consolidated net sales, in the nine months ended September 30, 2010,
as compared to $109.6 million, or 19.1% of consolidated net sales in the
comparable period of 2009.  The increase in SG&A expenses is due
primarily to higher selling, marketing and distribution expenses as a result of
the increase in sales.  Expenses related to the sale of receivables,
which are included in SG&A, were $4.8 million in the nine months ended
September 30, 2010 compared to $2 million in the same period last
year.





Restructuring and
integration expenses.Restructuring and integration expenses
decreased to $3.4 million for the nine months ended September 30, 2010, compared
to $5.7 million in the same period of 2009.  The 2010 expense related
primarily to severance and lease termination costs incurred in connection with
the announced closures of our Corona, California and Hong Kong, China
manufacturing facilities and a charge related to the closure of our Long Island
City building.  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.


26





Operating
income.  Operating income was $38.3 million in the nine months
of 2010, compared to $21.8 million in 2009. The increase of $16.5 million was
due primarily to stronger sales across all markets of our Engine Management
Segment including a rebound in the OE/OES markets and higher sales volumes and
favorable manufacturing variances in our Temperature Control Segment, offset, in
part, by an increase in SG&A expenses.





Other income,
net.Other income, net decreased to $2.4 million for the nine months
ended September 30, 2010 compared to $4.3 million in the same period in
2009.  In 2010, other income, net included a $1.5 million gain on the
sale of our Reno, Nevada distribution property, a $0.2 million gain on the sale
of vacant land at one of our locations in the U.K. and $0.8 million of deferred
gain related to the sale-leaseback of our Long Island City, New York
property.  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.





Interest
expense.  Interest expense decreased by $1.5 million to $5.7
million in the nine months ended September 30, 2010, compared to $7.2 million in
the same period in 2009.  The decline is due to lower average
borrowings.





Income tax
provision. The income tax provision
in the nine months ended September 30, 2010 was $13 million at an effective tax
rate of 37.2%, compared to $7.8 million and an effective tax rate of 41% for the
same period in 2009.  The 2010 effective tax rate was lower primarily
due to the reversal of previously established reserves related to certain
business combinations and foreign transfer pricing as a result of the expiration
of the statue of limitations for the 2006 and prior tax years.





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 2010 and 2009 and
other information available and considered by us, and legal expenses incurred
associated with our asbestos-related liability.  During nine months
ended September 30, 2010 and 2009, we recorded a loss of $2.3 million and $2.2
million from discontinued operations, respectively.  The loss from
discontinued operations for the nine months ended 2010 and 2009 reflects a $1.8
million and $2.2 million pre-tax adjustment, respectively, to increase our
indemnity liability in line with the August 2010 and 2009 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
aggregate liabilities relating to the restructuring and integration activities
as of December 31, 2009 and September 30, 2010 and activity for the nine months
ended September 30, 2010 consisted of the following (in thousands):





Workforce
                        Reduction
                      
                      
                      Other Exit Costs
                      
                      
                      TotalExit
      activity liability at December 31, 2009
                      
                      $
                      8,774
                      
                      
                      $
                      1,971
                      
                      
                      $
                      10,745Restructuring
      and integration costs:Amounts
      provided for during 2010
                      
                      
                      1,847
                      
                      
                      
                      1,583
                      
                      
                      
                      3,430Non-cash
      usage, including asset write-downs
                      
                      
                      —
                      
                      
                      
                      (99
                      )
                      
                      
                      (99
                      )Cash
      payments
                      
                      
                      (3,274
                      )
                      
                      
                      (454
                      )
                      
                      
                      (3,728
                      )Exit
      activity liability at September 30, 2010
                      
                      $
                      7,347
                      
                      
                      $
                      3,001
                      
                      
                      $
                      10,348


27





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 $2.2 million remaining
as of September 30, 2010 that is expected to be paid in the amounts of $0.5
million in 2010, $0.6 million in 2011, and $1.1 million for the period
2012-2015.





Activity,
by segment, for the nine months ended September 30, 2010 related to the
voluntary separation program consisted of the following (in
thousands):





Engine
                    Management
                  
                  
                  Temperature
                    Control
                  
                  
                  Other
                  
                  
                  TotalExit
      activity liability at December 31, 2009
                  
                  $
                  1,395
                  
                  
                  $
                  385
                  
                  
                  $
                  1,422
                  
                  
                  $
                  3,202Restructuring
      costs:Amounts
      provided for during 2010
                  
                  
                  105
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  105Cash
      payments
                  
                  
                  (557
                  )
                  
                  
                  (38
                  )
                  
                  
                  (463
                  )
                  
                  
                  (1,058
                  )Exit
      activity liability at September 30, 2010
                  
                  $
                  943
                  
                  
                  $
                  347
                  
                  
                  $
                  959
                  
                  
                  $
                  2,249





Integration
Expenses





Overhead
Cost Reduction Program





Beginning
in 2007 in connection with our efforts to improve our operating efficiency and
reduce costs, we have focused 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, and the
closure of our production operations in Corona, California and Hong Kong,
China.  We expect that all payments related to the current liability
will be made within twelve months.





Activity
for the nine months ended September 30, 2010 related to our overhead cost
reduction program, consisted of the following (in thousands):





Workforce
                        Reduction
                      
                      
                      Other
      Exit
                        Costs
                      
                      
                      TotalExit
      activity liability at December 31, 2009
                      
                      $
                      1,347
                      
                      
                      $
                      —
                      
                      
                      $
                      1,347Integration
      costs:Amounts
      provided for during 2010
                      
                      
                      1,769
                      
                      
                      
                      1,426
                      
                      
                      
                      3,195Non-cash
      usage, including asset write-downs
                      
                      
                      —
                      
                      
                      
                      (99
                      )
                      
                      
                      (99
                      )Cash
      payments
                      
                      
                      (1,402
                      )
                      
                      
                      (230
                      )
                      
                      
                      (1,632
                      )Exit
      activity liability at September 30, 2010
                      
                      $
                      1,714
                      
                      
                      $
                      1,097
                      
                      
                      $
                      2,811


28


Wire
and Cable Relocation





As a
result of our acquisition during 2009 of a wire and cable business and the
relocation of certain machinery and equipment to our Reynosa, Mexico
manufacturing facility, integration costs were incurred related to employee
severance and equipment relocation.  As of September 30, 2010, all
such costs have been fully paid.




Workforce
                        Reduction
                      
                      
                      Other
      Exit
                        Costs
                      
                      
                      TotalExit
      activity liability at December 31, 2009
                      
                      $
                      532
                      
                      
                      $
                      —
                      
                      
                      $
                      532Integration
      costs:Amounts
      provided for during 2010
                      
                      
                      —
                      
                      
                      
                      131
                      
                      
                      
                      131Cash
      payments
                      
                      
                      (532
                      )
                      
                      
                      (131
                      )
                      
                      
                      (663
                      )Exit
      activity liability at September 30, 2010
                      
                      $
                      —
                      
                      
                      $
                      —
                      
                      
                      $
                      —





Reynosa
Integration Program





During
2008, we closed our Long Island City, New York and Puerto Rico manufacturing
facilities and integrated these operations in Reynosa, Mexico.  In
connection with the shutdown of the manufacturing operations at Long Island
City, we incurred severance costs and costs associated with equipment removal,
capital expenditures and environmental clean-up.  As of September 30,
2010, the reserve balance related to environmental clean-up at Long Island City
of $1.9 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 quarterly
for 20 years at $0.3 million per year, which commenced in December
2008.  As of September 30, 2010, the reserve balance related to the
pension withdrawal liability of $3.1 million is included in the workforce
reduction reserve.





Activity
for the nine months ended September 30, 2010 related to the Reynosa integration
program, consisted of the following (in thousands):





Workforce
                        Reduction
                      
                      
                      Other
      Exit
                        Costs
                      
                      
                      TotalExit
      activity liability at December 31, 2009
                      
                      $
                      3,693
                      
                      
                      $
                      1,971
                      
                      
                      $
                      5,664Integration
      costs:Amounts
      provided for during 2010
                      
                      
                      (27
                      )
                      
                      
                      26
                      
                      
                      
                      (1
                      )Cash
      payments
                      
                      
                      (282
                      )
                      
                      
                      (93
                      )
                      
                      
                      (375
                      )Exit
      activity liability at September 30, 2010
                      
                      $
                      3,384
                      
                      
                      $
                      1,904
                      
                      
                      $
                      5,288





Integration
activity, by segment, for the nine months ended September 30, 2010 related to
our aggregate integration programs consisted of the following (in
thousands):





Engine
                    Management
                  
                  
                  Temperature
                    Control
                  
                  
                  Other
                  
                  
                  TotalExit
      activity liability at December 31, 2009
                  
                  $
                  7,017
                  
                  
                  $
                  364
                  
                  
                  $
                  162
                  
                  
                  $
                  7,543Integration
      costs:Amounts
      provided for during 2010
                  
                  
                  1,664
                  
                  
                  
                  1,661
                  
                  
                  
                  —
                  
                  
                  
                  3,325Non-cash
      usage, including asset write-downs
                  
                  
                  (99
                  )
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (99
                  )Cash
      payments
                  
                  
                  (2,126
                  )
                  
                  
                  (382
                  )
                  
                  
                  (162
                  )
                  
                  
                  (2,670
                  )Exit
      activity liability at September 30, 2010
                  
                  $
                  6,456
                  
                  
                  $
                  1,643
                  
                  
                  $
                  —
                  
                  
                  $
                  8,099


29





Liquidity
and Capital Resources





Operating
Activities. During the nine months of 2010, cash provided by operations
amounted to $4.9 million compared to $100.2 million in the same period of
2009.  The year-over-year decrease is primarily the result of higher
accounts receivables due to an increase in sales volumes and the build-up of
inventory levels in response to increased demand, partially offset by higher
payables and accrued expenses.





Investing
Activities.  Cash used in
investing activities was $7.6 million in the nine months of 2010, compared to
$10.1 million in the nine months of 2009.  During 2010, we received a
$1 million payment related to the note issued in connection with the divestiture
of certain of our joint venture equity ownerships and received proceeds of $2.6
million from the sale of our Wilson, North Carolina building, our Reno, Nevada
building and the sale of the vacant land at one of our locations in the
U.K.  In addition, investing activities in 2010 included a $2 million
payment related to the acquisition of certain product lines by our Temperature
Control Segment.





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.  Capital expenditures in the nine months of 2010 were $9.1
million compared to $5.2 million in the comparable period last
year.





Financing
Activities. Cash
provided by financing activities was $5.1 million in the nine months of 2010,
compared to cash used in financing activities of $89 million in the same period
of 2009.  During 2010 borrowings were used to finance the increase in
working capital resulting from the increase in sales volumes and inventory
build-up and to finance cash used in investing activities.  In
addition, in 2010, we prepaid the $5.3 million principal amount of our 15%
unsecured promissory notes.  During the 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 subordinate debentures reflecting the
impact of the accounts receivable factoring programs and improved working
capital management.  Dividends of $3.4 million were paid in the nine
months of 2010.  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
replaced our prior credit facility with General Electric Capital
Corporation.  The restated credit agreement (as amended) provides for
a line of credit of up to $200 million (inclusive of the Canadian revolving
credit facility 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.





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 $117 million
available for us to borrow pursuant to the formula at September 30,
2010.  At September 30, 2010 and December 31, 2009, the interest rate
on our restated credit agreement 4.1%. Outstanding borrowings under the restated
credit agreement (inclusive of the Canadian revolving credit facility described
below), which are classified as current liabilities, were $61.7 million and
$58.4 million at September 30, 2010 and December 31, 2009,
respectively.


30




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,
2010, 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. Based upon amounts outstanding as
of September 30, 2010, 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 15% convertible subordinated debentures due April 15,
2011.  In July 2010, we prepaid the remaining outstanding principal
amount of our 15% unsecured promissory notes due April 15, 2011.  As a
result of the prepayment, the reduction of our borrowing availability beginning
October 15, 2010 was reduced on a monthly basis from $2.9 million to $2
million.  Our restated credit agreement also permits dividends and
distributions by us provided specific conditions are met.





In May
2010, we amended our credit agreement with GE Canada Finance Holding Company,
for itself and as agent for the lenders.  The amended Canadian Credit
Agreement provides for the conversion of the then existing $10 million line of
credit into a revolving credit facility.  The amendment also modifies
certain provisions of the amended Canadian Credit Agreement to parallel the
revolving credit provisions of our restated credit agreement with General
Electric Capital Corporation (described above).  As of September 30,
2010, we have no outstanding borrowings under the Canadian line of
credit.  The Canadian $10 million line of credit is part of the $200
million available for borrowing under our restated credit agreement with General
Electric Capital Corporation.  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.





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
15% convertible subordinated debentures carry an interest rate of 15% payable
semi-annually, and will mature on April 15, 2011.  As of September 30,
2010, 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.  In July 2010, we prepaid the remaining outstanding
principal amount with funds from our revolving credit facility.  The
15% unsecured promissory notes would have matured on April 15, 2011, carried an
interest rate of 15%, payable semi-annually, and were not convertible into
common stock.  The 15% unsecured promissory notes were subordinated in
right of payment to all of our existing and future senior
indebtedness.  Prepayments of the principal amount had been made to
fund annual or quarterly unfunded Supplemental Executive Retirement Plan
distributions to participants, as required.





During
2010 and 2009, we entered into capital lease obligations related to certain
equipment for use in our operations of $0.1 million and $0.4 million,
respectively.  As of September 30, 2010, our remaining capital lease
obligations totaled $0.3 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.


31





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
$113.7 million and $307.9 million of receivables during the three months and
nine months ended September 30, 2010, 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 $1.8 million and $4.8 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, 2010, respectively, and $1 million and $2
million for the comparable periods in 2009.





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, 2009.





The
following table summarizes our contractual commitments as of September 30, 2010
and expiration dates of commitments through 2028:




(in
      thousands)
                
                2010
                
                
                2011
                
                
                2012
                
                
                2013
                
                
                2014
                
                
                
                2015-
                  2028
                
                
                TotalPrincipal
      payments of long term debt
                
                $
                ─
                
                
                $
                12,300
                
                
                $
                ─
                
                
                $
                ─
                
                
                $
                ─
                
                
                $
                ─
                
                
                $
                12,300Lease
      obligations
                
                
                2,232
                
                
                
                7,685
                
                
                
                5,979
                
                
                
                5,905
                
                
                
                5,187
                
                
                
                9,879
                
                
                
                36,867Postretirement
      benefits
                
                
                526
                
                
                
                1,104
                
                
                
                1,135
                
                
                
                1,182
                
                
                
                1,238
                
                
                
                11,645
                
                
                
                16,830Severance
      payments relatedto
      restructuring and integration
                
                
                1,090
                
                
                
                2,699
                
                
                
                729
                
                
                
                709
                
                
                
                530
                
                
                
                3,876
                
                
                
                9,633Total
      commitments
                
                $
                3,848
                
                
                $
                23,788
                
                
                $
                7,843
                
                
                $
                7,796
                
                
                $
                6,955
                
                
                $
                25,400
                
                
                $
                75,630





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, 2009.  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.


32




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.





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, 2010, the allowance for sales returns was $35.4
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, 2010, the allowance for doubtful accounts
and for discounts was $8 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.


33





We
maintain valuation allowances when it is more likely than not that all or a
portion of a deferred asset will not be realized.  In determining
whether a valuation allowance is warranted, we evaluate factors such as prior
earnings history, expected future earnings, carryback and carryforward periods
and tax strategies. Management considers all positive and negative evidence to
estimate if sufficient future taxable income will be generated to realize the
deferred tax asset. We consider cumulative losses in recent years as well as the
impact of one time events in assessing our core pretax
earnings.  Assumptions regarding future taxable income require
significant judgment. Our assumptions are consistent with estimates and plans
used to manage our business which includes restructuring and integration
initiatives which are expected to generate significant savings in future
periods.





At
September 30, 2010, we had a valuation allowance of $29.8 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.





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.


34





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
addition, identifiable intangible assets having indefinite lives are reviewed
for impairment on an annual basis.  In reviewing for impairment, we
compare the carrying value of such assets to the estimated undiscounted future
cash flows expected from the use of the assets and their eventual disposition.
When the estimated undiscounted future cash flows are less than their carrying
amount, an impairment loss is recognized equal to the difference between the
assets fair value and their carrying value.





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





Retirement and
Post-Retirement 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.





Environmental
Reserves.  We are subject to various U.S. federal, 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.


35




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, 2010
estimated an undiscounted liability for settlement payments, excluding legal
costs and any potential recovery from insurance carriers, ranging from $25.7
million to $66.9 million for the period through 2059. As a result, in September
2010 an incremental $1.8 million provision in our discontinued operation was
added to the asbestos accrual increasing the reserve to approximately $25.7
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 $20.3 million to $61.3 million during the
same period.  We will continue 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.





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.





Recently
Issued Accounting Pronouncements





Fair
Value Measurements





On March
31, 2010, we adopted Accounting Standards Update (“ASU”) 2010-06, Improving Disclosures about Fair
Value Measurementsthat requires companies to enhance the usefulness of
fair value measurements by requiring both the disaggregation of information in
certain existing disclosures, as well as the inclusion of more robust
disclosures about valuation techniques and inputs to recurring and nonrecurring
fair value measurements.  The adoption of this standard will impact
how we disclose in the future any material transfers into and out of Level 1
(measurements based on quoted prices in active markets) and Level 2 inputs
(measurements based on other observable inputs) of the fair value
hierarchy.  There were no such transfers in the nine months of
2010.





Revenue
Arrangements with Multiple Deliverables





In
October 2009, the FASB issued ASU 2009-13, which will update Accounting Standard
Codification (“ASC”) 605, Revenue Recognition, and
changes the accounting for certain revenue arrangements.  The new
standard sets forth requirements that must be met for an entity to recognize
revenue from the sale of a delivered item that is part of a multiple-element
arrangement when other items have not yet been delivered and requires the
allocation of arrangement consideration to each deliverable to be based on the
relative selling price.   ASU 2009-13 is effective prospectively
for revenue arrangements entered into or materially modified in the fiscal years
beginning on or after June 15, 2010, which for us is January 1,
2011.  The adoption of these provisions is not expected to have a
material impact on our consolidated financial position, results of operations
and cash flows.


36




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, 2010 and December 31, 2009, 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% at September 30, 2010 and 76.5% at December 31, 2009.





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, 2009.


37





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, 2010, 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 may lead to various changes in our internal control over financial
reporting.


38


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. 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, 2010, approximately 1,530 cases were outstanding for which we
were responsible for any related liabilities.  Since inception in
September 2001 through September 30, 2010, the amounts paid for settled claims
are approximately $11.2 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 for coverage under this
agreement, and received approximately $2.5 million in reimbursement for
settlement claims and defense costs.  We have submitted additional
asbestos-related claims to such insurance carrier for coverage.  In
addition, in May 2010 we entered into an agreement with an excess insurance
carrier to provide us with limited insurance coverage for defense and indemnity
costs associated with asbestos-related claims. We will submit claims to this
carrier after we have exhausted our coverage under the agreement with the
primary insurance carrier discussed above.





In
evaluating our potential asbestos-related liability, we have considered various
factors including, among other things, an actuarial study performed by an
independent 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, 2010.  The
updated study has estimated an undiscounted liability for settlement payments,
excluding legal costs and any potential recovery from insurance carriers,
ranging from $25.7 million to $66.9 million for the period through 2059. The
change from the prior year study was a $0.9 million decrease for the low end of
the range and a $0.6 million increase 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 $1.8 million provision in our
discontinued operation was added to the asbestos accrual in September 2010
increasing the reserve to approximately $25.7 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 $20.3 million to $61.3 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.


39





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
culminating in a decision and order dated September 16, 2010 granting the motion
to dismiss and, in view of an intervening change in pleading standards,
deferring decision on whether to grant plaintiff leave to amend to allow an
opportunity to propose curative amendments. On October 18, 2010, the plaintiff
filed an amended complaint changing certain alleged claims relating to the
Robinson-Patman Act.  By Order dated October 26, 2010, the court
directed that the Third Amended Complaint be deemed withdrawn and gave
plaintiffs until November 9, 2010 to file a motion for leave to amend
identifying the curative amendments to the Second Amended Complaint setting
forth why the amendments accord with the rules.  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.


40





ITEM
      6.
            EXHIBITS





10.26
            Amended
      and Restated Supplemental Retirement Plan, dated as of July 19,
      2010.


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:
      November 4, 2010
                    
                    /s/ James J. BurkeJames
      J. BurkeVice
      President Finance,Chief
      Financial Officer(Principal
      Financial andAccounting
      Officer)


41




STANDARD
MOTOR PRODUCTS, INC.


EXHIBIT
INDEX





Exhibit


Number





10.26
            Amended
      and Restated Supplemental Retirement Plan, dated as of July 19,
      2010.


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.


42