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 THE SECURITIES EXCHANGE ACT OF
      1934.
 
 For the quarterly period ended
March 31,
2010
  or
  o
                  TRANSITION
      REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934.




Commission file
number:  1-4743




Standard Motor Products,
Inc.


(Exact
name of registrant as specified in its charter)





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





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





(718)
392-0200


(Registrant’s
telephone number, including area code)





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


Yes þ      No
o





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


Yes o      No
o





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





Large
      Accelerated Filer o
            Accelerated
      Filer þNon-Accelerated
      Filer o   (Do
      not check if a smaller reporting company)
            Smaller
      reporting company o





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


Yes o      No
þ





As of the
close of business on April 30, 2010, there were 22,753,280 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 Ended March 31,
      2010 and 2009
                3Consolidated
      Balance Sheets  as of March 31, 2010 (Unaudited) and December
      31, 2009
                4Consolidated
      Statements of Cash Flows (Unaudited) for the Three Months Ended March 31,
      2010 and 2009
                5Consolidated
      Statement of Changes in Stockholders’ Equity (Unaudited) for the Three
      Months Ended March 31, 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
                35Item
      4.       Controls and
    Procedures
                36PART
      II – OTHER INFORMATIONItem
      1.       Legal Proceedings
                37Item
      6.       Exhibits
                39Signatures
                39











PART
I - FINANCIAL INFORMATION




ITEM
1.      CONSOLIDATED FINANCIAL
STATEMENTS





STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES




CONSOLIDATED
STATEMENTS OF OPERATIONS





(Dollars
      in thousands, except share and per share data)
                      
                      Three
      Months Ended
                        March
      31,2010
                      
                      
                      2009(Unaudited)Net
      sales
                      
                      $
                      179,351
                      
                      
                      $
                      172,222Cost
      of sales
                      
                      
                      135,533
                      
                      
                      
                      131,329Gross profit
                      
                      
                      43,818
                      
                      
                      
                      40,893Selling,
      general and administrative expenses
                      
                      
                      36,665
                      
                      
                      
                      36,019Restructuring
      and integration expenses
                      
                      
                      753
                      
                      
                      
                      1,163Operating income
                      
                      
                      6,400
                      
                      
                      
                      3,711Other
      income, net
                      
                      
                      398
                      
                      
                      
                      105Interest
      expense
                      
                      
                      1,864
                      
                      
                      
                      2,477Earnings
      from continuing operations before taxes
                      
                      
                      4,934
                      
                      
                      
                      1,339Provision
      for income taxes
                      
                      
                      2,067
                      
                      
                      
                      552Earnings
      from continuing operations
                      
                      
                      2,867
                      
                      
                      
                      787Loss
      from discontinued operations, net of income taxes
                      
                      
                      (496
                      )
                      
                      
                      (260
                      )Net earnings
                      
                      $
                      2,371
                      
                      
                      $
                      527Net
      earnings per common share – Basic:Earnings
      from continuing operations
                      
                      $
                      0.13
                      
                      
                      $
                      0.04Discontinued
      operations
                      
                      
                      (0.02
                      )
                      
                      
                      (0.01
                      )Net
      earnings per common share – Basic
                      
                      $
                      0.11
                      
                      
                      $
                      0.03Net
      earnings per common share – Diluted:Earnings
      from continuing operations
                      
                      $
                      0.13
                      
                      
                      $
                      0.04Discontinued
      operations
                      
                      
                      (0.02
                      )
                      
                      
                      (0.01
                      )Net
      earnings per common share – Diluted
                      
                      $
                      0.11
                      
                      
                      $
                      0.03Average
      number of common shares
                      
                      
                      22,414,311
                      
                      
                      
                      18,596,218Average
      number of common shares and dilutive common shares
                      
                      
                      22,495,888
                      
                      
                      
                      18,596,218





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)
                    
                    March 31,
                      2010
                    
                    
                    December 31,
                      2009(Unaudited)ASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
                    
                    $
                    14,734
                    
                    
                    $
                    10,618Accounts
      receivable, less allowance for discounts and doubtful accounts of $7,674
      and $6,962 for 2010 and 2009, respectively
                    
                    
                    142,388
                    
                    
                    
                    124,823Inventories
                    
                    
                    210,090
                    
                    
                    
                    199,752Deferred
      income taxes
                    
                    
                    17,509
                    
                    
                    
                    18,129Assets
      held for sale
                    
                    
                    433
                    
                    
                    
                    1,405Prepaid
      expenses and other current assets
                    
                    
                    10,269
                    
                    
                    
                    9,487Total
      current assets
                    
                    
                    395,423
                    
                    
                    
                    364,214Property,
      plant and equipment, net
                    
                    
                    61,967
                    
                    
                    
                    61,478Goodwill
                    
                    
                    1,437
                    
                    
                    
                    1,437Other
      intangibles, net
                    
                    
                    11,803
                    
                    
                    
                    12,368Deferred
      income taxes
                    
                    
                    28,605
                    
                    
                    
                    29,542Other
      assets
                    
                    
                    14,325
                    
                    
                    
                    15,420Total
      assets
                    
                    $
                    513,560
                    
                    
                    $
                    484,459LIABILITIES
      AND STOCKHOLDERS’ EQUITYCURRENT
      LIABILITIES:Notes
      payable
                    
                    $
                    75,707
                    
                    
                    $
                    58,430Current
      portion of long-term debt
                    
                    
                    81
                    
                    
                    
                    67Accounts
      payable
                    
                    
                    69,826
                    
                    
                    
                    54,381Sundry
      payables and accrued expenses
                    
                    
                    19,293
                    
                    
                    
                    24,114Accrued
      customer returns
                    
                    
                    26,306
                    
                    
                    
                    20,442Accrued
      rebates
                    
                    
                    25,394
                    
                    
                    
                    25,276Payroll
      and commissions
                    
                    
                    15,132
                    
                    
                    
                    21,913Total
      current liabilities
                    
                    
                    231,739
                    
                    
                    
                    204,623Long-term
      debt
                    
                    
                    17,703
                    
                    
                    
                    17,908Post-retirement
      medical benefits
                    
                    
                    19,490
                    
                    
                    
                    19,355Other
      accrued liabilities
                    
                    
                    23,907
                    
                    
                    
                    23,821Accrued
      asbestos liabilities
                    
                    
                    24,472
                    
                    
                    
                    24,874Total
      liabilities
                    
                    
                    317,311
                    
                    
                    
                    290,581Commitments
      and contingencies Stockholders’ equity:Common
      stock – par value $2.00 per share:Authorized
      – 30,000,000 shares; issued 23,936,036 shares
                    
                    
                    47,872
                    
                    
                    
                    47,872Capital
      in excess of par value
                    
                    
                    77,230
                    
                    
                    
                    77,238Retained
      earnings
                    
                    
                    81,336
                    
                    
                    
                    80,083Accumulated
      other comprehensive income
                    
                    
                    4,719
                    
                    
                    
                    5,475Treasury
      stock – at cost 1,387,511 and 1,562,649 shares in 2010 and 2009,
      respectively
                    
                    
                    (14,908
                    )
                    
                    
                    (16,790
                    )Total
      stockholders’ equity
                    
                    
                    196,249
                    
                    
                    
                    193,878Total
      liabilities and stockholders’ equity
                    
                    $
                    513,560
                    
                    
                    $
                    484,459


See
accompanying notes to consolidated financial statements.





4





STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES




CONSOLIDATED
STATEMENTS OF CASH FLOWS




(In thousands)
                    
                    Three Months Ended
                      March 31,2010
                    
                    
                    2009(Unaudited)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      earnings
                    
                    $
                    2,371
                    
                    
                    $
                    527Adjustments
      to reconcile net earnings to net cash provided by (used in) operating
      activities:Depreciation
      and amortization
                    
                    
                    3,285
                    
                    
                    
                    3,652Increase
      in allowance for doubtful accounts
                    
                    
                    411
                    
                    
                    
                    1,061Increase
      in inventory reserves
                    
                    
                    1,048
                    
                    
                    
                    2,000Amortization
      of deferred gain on sale of building
                    
                    
                    (262
                    )
                    
                    
                    (262
                    )Gain
      on disposal of property, plant and equipment
                    
                    
                    (198
                    )
                    
                    –Equity
      loss from joint ventures
                    
                    
                    94
                    
                    
                    
                    58Employee
      stock ownership plan allocation
                    
                    
                    408
                    
                    
                    
                    85Stock-based
      compensation
                    
                    
                    205
                    
                    
                    
                    125Decrease
      (increase) in deferred income taxes
                    
                    
                    1,557
                    
                    
                    
                    (8
                    )Loss
      from discontinued operation, net of income tax
                    
                    
                    496
                    
                    
                    
                    260Change
      in assets and liabilities:Increase
      in accounts receivable
                    
                    
                    (17,976
                    )
                    
                    
                    (8,332
                    )Decrease
      (increase) in inventories
                    
                    
                    (11,387
                    )
                    
                    
                    23,226Increase
      in prepaid expenses and other current assets
                    
                    
                    (266
                    )
                    
                    
                    (304
                    )Increase
      (decrease) in accounts payable
                    
                    
                    8,958
                    
                    
                    
                    (13,221
                    )Increase
      (decrease) in sundry payables and accrued expenses
                    
                    
                    (5,578
                    )
                    
                    
                    9,145Net
      changes in other assets and liabilities
                    
                    
                    (606
                    )
                    
                    
                    535Net
      cash provided by (used in) operating activities
                    
                    
                    (17,440
                    )
                    
                    
                    18,547CASH
      FLOWS FROM INVESTING ACTIVITIES:Proceeds
      from the sale of property, plant and equipment
                    
                    
                    4
                    
                    
                    –Net
      cash received from the sale of land and buildings
                    
                    
                    873
                    
                    
                    –Divestiture
      of joint ventures
                    
                    
                    1,000
                    
                    
                    
                    4,000Capital
      expenditures
                    
                    
                    (3,065
                    )
                    
                    
                    (1,320
                    )Acquisitions
      of businesses and assets
                    
                    –
                    
                    
                    
                    (5,996
                    )Net
      cash used in investing activities
                    
                    
                    (1,188
                    )
                    
                    
                    (3,316
                    )CASH
      FLOWS FROM FINANCING ACTIVITIES:Net
      borrowings (repayments) under line-of-credit agreements
                    
                    
                    17,278
                    
                    
                    
                    (9,792
                    )Net
      repayment of long-term debt
                    
                    
                    (262
                    )
                    
                    
                    (34
                    )Increase
      (decrease) in overdraft balances
                    
                    
                    6,486
                    
                    
                    
                    (308
                    )Adjustment
      to costs related to issuance of common stock
                    
                    
                    36
                    
                    
                    –Dividends
      paid
                    
                    
                    (1,118
                    )
                    
                    –Net
      cash provided by (used in) financing activities
                    
                    
                    22,420
                    
                    
                    
                    (10,134
                    )Effect
      of exchange rate changes on cash
                    
                    
                    324
                    
                    
                    
                    (720
                    )Net
      increase in cash and cash equivalents
                    
                    
                    4,116
                    
                    
                    
                    4,377CASH
      AND CASH EQUIVALENTS at beginning of the period
                    
                    
                    10,618
                    
                    
                    
                    6,608CASH
      AND CASH EQUIVALENTS at end of the period
                    
                    $
                    14,734
                    
                    
                    $
                    10,985Supplemental
      disclosure of cash flow information:Cash
      paid during the period for:Interest
                    
                    $
                    728
                    
                    
                    $
                    2,987Income
      taxes
                    
                    $
                    524
                    
                    
                    $
                    889




See
accompanying notes to consolidated financial statements.





5




STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES




CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY


Three
Months Ended March 31, 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 (loss):Net
      earnings
                
                
                
                
                
                
                
                
                
                
                2,371
                
                
                
                
                
                
                
                
                
                
                
                2,371Foreign
      currency translation adjustment
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                396
                
                
                
                
                
                
                
                396Pension
      and retiree medical adjustment, net of tax
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (1,152
                )
                
                
                
                
                
                
                (1,152
                )Total
      comprehensive income (loss)
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                1,615Cash
      dividends paid
                
                
                
                
                
                
                
                
                
                
                (1,118
                )
                
                
                
                
                
                
                
                
                
                
                (1,118
                )Adjustment
      to costs related to issuance of common stock
                
                
                
                
                
                
                36
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                36Stock-based
      compensation
                
                
                
                
                
                
                205
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                205Employee
      Stock Ownership Plan
                
                
                
                
                
                
                (249
                )
                
                
                
                
                
                
                
                
                
                
                1,882
                
                
                
                1,633Balance
      at March 31, 2010
                
                $
                47,872
                
                
                $
                77,230
                
                
                $
                81,336
                
                
                $
                4,719
                
                
                $
                (14,908
                )
                
                $
                196,249




See
accompanying notes to consolidated financial statements.





6




STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)




Note
1.  Basis of Presentation




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





The
accompanying unaudited financial information should be read in conjunction with
the audited consolidated financial statements and the notes thereto included in
our Annual Report on Form 10-K for the year ended December 31,
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, deferred tax asset valuation allowance and
sales return allowances.





The
impact and any associated risks related to significant accounting policies on
our business operations is discussed throughout “Management’s Discussion and
Analysis of Financial Condition and Results of Operations,” where such policies
affect our reported and expected financial results.  There have been
no material changes to our critical accounting policies and estimates from the
information provided in Note 1 of the notes to our consolidated financial
statements in our Annual Report on Form 10-K for the year ended December 31,
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
(measurements based on other observable inputs) inputs of the fair value
hierarchy.  There were no such transfers in the first three months of
2010.





Revenue
Arrangements with Multiple Deliverables





In
October 2009, the FASB issued ASU 2009-13  which will update 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.  We are currently evaluating the impact this new standard will
have on our financial statements.





Note
3.  Restructuring and Integration Costs





The
aggregated liabilities relating to the restructuring and integration activities
as of December 31, 2009 and March 31, 2010 and activity for the three months
ended March 31, 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
                      
                      
                      525
                      
                      
                      
                      228
                      
                      
                      
                      753Cash
      payments
                      
                      
                      (1,741
                      )
                      
                      
                      (192
                      )
                      
                      
                      (1,933
                      )Exit
      activity liability at March 31, 2010
                      
                      $
                      7,558
                      
                      
                      $
                      2,007
                      
                      
                      $
                      9,565





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 $2.8 million remaining
as of March 31, 2010 that is expected to be paid in the amount of $1.2 million
in 2010, $0.6 million in 2011, and $1 million for the period
2012-2015.





8




STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES




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




Activity
for the three months ended March 31, 2010 related to this program, by segment,
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
                      
                      
                      72
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      72Cash
      payments
                      
                      
                      (215
                      )
                      
                      
                      (23
                      )
                      
                      
                      (248
                      )
                      
                      
                      (486
                      )Exit
      activity liability at March 31, 2010
                      
                      $
                      1,252
                      
                      
                      $
                      362
                      
                      
                      $
                      1,174
                      
                      
                      $
                      2,788





Integration
Expenses





Overhead
Cost Reduction Program





Beginning
in 2007 in connection with our efforts to improve our operating efficiency and
reduce costs, we announced our intention to focus on company-wide overhead and
operating expense cost reduction activities, such as closing excess facilities
and reducing redundancies.  Integration expenses under this program to
date relate primarily to the integration of operations to our facilities in
Mexico, 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 three months ended March 31, 2010 related to this 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
                      
                      
                      407
                      
                      
                      
                      173
                      
                      
                      
                      580Cash
      payments
                      
                      
                      (653
                      )
                      
                      
                      (92
                      )
                      
                      
                      (745
                      )Exit
      activity liability at March 31, 2010
                      
                      $
                      1,101
                      
                      
                      $
                      81
                      
                      
                      $
                      1,182




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 related to employee severance and
equipment relocation costs have been incurred.  As of March 31, 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
                      
                      
                      —
                      
                      
                      
                      27
                      
                      
                      
                      27Cash
      payments
                      
                      
                      (532
                      )
                      
                      
                      (27
                      )
                      
                      
                      (559
                      )Exit
      activity liability at March 31, 2010
                      
                      $
                      —
                      
                      
                      $
                      —
                      
                      
                      $
                      —





9




STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES




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




Reynosa
Integration Program





During
2006 and 2007, we announced plans for the closure of our Long Island City, New
York and Puerto Rico manufacturing facilities and integration of operations in
Reynosa, Mexico.  In connection with the shutdown of the manufacturing
operations at Long Island City that was completed in March of 2008, we incurred
severance costs and costs associated with equipment removal, capital
expenditures, and environmental clean-up.  As of March 31, 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 March 31, 2010, the reserve balance related to the
pension withdrawal liability of $3.2 million is included in the workforce
reduction reserve.





Activity
for the three months ended March 31, 2010 related to this 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
                      
                      
                      46
                      
                      
                      
                      28
                      
                      
                      
                      74Cash
      payments
                      
                      
                      (70
                      )
                      
                      
                      (73
                      )
                      
                      
                      (143
                      )Exit
      activity liability at March 31, 2010
                      
                      $
                      3,669
                      
                      
                      $
                      1,926
                      
                      
                      $
                      5,595





Integration
activity for the three months ended March 31, 2010 related to our aggregate
integration programs, by segment, 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
                        
                        
                        358
                        
                        
                        
                        323
                        
                        
                        
                        —
                        
                        
                        
                        681Cash
      payments
                        
                        
                        (1,220
                        )
                        
                        
                        (190
                        )
                        
                        
                        (37
                        )
                        
                        
                        (1,447
                        )Exit
      activity liability at March 31, 2010
                        
                        $
                        6,155
                        
                        
                        $
                        497
                        
                        
                        $
                        125
                        
                        
                        $
                        6,777





Assets
Held for Sale





As of
March 31, 2010, we have reported $0.4 million as assets held for sale on our
consolidated balance sheet related to the net book value of the vacant land
located in the U.K. and the closed facility in Reno,
Nevada.  Following plant closures resulting from integration
activities, these facilities have been vacant and therefore a decision to
solicit bids has been made.  We are hopeful that a negotiated sale to
a third-party will occur within the next twelve months, and we will record any
resulting gain or loss in other income, net as appropriate.  In
January 2010, we sold our Wilson, North Carolina property and in February 2010
we sold the vacant land at one of our locations in the U.K.





10




STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES




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




Note
4.  Sale of Receivables





We sell
undivided interests in certain of our receivables to financial
institutions.  We entered these agreements at our discretion when we
determined that the cost of factoring was less than the cost of servicing our
receivables with existing debt.  Pursuant to these agreements, we sold
$82.2 million of receivables during the three months ended March 31,
2010.  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 $1.2
million and $0.4 million related to the sale of receivables is included in
selling, general and administrative expense in our consolidated statements of
operations for the three months ended March 31, 2010 and 2009,
respectively.





Note
5. Inventories





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





March
      31,
                    2010
                  
                  
                  December
      31,
                    2009(In
      thousands)Finished
      goods, net
                  
                  $
                  139,471
                  
                  
                  $
                  130,054Work
      in process, net
                  
                  
                  5,304
                  
                  
                  
                  4,472Raw
      materials, net
                  
                  
                  65,315
                  
                  
                  
                  65,226Total
      inventories, net
                  
                  $
                  210,090
                  
                  
                  $
                  199,752





Note
6. Credit Facilities and Long-Term Debt





Total
debt outstanding is summarized as follows:





March
      31,
                        2010
                      
                      
                      December
      31,
                        2009(In
      thousands)Revolving
      credit facilities (1)
                      
                      $
                      75,707
                      
                      
                      $
                      58,43015%
      convertible subordinated debentures
                      
                      
                      12,300
                      
                      
                      
                      12,30015%
      unsecured promissory notes
                      
                      
                      5,098
                      
                      
                      
                      5,339Other
                      
                      
                      386
                      
                      
                      
                      336Total
      debt
                      
                      $
                      93,491
                      
                      
                      $
                      76,405Current
      maturities of debt
                      
                      $
                      75,788
                      
                      
                      $
                      58,497Long-term
      debt
                      
                      
                      17,703
                      
                      
                      
                      17,908Total
      debt
                      
                      $
                      93,491
                      
                      
                      $
                      76,405




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





11




STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES




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




Deferred
Financing Costs





We had
deferred financing costs of $5.2 million and $5.6 million as of March 31, 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 March 31, 2010 are being
amortized, assuming no further prepayments of principal, in the amount of $1.5
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
replaces 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 term loan
described below) and expires in March 2013. Direct borrowings under the restated
credit agreement bear interest at the LIBOR rate plus the applicable margin (as
defined), or floating at the index rate plus the applicable margin, at our
option. The interest rate may vary depending upon our borrowing availability.
The restated credit agreement is guaranteed by certain of our subsidiaries and
secured by certain of our assets.





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 $92.3 million
available for us to borrow pursuant to the formula at March 31,
2010.  At March 31, 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 term loan described
below), which are classified as current liabilities, were $75.7 million and
$58.4 million at March 31, 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 March 31,
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.  Beginning October 15,
2010 and on a monthly basis thereafter, our borrowing availability will be
reduced by approximately $2.9 million for the repayment, repurchase or
redemption of the aggregate outstanding amount of our 15% convertible
subordinated debentures and our 15% unsecured promissory notes due April 15,
2011.  Our restated credit agreement also permits dividends and
distributions by us provided specific conditions are met.





Canadian
Term Loan





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





12




STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES




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




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 March 31,
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.  The 15% unsecured promissory notes will mature on April
15, 2011, carry an interest rate of 15%, payable semi-annually, are not
convertible into common stock and may be prepaid prior to
maturity.  The 15% unsecured promissory notes are subordinated in
right of payment to all of our existing and future senior
indebtedness.  Prepayments of the principal amount have 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 March 31, 2010, our remaining capital lease
obligations totaled $0.4 million.  Assets held under capitalized
leases are included in property, plant and equipment and depreciated over the
lives of the respective leases or over their economic useful lives, whichever is
less.





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.





13




STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES




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




Stock Option
Grants




The
following is a summary of the changes in outstanding stock options for the three
months ended March 31, 2010:




Shares
                        
                        
                        Weighted
                          Average
                          Exercise
                          Price
                        
                        
                        Weighted
      Average
                          Remaining
                          Contractual
                          Term
      (Years)Outstanding
      at December 31, 2009
                        
                        
                        378,095
                        
                        
                        $
                        13.26
                        
                        
                        
                        3.7Expired
                        
                        
                        (48,671
                        )
                        
                        $
                        14.74
                        
                        
                        
                        —Exercised
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —Forfeited,
      other
                        
                        
                        (8,900
                        )
                        
                        $
                        12.75
                        
                        
                        
                        5.5Outstanding
      at March 31, 2010
                        
                        
                        320,524
                        
                        
                        $
                        13.05
                        
                        
                        
                        3.2Options
      exercisable at March 31, 2010
                        
                        
                        320,524
                        
                        
                        $
                        13.05
                        
                        
                        
                        3.2





There was
no aggregate intrinsic value of all outstanding stock options as of March 31,
2010.  All outstanding stock options as of March 31, 2010 are fully
vested and exercisable.  There were no stock options granted in the
three months ended March 31, 2010 and 2009, and for the period ended March 31,
2010, we had no unrecognized compensation cost related to stock options and
non-vested stock options.  There were no options exercised during the
first three months of 2010.





Restricted and Performance
Stock Grants





As part
of the 2006 Omnibus Incentive Plan, we currently grant shares of restricted
and/or performance-based stock to eligible employees and
directors.  Selected executives and other key personnel are granted
performance awards whose vesting is contingent upon meeting various performance
measures with a retention feature.  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.





Our
restricted and performance-based share activity was as follows for the three
months ended March 31, 2010:





Shares
                        
                        
                        Weighted Average
                          Grant Date Fair
                          Value Per ShareBalance
      at December 31, 2009
                        
                        
                        288,425
                        
                        
                        $
                        9.40Granted
                        
                        
                        —
                        
                        
                        
                        —Vested
                        
                        
                        —
                        
                        
                        
                        —Forfeited
                        
                        
                        (725
                        )
                        
                        $
                        12.16Balance
      at March 31, 2010
                        
                        
                        287,700
                        
                        
                        $
                        9.39





14




STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES




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




We
recorded compensation expense related to restricted shares and performance-based
shares of $198,600 ($115,500 net of tax) and $124,600 ($73,200 net of tax) for
the three months ended March 31, 2010 and 2009, respectively. The unamortized
compensation expense related to our restricted and performance-based shares was
$1.3 million at March 31, 2010, and is expected to be recognized as they vest
over a weighted average period of 1.5 and 0.1 years for employees and directors,
respectively.





Note
8.  Employee Benefits





In 2000,
we created an employee benefits trust to which we contributed 750,000 shares of
treasury stock. We are authorized to instruct the trustees to distribute such
shares toward the satisfaction of our future obligations under employee benefit
plans. The shares held in trust are not considered outstanding for purposes of
calculating earnings per share until they are committed to be released. The
trustees will vote the shares in accordance with its fiduciary
duties.  During 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 March 31, 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.





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





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





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





15




STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES




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




The
components of net periodic benefit cost for our defined benefit plans and post
retirement benefit plans for the three months ended March 31, 2010 and 2009 were
as follows (in thousands):





Three Months EndedMarch 31,2010
                                      
                                      
                                      2009Pension
      Benefits (1)Service
      cost
                                      
                                      $
                                      22
                                      
                                      
                                      $
                                      22Interest
      cost
                                      
                                      
                                      36
                                      
                                      
                                      
                                      72Amortization
      of prior service cost
                                      
                                      
                                      40
                                      
                                      
                                      
                                      28Actuarial
      net (gain) loss
                                      
                                      
                                      —
                                      
                                      
                                      
                                      (33
                                      )Net
      periodic benefit cost
                                      
                                      $
                                      98
                                      
                                      
                                      $
                                      89Post
      Retirement BenefitsService
      cost
                                      
                                      $
                                      55
                                      
                                      
                                      $
                                      74Interest
      cost
                                      
                                      
                                      283
                                      
                                      
                                      
                                      273Amortization
      of prior service cost
                                      
                                      
                                      (2,258
                                      )
                                      
                                      
                                      (2,317
                                      )Amortization
      of transition obligation
                                      
                                      
                                      1
                                      
                                      
                                      
                                      1Actuarial
      net (gain) loss
                                      
                                      
                                      319
                                      
                                      
                                      
                                      383Net
      periodic benefit credit
                                      
                                      $
                                      (1,600
                                      )
                                      
                                      $
                                      (1,586
                                      )





(1)
              The
      components of net periodic benefit costs for the three months ended March
      31, 2009 includes the pension 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.





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 March 31, 2010 and December 31, 2009 (in
thousands):




March
      31, 2010
                  
                  
                  December
      31, 2009Carrying
                    Amount
                  
                  
                  Fair Value
                  
                  
                  Carrying
                    Amount
                  
                  
                  Fair ValueCash
      and cash equivalents
                  
                  $
                  14,734
                  
                  
                  $
                  14,734
                  
                  
                  $
                  10,618
                  
                  
                  $
                  10,618Deferred
      compensation
                  
                  
                  5,147
                  
                  
                  
                  5,147
                  
                  
                  
                  5,319
                  
                  
                  
                  5,319Short
      term borrowings
                  
                  
                  75,788
                  
                  
                  
                  75,788
                  
                  
                  
                  58,497
                  
                  
                  
                  58,497Long-term
      debt
                  
                  
                  17,703
                  
                  
                  
                  17,703
                  
                  
                  
                  17,908
                  
                  
                  
                  17,908





16




STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES




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




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 and based
upon the quoted market price of our publicly traded 15% convertible subordinated
debentures which is used as a proxy for funds invested in the 15% unsecured
promissory notes, 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 long-term debt is based upon the quoted
market price of our publicly traded 15% convertible subordinated debentures
which was also used as a proxy for our 15% unsecured promissory notes, and which
is considered a Level 1 input.





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 EndedMarch 31,2010
                              
                              
                              2009Basic
      Net Earnings per Common Shares:Earnings
      from continuing operations
                              
                              $
                              2,867
                              
                              
                              $
                              787Loss
      from discontinued operation
                              
                              
                              (496
                              )
                              
                              
                              (260
                              )Net
      earnings available to common stockholders
                              
                              $
                              2,371
                              
                              
                              $
                              527Weighted
      average common shares outstanding
                              
                              
                              22,414
                              
                              
                              
                              18,596Net
      earnings from continuing operations per common share
                              
                              $
                              0.13
                              
                              
                              $
                              0.04Loss
      from discontinued operation per common share
                              
                              
                              (0.02
                              )
                              
                              
                              (0.01
                              )Basic
      net earnings per common share
                              
                              $
                              0.11
                              
                              
                              $
                              0.03Diluted
      Net Earnings per Common Share:Earnings
      from continuing operations
                              
                              $
                              2,867
                              
                              
                              $
                              787Loss
      from discontinued operation
                              
                              
                              (496
                              )
                              
                              
                              (260
                              )Net
      earnings available to common stockholders
                              
                              $
                              2,371
                              
                              
                              $
                              527Weighted
      average common shares outstanding
                              
                              
                              22,414
                              
                              
                              
                              18,596Plus
      incremental shares from assumed conversions:Dilutive
      effect of restricted stock
                              
                              
                              82
                              
                              
                              
                              —Dilutive
      effect of stock options
                              
                              
                              —
                              
                              
                              
                              —Dilutive
      effect of convertible debentures
                              
                              
                              —
                              
                              
                              
                              —Weighted
      average common shares outstanding – Diluted
                              
                              
                              22,496
                              
                              
                              
                              18,596Net
      earnings from continuing operations per common share
                              
                              $
                              0.13
                              
                              
                              $
                              0.04Loss
      from discontinued operation per common share
                              
                              
                              (0.02
                              )
                              
                              
                              (0.01
                              )Diluted
      net earnings per common share
                              
                              $
                              0.11
                              
                              
                              $
                              0.03





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 EndedMarch 31,2010
                  
                  
                  2009Stock
      options
                  
                  
                  321
                  
                  
                  
                  455Restricted
      shares
                  
                  
                  119
                  
                  
                  
                  18915%
      convertible subordinated debentures
                  
                  
                  820
                  
                  
                  
                  —6.75%
      convertible subordinated debentures
                  
                  
                  —
                  
                  
                  
                  1,394





Note
11.  Comprehensive Income (Loss)





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





Three Months EndedMarch 31,2010
                  
                  
                  2009Net
      earnings as reported
                  
                  $
                  2,371
                  
                  
                  $
                  527Foreign
      currency translation adjustment
                  
                  
                  396
                  
                  
                  
                  (1,180
                  )Postretirement
      benefit plans:Reclassification
      adjustment for recognition of prior period amounts
                  
                  
                  (1,343
                  )
                  
                  
                  (1,313
                  )Unrecognized
      amounts
                  
                  
                  191
                  
                  
                  
                  210Total
      comprehensive income (loss)
                  
                  $
                  1,615
                  
                  
                  $
                  (1,756
                  )




Note
12.  Industry Segments





In
November 2009, we sold our European distribution business to the managers of the
business for £1.8 million ($3.0 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 is
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 operations 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 ended March 31, 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 EndedMarch
      31,2010
                  
                  
                  2009Net
      SalesEngine
      Management
                  
                  $
                  137,097
                  
                  
                  $
                  124,313Temperature
      Control
                  
                  
                  40,015
                  
                  
                  
                  40,260Europe
                  
                  
                  —
                  
                  
                  
                  6,721All
      Other
                  
                  
                  2,239
                  
                  
                  
                  928Consolidated
                  
                  $
                  179,351
                  
                  
                  $
                  172,222Intersegment
      RevenueEngine
      Management
                  
                  $
                  4,432
                  
                  
                  $
                  7,260Temperature
      Control
                  
                  
                  919
                  
                  
                  
                  698Europe
                  
                  
                  —
                  
                  
                  
                  21All
      Other
                  
                  
                  (5,351
                  )
                  
                  
                  (7,979
                  )Consolidated
                  
                  $
                  —
                  
                  
                  $
                  —Operating
      ProfitEngine
      Management
                  
                  $
                  9,550
                  
                  
                  $
                  7,575Temperature
      Control
                  
                  
                  23
                  
                  
                  
                  (1,329
                  )Europe
                  
                  
                  —
                  
                  
                  
                  221All
      Other
                  
                  
                  (3,173
                  )
                  
                  
                  (2,756
                  )Consolidated
                  
                  $
                  6,400
                  
                  
                  $
                  3,711




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 March 31, 2010, approximately 1,525 cases were
outstanding for which we were responsible for any related
liabilities.  Since inception in September 2001 through March 31,
2010, the amounts paid for settled claims are approximately $9.4 million. In
September 2007, we entered into an agreement with an insurance carrier to
provide us with limited insurance coverage for the defense and indemnity costs
associated with certain asbestos-related claims. We have submitted various
asbestos-related claims for coverage under this agreement, and received
approximately $2.3 million in reimbursement for settlement claims and defense
costs.  We have submitted additional asbestos-related claims to such
insurance carrier for coverage.





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





19




STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES




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




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





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





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





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





Warranties.We generally
warrant our products against certain manufacturing and other defects. These
product warranties are provided for specific periods of time of the product
depending on the nature of the product. As of March 31, 2010 and 2009, we have
accrued $10.6 million and $10.5 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.





20




STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES




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




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




Three
      Months EndedMarch
      31,2010
                  
                  
                  2009Balance,
      beginning of period
                  
                  $
                  10,476
                  
                  
                  $
                  10,162Liabilities
      accrued for current year sales
                  
                  
                  10,527
                  
                  
                  
                  10,276Settlements
      of warranty claims
                  
                  
                  (10,438
                  )
                  
                  
                  (9,915
                  )Balance,
      end of period
                  
                  $
                  10,565
                  
                  
                  $
                  10,523




21





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





This
Report contains forward-looking statements made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements in this Report are indicated by words such as
“anticipates,” “expects,” “believes,” “intends,” “plans,” “estimates,”
“projects” and similar expressions. These statements represent our expectations
based on current information and assumptions and are inherently subject to risks
and uncertainties.  Our actual results could differ materially from
those which are anticipated or projected as a result of certain risks and
uncertainties, including, but not limited to, our substantial leverage; economic
and market conditions (including access to credit and financial markets); the
performance of the aftermarket sector; changes in business relationships with
our major customers and in the timing, size and continuation of our customers’
programs; changes in the product mix and distribution channel mix; the ability
of our customers to achieve their projected sales; competitive product and
pricing pressures; increases in production or material costs that cannot be
recouped in product pricing; successful integration of acquired businesses; our
ability to achieve cost savings from our restructuring
initiatives;  product liability and environmental matters (including,
without limitation, those related to asbestos-related contingent liabilities and
remediation costs at certain properties); as well as other risks and
uncertainties, such as those described under Quantitative and Qualitative
Disclosures About Market Risk and those detailed herein and from time to time in
the filings of the Company with the SEC. Forward-looking statements are made
only as of the date hereof, and the Company undertakes no obligation to update
or revise the forward-looking statements, whether as a result of new
information, future events or otherwise. In addition, historical information
should not be considered as an indicator of future performance.  The
following discussion should be read in conjunction with the unaudited
consolidated financial statements, including the notes thereto, included
elsewhere in this Report.





Business
Overview





We are a
leading independent manufacturer and distributor of replacement parts for motor
vehicles in the automotive aftermarket industry, with an increasing focus on the
original equipment and original equipment service markets.  We are
organized into two major operating segments, each of which focuses on a specific
line of replacement parts.  Our Engine Management Segment manufactures
ignition and emission parts, ignition wires, battery cables and fuel system
parts.  Our Temperature Control Segment manufactures and
remanufactures air conditioning compressors, air conditioning and heating parts,
engine cooling system parts, power window accessories, and windshield washer
system parts.





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 March 31, 2010 to Three Months Ended March 31,
2009





Sales.  Consolidated net
sales for the three months ended March 31, 2010 were $179.4 million, an increase
of $7.2 million, or 4.1%, compared to $172.2 million in the same period of
2009.  The increase in net sales is primarily from increases in sales
in our Engine Management Segment, offset by a $6.7 million decrease related to
the sale of our European distribution business.





The
following table summarizes net sales by segment for the quarters ended March 31,
2010 and 2009, respectively:





Three Months Ended
                                March 31,
                              
                              Engine
                                Management
                              
                              
                              Temperature
                                Control
                              
                              
                              Europe
                              
                              
                              Other
                              
                              
                              Total2010Net
      sales
                              
                              $
                              137,097
                              
                              
                              $
                              40,015
                              
                              
                              $
                              —
                              
                              
                              $
                              2,239
                              
                              
                              $
                              179,351Gross
      margins
                              
                              
                              33,134
                              
                              
                              
                              8,253
                              
                              
                              
                              —
                              
                              
                              
                              2,431
                              
                              
                              
                              43,818Gross
      margin percentage
                              
                              
                              24.2
                              %
                              
                              
                              20.6
                              %
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              24.4
                              %2009Net
      sales
                              
                              $
                              124,313
                              
                              
                              $
                              40,260
                              
                              
                              $
                              6,721
                              
                              
                              $
                              928
                              
                              
                              $
                              172,222Gross
      margins
                              
                              
                              30,525
                              
                              
                              
                              6,247
                              
                              
                              
                              1,828
                              
                              
                              
                              2,293
                              
                              
                              
                              40,893Gross
      margin percentage
                              
                              
                              24.6
                              %
                              
                              
                              15.5
                              %
                              
                              
                              27.2
                              %
                              
                              
                              —
                              
                              
                              
                              23.7
                              %





Engine
Management’s net sales increased $12.8 million, or 10.3%, to $137.1 million for
the first quarter of 2010.  The sales growth was driven by stronger
sales across all markets including a rebound in the OE/OES markets, which were
down significantly in 2009.  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 decreased $0.2 million, or 0.6%, to $40 million for the
first quarter of 2010.  Temperature Control’s sales are seasonal with
shipments primarily in the second and third quarters each year.  The
flat results against the first quarter of 2009 primarily reflect the timing for
pre-season orders.





Gross
margins.  Gross margins, as a percentage of consolidated net
sales, increased to 24.4% in the first quarter of 2010, compared to 23.7% in the
first quarter of 2009.  The increase resulted from improvements in
Temperature Control margins of 5.1 percentage points, partially offset by a 0.4
percentage point decrease to Engine Management margins.  The gross
margin percentage increase in Temperature Control compared to the prior year was
primarily the result of favorable manufacturing variances while the slight
decrease in Engine Management gross margin percentage was impacted by the higher
mix of OE/OES sales volumes with lower margins.





Selling, general
and administrative expenses.Selling, general and
administrative expenses (SG&A) increased by $0.7 million to $36.7 million or
20.4% of consolidated net sales, in the first quarter of 2010, as compared to
$36 million, or 20.9% of consolidated net sales in the first quarter of
2009.  The increase in SG&A expenses is due primarily to an
incremental increase in distribution expenses as a result of higher sales
volumes and an increase in expense related to our customer accounts receivable
factoring program.





Restructuring and
integration expenses.Restructuring and integration expenses
decreased to $0.8 million in the first quarter of 2010, compared to $1.2 million
in the first quarter of 2009.  The 2010 expense related primarily to
severance costs incurred in connection with the announced closures of our
Corona, California and Hong Kong, China manufacturing facilities.  The
2009 expense related primarily to severance and other exit costs incurred in
connection with the closure of our Edwardsville, Kansas manufacturing operations
and Wilson, North Carolina facility.


24





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





Engine
                          Management
                        
                        
                        Temperature
                          Control
                        
                        
                        Other
                        
                        
                        TotalExit
      activity liability at December 31, 2009
                        
                        $
                        8,412
                        
                        
                        $
                        749
                        
                        
                        $
                        1,584
                        
                        
                        $
                        10,745Restructuring
      and integration costs:Amounts
      provided for during 2010
                        
                        
                        430
                        
                        
                        
                        323
                        
                        
                        
                        —
                        
                        
                        
                        753Cash
      payments
                        
                        
                        (1,435
                        )
                        
                        
                        (213
                        )
                        
                        
                        (285
                        )
                        
                        
                        (1,933
                        )Exit
      activity liability at March 31,
      2010
                        
                        $
                        7,407
                        
                        
                        $
                        859
                        
                        
                        $
                        1,299
                        
                        
                        $
                        9,565





Operating
income.  Operating income was $6.4 million in the first quarter
of 2010, compared to $3.7 million in the first quarter of 2009. The increase of
$2.7 million was primarily due to the higher net sales in our Engine Management
Segment and an increase in gross margins in our Temperature Control Segment,
partially offset by the impact of the divestiture of our European distribution
business.





Other income,
net.Other income, net increased to $0.4 million in the first quarter of
2010 compared to $0.1 million in the same period in 2009.  Other
income, net included a $0.2 million gain on the sale of vacant land at one of
our locations in the U.K.





Interest
expense.  Interest expense decreased by $0.6 million in the
first quarter of 2010 compared to the same period in 2009 due to lower average
borrowings partially offset by higher average interest rates.





Income tax
provision. The income tax provision
in the first quarter of 2010 was $2.1 million at an effective tax rate of 41.9%
compared to $0.6 million and an effective tax rate of 41.2% for the same period
in 2009.  The effective tax rate was essentially flat year over
year.





Loss from
discontinued operation.  Loss from discontinued operation, net
of tax, reflects legal expenses associated with our asbestos related liability.
We recorded $0.5 million and $0.3 million as a loss from discontinued operation
for the first quarter of 2010 and 2009, respectively.  As discussed
more fully in Note 13 in the notes to our consolidated financial statements, we
are responsible for certain future liabilities relating to alleged exposure to
asbestos containing products.





Restructuring
and Integration Costs





The
aggregated liabilities relating to the restructuring and integration activities
as of December 31, 2009 and March 31, 2010 and activity for the three months
ended March 31, 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
                        
                        
                        525
                        
                        
                        
                        228
                        
                        
                        
                        753Cash
      payments
                        
                        
                        (1,741
                        )
                        
                        
                        (192
                        )
                        
                        
                        (1,933
                        )Exit
      activity liability at March 31,
      2010
                        
                        $
                        7,558
                        
                        
                        $
                        2,007
                        
                        
                        $
                        9,565


25


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 $2.8 million remaining
as of March 31, 2010 that is expected to be paid in the amount of $1.2
million in 2010, $0.6 million in 2011, and $1 million for the period
2012-2015.





Activity
for the three months ended March 31, 2010 related to this program, by segment,
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
                        
                        
                        72
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        72Cash
      payments
                        
                        
                        (215
                        )
                        
                        
                        (23
                        )
                        
                        
                        (248
                        )
                        
                        
                        (486
                        )Exit
      activity liability at March 31,
      2010
                        
                        $
                        1,252
                        
                        
                        $
                        362
                        
                        
                        $
                        1,174
                        
                        
                        $
                        2,788





Integration
Expenses





Overhead
Cost Reduction Program





Beginning
in 2007 in connection with our efforts to improve our operating efficiency and
reduce costs, we announced our intention to focus on company-wide overhead and
operating expense cost reduction activities, such as closing excess facilities
and reducing redundancies.  Integration expenses under this program to
date relate primarily to the integration of operations to our facilities in
Mexico, 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 three months ended March 31, 2010 related to this 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
                        
                        
                        407
                        
                        
                        
                        173
                        
                        
                        
                        580Cash
      payments
                        
                        
                        (653
                        )
                        
                        
                        (92
                        )
                        
                        
                        (745
                        )Exit
      activity liability at March 31,
      2010
                        
                        $
                        1,101
                        
                        
                        $
                        81
                        
                        
                        $
                        1,182





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 related to employee severance and
equipment relocation costs have been incurred.  As of March 31, 2010,
all such costs have been fully paid.


26





Workforce
                          Reduction
                        
                        
                        Other Exit
                          Costs
                        
                        
                        TotalExit
      activity liability at December 31, 2009
                        
                        $
                        532
                        
                        
                        $
                        —
                        
                        
                        $
                        532Integration
      costs:Amounts
      provided for during 2010
                        
                        
                        —
                        
                        
                        
                        27
                        
                        
                        
                        27Cash
      payments
                        
                        
                        (532
                        )
                        
                        
                        (27
                        )
                        
                        
                        (559
                        )Exit
      activity liability at March 31,
      2010
                        
                        $
                        —
                        
                        
                        $
                        —
                        
                        
                        $
                        —





Reynosa
Integration Program





During
2006 and 2007, we announced plans for the closure of our Long Island City, New
York and Puerto Rico manufacturing facilities and integration of operations in
Reynosa, Mexico.  In connection with the shutdown of the manufacturing
operations at Long Island City that was completed in March of 2008, we incurred
severance costs and costs associated with equipment removal, capital
expenditures, and environmental clean-up.  As of March 31, 2010, the
reserve balance related to environmental clean-up at Long Island Cityof
$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 March 31, 2010, the reserve balance related to the
pension withdrawal liability of $3.2 million is included in the workforce
reduction reserve.





Activity
for the three months ended March 31, 2010 related to this 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
                        
                        
                        46
                        
                        
                        
                        28
                        
                        
                        
                        74Cash
      payments
                        
                        
                        (70
                        )
                        
                        
                        (73
                        )
                        
                        
                        (143
                        )Exit
      activity liability at March 31,
      2010
                        
                        $
                        3,669
                        
                        
                        $
                        1,926
                        
                        
                        $
                        5,595





Integration
activity for the three months ended March 31, 2010 related to our aggregate
integration programs, by segment, 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
                        
                        
                        358
                        
                        
                        
                        323
                        
                        
                        
                        —
                        
                        
                        
                        681Cash
      payments
                        
                        
                        (1,220
                        )
                        
                        
                        (190
                        )
                        
                        
                        (37
                        )
                        
                        
                        (1,447
                        )Exit
      activity liability at March 31,
      2010
                        
                        $
                        6,155
                        
                        
                        $
                        497
                        
                        
                        $
                        125
                        
                        
                        $
                        6,777





Liquidity
and Capital Resources





Operating
Activities. During the first three months of 2010, cash used in
operations amounted to $17.4 million compared to cash provided by operations of
$18.5 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 accounts payable.


27





Investing
Activities.  Cash used in
investing activities was $1.2 million in the first three months of 2010,
compared to cash used in investing activities of $3.3 million in the same period
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.  In addition, we received proceeds of $0.9 million
from the sale of our Wilson, North Carolina building and the sale of the vacant
land at one of our locations in the U.K.  Investing activities in 2009
included a $6 million payment to complete our core sensor asset purchase
transaction agreed to in 2008 offset, in part, by a $4 million cash receipt in
connection with our joint venture divestiture.  Capital expenditures
in the first three months of 2010 were $3.1 million compared to $1.3 million in
the comparable period last year.





Financing
Activities. Cash
provided by financing activities was $22.4 million in the first three months of
2010, compared to cash used in financing activities of $10.1 million in the same
period of 2009.  The increase is primarily due to higher borrowings
and an increase in cash overdrafts compared to the same period of
2009.  Dividends of $1.1 million were paid in the first three 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
replaces 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 term loan
described below) and expires in March 2013. Direct borrowings under the restated
credit agreement bear interest at the LIBOR rate plus the applicable margin (as
defined), or floating at the index rate plus the applicable margin, at our
option. The interest rate may vary depending upon our borrowing availability.
The restated credit agreement is guaranteed by certain of our subsidiaries and
secured by certain of our assets.





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 $92.3 million
available for us to borrow pursuant to the formula at March 31, 2010. At
March 31,
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 term loan described below), which are classified as current
liabilities, were $75.7 million and $58.4 million at March 31, 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 March 31, 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. Beginning October 15, 2010 and on a monthly
basis thereafter, our borrowing availability will be reduced by approximately
$2.9 million for the repayment, repurchase or redemption of the aggregate
outstanding amount of our 15% convertible subordinated debentures and our 15%
unsecured promissory notes due April 15, 2011. Our restated credit agreement
also permits dividends and distributions by us provided specific conditions are
met.


28


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





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 March31, 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.  The 15% unsecured promissory notes will mature on April
15, 2011, carry an interest rate of 15%, payable semi-annually, are not
convertible into common stock and may be prepaid prior to
maturity.  The 15% unsecured promissory notes are subordinated in
right of payment to all of our existing and future senior
indebtedness.  Prepayments of the principal amount have 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 totaling $0.5 million.  As of
March 31, 2010, our remaining capital lease obligations totaled $0.4
million.  Assets held under capitalized leases are included in
property, plant and equipment and depreciated over the lives of the respective
leases or over their economic useful lives, whichever is less.





In order
to reduce our accounts receivable balances and improve our cash flow, we sold
undivided interests in certain of our receivables to financial institutions. We
entered these agreements at our discretion when we determined that the cost of
factoring was less than the cost of servicing our receivables with existing
debt. Pursuant to these agreements, we sold $82.2 million of receivables during
the three months ended March31,2010. 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 $1.2 million and $0.4 million related to the sale of
receivables is included in selling, general and administrative expense in our
consolidated statements of operations for the three months ended March 31, 2010
and 2009, respectively.





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.


29





The
following table summarizes our contractual commitments as of December 31, 2009
and expiration dates of commitments through 2028:





(in thousands)
                                                                                                                
                                                                                                                2010
                                                                                                                
                                                                                                                
                                                                                                                2011
                                                                                                                
                                                                                                                
                                                                                                                2012
                                                                                                                
                                                                                                                
                                                                                                                2013
                                                                                                                
                                                                                                                
                                                                                                                2014
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                2015-
                                                                                                                  2028
                                                                                                                
                                                                                                                
                                                                                                                TotalPrincipal
      payments of long term debt
                                                                                                                
                                                                                                                $
                                                                                                                ─
                                                                                                                
                                                                                                                
                                                                                                                $
                                                                                                                17,639
                                                                                                                
                                                                                                                
                                                                                                                $
                                                                                                                ─
                                                                                                                
                                                                                                                
                                                                                                                $
                                                                                                                ─
                                                                                                                
                                                                                                                
                                                                                                                $
                                                                                                                ─
                                                                                                                
                                                                                                                
                                                                                                                $
                                                                                                                ─
                                                                                                                
                                                                                                                
                                                                                                                $
                                                                                                                17,639Lease
      obligations
                                                                                                                
                                                                                                                
                                                                                                                8,928
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                7,685
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                5,979
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                5,905
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                5,187
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                9,879
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                43,563Post
      retirement benefits
                                                                                                                
                                                                                                                
                                                                                                                1,080
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                1,104
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                1,135
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                1,182
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                1,238
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                11,645
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                17,384Severance
      payments related to restructuring and integration
                                                                                                                
                                                                                                                
                                                                                                                4,097
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                920
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                751
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                652
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                530
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                3,876
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                10,826Total
      commitments
                                                                                                                
                                                                                                                $
                                                                                                                14,105
                                                                                                                
                                                                                                                
                                                                                                                $
                                                                                                                27,348
                                                                                                                
                                                                                                                
                                                                                                                $
                                                                                                                7,865
                                                                                                                
                                                                                                                
                                                                                                                $
                                                                                                                7,739
                                                                                                                
                                                                                                                
                                                                                                                $
                                                                                                                6,955
                                                                                                                
                                                                                                                
                                                                                                                $
                                                                                                                25,400
                                                                                                                
                                                                                                                
                                                                                                                $
                                                                                                                89,412





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 inNote 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.





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.


30





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 March 31, 2010, the allowance for sales returns was $26.3
million.  Similarly, we must make estimates of the uncollectability of
our accounts receivables. We specifically analyze accounts receivable and
analyze historical bad debts, customer concentrations, customer
credit-worthiness, current economic trends and changes in our customer payment
terms when evaluating the adequacy of the allowance for doubtful
accounts.  At March 31, 2010, the allowance for doubtful accounts and
for discounts was $7.7 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.





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 March
31, 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.


31





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





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





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





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





Intangible
and other long-lived assets are reviewed for impairment whenever events such as
product discontinuance, plant closures, product dispositions or other changes in
circumstances indicate that the carrying amount may not be recoverable. In
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.


32





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.





Asbestos
Reserve. We are responsible for certain future liabilities relating to
alleged exposure to asbestos-containing products. In accordance with our
accounting policy, our most recent actuarial study as of August 31, 2009
estimated an undiscounted liability for settlement payments, excluding legal
costs and any potential recovery from insurance carriers, ranging from $26.6
million to $66.3 million for the period through 2059. As a result, in September
2009 an incremental $2.2 million provision in our discontinued operation was
added to the asbestos accrual increasing the reserve to approximately $26.6
million as of that date. Based on the information contained in the actuarial
study and all other available information considered by us, we concluded that no
amount within the range of settlement payments was more likely than any other
and, therefore, recorded the low end of the range as the liability associated
with future settlement payments through 2059 in our consolidated financial
statements.  In addition, according to the updated study, legal costs,
which are expensed as incurred and reported in earnings (loss) from discontinued
operation, are estimated to range from $21.4 million to $42 million during the
same period.  We 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.




33




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
(measurements based on other observable inputs) inputs of the fair value
hierarchy.  There were no such transfers in the first three months of
2010.





Revenue Arrangements with Multiple
Deliverables





In
October 2009, the FASB issued ASU 2009-13which will update 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 andrequires 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.  We are currently evaluating the
impact this new standard will have on our financial
statements.


34





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 and the Hong Kong dollar. As of March
31, 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
81% at March 31, 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.


35





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 March 31, 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.


36


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 March 31, 2010, approximately 1,525 cases were outstanding for which we were
responsible for any related liabilities.  Since inception in September
2001 through March 31, 2010, the amounts paid for settled claims are
approximately $9.4 million. In September 2007, we entered into an agreement with
an insurance carrier to provide us with limited insurance coverage for the
defense and indemnity costs associated with certain asbestos-related claims. We
have submitted various asbestos-related claims for coverage under this
agreement, and received approximately $2.3 million in reimbursement for
settlement claims and defense costs.  We have submitted additional
asbestos-related claims to such insurance carrier for coverage.





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





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





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


37


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





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


38





ITEM
6.            EXHIBITS





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


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


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


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





SIGNATURES





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





STANDARD MOTOR PRODUCTS,
    INC.(Registrant)Date:
      May 6, 2010
              /s/ James J. BurkeJames
      J. BurkeVice
      President Finance,Chief
      Financial Officer(Principal
      Financial andAccounting
      Officer)


39




STANDARD
MOTOR PRODUCTS, INC.


EXHIBIT
INDEX




ExhibitNumber31.1
                    
                    Certification
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.31.2
                    
                    Certification
      of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.32.1
                    
                    Certification
      of Chief Executive Officer furnished pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.32.2
                    
                    Certification
      of Chief Financial Officer furnished pursuant to Section 906 of the
      Sarbanes-Oxley Act of
2002.


40